<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 3, 1997
REGISTRATION NO. 333-5577
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
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>
6256 GREENWICH DRIVE, SUITE 500
SAN DIEGO, CALIFORNIA 92122
(619) 453-2828
(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.
6256 GREENWICH DRIVE, SUITE 500
SAN DIEGO, CALIFORNIA 92122
(619) 453-2828
(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 COUNSEL MARK C. SMITH, ESQ.
701 "B" STREET, SUITE 2100 NEXTWAVE TELECOM INC. SKADDEN, ARPS, SLATE,
SAN DIEGO, CALIFORNIA 92101 6256 GREENWICH DRIVE, SUITE 500 MEAGHER & FLOM LLP
(619) 236-1234 SAN DIEGO, CALIFORNIA 92122 919 THIRD AVENUE
(619) 453-2828 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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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE REGISTRATION FEE(4)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Units(1)......................................................
Series B Common Stock, par value $.0001 per share(2)..........
Contingent Transfer Rights(2).................................
Series B Common Stock, par value $.0001 per share(3)..........
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</TABLE>
(1) Each consisting of one share of Series B Common Stock, par value $.0001 per
share, and one Contingent Transfer Right.
(2) Included in Units.
(3) Issuable upon exercise of Contingent Transfer Rights.
(4) $103,449 has been previously paid.
------------------------
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
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 FEBRUARY 3, 1997
PROSPECTUS
UNITS
LOGO
NEXTWAVE TELECOM INC.
SERIES B COMMON STOCK
CONTINGENT TRANSFER RIGHTS
------------------------
NextWave Telecom Inc. (the "Company") is offering units (the "Units"), each
of which consists of one share of Series B Common Stock, par value $0.0001 per
share, of the Company (the "Series B Common Stock") and one Contingent Transfer
Right (a "CTR"). The Series B Common Stock and the CTRs will be separately
transferable 90 days after the date of the original issuance, or such earlier
date as may be determined by Smith Barney Inc.
The common stock, par value $0.0001 per share, of the Company has been
designated into three series, consisting of Series A Common Stock, Series B
Common Stock and Series C Common Stock (collectively, the "Common Stock").
Following completion of the offering of Units (the "Equity Offering"), the
holders of the Series A Common Stock will control in excess of 25% 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 until the Termination
Date (as defined) (generally a period of up to 10 years) to elect a majority of
the Board of Directors of the Company and will have voting control of the
Company and all matters submitted for stockholder approval, with the exception
of certain extraordinary corporate actions which require approval of a majority
of the outstanding shares of Series B Common Stock and Series C Common Stock
voting together as a class. See "Risk Factors -- Control by Certain
Stockholders; Antidilution Provisions for Control Group and MCI" and
"Description of Capital Stock."
Each CTR will entitle the holder to receive from the Company under certain
circumstances a share (or fraction thereof) of Series B Common Stock based upon
the Average Fair Market Value (as defined) of the Series B Common Stock for the
60 trading day period (the "Valuation Period") ending on the fifth trading day
prior to , 2000 (the "CTR Expiration Date"). See "Description of
Contingent Transfer Rights."
Prior to the Equity Offering, there has not been a public market for the
Units, the Series B Common Stock or the CTRs. It is currently estimated that the
initial public offering price will be between $ and $ per Unit.
See "Underwriting" for information relating to the factors considered in
determining the initial public offering price. The Series B Common Stock has
been approved for listing on The Nasdaq National Market, subject to notice of
issuance. Application will be made to list the Units and the CTRs on The Nasdaq
National Market.
The Company is concurrently offering Senior Note Units consisting of $
million in gross proceeds of Senior Notes and Warrants to purchase
shares of Series B Common Stock (the "Senior Note Units") and Senior
Discount Note Units consisting of $ million in gross proceeds of Senior
Discount Notes and Warrants to purchase shares of Series B
Common Stock (the "Senior Discount Note Units") pursuant to a separate
prospectus (the "Debt Offering" and together with the Equity Offering, the
"Offerings"). Each of the Offerings is conditioned upon the other.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CAREFULLY CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
UNITS OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Per Unit $ $ $
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Total(3) $ $ $
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</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses estimated at $ , payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
additional Units, solely to cover over-allotments, if any. See
"Underwriting." If such option is exercised in full, the total Price to the
Public, Underwriting Discounts and Commissions and Proceeds to Company will
be $ , $ and $ , respectively.
------------------------
The Units are being offered by the several Underwriters named herein,
subject to prior sale, when, as and if accepted by them and subject to certain
conditions. It is expected that certificates for the Units offered hereby will
be available for delivery on or about , 1997 at the office of Smith
Barney Inc., 333 West 34th Street, New York, New York 10001.
------------------------
SMITH BARNEY INC. LEHMAN BROTHERS
BEAR, STEARNS & CO. INC.
PRUDENTIAL SECURITIES INCORPORATED
ING BARINGS
OPPENHEIMER & CO., INC.
------------------------
, 1997
<PAGE> 3
[SHADED MAP OF U.S. SHOWING COMPANY'S MARKETS APPEARS HERE]
<TABLE>
<CAPTION>
REGIONS ANCHOR CITIES POPS
- ------------------------------------ ---------------------------------------------------------------- ------------
<S> <C> <C>
Western............................. Los Angeles; San Francisco; San Diego; Sacramento; Las Vegas 28,324,552
New York Metro...................... New York City; Albany; New Haven 20,868,019
Midwest............................. Detroit; Cleveland-Akron; Pittsburgh; Cincinnati; Columbus;
Louisville; Indianapolis; Dayton 20,009,304
Mid-Atlantic........................ Washington, D.C.; Baltimore; Charlotte; Norfolk; Greensboro;
Richmond 16,452,851
Southwest........................... Dallas-Ft. Worth; Houston; San Antonio; Austin 15,441,001
Great Lakes......................... Chicago; Minneapolis-St. Paul; Milwaukee 14,336,451
Mid-America......................... St. Louis; Denver; Kansas City; Salt Lake City; Oklahoma City 12,029,134
Southeast........................... Atlanta; Tampa; Orlando; Jacksonville 11,238,259
Philadelphia........................ Philadelphia 10,120,196
New England......................... Boston; Providence 8,618,385
Northwest........................... Seattle-Tacoma; Portland 5,572,974
------------
163,011,126
==========
</TABLE>
For information regarding the Company's regions and the markets contained
therein, see "Business -- Bidding Strategy and Markets." The table above
reflects markets for which the Company has been awarded licenses by the FCC as
well as markets for which the Company was named the winning bidder in the FCC's
D, E and F-Block Auctions. The licenses for the D, E and F-Block Markets have
not been awarded by the FCC. See "Risk Factors -- Uncertainty of Final Awards of
Licenses from D, E and F-Block Auctions; Litigation."
------------------------
NextWave Telecom(TM) and TELE*Code(TM) are trademarks of the Company. MCI
One(TM) and Network MCI One(SM) are trademarks and service marks, respectively,
of MCI Telecommunications Corporation. Oracle(TM) is a trademark of Oracle
Corporation.
------------------------
IN CONNECTION WITH THE EQUITY OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE UNITS,
THE SERIES B COMMON STOCK AND THE CTRS AT LEVELS ABOVE THOSE 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> 4
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 an irrevocable election made by the holders
of a majority of the shares of Series A Common Stock, upon consummation of the
Equity Offering each share of Series A Common Stock (other than 3,000 shares)
will be converted into shares of Series B Common Stock and
shares of Series C Common Stock and, for purposes of this Prospectus, all shares
of Series A Common Stock (other than 3,000 shares) are assumed to be so
converted (the "Recapitalization"). Pursuant to the Company's Amended and
Restated Certificate of Incorporation, all other 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 Equity Offering and, for purposes of
this Prospectus, all such other rights to acquire shares of Series C Common
Stock are assumed to be converted into rights to acquire shares of Series B
Common Stock. 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. As used in this Prospectus,
unless the context otherwise requires, "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 1996 estimated U.S. population data prepared by Equifax
Marketing Decision Systems, Inc. See "Glossary of Selected Terms" for
definitions of certain terms used in this Prospectus.
THE COMPANY
NextWave Telecom Inc. ("NextWave") was formed in May 1995 to build and
operate Personal Communications Services ("PCS") networks. In January 1997,
NextWave was granted PCS licenses representing approximately 110 million POPs
with respect to 63 Basic Trading Areas ("BTAs") pursuant to the C-Block Auctions
held by the Federal Communications Commission ("FCC"). Upon final award of the
licenses pursuant to the FCC's D, E and F-Block Auctions which were completed in
January 1997, in which the Company was declared the winning bidder by the FCC
for 32 BTAs representing approximately 53 million POPs, NextWave's wireless
national geographic coverage ("footprint") will cover approximately 163 million
POPs in 95 BTAs (collectively the "Markets"). As a result, NextWave believes it
has the third largest number of licensed POPs among cellular and PCS licensees
in the United States after AT&T Wireless Services ("AT&T") and Sprint PCS
("Sprint"). NextWave's aggregate FCC license cost is approximately $4.9 billion.
NextWave intends to operate as a carriers' carrier, building and operating
digital networks utilizing Code Division Multiple Access ("CDMA") technology
through which the Company will provide advanced wireless communications services
to a broad range of customers. The Company has entered into agreements with a
variety of communications providers, including an agreement with MCI
Telecommunications Corporation ("MCI"), pursuant to which MCI has agreed,
subject to certain conditions, to purchase a minimum of 10 billion minutes of
use ("MOUs") over a 10-year term. The Company has raised an aggregate of
approximately $600 million in private capital from over 70 major consumer
electronics and network equipment manufacturers, telecommunications service
providers, financial institutions and others to finance the acquisition of its
PCS licenses and has received over $1.4 billion in vendor financing commitments
to commence the build-out of its PCS network.
NextWave believes that its Markets are among the most attractive markets in
the United States with some of the most densely populated cities, including New
York, Los Angeles, Chicago, Philadelphia, San Francisco, Boston, Washington,
D.C., Dallas, Houston and Detroit. Inclusive of its D, E, and F-Block licenses,
the Company will hold PCS licenses in each of the 10 most populous BTAs, 28 of
the top 30 BTAs and 40 of the top 50 BTAs. The Markets are also generally
characterized by demographics that would suggest higher than average use of
wireless telephony, including high disposable income levels, long average
commute times and significant percentages of dual household wage earners. The
Company believes that the high average population density characterized by
NextWave's Markets should lead to a lower average capital requirement
3
<PAGE> 5
associated with network deployment relative to competitors that may be awarded
licenses covering less densely populated markets. See "Business -- Bidding
Strategy and Markets."
The Company believes the demand for wireless telecommunications will
continue to grow and that PCS will capture a significant share of the wireless
market. Currently, wireless subscriber penetration in the United States is
estimated to be 14% and, according to Paul Kagan Associates, Inc., is expected
to be approximately 54% 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 represented approximately 1%
of total telecommunications traffic. The Company believes that demand for
wireless service is highly elastic and that the anticipated lower cost and
higher quality of PCS service will stimulate further growth in the wireless
market.
The Company has targeted several categories of customers, including long
distance companies, local exchange carriers ("LECs"), competitive local exchange
carriers ("CLECs"), 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 NextWave, 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. Additionally, customers will retain telephone number ownership and
receive favorable interconnection provisions, both of which are essential to
facilitate the integration of wireless services purchased from NextWave with
their existing platforms to provide seamless services to their customers.
In August 1996, the Company entered into an Airtime Sale Agreement with MCI
(the "MCI Agreement"), pursuant to which MCI has agreed to purchase a minimum of
10 billion MOUs from the Company over the 10-year term, subject to certain
conditions. Under the MCI Agreement, the Company will provide MCI with Full
Mobility Services (mobile wireless service) and Area-Based Services (wireless
local loop). The interconnection of the Company's network with MCI's intelligent
network will enable MCI to integrate or bundle wireless services with other MCI
communications services, such as long distance, local exchange and paging, as
well as other features offered through MCI's intelligent services platform. In
connection with the MCI Agreement, the Company granted MCI warrants to purchase
shares of Series B Common Stock representing up to 12% of the Company's Common
Stock on a Fully-Diluted Basis (as defined in the Warrant Agreement between the
Company and MCI (the "MCI Warrant Agreement")) and has agreed to grant MCI
additional warrants upon MCI's exceeding certain MOU purchase milestones, up to
an aggregate of 25% of the Company's Common Stock on a Fully-Diluted Basis. See
"Description of Capital Stock -- Other Options, Warrants and Convertible
Debt -- MCI Warrants" and "Business -- MCI Agreement."
BUSINESS STRATEGY
NextWave intends to build and operate digital networks through which the
Company will provide advanced wireless communications services. The principal
components of the Company's business strategy are:
- - OPERATE AS A CARRIERS' CARRIER. By operating as a wholesaler, NextWave will
not market directly to consumers, but instead plans to sell MOUs on its
networks to branded wireless service providers, which in turn will sell to
consumers. Thus, NextWave's wholesale penetration of the wireless market will
equal the aggregate airtime purchases from NextWave by multiple branded
retailers. By leveraging the marketing and distribution resources of branded
wireless service providers, NextWave will not have to incur the significant
upfront costs associated with marketing, sales and the establishment of a
consumer brand name. The Company believes that its carriers' carrier strategy
will be attractive to a broad range of potential customers for several
reasons, including:
Minimal Network Capital Costs. Through reselling NextWave's MOUs, the
Company's customers will not be required to purchase licenses or make the
capital investments in network infrastructure equipment required to establish
a digital wireless network.
4
<PAGE> 6
Economies of Scale. The Company believes its customers will be able to
take advantage of the benefits of scale which the Company believes are
inherent in its high volume operating strategy.
Provision of Seamless Network Services. NextWave intends to design its
digital wireless network architecture to allow PCS service providers to
interconnect their networks and existing platforms with the Company's network
and offer seamless service interfaces to their customers. In this
configuration, PCS service providers will be able to retain control over
customer information while providing uniform features and services throughout
their markets.
Leverage Branding and Distribution. By removing the need to build and
operate wireless networks, NextWave will enable its customers to focus their
resources on branding, distribution, billing and customer service. The Company
believes that this will enable and encourage potential wireless resellers with
strong marketing skills and existing customer bases to profitably enter the
wireless resale business where they were previously discouraged by
insufficient margins and the inability to integrate wireless services with
their existing platforms and operations.
NextWave is a Supplier, not a Competitor. NextWave's carriers' carrier
strategy affords its customers the opportunity to purchase services from a
network provider that is not a direct competitor in the branded retail market.
Given the required strategic and financial commitment associated with
interconnection and integration of wireless services, the Company believes
this will be an important distinction between NextWave and its competitors.
Facilitate Integrated, Bundled Service Offerings. The Company intends to
design its digital wireless network architecture to enable its customers to
easily add wireless services to integrated product offerings. The Company
believes that the movement among major branded providers, such as MCI, Sprint
and AT&T, to integrate and bundle their services will accelerate the trend
toward greater product integration and potentially reduce overall churn for
those customers that purchase integrated services.
- - ESTABLISH NATIONAL NETWORK. NextWave believes that its 163 million POPs will
represent the third largest number of licensed POPs among cellular and PCS
licensees in the United States. NextWave's licensed POPs, together with POPs
in BTAs for which the Company was the winning bidder in the D, E and F-Block
Auctions, represent over 65% of the U.S. population. The Company believes that
the breadth of its footprint and the demographics of its Markets enhance its
attractiveness to potential PCS service providers and will reduce expensive
out-of-region roaming charges. Additionally, NextWave intends to selectively
expand its footprint through strategic alliances or resale agreements with
other wireless service providers wherever needed.
- - PROVIDE LOW COST MOUS. 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. By focusing on BTAs with above average population
densities, the Company believes it will incur lower capital expenditures per
POP than those carriers which intend to serve less densely populated areas.
Additionally, the Company intends to (i) implement CDMA technology, which is
expected to require fewer cell sites for a given geographic coverage area than
alternative digital technologies; (ii) organize its Markets into geographic
regions, which the Company believes will result in operational efficiencies
and economies of scale; (iii) perform a significant portion of its own network
engineering and design rather than rely entirely on equipment suppliers to
design its networks; and (iv) sell MOUs to wireless service providers rather
than directly to end-users, significantly reducing the Company's marketing
expenses. NextWave expects its high volume strategy will provide for increased
capacity utilization and customer penetration which should reduce the
Company's average cost per MOU.
- - LEVERAGE TECHNICAL EXPERTISE. The Company has built 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, was integral to the development of CDMA technology and
the adoption by the Telecommunications Industry Association of CDMA as an
international standard (IS-95) while serving as President of the Wireless
Telecommunications Division and Chief Strategic Officer of QUALCOMM
Incorporated ("QUALCOMM"), a leading wireless equipment company. Other members
5
<PAGE> 7
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 a high quality, low cost digital wireless
network; (ii) incorporate advances in wireless technology in the Company's
networks as appropriate; and (iii) capitalize on emerging trends and
opportunities in the wireless industry by developing new products and services
at a lower cost than if purchased entirely from third-party vendors.
- - OFFER VALUE-ADDED PRODUCTS AND SERVICES. The Company intends to offer
value-added products and services such as wireless local loop services and
wireless PBX applications. The Company believes its networks will also support
advanced wireless services including caller ID, over-the-air activation, short
message services, circuit-switched and packet data, facsimile, integrated
voice mail and paging, call answering and handset-based Internet access. The
Company also plans to develop and market other wireless services, either on
its own or in partnership with other companies, including PCS service
providers. Some of these value-added products and services are under
development by the Company or the manufacturers of CDMA infrastructure
equipment. There can be no assurance if and when such products and services
may be available for sale by the Company.
NETWORK BUILD-OUT
General. The Company intends to launch commercial service in several key
Markets in 1997. The initial Markets that are expected to commence service
include Boston, San Diego, Orlando and San Antonio. The New York City, Los
Angeles, Washington, D.C./Baltimore, and Houston Markets are scheduled to follow
with commercial service anticipated in early 1998. The Company plans to continue
to bring additional Markets into service during 1998, with the majority of
C-Block Markets in service by the end of 1998. The Company intends to commence
service in selected D, E and F-Block Markets within one year of the award of its
licenses. Under its network build-out plan, the Company currently anticipates
that it will complete the build-out of its Markets by the end of 2000, at which
time the Company anticipates that 80% of its licensed POPs will be served.
Unlike many other PCS operators, NextWave will perform a substantial portion of
its own network design and systems engineering, rather than relying
predominantly on equipment vendors to provide such services.
Deployment Status. NextWave has organized its Markets into 11 geographic
regions, which the Company believes will result in operational efficiencies,
lead to lower infrastructure costs and facilitate the network build-out. In
eight of its 11 regions, the Company has assembled deployment teams which are in
the process of selecting and acquiring cell sites and designing the networks.
The Company has completed its radio engineering plans for deployment of CDMA
systems in its New York City, Los Angeles, Boston, Washington, D.C./Baltimore,
Houston, Orlando, San Diego and San Antonio Markets. The Company has also
installed and operated CDMA demonstration systems in its San Diego and
Washington, D.C./Baltimore Markets.
CDMA Technology. The Company has selected CDMA technology as the air
interface protocol for use in its digital wireless networks. PCS service
providers holding licenses covering over 99% of the United States population
have announced an intent to use CDMA technology. Accordingly, CDMA is expected
to be the most widely adopted PCS technology in the United States. 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 than traditional analog cellular services. 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 offer other
CDMA service providers roaming capabilities on the Company's network nationwide,
which should increase the functionality and the marketability of the Company's
MOUs.
Equipment Availability. There are approximately 40 companies worldwide
that are licensed to manufacture and supply CDMA equipment, including Fujitsu
Limited, LG Information and Communications, Ltd. ("LGIC"), Hughes Network
Systems, Inc. ("Hughes"), Lucent Technologies, Inc. ("Lucent"), Motorola Inc.
("Motorola"), Northern Telecom, Inc. ("NorTel"), QUALCOMM, Samsung Electronics
Co., LTD. ("Samsung") and SONY Electronics Inc. ("SONY"). The Company expects to
purchase equipment from
6
<PAGE> 8
multiple vendors. For additional information regarding the Company's network
build-out, see "Business -- Network Build-Out," "-- CDMA Technology" and
"-- Equipment Vendors."
Vendor Financing. NextWave has received financing commitments from a
number of network equipment vendors, including LGIC, Comdisco, Inc.
("Comdisco"), Hughes, Lucent and The Allen Group Inc. ("The Allen Group"). In
the aggregate, these commitments contemplate over $1.4 billion of vendor
financing to the Company, of which up to $1.25 billion could be available to the
Company in 1997. The following table sets forth these vendor financing
commitments:
<TABLE>
<CAPTION>
VENDOR
---------------------------------------------------------- FINANCING COMMITMENT
--------------------
(IN MILLIONS)
<S> <C>
LGIC...................................................... $ 700.0
Comdisco.................................................. 250.0
Hughes.................................................... 245.0
Lucent.................................................... 200.0
The Allen Group........................................... 50.0
-------
Total........................................... $1,445.0
=======
</TABLE>
The Company is also in active discussions with several other vendors for
equipment financing and supply agreements. These financing commitments are
subject to certain conditions, including, among others, the execution and
delivery of definitive documentation. See "Business -- Equipment Vendors."
FCC Requirements. The FCC requires that all C-Block PCS licensees
construct facilities that offer coverage to at least one-third of the population
in their service area within five years from the date of license grant and
two-thirds of the population within 10 years. The FCC requires that all D, E,
and F-Block PCS licensees, including the Company, construct facilities that
offer coverage to at least one-quarter of the population in their service area
within five years from the date of license grant and one-half of the population
within 10 years. See "Risk Factors -- PCS System Implementation and Operation
Risks."
HOLDING COMPANY STRUCTURE
The Company is a holding company with limited assets of its own, and upon
commencement of its operations, the Company will conduct its business through
its various subsidiaries. The Company currently has five wholly-owned
subsidiaries. NextWave Personal Communications Inc. ("NextWave PCI") was formed
to acquire PCS licenses in the FCC's C-Block Auctions. NextWave Power Partners
Inc. ("NextWave Power Partners") was formed to acquire PCS licenses in the FCC's
D, E and F-Block Auctions. NextWave Partners Inc. ("NextWave Partners")
currently owns NextWave's interest in NextWave Power Partners. TELE*Code Inc.
("TELE*Code") was formed to develop CDMA-based products and provide engineering
services to the Company and others. NextWave Wireless Inc. ("NextWave Wireless")
was formed to act as an operating company and will form 11 direct, wholly-owned
subsidiaries, each of which will hold the assets used to operate the PCS network
in one operating region (a "RegionalSub"), and 11 additional direct,
wholly-owned subsidiaries, each of which will hold the PCS licenses for one
operating region (a "LicenseSub"). See "Risk Factors -- Holding Company
Structure."
FINANCING PLAN
The Company estimates that the aggregate funds required for the
acquisition, development, construction and deployment of PCS networks in its
Markets through December 31, 1997 will total approximately $1.1 billion. This
figure consists of (i) approximately $700 million for capital expenditures; (ii)
approximately $240 million in debt service requirements; (iii) approximately
$100 million to fund operating losses and for working capital needs; and (iv)
approximately $17 million for the acquisition of its D, E and F-Block licenses.
These amounts do not include certain repayments of debt which will be paid upon
consummation of the Offerings. See "Use of Proceeds." In addition, in
conjunction with the award of its licenses, the Company has incurred
7
<PAGE> 9
indebtedness to the U.S. Government for the balance due for its C and F-Block
licenses (the "U.S. Government Financing"). See "Certain Indebtedness."
The Company expects to raise approximately $ million from the Equity
Offering hereby. In addition, the Company intends to raise approximately $
million in gross proceeds from the Debt Offering (including approximately $
million which will be held in escrow to pre-fund interest payments on the Senior
Notes for three years). Each of the Offerings will be contingent upon the
completion of the other.
The estimated net proceeds from the Offerings, together with the expected
proceeds from committed vendor financings, are expected to meet the Company's
funding requirements through the first quarter of 1998, at which time the
Company intends to have its initial Markets operational. In order to finance the
Company's operations, working capital and debt service through 2000, the Company
will require approximately an additional $ in public or private debt
and equity financings. These financings will be required, in part, to service
the interest requirements of the Debt Offering after three years from the
completion of the Debt Offering and the U.S. Government Financing and vendor
financing.
Actual amounts of the funds required may vary materially from these
estimates and additional funds would be required in the event of significant
negative departures from the current business plan, unforeseen delays or
expenses, regulatory changes, engineering design changes and other technical
risks.
NextWave was incorporated in Delaware in May 1995, its principal executive
offices are located at 6256 Greenwich Drive, Suite 500, San Diego, California,
92122 and its telephone number is (619) 453-2828.
8
<PAGE> 10
THE EQUITY OFFERING
Units Offered Hereby....... Units, each consisting of one share of
Series B Common Stock and one CTR.
Common Stock to be
Outstanding after the Stock
Offering:
Series A Common
Stock...................... 3,000 shares
Series B Common
Stock...................... shares(1)
Series C Common
Stock...................... shares(2)
Voting Rights.............. The Series B Common Stock included in the Units
offered hereby has limited voting rights. Pursuant
to the Company's Amended and Restated Certificate
of Incorporation, in compliance with the FCC
"Control Group" requirements, until 10 years after
the last date upon which any of 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
and Series C Common Stock have the right, voting
together 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 and Series
C Common Stock, voting together as a class, is
required for certain actions by the Company,
including certain amendments to the Company's
Amended and Restated Certificate of Incorporation
or Restated By-Laws, 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 and Series C
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. ("Navation"), 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."
- ------------
(1) Excludes shares of Series B Common Stock issuable upon exercise or
conversion of outstanding stock options, warrants and convertible debt of
the Company, including warrants heretofore issued to MCI. Also excludes (i)
shares of Series B Common Stock issuable upon exercise of the
warrants offered in the Debt Offering; (ii) shares of Series B
Common Stock issuable upon exercise of warrants to be issued to MCI at the
closing of the Equity Offering or shortly thereafter; (iii) certain warrants
to purchase Series B Common Stock which will be issued (A) to MCI from time
to time to preserve the aggregate percentage of the outstanding shares of
the Company's Common Stock (up to 12% as of or shortly after consummation of
the Equity Offering), on a Fully-Diluted Basis, in respect of which warrants
have been issued to MCI, (B) to MCI if it achieves certain MOU purchase
milestones, pursuant to which MCI's rights to acquire Common Stock of the
Company could increase to up to a maximum of 25% of the outstanding shares
of the Company's Common Stock, on a Fully-Diluted Basis, in respect of which
warrants (inclusive of warrants previously issued to MCI) will have been
issued to MCI, and (C) to certain of the Company's founders upon certain
issuances of additional Series B Common Stock or securities issuable or
convertible into Series B Common Stock; and (iv) a maximum of shares
of Series B Common Stock issuable to holders of the CTRs. See "Description
of Capital Stock -- Other Options, Warrants and Convertible Debt."
(2) Pursuant to the Company's Amended and Restated Certificate of Incorporation,
the Series C Common Stock will be mandatorily redeemable by the Company if
and to the extent shares of Series B Common Stock are required to be issued
in settlement of the CTRs, at a redemption price of $.0001 per share of
Series C Common Stock. To the extent the Underwriters' over-allotment option
is not exercised, an equivalent number of shares of Series C Common Stock
will be automatically converted into Series B Common Stock. See "Description
of Capital Stock -- Common Stock -- Series C Common Stock."
9
<PAGE> 11
Terms of CTRs
CTR Expiration Date... , 2000 (the date that is three and
one-half years after the closing of the Equity
Offering).
CTR Settlement........ Each CTR will entitle the holder to receive from
the Company on the CTR Expiration Date a share (or
fraction thereof) of Series B Common Stock as
follows. If the Average Fair Market Value of the
Series B Common Stock during the Valuation Period
is:
1. Less than $ , each CTR will entitle the
holder to receive one share of Series B Common
Stock;
2. Equal to or greater than $ , no payment will
be made with respect to the CTRs; or
3. Equal to or greater than $ and less than
$ , each CTR will entitle the holder to
receive a fraction of a share of Series B Common
Stock determined by dividing (A) $
minus the Average Fair Market Value of the
Series B Common Stock during the Valuation
Period by (B) the Average Fair Market Value of
the Series B Common Stock during the Valuation
Period.
Early Expiration...... The CTRs are subject to expiration prior to the CTR
Expiration Date if, after 18 months from the
closing of the Equity Offering, the closing price
per share of the Series B Common Stock is in excess
of $ for 30 of any 60 consecutive trading days
prior to the CTR Expiration Date.
Cancellation of
Control Group Shares
upon CTR
Settlement... Pursuant to an Escrow Agreement to be entered into
by the holders of the Series C Common Stock,
(the "CTR Agent") and the
Company (the "CTR Escrow Agreement"), the holders
of the Series C Common Stock will transfer to the
CTR Agent the Series C Common Stock. The Escrow
Agreement will provide that the CTR Agent will hold
the shares of Series C Common Stock so received in
accordance with and pursuant to the terms of the
Escrow Agreement. Pursuant to the Company's Amended
and Restated Certificate of Incorporation, the
Series C Common Stock will be mandatorily
redeemable by the Company if and to the extent
shares of Series B Common Stock are required to be
issued in settlement of the CTRs, at a redemption
price of $.0001 per share of Series C Common Stock.
In such event, the Amended and Restated Certificate
of Incorporation will provide that the Company will
redeem a number of shares of Series C Common Stock
equal to the number of shares of Series B Common
Stock issued in settlement of the CTRs. To the
extent shares of Series C Common Stock remain
outstanding following settlement or early
termination of the CTRs, the CTR Agent will release
such shares of Series C Common Stock to the
registered holders thereof and each share will
automatically convert into a share of Series B
Common Stock, subject to adjustment.
Delivery of Shares to
CTR Holders....... The shares of Series B Common Stock to which
holders of CTRs are entitled will be delivered to
such holders by the Company within 30 business days
of the CTR Expiration Date.
10
<PAGE> 12
CTR Separation
from Units........ The CTRs and the shares of Series B Common Stock
included in the Units will become detachable and
separately tradeable 90 days after the Equity
Offering, or such earlier date as may be determined
by Smith Barney Inc.
Amended Series A
Shareholders
Agreement......... As a condition to the consummation of the Equity
Offering, the holders of the Series A Common Stock
will amend the Amended and Restated Series A
Shareholders Agreement dated as of November 15,
1995, by and among the Company and the holders of
Series A Common Stock to provide that the terms and
conditions thereof will apply to the shares of
Series B Common Stock and shares of Series C Common
Stock, if any, to be issued to such holders in the
Recapitalization to be effected prior to the
consummation of the Offerings (as amended, the
"Amended Series A Shareholders Agreement"). Under
the Amended Series A Shareholders Agreement, the
holders of Series A Common Stock will be restricted
from transferring their shares of Series A Common
Stock, Series B Common Stock and Series C Common
Stock until the later of (i) three years from the
last date when the FCC issues a C or F-Block
license to the Company (the "License Grant Date")
or such longer period as may be required to comply
with the FCC's rules and regulations or (ii) the
trading day following the CTR Expiration Date. The
CTR Agreement will provide that the Company will
enforce all of the Company's rights under the
Amended Series A Shareholders Agreement and will
not give to any other party thereto a waiver of any
of its obligations thereunder or excuse any breach
by such other party of any such obligation
thereunder. For a description of the terms of the
Amended Series A Shareholders Agreement, see
"Principal Stockholders."
Use of Proceeds............ The net proceeds to the Company from the Offerings
are expected to be approximately $ million (net
of the escrow pre-funding requirements with respect
to the Senior Notes). 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, such as site planning
and acquisition, system design, and planning for
and implementing relocation of incumbent fixed
microwave licensees. A portion of the net proceeds
of the Offerings also will be used to repay a $25
million promissory note. In addition, approximately
$37 million of the net proceeds from the Offerings
will be used to redeem a portion of the Company's
Convertible Senior Subordinated Notes due 2002 (the
"Bridge Notes"). The remainder of the net proceeds
from the Offerings 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, including working capital. See "Use of
Proceeds."
NASDAQ National Market
Symbols
Units....................
Series B Common Stock.... SURF
CTRs.....................
11
<PAGE> 13
CONCURRENT DEBT OFFERING
Concurrent with the Equity Offering, the Company is offering Senior Note
Units (consisting of $
million gross proceeds of % Senior Notes and Warrants to purchase
shares of Series B Common Stock) and Senior Discount Note Units (consisting
of $ million gross proceeds of % Senior Discount Notes and
Warrants to purchase shares of Series B Common Stock). The Company will
place approximately $ million of the net proceeds from the sale of the
Senior Notes, representing funds that together with the proceeds from the
investment thereof will be sufficient to pay three years' interest on the Senior
Notes, into an escrow account to be held by an escrow agent for the benefit of
the holders of the Senior Notes. Under the terms of the indentures
(collectively, the "Indentures") relating to the Senior Notes and the Senior
Discount Notes (collectively, the "Notes"), the Company generally may not pay
any dividend or make any distribution on its Common Stock unless and until the
Company meets certain requirements that the Company does not expect to meet in
the foreseeable future. The Indentures also contain covenants relating to
preservation of the Company's assets, limitations on the scope of the Company's
business, limitations on debt incurrence, limitations on mergers, consolidations
and sales of assets of the Company and restrictions on transactions with
affiliates. Each of the Offerings is conditioned upon the completion of the
other.
12
<PAGE> 14
RISK FACTORS
Prospective purchasers of the Units should carefully consider all of the
information contained in this Prospectus before making an investment in the
Units. In particular, prospective purchasers should evaluate the factors set
forth herein under "Risk Factors." These risk factors include, among others, the
fact that the Company is in its development stage and is expected to realize
significant operating losses in its initial stages of operation; that it will be
highly leveraged; that it will require significant additional capital to
complete its network build-out beyond the first quarter of 1998; that although
it has been granted its C-Block PCS licenses from the FCC, such grants are
conditioned upon the Company's satisfying the FCC's foreign ownership
requirements by July 3, 1997, and may be subject to further appellate challenge;
that it is subject to numerous risks associated with the construction and
implementation of its PCS networks; that the Company's wholesale distribution
strategy will likely cause it to be dependent on a limited number of major
customers; and that the initial award and final granting by the FCC of the
Company's D, E and F-Block licenses are subject to completion of the license
application process. For a discussion of these and other risks, see "Risk
Factors."
13
<PAGE> 15
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following data for the period from May 16, 1995 (inception) to December
31, 1995 and the nine months ended September 30, 1996 have been derived from the
Company's audited consolidated financial statements, including the consolidated
balance sheets at December 31, 1995 and September 30, 1996 and the related
consolidated statements of operations and of cash flows for the period from May
16, 1995 to December 31, 1995 and the nine months ended September 30, 1996
appearing elsewhere in this Prospectus. The summary consolidated financial data
as of and for the nine months ended September 30, 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 NINE MONTHS
DECEMBER 31, 1995 ENDED SEPTEMBER 30, 1996
------------------- ------------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Consulting revenues.............................. $ 173 $ 1,958
Total operating expenses......................... 1,753 14,826
-------- --------
Operating loss................................... (1,580) (12,868)
Other expenses................................... -- (738)
Interest expense, net............................ (314) (995)
-------- --------
Net loss......................................... $ (1,894) $(14,601)
======== ========
PRO FORMA(1):
Net loss per share............................... $ $
Shares used in computing net loss per share......
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
AS OF --------------------------------------------
DECEMBER 31, PRO FORMA
1995 ACTUAL PRO FORMA(2) AS ADJUSTED
------------ ---------- -------------- --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).................. $(75,212) $ (46,564) $ (150,169)
Total assets............................... 84,834 451,110 3,388,119
Total U.S. Government Financing............ -- -- 2,799,013
Senior Notes............................... -- -- --
Senior Discount Notes...................... -- -- --
Other long term debt....................... 24 130,845 130,845
Series C Common Stock, mandatorily
redeemable.............................. -- -- --
Total stockholders' equity................. 5,006 246,123 271,449
</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 pro forma net loss per share.
(2) The Pro Forma column reflects the effect on the Company's financial position
of: (i) the October 1996 to January 1997 issuances of $69,670 aggregate
principal amount of convertible notes; (ii) the October 1996 to January 1997
issuances of 3,730,000 shares of Series B Common Stock for $18,650; (iii)
the November 1996 to January 1997 receipt of loans in the amount of $43,000
from holders of Series B Common Stock; (iv) the grant of and downpayments on
the FCC C, D, E and F-Block licenses, including the capitalization as an
intangible asset of these licenses and the related long term debt payable to
the FCC for an aggregate purchase price of $4,872,620, net of the aggregate
downpayments of $504,785, and as adjusted to reflect the fair value of the
debt of $2,799,013; and (v) the issuances of warrants to purchase shares of
Series B Common Stock to an equipment vendor and MCI. See Unaudited Note 12
of Notes to Consolidated Financial Statements and "Capitalization."
14
<PAGE> 16
RISK FACTORS
Prior to making an investment in the Units, prospective purchasers should
carefully consider all of the information contained in this Prospectus and, in
particular, should evaluate the following risk factors. Such risks,
uncertainties and other factors include 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 in this
Prospectus, 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 of 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 September 30, 1996
of approximately $16.5 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. 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 network 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
and CTRs may, as a result, have little or no value. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
SUBSTANTIAL DEBT OBLIGATIONS TO THE U.S. GOVERNMENT; IMPLICATIONS OF ACCOUNTING
TREATMENT
The Company's debt obligations to the U.S. Government for its C-Block PCS
licenses are approximately $4.3 billion. Although the Company's debt obligations
to the U.S. Government will be recorded on the Company's consolidated financial
statements at their estimated fair market value of $2.7 billion, the amount that
would be owed to the U.S. Government if such debt obligations were declared
immediately due and payable would be $4.3 billion plus accrued interest. As a
result, the Company will incur average annual interest charges of approximately
$153.9 million during the 10-year term of the debt related to this debt
discount. The Company will also incur non-cash annual amortization expenses of
$80.1 million related to the capitalized license costs during the 40-year
estimated useful lives of the licenses, assuming the Company receives three
10-year renewals of the terms of the licenses from the FCC. Pursuant to the
FCC's installment payment plan, the Company will execute a note and security
agreement to the U.S. Government, creating a first priority security interest in
favor of the FCC in the licenses (and the proceeds of any sale thereof).
Correspondingly, the Company is required to make cash interest expense payments
payable quarterly
15
<PAGE> 17
of approximately $69.4 million. The Company will be required to make quarterly
payments of interest only for the first six years of the license term and
payments of interest and principal over the remaining four years of the license
term.
In January 1997, NextWave Power Partners was named the winning bidder for
32 BTAs in the D, E and F-Block Auctions with net bids totalling $129 million.
The Company has made a downpayment of $13.5 million for those licenses. Upon
final grant, the Company will be required to make a final downpayment of $16.9
million and will finance the remaining $98.6 million with the U.S. Government
with respect to its F-Block licenses, which will be recorded on the Company's
consolidated financial statements at their estimated fair market value of $68.6
million. As a result, the Company will incur average annual interest charges of
$3 million during the 10-year term of the debt related to this debt discount.
The Company will also incur non-cash annual amortization expense of $2.5 million
related to the capitalized license costs during the 40-year estimated useful
lives of the licenses, assuming the Company receives three 10-year renewals of
the term of the licenses from the FCC. Pursuant to the FCC's installment payment
plan, the Company will execute a note and security agreement to the U.S.
Government, creating a first priority security interest in favor of the FCC in
the licenses (and the proceeds of any sale thereof). The Company will be
required to make cash interest expense payments payable quarterly of
approximately $1.6 million for the first two years of the license term and
payments of interest and principal over the remaining eight years of the license
term.
While the Company does not anticipate defaulting on any required payment on
the debt obligations to the U.S. Government, in the event the Company were
unable to meet any of its installment payment obligations, the FCC will
entertain a request for a three to six month grace period before the FCC takes
any remedial actions. In the event that the grace period expires and the Company
becomes unable to meet its obligations to the U.S. Government or otherwise
violates regulations applicable to holders of FCC licenses, the licenses will be
automatically cancelled and the FCC will initiate debt collection procedures,
and possibly fine the Company an amount equal to the difference between the
price at which the Company acquired the licenses and the amount of the winning
bid at their reauction (if lower than the Company's winning bid), plus an
additional penalty of 3% of the lesser of the subsequent winning bid or the
Company's bid amount. There can be no assurance that the Company will be able to
meet its debt obligations to the U.S. Government, or, if it fails to meet such
obligations, that the FCC will not require immediate repayment of all amounts
due under the U.S. Government Financing or revoke the Company's C-Block or, as
applicable D, E or F-Block licenses. In either such event, the Company may be
unable to meet its obligations to other creditors, including holders of the
Senior Notes Units and Senior Discount Notes Units.
In addition, there can be no assurance that if the U.S. Government
Financing of the Company's PCS licenses were reflected at its face value of $4.4
billion, the Company's pro forma total debt (as adjusted for the Offerings)
would not exceed the total "enterprise value" of the Company implied by the
initial public offering price of the Units attributable to the Series B Common
Stock (as determined by adding the market value of the Series B Common Stock,
the market value of the debt obligations to the U.S. Government and the gross
proceeds from the Debt Offering). See "-- Ability to Service Debt; Substantial
Leverage; Restrictive Covenants" and "Regulation of the Wireless
Telecommunications Industry."
ABILITY TO SERVICE DEBT; SUBSTANTIAL LEVERAGE; RESTRICTIVE COVENANTS
The Company's leverage is substantial in relation to its equity. As of
September 30, 1996, on a pro forma basis after giving effect to the Offerings
and the debt obligations to the U.S. Government incurred in connection with the
award of the Company's C-Block and F-Block PCS licenses, the Company's total
indebtedness would have been $ billion ($ billion at face value) and its
stockholders' equity would have been $ million. On a pro forma basis after
giving effect to the Offerings, the Company's deficiency of earnings before
fixed charges to fixed charges for the nine months ended September 30, 1996
would have been $ million. In addition, NextWave has entered into a number
of vendor financing commitments totalling over $1.4 billion to finance the
purchase of PCS infrastructure equipment. See "Business -- Equipment Vendors."
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 Debt Offering, and the Company will be subject to significant
financial restrictions and limitations.
16
<PAGE> 18
Furthermore, the Indentures and the agreements related to the Company's
vendor financing will contain, and any additional financing agreements are
likely to contain, certain restrictive covenants. The restrictions contained in
the Indentures and expected to be contained in the vendor financing agreements
will affect, and in some cases will significantly limit or prohibit, among other
things, the ability of the Company to incur indebtedness, make prepayments of
certain indebtedness, pay dividends, make investments, engage in transactions
with stockholders and affiliates, repurchase capital stock, create liens, sell
assets and engage in mergers and consolidations. If the Company fails to comply
with the restrictive covenants in the Indentures or any similar instruments, the
Company's obligation to repay such obligations may be accelerated. In addition
to the restrictive covenants described above, the vendor financing agreements
may require the Company to maintain certain financial ratios. The failure of the
Company and its subsidiaries to maintain such ratios would constitute events of
default under the vendor financing agreements, notwithstanding the ability of
the Company to meet its debt service obligations. An event of default under the
vendor financing agreements would allow the lenders thereunder to accelerate the
maturity of such indebtedness. In such event, a significant portion of the
Company's other indebtedness (including the securities offered in the Debt
Offering) may become immediately due and payable.
The successful implementation of the Company's strategy, among other
things, is necessary for the Company to be able to meet its debt service and
significant capital requirements. In addition, the Company's ability to satisfy
its debt service obligations once its PCS networks are operational will be
dependent upon the Company's future performance, which is subject to a number of
factors that are beyond the Company's control. There can be no assurance that
the Company's PCS networks can be completed or that, once completed, the Company
will generate sufficient cash flow from operating activities to meet its debt
service and working capital requirements. Any failure or delay in meeting these
debt service requirements and, in particular, the requirements of the debt
obligations to the U.S. Government, could have a material adverse effect upon
the Company's business, results of operations and financial condition. See
"-- Substantial Debt Obligations to the U.S. Government; Implications of
Accounting Treatment" and "-- Need for Additional Financing; Status as a Going
Concern."
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 of 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 Units consisting of shares of Series B
Common Stock and CTRs in the Equity Offering and $ million gross proceeds of
Senior Notes Units and Senior Discount Notes Units in the Debt Offering, for
estimated aggregate net proceeds to the Company (after escrowing approximately
$ million in pre-funding interest requirements on the Senior Notes for
three years) of $ . The Company anticipates that it will require
significant additional capital to complete its network build-out. The report of
independent accountants with respect to the Company's consolidated financial
statements as of September 30, 1996 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 or private debt and equity 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 Indentures, the vendor financing or any
additional financing arrangements. Failure to obtain such financing
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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.
In addition, the vendor financing commitments which the Company has
obtained to date are subject to a number of conditions. See
"Business -- Equipment Vendors." There can be no assurances that such conditions
will ultimately be satisfied and that such equipment and/or financing will
ultimately be available to the Company.
In the absence of such financing or refinancing, the Company could be
forced to dispose of assets in order to make up for any shortfall in the
payments due on its indebtedness under circumstances that might not be favorable
to realizing the highest price for such assets. A substantial portion of the
Company's assets consist of intangible assets, principally PCS licenses granted
by the FCC, the value of which depends upon a variety of factors. Such licenses
may only be transferred to other entities that meet the FCC requirements for
license applicants during the first five years of the term, which will
significantly impact the ability of the Company to realize the value of such
licenses. Further, transfers to entities not meeting such requirements in years
six through 10 of the initial license terms will subject the Company to
substantial unjust enrichment penalties. In the event of a liquidation, there
can be no assurance that the Company's assets could be sold, or sold quickly
enough, or for a sufficient amount, to enable the Company to meet its
obligations. See "Regulation of the Wireless Telecommunications Industry."
HOLDING COMPANY STRUCTURE; DEPENDENCE ON DIVIDENDS FROM SUBSIDIARIES
NextWave is a holding company with limited assets of its own and, upon
commencement of its operations, the Company will conduct its business through
its various subsidiaries. Consequently, in order to meet its obligations,
including its debt service obligations, the Company will be dependent upon the
cash flow of its subsidiaries and the payment of funds by these subsidiaries to
the Company in the form of dividends, repayment of loans or otherwise. The
Company's vendor financing agreements will contain restrictions on the ability
of the Company's subsidiaries to pay dividends or repay loans to the Company.
See "Business -- Equipment Vendors." There can be no assurances that funds
available from the Company's subsidiaries together with funds provided from the
Offerings and other financings by the Company, will be sufficient to meet the
Company's operating or debt service needs.
UNCERTAINTY REGARDING C-BLOCK LICENSES; LITIGATION
On January 3, 1997, the FCC issued a Public Notice (the "Public Notice")
announcing that NextWave had received a grant of the 63 C-Block PCS licenses for
which it had been declared the winning bidder in the FCC C-Block Auctions,
including 56 BTAs in the C-Block Auction and seven BTAs in the C-Block Re-
Auction. The C-Block licenses were granted subject to the requirement that the
Company demonstrate compliance with FCC foreign ownership regulations by July 3,
1997, and that the Company undertake various reporting obligations to the FCC to
notify the agency of the steps being taken by the Company to ensure regulatory
compliance. NextWave's 56 C-Block applications had been challenged in a joint
petition filed by Antigone Communications Limited Partnership ("Antigone") and
PCS Devco, Inc. ("Devco"). No petitions to deny were filed against the Company's
C-Block Re-Auction applications. In the joint petition to deny filed against the
56 C-Block applications, Antigone and Devco had alleged that NextWave's
applications were defective in three respects: (i) the gross assets and revenues
of Pohang Steel America Corporation ("POSAM") should have been attributed to the
Company as an affiliate, rendering the Company ineligible for entrepreneur's
block licenses; (ii) the Company's foreign ownership exceeded the 25% foreign
ownership benchmarks set forth in Section 310(b) of the Communications Act of
1934, as amended (the "Communications Act"); and (iii) QUALCOMM controls the
Company, so that QUALCOMM's assets and revenues should have been attributed to
the Company, thus rendering it ineligible for an entrepreneur's block license.
NextWave vigorously disputed each of these allegations.
According to the Public Notice, the Wireless Telecommunications Bureau (the
"Bureau"), at a meeting with the parties, raised concerns regarding NextWave's
compliance with the foreign ownership limitations set forth in Section 310(b)(4)
of the Communications Act. After reviewing NextWave's proposal for securing
additional domestic equity financing, reforming certain financial instruments
held by foreign entities or
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obtaining new debt financing, or any combination of these measures, along with
the responses of Antigone and Devco to NextWave's proposal, the Bureau
determined that NextWave's proposal, if successfully completed, will assure
compliance with Section 310(b) of the Communications Act. The Bureau also
determined that NextWave's proposal and the conditions imposed on NextWave's
licenses eliminate any substantial and material questions of fact concerning
NextWave's qualifications, and that the public interest was served by
conditional grant of NextWave's licenses. The Public Notice also indicates that
the Bureau's Order disposed of all other allegations raised by Antigone and
Devco, finding that there were no substantial and material questions of fact at
issue. Accordingly, the Bureau's Order denied the Antigone/Devco petition to
deny and conditionally granted NextWave's applications.
According to the Public Notice, the licenses are specifically conditioned
on payment within five business days of the Public Notice of the remaining 5% of
the downpayment. That payment was submitted by NextWave on January 9, 1997. In
addition, the licenses are conditioned on the following: (i) that NextWave come
into compliance with Section 310(b) of the Communications Act within six months
of the date of the Public Notice and submit a report documenting how its
ownership and debt structure complies with Section 310(b); (ii) that NextWave
submit reports on a monthly basis regarding the steps it is taking to implement
compliance with Section 310(b); and (iii) that NextWave promptly provide the FCC
with copies of any correspondence to or from the Securities and Exchange
Commission (the "Commission") in connection with its public offering. Upon
consummation of the Offerings, the Company believes that it will satisfy these
conditions.
The text of the Bureau's Order has not yet been released. A C-Block license
grant by the FCC will become effective upon release of the order of license
grant, but will remain subject to petitions for reconsideration or appeal for a
30-day period following the license grant date and, for 40 days from the grant,
subject to review by the FCC on its own motion, after which such order of
license grant is not subject to any FCC staff reconsideration or any petition
for reconsideration or application for review or judicial appeal. Counsel for
Antigone and Devco has publicly stated an intention to seek reconsideration or
appeal of the Bureau's Order. See "-- Government Regulation" and "Regulation of
the Wireless Telecommunications Industry." Any preparation for PCS network
construction prior to the date on which the license grant becomes final (e.g.,
negotiation with incumbent microwave licensees, site acquisition activities and
equipment procurement and construction) is being performed at the Company's risk
and expense. If any PCS licenses are subsequently revoked or canceled as a
result of reconsideration, appeal or failure to fulfill the license conditions,
the FCC could impose substantial financial and regulatory penalties on the
Company, and the Company would have to attempt to sell the benefits of such
activities, to the extent possible, to the entity that ultimately wins a PCS
license for that service area.
UNCERTAINTY OF FINAL AWARDS OF LICENSES FROM D, E AND F-BLOCK AUCTIONS;
LITIGATION
The Company has been named the winning bidder for 32 BTAs in the D, E and
F-Block Auctions, and it has filed its license applications for such BTAs. The
Company's applications for these licenses may be subject to challenges by
various competing bidders and other interested parties in the D, E and F-Block
Auctions. There can be no assurance that the Company will be successful in
defending any such challenges should they occur and will be finally awarded any
or all of these licenses. Any grant by the FCC of D, E, and F-Block PCS licenses
may be conditioned on the Company's compliance with the FCC's foreign ownership
restrictions within a specified period of time. If the Company were found to be
ineligible or otherwise disqualified from holding D, E and F-Block PCS licenses,
the FCC could impose substantial financial and regulatory penalties on it, up to
and including the refusal to grant such licenses. In the event that the Company
were denied the D, E and F-Block PCS licenses, the Company would not be
authorized to offer PCS services in those BTAs for which it was the winning
bidder in the D, E and F-Block Auctions. See "-- Government Regulation" and
"Regulation of the Wireless Telecommunications Industry."
PCS SYSTEM IMPLEMENTATION AND OPERATIONAL RISKS
Unlike certain other PCS carriers, the Company plans to perform
substantially all of its own network design and systems engineering. The Company
believes it will garner certain competitive advantages by
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designing its networks in-house using its proprietary CDMA engineering tools
rather than outsourcing such services from equipment vendors. These advantages
include optimizing cell count in the PCS network (rather than over-installing
equipment), lower engineering costs, customized network management, and
implementation of common engineering guidelines and tools. The Company may face
certain disadvantages by performing its own system design and engineering,
including increased potential for system performance disputes with vendors and
the Company's reliance on recruiting and retaining qualified engineering
personnel. 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 8,000 sites for the Company's PCS networks, and will likely
require the Company to obtain zoning variances or other governmental approvals
or permits. It is possible that local governmental authorities will adopt
policies or moratoriums on construction of new towers or facilities which will
delay the construction of portions of the Company's network. The Company has
retained consultants to provide site identification and acquisition services in
each of its 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 and billing and provisioning systems in any particular Market in
accordance with its current construction plan and schedule. See
"Business -- Network Build-Out." Pursuant to FCC regulations, the Company
engaged in pre-construction activities prior to the grant of its PCS licenses on
January 3, 1997, but was not permitted to begin actual construction of its PCS
networks until its PCS licenses were granted. If the Company is not able to
implement its entire construction plan, the Company may not be able to provide
services comparable to those provided by the cellular and other PCS operators in
its Markets, and, as a result, the Company's growth may be limited. In addition,
each of the Company's C-Block 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 Market within five years of the grant of the
applicable license and to at least two-thirds of the population within 10 years
of the grant. Each of the Company's D, E and F-Block licenses is subject to an
FCC requirement that the Company construct network facilities that offer
coverage to at least one-quarter of the population in each such Market within
five years of the grant of the applicable license and to at least one-half of
the population within 10 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 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 10-year time 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 and manufacturers
of such equipment have substantial backlogs of orders which could cause long
lead times for delivery of such equipment. 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
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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 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 scheme 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), changes
in technology that have the potential of rendering the Company's technology and
equipment obsolete and MCI's providing the Company with competitive terms for
services to facilitate the build-out of the Company's network. See
"Business -- MCI Agreement." 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 MCI AND OTHER 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. See
"Business -- Business Strategy" and "Business -- Marketing and Distribution."
The Company, especially in its early years of operation, will be substantially
dependent upon purchases of its MOUs by MCI and other major customers. See
"Business -- MCI Agreement" and "-- Purchase Agreements With Resale Service
Providers." These agreements, however, are subject to various conditions and do
not contain any minimum purchase obligation per year, and there can be no
assurance that MCI or such other major customers will purchase substantial
volumes of MOUs in the Company's critical early years of operation. See
"-- Conditions to Commitments Under Airtime Agreements." In addition, as a
result of the Company's dependence on MCI and other large customers, these
customers may have significant leverage in negotiating favorable pricing and
other 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 and its customers to generate operating
profits. While the Company has had discussions with several large potential
customers in addition to MCI, 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 and the lack of
available network infrastructure and handsets at other spectrum frequencies.
Accordingly, the Company's strategy could be adversely affected by a decision by
Congress, the National Telecommunications and Information Administration
("NTIA") or the FCC to allocate additional spectrum for mobile services.
If the Company is unable to sell a substantial amount of MOUs on a
wholesale basis to wireless 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.
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CONDITIONS TO COMMITMENTS UNDER AIRTIME AGREEMENTS
Under the MCI Agreement, MCI's obligation to fulfill its minimum 10 billion
MOU purchase commitment is subject to certain conditions, including: (i) the
Company's not being in material breach of any of its agreements with MCI; (ii)
the Company's provision of Full Mobility Services to at least 70 million POPs by
December 31, 2001; and (iii) the Company's provision of Full Mobility Services
that are fully compatible with MCI's network. In addition, there is no schedule
of minimum purchases by MCI in any given year, although there are incentives
built into the agreement for early use of MOUs and the agreement is designed to
encourage MCI to sell substantial volumes of MOUs in the initial years of the
term of the agreement.
MCI's purchase commitment is also subject to incremental cutbacks in the
event the Company does not provide Full Mobility Services in specified amounts
in accordance with certain milestones set forth in the MCI Agreement. In
addition, the purchase commitment applicable to MCI at any given time may be
reduced proportionally by the percentage of Full Mobility Services or aggregate
licensed POPs affected if: (i) the Company sells, transfers or otherwise loses
control or ownership of any PCS license, and such event results in the loss of a
specified percentage of POPs; (ii) the Company fails to meet certain pricing
criteria in any Market; and (iii) the Company's PCS network in any Market fails
to meet certain service, quality and capacity requirements. The MCI Agreement is
terminable by MCI if its purchase commitment is eliminated due to the occurrence
of any of the events listed above, or if the Company fails to acquire, develop
and maintain commercially available state-of-the-art feature functionality in
its PCS network and, within 60 days of MCI's notice to the Company of such
failure, MCI and the Company are unable to reach an agreement on a technical
solution and implementation schedule relating to such failure. At any time, MCI
may terminate network services in a Market if such Market fails to meet certain
service, quality and capacity requirements.
The MCI Agreement is scheduled to terminate 10 years after the first day of
commercial availability of Full Mobility Service by the Company in any of the
Markets, after which it will be renewable, at MCI's option, for an additional
five-year period, at prices to be agreed upon by the parties. No assurance can
be given that MCI will not terminate the MCI Agreement as scheduled, and any
election by MCI to do so may have a material adverse effect upon the Company's
financial condition and results of operations. See "Business -- MCI Agreement."
Each of the major agreements with other customers (the "PCS Resale
Agreements") provides for a staggered purchase commitment of five billion MOUs
over the 10-year term of the agreement. Each of these customers has agreed to
purchase: (i) at least 5% of its purchase commitment by the end of three years
from the date the Company first offers Full Mobility Service on a commercial
basis in either the New York City or Los Angeles Market (the "Commercial Service
Date"); (ii) at least 25% of its purchase commitment by the end of five years
from the Commercial Service Date; and (iii) 100% of its purchase commitment by
the end of the term of their respective agreement. For each of the first four
billion MOUs purchased by each of these customers pursuant to their respective
agreements, an additional $0.02 per MOU will be remitted to a third-party escrow
agent by the customer to ensure the purchase of its full purchase commitment.
Under the PCS Resale Agreements, the obligation of each customer to fulfill
its purchase commitment is subject to certain conditions, including: (i) the
Company's provision of Full Mobility Service to at least 40 million POPs by
December 31, 1998, and at least 70 million POPs by December 31, 2001; (ii) the
Company's provision of airtime in its Markets meeting jointly agreed upon
technical specifications, including specifications for availability, capacity,
coverage, hand-off, interconnection and service quality; and (iii) the Company's
interconnection with the major interexchange carriers ("IXCs") such as AT&T,
Sprint and MCI via trunk connections with their points of presence at the
expense of the IXC and with other long distance carriers under similar
conditions.
Each of the PCS Resale Agreements is scheduled to terminate on the date
that is 10 years after the first day of commercial availability of Full Mobility
Service in any of the Markets, provided the conditions to the customer's
obligation to fulfill its purchase commitment have been met, after which such
agreement will be renewable, at the customer's option, respectively, for an
additional five-year period, at prices to be agreed upon by the parties. No
assurances can be given that these agreements will not terminate as scheduled at
the end of their respective 10-year terms, and such termination may have a
material adverse effect upon the Company's
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financial condition and results of operations. See "Business -- Purchase
Agreements with Resale Service Providers."
Although the Company has executed definitive agreements with MCI and five
other customers for the purchase of substantial amounts of MOUs over the next 10
years, and is currently negotiating similar agreements and terms with other
wireless service providers, the number of MOUs for which the Company currently
has binding commitments does not represent a significant portion of the MOUs the
Company intends to sell under its current business plan. In addition, as
described above, each of these agreements is subject to specific network
build-out requirements and performance standards over the terms of such
agreements. There can be no assurance that the Company will be able to meet such
build-out milestones or performance standards and that the purchase commitments
from such wireless service providers will ultimately be realized by the Company,
or that the Company will be able to obtain definitive agreements and binding
commitments from other PCS service providers to purchase the additional MOUs
necessary for the Company to meet the projections contained in its current
business plan.
CDMA COMMERCIAL OPERATIONS; ABILITY TO OFFER ROAMING SERVICES; HANDSETS
CDMA technology has been implemented on a wide commercial scale in the
United States and certain Asian and South American markets over the last 12
months. CDMA networks are currently operating in such U.S. markets as Los
Angeles, Chicago, Dallas-Fort Worth, Houston and over 40 markets worldwide. The
first commercial use of CDMA began in October 1995 in Hong Kong for 800 MHz
cellular operations. Two cellular networks in Korea began operation using CDMA
technology in April 1996. As of December 1996, these Korean CDMA networks had
over 900,000 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 "Business -- CDMA Technology"
and "The Wireless Telecommunications Industry -- PCS Technology." While the
Company believes that some of the problems are unique to 800 MHz cellular
operations, and thus will not impact PCS networks, such as that which the
Company proposes to build, which operate in a higher frequency band (1850-1990
MHz) than cellular, and that 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 markets other than those operated by the Company.
In order for the Company's customers' subscribers to roam in other wireless
markets (and vice versa), roaming arrangements must be agreed upon between the
Company and PCS licensees in such markets utilizing CDMA technology, or the
subscribers must use a dual-band phone that would permit the subscriber to
utilize 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 late
1997 at the earliest. While PCS service providers holding licenses covering over
99% of the United States population have announced an intent to use CDMA
technology, 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.
Although there are currently very few suppliers of CDMA handsets, there are
over 20 companies licensed to manufacture CDMA handsets and 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 late 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 handsets are expected to be larger
and more expensive
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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 service providers.
CONTROL BY CERTAIN STOCKHOLDERS; ANTIDILUTION PROVISIONS FOR CONTROL GROUP AND
MCI
The FCC requires C and F-Block applicants utilizing the equity structure
selected by the Company to have certain investors meeting financial and
regulatory qualifications (the "Control Group") hold no less than 25% of the
Company's total outstanding Common Stock on a fully-diluted basis for a
three-year period from the License Grant Date. Under this 25% Control Group
structure, certain members of the Control Group (the "Qualifying Investors")
(currently there are three -- Navation, Freedom Mobility Inc. and Good News
Communications Company) must hold no less than 15% of the Company's total
outstanding Common Stock on a fully-diluted basis for a three-year period from
the License Grant Date. These same Qualifying Investors can hold no less than
10% thereafter until the Termination Date (a period of up to 10 years from the
License Grant Date). These FCC ownership requirements are hereinafter referred
to as the "Required Ownership Percentage" and are included in the Company's
Amended and Restated Certificate of Incorporation. The Control Group must hold a
majority of the total voting stock and have both de facto and de jure control of
the Company for a period of 10 years from the License Grant Date. The members of
the Company's Control Group are currently the holders of the Company's Series A
Common Stock. 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 until the Termination Date to elect a majority of the Board of
Directors of the Company and will have voting control of the Company and all
matters submitted for stockholder approval, with the exception of certain
extraordinary corporate actions which require approval of a majority of the
outstanding shares of the Series B Common Stock and Series C 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, 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% of the outstanding
Series A Common Stock and will continue to do so after the Recapitalization.
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, would then control the Company. During the first five
years of the initial license term, recent revisions to FCC rules permit Navation
to transfer its control of the Company without penalty to another similarly
qualified company after license grant. If Navation were to relinquish control to
an entity not deemed a "Small Business" with respect to the C-Block licenses or
a "Very Small Business" with respect to the F-Block licenses at any time during
the initial 10-year license term, the Company could incur substantial unjust
enrichment penalties. See "-- Government Regulation." In addition, the Company's
Amended and 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 10-year period following the License Grant Date, which
effectively 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 and
Series C Common Stock.
In the event the Company issues additional equity or certain other events
occur which would otherwise dilute the ownership of the Control Group or the
Qualifying Investors during the period until the Termination Date below the
Required Ownership Percentage, the Required Ownership Percentage will be
maintained by issuing warrants to purchase shares of Series B Common Stock to
the Qualifying Investors at an exercise price equal to the "fair market value"
of the Series B Common Stock at the time of the dilutive issuances ("Control
Group Warrants"). 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 the
exercise price for options and warrants issued subsequent to licensing can be
equal to the current market price 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. Following consummation of the
Offerings, the Control Group will own an aggregate of 25% of the Common Stock of
the Company on a fully-diluted basis, including the 24% owned by the Qualifying
Investors. Accordingly, in the event of an issuance of Series B Common Stock
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<PAGE> 26
or securities convertible or exercisable into Series B Common Stock and in
certain other events during the three years after the License Grant Date, the
Company anticipates that Control Group Warrants will be required to be issued in
order to maintain the Required Ownership Percentage. See "Description of Capital
Stock -- Common Stock -- Control Group Warrants." The Company anticipates
raising additional equity during this period. See "Summary -- Financing Plan."
Pursuant to the MCI Warrant Agreement, the Company initially has granted
MCI warrants to purchase 23,673,284 shares of Series B Common Stock and will
issue additional warrants to purchase shares ( shares if the
Underwriters' over-allotment option is exercised in full) of Series B Common
Stock at the closing of the Equity Offering or shortly thereafter. The exercise
price of these initial and additional warrants will be $ per share. Under
the MCI Warrant Agreement, in the event that within 10 years of the date of the
MCI Warrant Agreement the Company issues any capital stock or any options,
warrants, convertible securities or other rights entitling the holder thereof to
purchase from the Company shares of its capital stock, including any Control
Group Warrants, the Company must concurrently issue adjustment warrants to MCI
for the purchase of Series B Common Stock at an exercise price equal to the
Market Price (as defined in the MCI Warrant Agreement) of such securities in an
amount necessary to preserve the aggregate percentage of the outstanding shares
of the Company's Common Stock (up to 12% as of or shortly after consummation of
the Equity Offering), on a Fully-Diluted Basis, in respect of which warrants
have been issued to MCI. In addition, MCI may earn performance warrants if it
achieves certain MOU purchase milestones, which warrants could increase to up to
a maximum of 25% of the outstanding shares of the Company's capital stock, on a
Fully-Diluted Basis, in respect of which warrants (inclusive of warrants
previously issued to MCI) will have been issued to MCI. Thus, the issuance of
equity securities, including the Control Group Warrants, together with the
corresponding issuance of adjustment warrants to MCI, will subject the holders
of Series B Common Stock to a significantly disproportionate amount of dilution
in the event of additional equity financings. The FCC's prohibition against
diluting the Control Group or the Qualifying Investors below the Required
Ownership Percentage and the Company's agreeing to issue adjustment warrants to
MCI concurrently with Control Group Warrants could negatively impact the
Company's ability to obtain additional equity financing. See "Description of
Capital Stock -- Other Options, Warrants and Convertible Debt -- Warrants -- MCI
Warrants."
Pursuant to the Company's Amended and Restated Certificate of
Incorporation, the various voting restrictions and ownership limitations
relating to the Common Stock (other than the FCC's foreign ownership
restrictions) will be eliminated on the tenth anniversary of the License Grant
Date.
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, certain
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. A limited number 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.
Since the Company will primarily provide MOUs to its wholesale customers on
its digital wireless networks, the Company's customers will compete directly
with other PCS providers in each of its Markets, including principal competitors
such as PrimeCo Personal Communications L.P., Sprint and AT&T. The FCC issued
PCS licenses to the A and B-Block license winners in June 1995. Accordingly, the
holders of the A and B-Block PCS licenses in the Company's BTAs have entered the
PCS market earlier than the Company. Since November 15, 1995, Sprint has
operated a commercial PCS operation in the Washington, D.C./Baltimore market,
and had more than 115,000 subscribers as of September 1996. There can be no
assurance that such time-to-market advantage will not have a material adverse
effect on the Company's ability to successfully implement 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
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<PAGE> 27
MOUs available in such Markets. Because of government mandates, some cellular
providers are required to 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 may offer wholesale MOUs for digital wireless services.
The Company also expects that the two incumbent cellular providers in each
Market, all of which have infrastructure in place, a customer base and a brand
name, and have been operational for five to 10 years or more, will upgrade their
networks to provide comparable services in competition with the Company.
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, utilities, local
multipoint-distribution service ("LMDS") providers and cable operators. The FCC
is scheduled to begin auctions by April 15, 1997 for 30 MHz of spectrum located
in the 2.3 GHz band, to be known as the Wireless Communications Service ("WCS").
The FCC has proposed that WCS providers be permitted to offer a broad range of
fixed, mobile, radiolocation, and satellite broadcast services, some of which
could be in competition with the Company's service offerings. 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. The Company's PCS
licenses will have 10-year renewable terms. There can be no assurance that the
Company's licenses will be renewed. See "Regulation of the Wireless
Telecommunications Industry."
Wireless telecommunications carriers such as the Company are regulated
under the Communications Act. The Telecommunications Act of 1996 (the
"Telecommunications Act") amended the Communications Act and mandated
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, including 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 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 Company's PCS operations are expected to use microwave communications
facilities to backhaul its telecommunications traffic between fixed points in
its service areas. New microwave licenses carry up to
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<PAGE> 28
10-year license terms. 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 Section 310(b)(4) of the Communications Act, the FCC can refuse to
grant 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 Common 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.
According to the Public Notice, the Bureau raised concerns regarding
NextWave's compliance with the foreign ownership limitations set forth in
Section 310(b)(4) of the Communications Act, but after reviewing NextWave's
proposal for securing additional domestic equity financing, reforming certain
financial instruments held by foreign entities, or obtaining new debt financing,
or any combination of these measures, the Bureau determined that NextWave's
proposal, if successfully completed, will assure compliance with Section 310(b)
of the Communications Act. The Bureau also determined that NextWave's proposal
and the conditions imposed on NextWave's grants eliminate any substantial and
material questions of fact concerning NextWave's qualifications, and that the
public interest was served by conditional grant of NextWave's licenses. Among
the conditions imposed on NextWave's licenses is the requirement that NextWave
come into compliance with Section 310(b) by July 3, 1997, and submit a report
documenting how its ownership and debt structure complies with Section 310(b).
Such compliance could be achieved by raising additional equity from domestic
sources, revising the Company's convertible debt agreements, or demonstrating
that the public interest would be served by allowing NextWave's foreign
ownership to exceed 25% (consistent with the FCC's effective competitive
opportunities ("ECO") test). See "Regulation of the Wireless Telecommunications
Industry -- Foreign Ownership Restrictions."
Upon consummation of the Offerings, the Company believes it will satisfy
the FCC's foreign ownership requirements. Even if the Company does come into
compliance as required by its license condition, the Communications Act
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.
MCI/BT. MCI has entered into an agreement with British Telecommunications,
plc ("BT") pursuant to which BT will acquire MCI. Upon consummation of such
transaction. MCI would be a foreign entity for purposes of FCC foreign ownership
rules. Accordingly, MCI would not be able to exercise its warrants to the extent
that such exercise would result in a violation of the FCC foreign ownership
rules, unless MCI was able to obtain a waiver of such rules from the FCC or
demonstrate to the FCC satisfaction of the FCC's ECO test. There can be no
assurance that any such waiver could be obtained. If and to the extent that
there is economic value in the MCI warrants, MCI may be required to sell its
warrants (rather than exercise them) in order to realize such value.
Financial Affiliation Rules. To be financially eligible as an Entrepreneur
and/or Small Business or Very Small Business applicant for C and F-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 and F-Block
applicants for purposes of determining whether such applicants financially
qualify for the applicable C and F-Block Auctions 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 Common 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, QUALCOMM and certain foreign investors, certain of
which have been unsuccessfully challenged in a petition to deny the Company's
PCS licenses filed with the FCC. See "-- Uncertainty Regarding C-Block Licenses;
Litigation." The FCC's application of its financial affiliation rules is largely
untested and there can
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<PAGE> 29
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.
MANAGEMENT OF GROWTH
As the Company's business expands, the Company is implementing enhanced
operational and financial systems and continues to require additional employees
and management, operational and financial resources. There can be no assurance
that the Company will successfully implement and maintain all such operational
and financial systems or successfully obtain, integrate and utilize all of 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 PCS industry is in its early stages and, as such, is experiencing very
rapid technological change. To remain competitive, the Company 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
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
future technologies. The development of new PCS products is highly complex, and
the Company could experience delays in deploying and introducing its chosen
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.
DEPENDENCE ON KEY MANAGEMENT
As a result of 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. Although the Company enters into standard
confidentiality and proprietary rights agreements with its employees, the
Company does not presently intend to enter into employment contracts with, or
maintain key man life insurance policies on, any of its key managers.
RELOCATION OF INCUMBENT FIXED MICROWAVE LICENSEES
A portion of the spectrum allocated by the FCC to PCS is currently
populated by previously-licensed entities that operate fixed microwave
facilities. Although FCC rules preclude new fixed microwave operations on PCS
bands, incumbent fixed microwave licensees are entitled to continue operating on
the PCS spectrum for up to five years after the grant of a PCS license. 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 750 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. Under the cost-sharing
plan, PCS licensees like the Company in many cases may be required to reimburse
A, B and C-Block PCS licensees who have previously cleared microwave incumbents
if it is determined that the later PCS entrant would have posed an interference
problem to the relocated link absent such relocation. The transition and cost
sharing plans expire on April 4, 2005, at which time remaining microwave users
in the PCS spectrum will be responsible for their costs to relocate to alternate
spectrum locations or transmission technologies. 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."
HEALTH CONCERNS
Allegations have been raised, but not proven, that the use of handheld
phones may pose health risks to humans due to radio frequency ("RF") emissions
from the handsets. Studies performed by wireless telephone
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<PAGE> 30
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 recently adopted new guidelines and methods for
evaluating the environmental effects of RF emissions from FCC-regulated
transmitters, including wireless antennas and handsets. The updated guidelines
and methods generally are more stringent than those previously in effect. The
FCC also incorporated into its rules provisions of the Telecommunications Act
which preempt state or local government regulation of personal wireless services
facilities based on RF environmental effects, to the extent such facilities
comply with the FCC's rules concerning such RF emissions. Although CDMA handsets
operate at lower power than other wireless handsets and comply with the new
standards, the concerns about RF emissions remain. These concerns could have an
adverse effect on the Company's financial condition and results of 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.
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 be issued, or, if issued, 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."
DILUTION
Purchasers of the Units offered hereby will incur immediate and substantial
dilution in net tangible book value per share in the amount of $ per share.
In addition, if the Company raises additional capital from the issuance and sale
of equity securities 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 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 Units offered hereby. Furthermore, as described above, the
issuance of Control Group Warrants, the issuance of performance-based or
additional adjustment warrants to MCI, and the issuance of Series B Common Stock
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<PAGE> 31
upon exercise of the warrants offered in the Debt Offering and the Exchange
Offer will have a dilutive effect on the holders of the Series B Common Stock.
See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of Units, shares of Series B Common Stock or
CTRs in the public market following the Equity Offering could adversely affect
the market prices for the Units, the Series B Common Stock and the CTRs, and the
Company's ability to raise capital. Upon completion of the Equity Offering, the
Company will have outstanding shares of Series B Common Stock, assuming
no exercise of outstanding options and warrants and no conversion of convertible
notes. The Company, its officers, directors, certain of its employees,
consultants and stockholders and its affiliates have agreed not to sell, solicit
an offer to buy, contract to sell, grant any option to purchase or otherwise
transfer or dispose of, or register or announce the sale or offering of, any
Units, CTRs or shares of Series B Common Stock of the Company, or any securities
that are convertible into, or exercisable or exchangeable for, shares of Series
B Common Stock, for a period of 180 days after the date of this Prospectus
without the prior written consent of Smith Barney Inc., subject to certain
limited exceptions included in the Underwriting Agreement. The holders of
shares of Series B Common Stock (including shares issuable upon
conversion of convertible securities and exercise of options and warrants) have
the right, commencing , 1997 (90 days after the closing of the
Equity Offering), to require the Company to file a registration statement under
the Securities Act for the sale of such shares of Series B Common Stock. The
Company is permitted to delay the filing of a registration statement in
connection therewith for up to 120 days, and presently intends to do so to the
extent necessary to avoid having to register any secondary resales of Series B
Common Stock until at least 210 days after the date hereof. 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. Beginning in May
1998, certain shares of Series B Common Stock will become eligible for sale in
the public market subject to the provisions of Rule 144 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. The Company is unable to estimate the number of shares of Series B
Common Stock which will be sold under Rule 144 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." The shares of Series B Common Stock held by
members of the Control Group are subject to certain transfer restrictions under
the Amended and Restated Series A Shareholders Agreement. See "Principal
Stockholders."
NO PRIOR MARKET AND DETERMINATION OF PUBLIC OFFERING PRICE; POSSIBLE VOLATILITY
OF PRICES OF SERIES B COMMON STOCK AND CTRS
Prior to the Equity Offering, there has been no public market for the
Units, the Series B Common Stock or the CTRs and there can be no assurance that
active public markets will develop or continue after the Equity Offering. The
Series B Common Stock and the CTRs will be separately tradeable 90 days after
the Equity Offering, or such earlier date as may be determined by Smith Barney
Inc. The initial public offering price of the Units will be determined by
negotiations among the Company and the Underwriters. The negotiated initial
public offering price of the Units may not be indicative of the market prices
for the Units, the Series B Common Stock and the CTRs after the Equity Offering.
The market prices of the Units, the Series B Common Stock and the CTRs after the
Equity 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 telecommunications
industry, the depth and liquidity of the markets for the Units, the Series B
Common Stock and the CTRs, and investor perceptions of the Company and the PCS
industry. See "Underwriting."
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USE OF PROCEEDS
The net proceeds to the Company from the Offerings are expected to be $
million ($ million if the Underwriters' over-allotment option is exercised in
full). The net proceeds to the Company from the sale of Units offered
hereby are estimated to be $ million, assuming an initial public offering
price of $ per Unit and after deducting the underwriting discount and
estimated offering expenses ($
million if the Underwriters' over-allotment option is exercised in full). The
net proceeds from the Debt Offering are expected to be $ million, including
$ million in gross proceeds of Senior Notes Units and $
million in gross proceeds of Senior Discount Notes Units. The Company will place
approximately $ million of the net proceeds from the sale of the Senior
Notes representing funds that together with the proceeds from the investment
thereof will be sufficient to pay three years' interest on the Senior Notes into
an escrow account to be held by an escrow agent for the benefit of the holders
of the Senior Notes. The Company will use a portion of the net proceeds of the
Offerings to repay a $25 million promissory note held by LG InfoComm, Inc.
("LG"), a subsidiary of LGIC. The note matures on the earlier of July 6, 1997,
or 30 days from the closing of the Equity Offering and bears interest at 9.7%
per annum. Approximately $37 million of the net proceeds from the Offerings will
be used to redeem a portion of the 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 were awarded) and
thereafter at 12% per annum. The proceeds of the LG note and the Bridge Notes
were used to pay a portion of the FCC license cost for the C-Block licenses. The
Company will use a portion of the net proceeds to make payments required in
connection with the U.S. Government Financing of its PCS licenses and 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. The remainder of the net proceeds from the
Offerings 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, including working capital.
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 will be subject to
restrictions contained in the Indentures and is also expected to be restricted
by other financing agreements. 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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DILUTION
Purchasers of the Units 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 September 30, 1996, was $ million, or $ per share of
Series B Common Stock. Net tangible book value per share of Series B Common
Stock is equal to the Company's total tangible assets less total liabilities,
divided by the total number of shares of Series B Common Stock outstanding.
After giving effect to the sale of the shares of Series B Common Stock
included in the Units offered hereby at an assumed initial public offering price
of $ per Unit, assuming that all of these proceeds are attributable to
the Series B Common Stock included in the Unit and no shares will be issued
pursuant to the CTR included in the Unit, and after deducting the underwriting
discount and estimated offering expenses, the pro forma net tangible book value
of the Company as of September 30, 1996 would have been $ million, or
$ per share of Series B 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 Units in the Equity Offering. For purposes of the table,
the 3,000 shares of Series A Common Stock outstanding upon consummation of the
Equity Offering and the shares of Series C Common Stock to be issued to the
Control Group upon consummation of the Equity Offering are assumed to be
outstanding shares of Series B Common Stock. The following table illustrates
this per share dilution as of September 30, 1996.
<TABLE>
<S> <C>
Assumed initial public offering price per Unit............................... $
Assumed amount of initial public offering price per Unit attributable to
Series B Common Stock...................................................... $
Net tangible book value per share of Series B Common Stock................... $
Increase per share of Series B Common Stock attributable to the Equity
Offering................................................................... $
Pro forma net tangible book value per share of Series B Common Stock after
the Equity Offering........................................................ $
Dilution of net tangible book value per share of Series B Common Stock to new
investors.................................................................. $
</TABLE>
Assuming that one share of Series B Common Stock is issued for each CTR
included in the Units offered hereby, the pro forma net tangible book value per
share of Series B Common Stock after giving effect to the Equity Offering and
the redemption by the Company from the Control Group of the number of shares of
Series C Common Stock equal to the number of shares issued pursuant to the CTRs,
would be $ per share, and the dilution to persons who purchase Series B
Common Stock through the Units in the Equity Offering would be $ per share
of Series B Common Stock.
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 Equity Offering would be $ per share of Series B Common Stock, and
the dilution to persons who purchase Series B Common Stock through the Units in
the Equity Offering would be $ per share of Series B Common Stock.
The pro forma net tangible book value per share of Series B Common Stock
after giving effect to the Equity Offering and issuance of the Company's PCS
licenses would be $ per share, and the dilution to persons who purchase
Series B Common Stock through the Units in the Equity Offering would be
$ per share of Series B Common Stock.
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<PAGE> 34
CAPITALIZATION
(IN THOUSANDS, EXCEPT SHARE DATA)
The following table sets forth the actual, pro forma and as adjusted
capitalization of the Company as of September 30, 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 SEPTEMBER 30, 1996
---------------------------------------
ACTUAL PRO FORMA(1) AS ADJUSTED
-------- ------------ -----------
<S> <C> <C> <C>
Cash and cash equivalents................................ $ 26,102 $ 35,167 $
===== ======= =====
Debt:
Current portion of convertible notes payable and
capital leases...................................... $ 48,643 $ 164,513
U.S. Government Financing.............................. -- 2,799,013
Senior notes payable and discount notes payable........ -- --
Convertible notes payable and capital leases, less
current portion..................................... 130,845 130,845
----- ------- -----
Total debt.......................................... 179,488 3,094,371
----- ------- -----
Series C Common Stock, mandatorily redeemable, $.0001 par
value; no shares designated, issued or outstanding
actual or pro forma; ______ shares designated, issued
and outstanding as adjusted
Stockholders' equity:
Common Stock, $0.0001 par value, 500,000,000 shares
authorized:
Series A, 60,000,000 shares designated: 47,396,437
shares issued and outstanding actual; 36,245,031
shares issued and outstanding pro forma; and 3,000
shares designated, issued and outstanding as
adjusted.......................................... 5 4 --
Series B, 278,980,556 shares designated: 99,898,262
shares issued and outstanding actual; 125,931,074
shares issued and outstanding pro forma; and
shares issued and outstanding as
adjusted(2)....................................... 10 12
Series C, 1,019,444 shares designated: no shares
issued or outstanding actual, pro forma or as
adjusted(3)....................................... -- -- --
Paid-in capital.......................................... 291,406 331,731
Common Stock notes receivable............................ (2,810) (2,810)
Deferred charges and unearned compensation............... (25,993) (40,993)
Deficit accumulated during development stage............. (16,495) (16,495)
----- ------- -----
Total stockholders' equity..................... 246,123 271,449
----- ------- -----
Total capitalization................................ $425,611 $3,365,820 $
===== ======= =====
</TABLE>
- ---------------
(1) The Pro Forma column reflects the effect on the Company's financial
position of: (i) the October 1996 to January 1997 issuances of $69,670
aggregate principal amount of convertible notes; (ii) the October 1996 to
January 1997 issuances of 3,730,000 shares of Series B Common Stock for
$18,650; (iii) the November 1996 to January 1997 receipt of loans in the
amount of $43,000 from holders of Series B Common Stock; (iv) the
conversion of 11,151,406 shares of Series A Common Stock into 22,302,812
shares of Series B Common Stock; (v) the grant of and downpayments on the
FCC C, D, E and F-Block licenses including capitalization as an intangible
asset of these awarded licenses and the related long-term debt payable to
the FCC for an aggregate purchase price of $4,872,620 net of the aggregate
downpayments of $504,785, and as adjusted to reflect the fair value of the
debt of $2,799,013; and (vi) the issuances of warrants to purchase shares
of Series B Common Stock to an equipment vendor and MCI. See Unaudited Note
12 of Notes to Consolidated Financial Statements.
(2) Excludes (i) 18,243,322 shares of Series B Common Stock issuable upon
exercise of options outstanding under the Amended and Restated Stock Option
Plan as of September 30, 1996 (of which options for 1,114,667 shares are
exercisable as of September 30, 1996), (ii) 38,043,088 shares of Series B
Common Stock issuable upon exercise of the warrants outstanding as of
September 30, 1996, (iii) 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), (iv) 12,970,826 shares of Series B Common Stock issuable
upon conversion of $38,912 of convertible promissory notes as of September
30, 1996, and (v) 2,000,000 shares of Series B Common Stock issuable upon
conversion of a $10,000 convertible note payable as of September 30, 1996.
Also excludes (a) warrants to purchase Series B Common Stock held by
MCI, which were issued subsequent to
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<PAGE> 35
September 30, 1996, (b) shares of Series B Common Stock issuable upon
exercise of additional warrants to be issued to MCI at the closing of the
Equity Offering or shortly thereafter, (c) 13,830,909 shares of Series B
Common Stock issuable upon conversion of $69,670 of convertible notes
issued subsequent to September 30, 1996, and (d) shares of Series B
Common Stock issuable upon exercise of warrants issued to equipment vendors
subsequent to September 30, 1996.
(3) 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 Amended and Restated Certificate of
Incorporation, upon consummation of the Equity Offering, all existing
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, except for the rights of the Control Group to receive
shares of Series B Common Stock and shares of Series C
Common Stock in exchange for each share of Series A Common Stock (other
than 3,000 shares) in the Recapitalization. See "Description of Capital
Stock."
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<PAGE> 36
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following data for the period from May 16, 1995 (inception) to December
31, 1995 and the nine months ended September 30, 1996 have been derived from the
Company's audited consolidated financial statements, including the consolidated
balance sheet at December 31, 1995 and September 30, 1996 and the related
consolidated statements of operations and of cash flows for the period from May
16, 1995 to December 31, 1995 and the nine months ended September 30, 1996
appearing elsewhere in this Prospectus. The data for the period from May 16,
1995 to September 30, 1995 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 consolidated financial data as of and for the
nine months ended September 30, 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, PERIOD FROM MAY 16,
1995 (INCEPTION) TO 1995 (INCEPTION) TO NINE MONTHS
DECEMBER 31, 1995 SEPTEMBER 30, 1995 ENDED SEPTEMBER 30, 1996
------------------- ------------------- ------------------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Consulting revenues....................... $ 173 $ -- $ 1,958
Total operating expenses.................. 1,753 501 14,826
-------- --------
Operating loss............................ (1,580) (501) (12,868)
Other expenses............................ -- -- (738)
Interest income (expense), net............ (314) 1 (995)
-------- --------
Net loss.................................. $ (1,894) $ (500) $(14,601)
======== ========
PRO FORMA(1):
Net loss per share........................ $ $ $
Shares used in computing net loss per
share..................................
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
AS OF --------------------------------------
DECEMBER 31, PRO FORMA
1995 ACTUAL PRO FORMA(2) AS ADJUSTED
------------ --------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............................ $(75,212) $ (46,564) $ (150,169)
Total assets......................................... 84,834 451,110 3,388,119
Total U.S. Government Financing...................... -- -- 2,799,013
Senior Notes......................................... -- -- --
Senior Discount Notes................................ -- -- --
Other long-term debt................................. 24 130,845 130,845
Series C Common Stock, mandatorily redeemable........ -- -- --
Total stockholders' equity........................... 5,006 246,123 271,449
</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 pro forma net loss per share.
(2) The Pro Forma column reflects the effect on the Company's financial position
of: (i) the October 1996 to January 1997 issuances of $69,670 aggregate
principal amount of convertible notes; (ii) the October 1996 to January 1997
issuances of 3,730,000 shares of Series B Common Stock for $18,650; (iii)
the November 1996 to January 1997 receipt of loans in the amount of $43,000
from holders of Series B Common Stock; and (iv) the grant of and
downpayments on the FCC C, D, E and F-Block licenses including the
capitalization as an intangible asset of these licenses and the related
longterm debt payable to the FCC for an aggregate purchase price of
$4,872,620 net of the aggregate downpayments of $504,785, and as adjusted to
reflect the fair value of the debt of $2,799,013; and (v) the issuances of
warrants to purchase shares of Series B Common Stock to an equipment vendor
and MCI. See Unaudited Note 12 of Notes to Consolidated Financial Statements
and "Capitalization."
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<PAGE> 37
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 are
discussed in the Risk Factors section of this Prospectus.
OVERVIEW
Formed on May 16, 1995, NextWave is a holding company with five
wholly-owned subsidiaries, NextWave PCI, NextWave Power Partners, NextWave
Partners, TELE*Code and NextWave Wireless. NextWave PCI was formed to acquire
PCS licenses in the FCC's C-Block Auctions. NextWave Power Partners was formed
to acquire PCS licenses in the FCC's D, E and F-Block Auctions. NextWave
Partners was formed to hold NextWave's interest in NextWave Power Partners.
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 will form the RegionalSubs and LicenseSubs for each of the
Company's 11 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 revenues from planned PCS operations.
NextWave's strategy is to operate as a carriers' carrier, wholesaling low
cost MOUs to a broad range of customers. The Company has targeted several
categories of customers, including long distance companies, LECs, CLECs, 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. The Company
believes that 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, marketing,
handset subsidies, commissions and other expenses needed to start the business.
Although the Company does not plan to incur significant marketing expenses due
to its wholesale strategy, like other PCS operators it will have substantial
capital costs associated with its license acquisitions and the build-out of its
networks. The majority of NextWave's operating expenses will be fixed expenses
relating to its capital investment in its networks. The Company believes that
its high volume strategy will provide for increased capacity utilization which
should reduce the Company's average cost per MOU.
RESULTS OF OPERATIONS
The results of operations from inception through December 31, 1995 consist
of $173,000 of consulting contract revenues and $1,753,000 of operating expenses
comprised primarily of formation costs, legal and other professional services
expenses, marketing expenses, employee costs and facilities expenses. 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 nine months ended September 30, 1996
consist of $1,958,000 of consulting contract revenues and $14,826,000 of
operating expenses, similar in nature to those incurred in 1995. The consulting
revenues included $1,914,000 from a related party for a contract related to a
non-recurring consulting arrangement which concluded in April 1996, and there is
no assurance that such revenue
36
<PAGE> 38
will continue at similar levels in the future. The Company incurred $995,000 in
net interest expense and $738,000 in expense associated with converting a debt
security to Series B Common Stock, resulting in a net loss of $14,601,000 for
the nine-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 September 30, 1996, the
founders contributed a total of $13.9 million, including approximately $2.5
million in the form of promissory notes, for the purchase of 55.8 million shares
of Series A Common Stock and the investment by outside investors had grown to
$448 million, consisting of approximately $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 $20 million in loans and
advances from LG and LG Telecom, Ltd., an affiliate of LGIC ("LGT"). See
"Description of Capital Stock" and "Certain Indebtedness."
A $236 million private equity offering closed on May 6, 1996 and consisted
of 78.5 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 $23.1 million.
These equity placements, totalling $259 million, included the conversion by
PECO Energy Company ("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 approximately $398,000 of QUALCOMM's
remaining $10 million balance was paid on June 6, 1996. In connection with its
equity private placements of Series B Common Stock, the Company issued an
additional $38.9 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 6% per annum. The convertible promissory
notes otherwise become due upon the fifth anniversary of their issue.
The approximately $130 million gross proceeds of the Bridge Notes were
closed into escrow in a series of closings in April and May 1996 and released to
the Company when the C-Block PCS licenses were granted in January 1997. The
Bridge Notes are unsecured obligations of the Company which mature in 2002. The
Company is obligated to prepay the Bridge Notes in connection with any issuance
of certain high yield debt securities, including the Senior Notes Units and
Senior Discount Notes Units offered in the Debt Offering. Holders of an
aggregate of $93 million in principal amount of Bridge Notes have agreed to
permit the Company to satisfy its prepayment obligation with cash, Public Debt
Securities (as defined) or any combination thereof. See "Use of Proceeds" and
"Certain Indebtedness -- Bridge Notes."
In February 1996, LG entered into a convertible loan agreement with the
Company, pursuant to which LG committed to loan the Company $10 million within
45 days of the completion of the C-Block Auction. The loan was funded in June
1996, bears interest at the prime rate and is convertible into shares of Series
B Common Stock at $5.00 per share. Upon LG's funding of the loan, the Company
issued warrants to purchase 250,000 shares of Series B Common Stock at an
exercise price of $3.00 per share, pursuant to the terms of the convertible loan
agreement. The loan is unsecured and principal and interest is payable on June
4, 1997 if the loan has not been converted by that date. In August 1996, LGT
advanced to the Company an additional $10 million, which is expected to be
evidenced by a convertible promissory note which will convert into 2 million
shares of Series B Common Stock upon the closing of the Equity Offering. See
"Business -- Equipment Vendors -- LGIC Equipment Procurement and Financing."
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<PAGE> 39
Since September 30, 1996, the Company has raised an additional $131 million
in financings from several strategic partners and certain foreign investors,
bringing the total amount of financings raised since inception to approximately
$600 million. On October 25, 1996, the Company entered into a Subscription
Agreement with Hughes, pursuant to which the Company sold a convertible
promissory note to Hughes in the principal amount of $50 million (the "Hughes
Convertible Note"). The Hughes Convertible Note will convert into shares of
Series B Common Stock at a conversion price of $5.00 per share, subject to
adjustment, upon the completion of the Equity Offering and the expiration of the
waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended. On January 9, 1997, $35 million of the proceeds from the sale of the
Hughes Convertible Note were released from escrow to finance in part the
Company's payment for the C-Block licenses. The remaining $15 million will be
released to the Company upon the completion of the Equity Offering.
On November 12, 1996, POSAM lent the Company $18 million, secured by funds
on deposit with the FCC related to the D, E and F-Block Auctions. Following the
conclusion of these auctions and the return of NextWave's excess deposit by the
FCC, which is expected to occur prior to the completion of the Offerings, this
loan will be repaid to POSAM. Additionally, on January 8, 1997, LG lent the
Company $25 million. The loan bears interest at a rate of 9.7% per annum and
will mature upon the completion of the Equity Offering. From October 1996
through January 1997, prospective vendors and resellers made equity investments
in the Company's Series B Common Stock at $5.00 per share totalling
approximately $19 million. The Company has also sold convertible promissory
notes to several investors totalling approximately $19 million. These promissory
notes convert into Series B Common Stock at $5.00 per share.
During 1996, NextWave PCI was named the winning bidder in the C-Block
Auctions in 63 BTAS with total net bids (after giving effect to bidding credits
available to all "Small Business" C-Block participants) of $4.7 billion. As of
December 31, 1996, the Company had made deposits and downpayments towards these
licenses totalling $237 million. On January 9, 1997 NextWave made the final
required downpayment on these licenses of $237 million following the FCC's
Notice of Grant which was issued on January 3, 1997. The remaining $4.3 billion
is payable over a 10-year period, with interest only at 6.5% (approximately
$277.5 million per year, payable in quarterly installments) through January 3,
2003, and equal principal and interest payments (approximately $1.2 billion per
year, payable in quarterly installments) from January 3, 2003 through January 3,
2007.
In August 1996, NextWave Power Partners deposited $30 million with the FCC
to participate in the D, E and F-Block Auctions. On January 14, 1997, the D, E,
and F-Block Auctions ended with the FCC naming NextWave Power Partners the
winning bidder for 32 BTAS with net bids totalling $129 million. These licenses
required downpayments of $13.5 million, resulting in a return to the Company of
$16.5 million by the FCC. Upon final grant of these licenses, the Company will
make a final downpayment of $16.9 million. The remaining $98.6 million is
payable over a 10-year period with interest only (approximately $6.4 million per
year, payable quarterly) for the first two years after the grant of the licenses
and equal principal and interest payments (approximately $15.9 million per year,
payable quarterly) and interest in years three through 10. The interest rate
will be fixed at the 10-year Treasury Note Rate at the date of license grant
(6.5% at December 31, 1996).
The Company has commenced pre-construction activities and currently
estimates the initial build-out of the PCS networks in all of its Markets will
be completed by the end of 2000, at which time the Company anticipates that 80%
of its licensed POPS will be served. The funds required for capital expenditures
relating to this build-out will be approximately $3.5 billion. Of this amount,
approximately $930 million will be incurred for site selection, engineer
consultations, site preparation and construction and microwave relocation. These
expenditures, to ready the PCS networks for service, will be capitalized as
network assets and will be amortized over the network's estimated useful life.
Such costs will be financed primarily through vendor financing arrangements with
the Company. These capital expenditures have been and will continue to be made
pursuant to the Company's business plan, which contemplates the ultimate
resolution of all conditions related to the grant of the Company's FCC licenses.
In the event the Company does not satisfy all license conditions set forth by
the FCC, assets recorded related to these capital expenditures could be subject
to impairment write-downs, resulting in significant non-cash charges to the
Company's results of operations.
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<PAGE> 40
As part of its financing plan, the Company expects to enter into financing
agreements with major vendors for the purchase of infrastructure equipment and
services. On October 25, 1996, the Company entered into a Strategic Supply and
Development Agreement with Hughes (the "Hughes Supply Agreement"), pursuant to
which Hughes has agreed to supply and finance the purchase by the Company of PCS
infrastructure equipment and associated ancillary services, subject to certain
conditions. In connection with the Hughes Supply Agreement, Hughes has made a
binding commitment to provide the Company with a vendor credit facility for 100%
of the purchase price of PCS infrastructure equipment and services from Hughes
in certain Markets pursuant to one or more vendor supply contracts to be entered
into pursuant to the Hughes Supply Agreement, up to an aggregate of $245
million, of which $150 million could be available in 1997, subject to the terms
and conditions set forth therein. In addition, under the Hughes Supply
Agreement, Hughes would have the option to provide a vendor financing facility
to finance the purchase of up to an additional $755 million in PCS
infrastructure equipment and services, such option to commence on June 1, 1998
and continue until December 31, 2002. See "Business -- Equipment Vendors."
On November 15, 1996, the Company and Lucent signed an Agreement for
Procurement of Personal Communications Services Products, Licensed Materials and
Services (the "Lucent Procurement Agreement"), pursuant to which the Company has
agreed to purchase, and Lucent has agreed to finance and supply, up to $200
million of PCS infrastructure equipment for deployment in certain of the
Company's Markets. The Lucent Procurement Agreement also contemplates that
Lucent will have the right to supply equipment for certain other Markets, up to
an aggregate of $1 billion, subject to the agreement by Lucent to provide 100%
financing for such purchases and other mutually agreeable terms and conditions.
In addition, the Company and Lucent are currently conducting a demonstration
trial of a PCS system with MCI.
On November 1, 1996, the Company entered into a Strategic Supply Agreement
with LGIC (the "LGIC Supply Agreement, and together with the Hughes Supply
Agreement and the Lucent Procurement Agreement, the "Vendor Supply Contracts")
pursuant to which LGIC has agreed to provide vendor financing to the Company for
150% of the purchase price of PCS infrastructure equipment and services, subject
to certain conditions, up to an aggregate of $1.2 billion. The LGIC Supply
Agreement provides for the Company to purchase up to $300 million in equipment,
assuming successful completion of a market trial of LGIC equipment in the Denver
BTA. After $700 million of loans have been drawn down by the Company under the
LGIC credit facility, additional financing will become available subject to the
Company raising a target level of capital.
On November 8, 1996, the Company and Comdisco entered into a master lease
agreement providing for a $250 million equipment lease facility to be used to
finance network equipment and associated costs. Under the lease facility, $150
million can be drawn down during the first year and the additional $100 million
may be drawn down in future periods subject to the Company meeting certain
financial and operational milestones.
On November 8, 1996, the Company and The Allen Group signed a purchase and
supply agreement, pursuant to which The Allen Group has agreed to supply and
finance up to $50 million worth of various products and services in connection
with the Company's build-out of its networks.
Pursuant to the terms of an Equipment Requirements Agreement with QUALCOMM,
the Company agreed, under certain conditions, to purchase QUALCOMM
infrastructure equipment for deployment in Markets representing up to 55 million
POPs. The Company is currently negotiating the terms of the definitive agreement
regarding the purchase of infrastructure equipment for San Diego and certain
other Markets.
The Company is also in active discussions with several other vendors for
equipment financing and supply agreements. There can be no assurance that
definitive agreements can be reached between the Company and such vendors. See
"Business -- Equipment Vendors."
To meet its initial stage capital requirements, the Company is offering
Units in the Equity Offering and $ million in aggregate gross
proceeds of Senior Notes Units and Senior Discount Notes Units in the Debt
Offering for estimated aggregate net proceeds to the Company of , net
of the repayment of approximately $ million of Bridge Notes and of
approximately $ million of the net
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<PAGE> 41
proceeds from the sale of the Senior Notes Units representing funds that
together with the proceeds from the investment thereof will be sufficient to pay
three years' interest on the Senior Notes to be placed into an escrow account to
be held by an escrow agent for the benefit of the holders of the Senior Notes.
Vendor equipment financing and other financing may contain debt covenants which
restrict the Company's ability to receive funds from its operating subsidiaries.
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 the U.S. Government
Financing, vendor financing and cash on-hand will be sufficient to fund its
operations, debt service and the initial network build-out of the San Diego,
Boston, Orlando and San Antonio Markets, as well as substantially complete the
build-out of its networks in eight additional Markets.
Assuming the Offerings and committed vendor financings are consummated, in
order to finance the Company's operations, working capital and debt service
through the end of 2000, the Company will require an additional $
billion in public or private debt and equity financings. These financings will
be required, in part, to service the interest requirements of the Debt Offering
after three years from the completion of the Debt Offering and the U.S.
Government Financing and vendor financing.
The viability of the Company's business plan is dependent upon the
Company's ability to secure additional vendor financing and to successfully
complete either public or private debt and/or equity financings. If the Company
is unable to obtain such financings, then its ability to complete its network
build-out, begin generating revenues and meet its debt obligations to the U.S.
Government will be in jeopardy. Further, the exact amount of the Company's
future capital requirements will depend upon many factors, including the cost of
the development of its PCS networks in each of its Markets, the extent of
competition and pricing of wireless services in its Markets, the acceptance of
the Company's services, and the development of new consumer products.
40
<PAGE> 42
THE WIRELESS TELECOMMUNICATIONS INDUSTRY
OVERVIEW
Demand for wireless telecommunications services has grown dramatically
since the commercial introduction of cellular telephony in October 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 subscriber penetration in the United
States is estimated to be 14% and, according to Paul Kagan Associates, Inc., is
expected to be approximately 54% 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 approximately 1% of total telecommunications traffic. The Company
believes that demand for wireless service is highly elastic and that the
anticipated lower cost and higher quality of PCS service will stimulate further
growth in the wireless market.
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 has
inherent limitations, including limited capacity, inconsistent service quality
(e.g., poor voice quality and dropped calls), lack of effectiveness in
preventing "eavesdropping," susceptibility to fraud and "cloning" 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 allows digital-based PCS networks
to offer new and advanced services including greater call privacy, longer
battery life, 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 networks.
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 Washington, D.C./ Baltimore market, Sprint has operated a commercial PCS
operation since November 15, 1995, with more than 115,000 subscribers as of
September 1996, representing approximately one-third of wireless subscribers in
that market.
PCS differs from traditional cellular in three basic ways: frequency,
bandwidth and geographic service areas. PCS networks operate in a higher
frequency band (1850-1990 MHz) than cellular (800-900 MHz). PCS licenses also
comprise 30 MHz bandwidth (A, B and C-Blocks) or 10 MHz bandwidth (D, E and
41
<PAGE> 43
F-Blocks) versus 25 MHz bandwidth for cellular networks. As a result of the
utilization of improved digital technology from inception, PCS will have more
capacity for new wireless services such as data and video transmission than
traditional analog systems. Finally, PCS is geographically segmented among 51
regional service areas based upon Rand McNally's Major Trading Areas ("MTAs")
(comprising the A and B-Blocks) and 493 BTAs 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 assign radio frequency licenses for PCS by competitive
bidding. In March 1995, the FCC completed its first auction, the A and B-Block
Auction, 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 10 years. In
May 1996, the FCC completed the C-Block Auction, resulting in the award of one
30 MHz license in each of 493 BTAs with identical network construction
milestones to the A and B-Blocks. While MTAs are generally formed to cover an
area equal to state boundaries, the BTAs establish serving areas generally
aligned with cities and surrounding suburban and rural areas. In January 1997,
the FCC completed the D, E and F-Block Auctions, resulting in the award of three
licenses for 10 MHz of spectrum in each of 493 BTAs. Each licensee must
construct networks that serve at least one-fourth of the population within five
years of the grant of the applicable license and at least one-half of the
population within 10 years.
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 (the C and F-Blocks)
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 and F-Block Auctions. The C-Block represents 30 MHz BTA
licenses and the F-Block represents 10 MHz BTA licenses, with both sets of
licenses being auctioned on a nationwide basis. Together, the two blocks make up
the "Entrepreneurs Blocks." NextWave participated in the C-Block Auctions and
the F-Block Auction as a "Small Business" and a "Very Small Business,"
respectively, under the FCC regulations, and on a selective basis the D and
E-Block Auctions. The FCC has established additional preferences to assist
qualified participants in their efforts to attract capital necessary to obtain a
broadband PCS licenses at auction and build out their networks. These
preferences include bidding credits and installment payments for the C and
F-Block applicants or licensees. "Small Businesses" and "Very Small Businesses"
(as such terms are defined by the FCC rules), received a 25% bidding credit in
both the C and F-Block Auctions. In the C-Block Auctions, the payment terms
required a 5% deposit at the time of notification of being the highest bidder,
an additional 5% at the time of license grant, and the balance financed over 10
years with 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 (6.50% at time of grant for NextWave's C-Block licenses). In the
F-Block Auction, the payment terms required a 10% deposit at the time of
notification of being the highest bidder, an additional 10% at the time of
license grant, and the balance financed over 10 years with interest only for the
first two 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 F-Block licenses. See "Risk
Factors -- Uncertainty Regarding C-Block Licenses; Litigation" and
"Business -- Markets."
PCS TECHNOLOGY
PCS 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 coverage. The base
42
<PAGE> 44
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. 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
LECs 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 available to hand off
the call to an adjacent system.
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 and CDMA. These multiple access techniques
provide for 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. An
older version of TDMA developed in Europe, GSM constitutes the oldest and most
extensive 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 deployed by a number of cellular and PCS
providers in the U.S., and also has been implemented on a commercial basis in
Hong Kong and South Korea. CDMA networks are in operation in over 40 cities
worldwide and at least 100 additional networks are currently under construction.
Although CDMA has only recently been widely deployed in the U.S., it is the most
widely subscribed by PCS service providers and 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.
Because these protocols are incompatible with each other as well as with
analog cellular, a subscriber utilizing a GSM handset, 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 analog 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. PCS service
providers holding licenses covering 99% of the U.S. population have announced an
intent to use CDMA technology, including 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; Handsets."
43
<PAGE> 45
BUSINESS
GENERAL
NextWave was formed in May 1995 to build and operate PCS networks. In
January 1997, NextWave was granted PCS licenses representing approximately 110
million POPs with respect to 63 BTAs pursuant to the C-Block Auctions held by
the FCC. Upon final award of the licenses pursuant to the FCC's D, E and F-Block
Auctions which were completed in January 1997, in which the Company was declared
the winning bidder by the FCC for 32 BTAs representing approximately 53 million
POPs, NextWave's footprint will cover approximately 163 million POPs in 95 BTAs.
As a result, NextWave believes it has the third largest number of licensed POPs
among cellular and PCS licensees in the United States after AT&T and Sprint.
NextWave's aggregate FCC license cost is approximately $4.9 billion. NextWave
intends to operate as a carriers' carrier, building and operating digital
networks utilizing CDMA technology through which the Company will provide
advanced wireless communications services to a broad range of customers. The
Company has entered into agreements with a variety of communications providers,
including an agreement with MCI, pursuant to which MCI has agreed, subject to
certain conditions, to purchase a minimum of 10 billion MOUs over a 10-year
term. The Company has raised an aggregate of approximately $600 million in
private capital from over 70 major consumer electronics and network equipment
manufacturers, telecommunications service providers, financial institutions and
others to finance the acquisition of its PCS licenses and has received over $1.4
billion in vendor financing commitments to commence the build-out of its PCS
network.
NextWave believes that its Markets are among the most attractive markets in
the United States with some of the most densely populated cities, including New
York, Los Angeles, Chicago, Philadelphia, San Francisco, Boston, Washington,
D.C., Dallas, Houston and Detroit. Inclusive of its D, E, and F-Block licenses,
the Company will hold PCS licenses in each of the 10 most populous BTAs, 28 of
the top 30 BTAs and 40 of the top 50 BTAs. The Markets are also generally
characterized by demographics that would suggest higher than average use of
wireless telephony, including high disposable income levels, long average
commute times and significant percentages of dual household wage earners. The
Company believes that the high average population density characterized by
NextWave's Markets should lead to a lower average capital requirement associated
with network deployment relative to competitors that may be awarded licenses
covering less densely populated markets. See "-- Bidding Strategy and Markets."
The Company believes the demand for wireless telecommunications will
continue to grow and that PCS will capture a significant share of the wireless
market. Currently, wireless subscriber penetration in the United States is
estimated to be 14% and, according to Paul Kagan Associates, Inc., is expected
to be approximately 54% 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
represented approximately 1% of total telecommunications traffic. The Company
believes that demand for wireless service is highly elastic and that the
anticipated lower cost and higher quality of PCS service will stimulate further
growth in the wireless market.
The Company has targeted several categories of customers, including long
distance companies, LECs, CLECs, 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 NextWave, 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. Additionally, customers will retain number ownership and receive
favorable interconnection provisions, both of which are essential to facilitate
the integration of wireless services purchased from NextWave with their existing
platforms to provide seamless services to their customers.
On August 22, 1996, the Company entered into an Airtime Sale Agreement with
MCI, pursuant to which MCI has agreed to purchase a minimum of 10 billion MOUs
from the Company over the 10-year term, subject to certain conditions. Under the
MCI Agreement, the Company will provide MCI with Full Mobility Services (mobile
wireless service) and Area-Based Services (wireless local loop). The
interconnection of the Company's wireless network with MCI's intelligent network
will enable MCI to integrate wireless services
44
<PAGE> 46
with other MCI communications services, such as long distance, local exchange
and paging, as well as other features offered through MCI's intelligent services
platform. In connection with the MCI Agreement, the Company granted MCI (or has
agreed to grant MCI at the closing of the Equity Offering or shortly thereafter)
warrants to purchase shares of Series B Common Stock, representing up to 12% of
the Company's Common Stock on a Fully-Diluted Basis and has agreed to grant MCI
additional warrants upon MCI's exceeding certain MOU purchase milestones, up to
an aggregate of 25% of the Company's Common Stock on a Fully-Diluted Basis. See
"Description of Capital Stock -- Other Options, Warrants and Convertible Debt --
MCI Warrants." See "-- MCI Agreement."
BUSINESS STRATEGY
NextWave intends to build and operate digital networks through which the
Company will provide advanced wireless communications services. The principal
components of the Company's business strategy are:
- - OPERATE AS A CARRIERS' CARRIER. By operating as a wholesaler of MOUs,
NextWave will not market directly to consumers, but instead plans to sell MOUs
on its networks to branded wireless service providers, which in turn will sell
to consumers. Thus, NextWave's wholesale penetration of the wireless market
will equal the aggregate airtime purchases from NextWave by multiple branded
retailers. By leveraging the marketing and distribution resources of branded
wireless service providers, NextWave will not have to incur the significant
up-front costs associated with marketing, sales and the establishment of a
consumer brand name. The Company believes that its carriers' carrier strategy
will be attractive to a broad range of potential customers for several
reasons, including:
Minimal Network Capital Costs. Through reselling NextWave's MOUs, the
Company's customers will not be required to purchase licenses or make the
capital investments in network infrastructure equipment required to establish a
digital wireless network.
Economies of Scale. The Company believes its customers will be able to
take advantage of the benefits of scale which the Company believes are inherent
in its high volume operating strategy.
Provision of Seamless Network Services. NextWave intends to design its
digital wireless network architecture to allow PCS service providers to
interconnect their networks and existing platforms with the Company's network
and offer seamless service interfaces to their customers. In this configuration,
PCS service providers will be able to retain control over customer information
while providing uniform features and services throughout their markets.
Leverage Branding and Distribution. By removing the need to build and
operate wireless networks, NextWave will enable its customers to focus their
resources on branding, distribution, billing and customer service. The Company
believes that this will enable and encourage potential wireless resellers with
strong marketing skills and existing customer bases to profitably enter the
wireless resale business previously discouraged by insufficient margins and the
inability to integrate wireless services with their existing platforms and
operations.
NextWave is a Supplier, not a Competitor. NextWave's carriers' carrier
strategy affords its customers the opportunity to purchase services from a
network provider that is not a direct competitor in the branded retail market.
Given the required strategic and financial commitment associated with
interconnection and integration wireless services, the Company believes this
will be an important distinction between NextWave and its competitors.
Facilitate Integrated Service Offerings. The Company intends to design its
digital wireless network architecture to enable its customers to easily add
wireless services to integrated product offerings. The Company believes that the
movement among major branded providers, such as MCI, Sprint and AT&T, to
integrate their services will accelerate the trend toward greater product
integration and potentially reduce overall churn for those customers that
purchase integrated services.
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<PAGE> 47
- - ESTABLISH NATIONAL NETWORK. NextWave believes that its 163 million POPs will
represent the third largest number of licensed POPs among cellular and PCS
licensees in the United States. NextWave's licensed POPs, together with POPs
in BTAs for which the Company was the winning bidder in the D, E and F-Block
Auctions, represent over 65% of the U.S. population. The Company believes
that the breadth of its footprint and the demographics of its Markets enhance
its attractiveness to potential PCS service providers and will reduce
expensive out-of-region roaming charges. Additionally, NextWave intends to
selectively expand its footprint through strategic alliances or resale
agreements with other wireless service providers wherever needed.
- - PROVIDE LOW COST MOUS. 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. By focusing on BTAs with above average population
densities, the Company believes it will incur lower capital expenditures per
POP than those carriers which intend to serve less densely populated areas.
Additionally, the Company intends to (i) implement CDMA technology, which is
expected to require fewer cell sites for a given geographic coverage area
than alternative digital technologies; (ii) organize its Markets into
geographic regions, which the Company believes will result in operational
efficiencies and economies of scale; (iii) perform a significant portion of
its own network engineering and design rather than rely entirely on equipment
suppliers to design its networks; and (iv) sell MOUs to wireless service
providers rather than directly to end-users, significantly reducing the
Company's marketing expenses. NextWave expects its high volume strategy will
provide for increased capacity utilization and customer penetration which
should reduce the Company's average cost per MOU.
- - LEVERAGE TECHNICAL EXPERTISE. The Company has built 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, was integral to the successful development of CDMA
technology and the adoption by the Telecommunications Industry Association of
CDMA as an international standard (IS-95) while serving 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 a high-quality, low cost digital wireless network; (ii)
incorporate advances in wireless technology in the Company's networks as
appropriate; and (iii) capitalize on emerging trends and opportunities in the
wireless industry by developing new products and services at a lower cost
than if purchased entirely from third party vendors.
- - OFFER VALUE-ADDED PRODUCTS AND SERVICES. The Company intends to offer
value-added products and services such as wireless local loop services and
wireless PBX applications. The Company believes its networks will also
support advanced wireless services including caller ID, over-the-air
activation, short message services, circuit-switched and packet data,
facsimile, integrated voice mail and paging, call answering and handset-based
Internet access. The Company also plans to develop and market other wireless
services, either on its own or in partnership with other companies, including
PCS service providers. Some of these value-added products and services are
under development by the Company or the manufacturers of CDMA infrastructure
equipment. There can be no assurance if and when such products and services
may be available for sale by the Company.
BIDDING STRATEGY AND MARKETS
NextWave focused on acquiring licenses in the C-Block Auctions for BTAs
clustered in 11 geographic regions throughout the United States. Additionally,
the Company focused on acquiring licenses in the D, E and F-Block Auctions in
the remaining large cities and those which provided corridor and or
complementary coverage to the licenses obtained in the C-Block Auctions. 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 11 regions are New York Metro, Western, Midwest, Southwest,
Mid-Atlantic, Mid-America, New England, Southeast,
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<PAGE> 48
Northwest, Great Lakes and Philadelphia. Within each region NextWave sought
densely populated markets, including New York City, Los Angeles, San Diego, San
Francisco, Chicago, Detroit, Atlanta, Washington D.C./Baltimore, Philadelphia,
Boston, Seattle, Portland, Minneapolis-St. Paul, Denver, Cincinnati, Cleveland,
Dallas, Houston, Pittsburgh, Providence, Tampa and Kansas City. NextWave also
targeted markets with favorable demographics, such as higher than average
cellular airtime usage, pricing of wireless services, population growth and
household income, including Austin, Charlotte, Jacksonville, Orlando and San
Antonio and smaller markets that filled-out its geographic regions.
Set forth below is a summary of each of NextWave's 95 Markets. In each
Market there are presently two other PCS licensees who were awarded licenses in
the A and B-Block Auctions and two cellular providers, each of which may compete
against the Company in these Markets. There may be up to three additional PCS
licensees in each Market. Unless otherwise noted, NextWave's Markets were
acquired in the 30 MHz C-Block Auctions.
SUMMARY OF NEXTWAVE'S MARKETS
<TABLE>
<CAPTION>
REGIONS POPs
- ------------------------------------------------------------------------------- -----------
<S> <C>
WESTERN
Los Angeles, California........................................................ 15,679,293
San Francisco, Oakland, San Jose, California................................... 6,842,466*
San Diego, California.......................................................... 2,679,864
Sacramento, California......................................................... 1,832,812*
Las Vegas, Nevada.............................................................. 1,145,084*
El Centro - Calexico, California............................................... 145,033*
----------
TOTAL................................................................ 28,324,552
==========
NEW YORK METRO
New York City.................................................................. 18,400,203
Albany-Schenectady, New York................................................... 1,057,180
New Haven, Connecticut......................................................... 976,729
Poughkeepsie, New York......................................................... 433,907
----------
TOTAL................................................................ 20,868,019
==========
MIDWEST
Detroit, Michigan.............................................................. 4,785,173*
Cleveland-Akron, Ohio.......................................................... 2,940,521
Pittsburgh, Pennsylvania....................................................... 2,517,972
Cincinnati, Ohio............................................................... 2,091,774
Columbus, Ohio................................................................. 1,574,030
Louisville, Kentucky........................................................... 1,428,320
Indianapolis, Indiana.......................................................... 1,420,258
Dayton, Ohio................................................................... 1,218,672
Lexington, Kentucky............................................................ 876,111
Evansville, Indiana............................................................ 515,387
Lafayette, Indiana............................................................. 258,941
Bloomington, Indiana........................................................... 233,015
Columbus, Indiana.............................................................. 149,130
----------
TOTAL................................................................ 20,009,304
</TABLE>
47
<PAGE> 49
<TABLE>
<CAPTION>
REGIONS POPs
- ------------------------------------------------------------------------------- ----------
<S> <C>
==========
MID-ATLANTIC
Washington, D.C................................................................ 4,410,587
Baltimore, Maryland............................................................ 2,552,338
Charlotte, North Carolina...................................................... 1,861,677
Norfolk, Virginia.............................................................. 1,785,196
Greensboro, North Carolina..................................................... 1,330,742
Richmond, Virginia............................................................. 1,191,504
Greenville-Spartanburg, SC..................................................... 845,335*
Roanoke, Virginia.............................................................. 644,394
Columbia, South Carolina....................................................... 618,397*
Asheville, North Carolina...................................................... 549,969
Hagerstown, Maryland........................................................... 347,982
Hickory, North Carolina........................................................ 314,730
----------
TOTAL................................................................ 16,452,851
==========
SOUTHWEST
Dallas-Ft. Worth, Texas........................................................ 4,828,566*
Houston, Texas................................................................. 4,598,155
San Antonio.................................................................... 1,728,049
Austin, Texas.................................................................. 1,074,621
El Paso, Texas................................................................. 754,934
McAllen, Texas................................................................. 543,624
Corpus Christi, Texas.......................................................... 541,452*
Temple-Kileen, Texas........................................................... 343,016
Brownsville, Texas............................................................. 334,767
Tyler, Texas................................................................... 292,394*
Las Cruces, New Mexico......................................................... 229,629
Bryan-College Station, Texas................................................... 171,794
----------
TOTAL................................................................ 15,441,001
==========
GREAT LAKES
Chicago, Illinois.............................................................. 8,467,720*
Minneapolis, Minnesota......................................................... 3,063,561
Milwaukee, Wisconsin........................................................... 1,799,556*
Madison, Wisconsin............................................................. 643,605*
Janesville-Beloit, Wisconsin................................................... 230,017*
Kankakee, Illinois............................................................. 131,992*
----------
TOTAL................................................................ 14,336,451
==========
</TABLE>
48
<PAGE> 50
<TABLE>
<CAPTION>
REGIONS POPs
- ------------------------------------------------------------------------------- -----------
<S> <C>
MID-AMERICA
St. Louis, Missouri............................................................ 2,807,363*
Denver, Colorado............................................................... 2,386,290
Kansas City, Missouri.......................................................... 1,930,633
Salt Lake City-Ogden, Utah..................................................... 1,497,885*
Oklahoma City, Oklahoma........................................................ 1,368,004
Tulsa, Oklahoma................................................................ 836,559*
Springfield, Missouri.......................................................... 600,376
Provo-Orem, Utah............................................................... 316,483*
Joplin, Missouri............................................................... 227,313
-----------
TOTAL................................................................ 12,029,134
===========
SOUTHEAST
Atlanta, Georgia............................................................... 3,763,994*
Tampa, Florida................................................................. 2,394,524
Orlando, Florida............................................................... 1,447,059
Jacksonville, Florida.......................................................... 1,208,139
Sarasota, Florida.............................................................. 563,016
Daytona Beach, Florida......................................................... 456,938*
Melbourne, Florida............................................................. 450,744
Lakeland, Florida.............................................................. 436,578
Gainesville, Florida........................................................... 282,711
Ocala, Florida................................................................. 234,556*
-----------
TOTAL................................................................ 11,238,259
===========
PHILADELPHIA
Philadelphia, Pennsylvania..................................................... 5,984,423*
Allentown, Pennsylvania........................................................ 715,191
Harrisburg, Pennsylvania....................................................... 685,936*
Scranton, Pennsylvania......................................................... 680,311
Lancaster, Pennsylvania........................................................ 454,432*
York-Hanover, Pennsylvania..................................................... 448,997*
Reading, Pennsylvania.......................................................... 352,204*
Atlantic City, New Jersey...................................................... 336,738*
Dover, Delaware................................................................ 282,991*
Salisbury, Maryland............................................................ 178,973*
-----------
TOTAL................................................................ 10,120,196
===========
NEW ENGLAND
Boston, Massachusetts.......................................................... 4,177,962
Providence, Rhode Island....................................................... 1,505,903
Worcester, Massachusetts....................................................... 722,407
Springfield-Holyoke, Massachusetts............................................. 667,912*
Manchester, New Hampshire...................................................... 564,985
Portland, Maine................................................................ 489,045
New London, Connecticut........................................................ 355,074
Pittsfield, Massachusetts...................................................... 135,097*
-----------
TOTAL................................................................ 8,618,385
===========
</TABLE>
49
<PAGE> 51
<TABLE>
<CAPTION>
REGIONS POPS
- ------------------------------------------------------------------------------- -----------
<S> <C>
NORTHWEST
Seattle-Tacoma, Washington..................................................... 3,055,225
Portland, Oregon............................................................... 1,945,500
Olympia, Washington............................................................ 322,527
Bellingham, Washington......................................................... 153,686
Longview, Washington........................................................... 96,036
-----------
TOTAL................................................................ 5,572,974
==========
TOTAL.......................................................................... 163,011,126
==========
</TABLE>
* Indicates BTAs for which the Company was the winning bidder in the D, E
and F-Block Auctions, all of which are 10MHz licenses. The Detroit, Michigan;
Madison, Wisconsin; El Centro, California; Pittsfield, Massachusetts; and
Springfield-Holyoke, Massachusetts Markets were acquired in the D and E-Block
Auctions.
NextWave will seek to expand the footprint of its wireless networks
throughout the United States through a combination of potential affiliations,
alliances and acquisitions. 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 as a wholesaler of MOUs to wireless service
providers. This strategy includes favorable pricing for volume-based resale and
integration of network architectures with several strategic, facilities-based
customers, including MCI. Additionally, NextWave intends to provide a package of
wireless products to those customers who prefer an integrated solution. The
Company has established national sales and marketing teams to focus on major
national PCS service providers, in addition to regional sales and marketing
teams which will target the regional reseller market and various 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 as 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, LECs,
CLECs, 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.
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 similar
wholesale arrangements for wireless airtime do currently exist, the Company
believes that such arrangements are unattractive to potential PCS service
providers given the cost associated with acquiring such MOUs, as well as the
customers' inability to interface directly into the carrier's network.
Additionally, NextWave believes that PCS service providers will prefer
long-term, strategic relationships with wholesale carriers such as NextWave,
rather than purchasing wholesale MOUs from carriers that are also retail
competitors.
MCI AGREEMENT
On August 22, 1996, the Company entered into the MCI Agreement with MCI,
pursuant to which the Company has agreed to sell PCS services to MCI in each and
every Market for which the Company is awarded or otherwise obtains a PCS
license, or enters into a reciprocal airtime or roaming agreement with any LEC
or local wireless operator. Under the MCI Agreement, the Company will provide
MCI with Full Mobility Services and Area-Based Services. In connection with the
MCI Agreement, MCI has agreed to provide the Company on competitive terms
certain services to facilitate the build-out of the Company's network, including
leasing locations for switch installation, co-location of NextWave cell sites
with MCI facilities and the use of MCI Metro's facilities and MCI's long
distance T-1 and T-3 lines for backhaul to interconnect the NextWave network of
base stations and switches.
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MCI provides a broad range of communications services, including long
distance telecommunications services, local and wireless services and
information technology services. MCI is the second largest carrier of domestic
long distance telecommunication services and the third largest carrier of
international telecommunication services, with publicly reported revenues of $18
billion in 1996. Although MCI's core business is long distance telecommunication
services, MCI offers integrated service packages to consumers and businesses
under the marketing programs MCI One(TM), and Network MCI One(SM), respectively,
which include local, long distance, wireless, voice-mail, paging, Internet and
e-mail options from MCI. The MCI Agreement will allow MCI to include PCS
services as part of its integrated service package. MCI has entered into an
agreement with BT pursuant to which BT will acquire MCI. Upon consummation of
that transaction, the combined entity will be the second largest
telecommunications company in the world.
MCI's Purchase Commitment
Pursuant to the MCI Agreement, Full Mobility Services, which consist of the
provision of services comparable to cellular services currently offered in the
Markets, will be provided to MCI as bulk airtime. The NextWave network will be
interconnected to the MCI network. As a result of such interconnection,
intelligent network services (e.g., customer profile information and
authentication) and enhanced services (e.g., voice mail, call waiting and call
forwarding) will be provided through MCI's intelligent network. Through this
interconnection of networks, MCI will be able to integrate wireless services
intended for MCI's customer base with other MCI communications services offered
through MCI's intelligent services platform. In addition, MCI will be able to
perform a full range of customer service and management actions through a
datalink to NextWave's service management platform.
Purchase Commitment and Pricing. Under the MCI Agreement, MCI has agreed
to purchase a minimum of 10 billion MOUs from the Company over the 10-year term
of the agreement. This commitment may be increased to 12 billion MOUs if, by the
fifth anniversary of the commencement of provision of Full Mobility Service,
NextWave expands the footprint for its network to more than 180 million POPs,
including POPs covered by roaming or other reciprocal airtime arrangements (the
"Purchase Commitment"). In any event, the Purchase Commitment will be deemed
satisfied once MCI has paid an aggregate of $1 billion for Full Mobility
Services. There is no schedule of minimum purchases by MCI in any given year;
however, MCI is required to provide NextWave with MOU purchase forecasts on a
quarterly basis. Pricing for Full Mobility Services is derived from a
volume-based rate schedule or a discount from the prevailing market rates for
wireless mobile services, whichever is lower, subject to certain fixed price
floors. The MCI Agreement also provides for additional pricing incentives if (i)
MCI increases its annual MOU purchases by more than 100% on a year-over-year
basis or (ii) MCI purchases certain minimum percentages of its total Full
Mobility Services usage from NextWave after MCI's total MOU purchases from
NextWave have exceeded 30 billion MOUs.
Conditions to Purchase Commitment. Under the MCI Agreement, MCI's
obligation to fulfill the Purchase Commitment at any time is subject to certain
conditions, including: (i) the Company's not being in material breach of any of
its agreements with MCI; (ii) the Company's provision of Full Mobility Services
to at least 70 million POPs by December 31, 2001; and (iii) the Company's
provision of Full Mobility Services that are fully compatible with MCI's
network.
In the event the Company has not offered Full Mobility Services for a
period of at least six consecutive months in BTAs covering at least 55 million
POPs by December 31, 1998, the Purchase Commitment then in effect will be
reduced by 10% and will be further reduced by an additional 10% for each
subsequent year or portion thereof during which the Company's Full Mobility
Services do not meet such threshold. Further, in the event the Company has not
offered Full Mobility Services for a period of at least six consecutive months
in BTAs covering at least 85 million POPs by December 31, 2001, the Purchase
Commitment then in effect will be reduced by an amount proportionate to the
number of POPs by which the threshold has not been met and will be further
reduced by an additional 5% for each subsequent year or portion thereof during
which the Company's Full Mobility Services do not meet such threshold.
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The Purchase Commitment in effect at any given time may be reduced
proportionally by the percentage of Full Mobility Services or aggregate licensed
POPs affected if (i) the Company sells, transfers or otherwise loses control or
ownership of any PCS license, and such event results in the loss of a specified
percentage of POPs; (ii) the Company fails to meet certain pricing criteria in
any Market; or (iii) the Company's PCS network in any Market fails to meet
certain service, quality and capacity requirements.
Area-Based Services
Under the terms of the MCI Agreement, NextWave has agreed to reserve up to
10% of its network capacity for the provision of Area-Based Services to MCI.
Area-Based Services involve the provision of PCS services in a residential or
business environment, within a particular perimeter, and are intended to be an
alternative or replacement for wireline services. The pricing to MCI for
Area-Based Services MOUs will be established at levels to make prices for the
services competitive with local exchange services offered by LECs, excluding
other charges such as connection and installation fees, wiring and maintenance
fees, equipment charges and taxes and value-added services. Calls will not be
terminated or interrupted as subscribers transition to and from Area-Based and
Full Mobility usage. Area-Based Services are currently planned to be available
on a limited basis at the time NextWave initiates commercial Full Mobility
Services in its Markets.
Purchases of Area-Based Services MOUs do not apply against MCI's Full
Mobility Purchase Commitment. If MCI desires to increase its usage of Area-Based
Services beyond the allocated 10% network capacity, it may do so by financing
100% of the direct costs associated with such capacity increases. Any financing
provided by MCI would bear interest at a rate of prime plus 3%, and would be
repaid through a temporary reduction in the Area-Based Services airtime rate.
The principal terms of the Area-Based Services arrangement, including pricing
and network allocation, are set forth in the MCI Agreement and will be
supplemented by more detailed terms relating to the description of the
Area-Based zones (i.e., perimeter size) designated within Area-Based Services
coverage areas.
Switchless Services
In the event that the Company completes construction of the PCS network and
commences offering network services (e.g., customer profile information and
authentication) or any other enhanced services (e.g., voice mail, call
forwarding and call waiting) in a Market where MCI is unable to connect its
network to the NextWave network, the Company will provide MCI with the
opportunity to sell NextWave network services or any other enhanced services as
a provider of switchless services at prices and on terms and conditions no less
favorable than those offered to any other of the Company's customers, including
any affiliate of the Company.
Term and Termination
The 10-year term of the MCI Agreement commences on the date Full Mobility
Services become available on a commercial basis in the Company's first Market,
and may be renewed at the election of MCI for one additional five-year term, at
prices to be agreed upon by the parties. If MCI notifies the Company of its
desire to renew the agreement, but MCI and the Company are unable to agree upon
the terms and conditions of such renewal as of six months prior to the
expiration of the term of the agreement, the agreement will be extended for two
years on its original terms. If no agreement is reached by the parties during
the two year extension, the MCI Agreement will expire at the end of such
transition period.
MCI may terminate the MCI Agreement if any of the following events, among
others, occur: (i) MCI's obligations to fulfill the Purchase Commitment are
eliminated or (ii) the Company fails to acquire, develop and maintain
commercially available state-of-the-art feature functionality in its PCS network
and, within 60 days of MCI's notice to the Company of such failure, MCI and the
Company are unable to reach an agreement on a technical solution and
implementation schedule relating to such failure. At any time, MCI may terminate
network services in a Market if such Market fails to meet certain service,
quality and capacity requirements.
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Change of Control
If the Company sells or otherwise transfers control of any PCS license to a
third-party, MCI may require that the Company obligate the transferee or
purchaser to continue to provide services to MCI on the terms and conditions of
the MCI Agreement for the remaining term of the MCI Agreement or 30 months after
the consummation of such sale or transfer, whichever is later. In addition, the
Company has granted MCI a right of first refusal on the sale of its PCS license
in any Market during the term of the MCI Agreement, subject to compliance with
FCC rules and regulations. Such right of first refusal does not apply to the
acquisition of all the outstanding shares of the Company, whether by sale of
stock, merger or otherwise, or to a transaction involving the swapping or
exchange of PCS licenses which does not result in a net reduction of more than
1% of the POPs represented by the Company's PCS licenses.
For a description of certain warrants granted or agreed to be granted to
MCI in connection with the MCI Agreement, see "Description of Capital
Stock -- Other Options, Warrants and Convertible Debt -- MCI Warrants."
PURCHASE AGREEMENTS WITH RESALE SERVICE PROVIDERS
The Company has entered into five 10-year PCS Resale Agreements, covering
an aggregate of 25 billion MOUs, with each of Cellexis International
("Cellexis"), an Arizona-based company and one of the nation's largest
distributed prepaid wireless service providers, United Calling Network, Inc.
("UCN"), a Southern California-based LEC, Personal Communications Network, Inc.
("PCN"), a subsidiary of Electronic Communications Corp. which is a master agent
for Bell Atlantic NYNEX Mobile in the New York area, Flagship Wireless Inc., a
San Diego-based wireless service provider ("Flagship") and One Stop Wireless of
America, Inc., a wireless service provider based in Irvine, California ("One
Stop," and together with Cellexis, UCN, PCN and Flagship, the "Resale Service
Providers"). Such agreements are collectively referred to herein as the "PCS
Resale Agreements." Pursuant to the PCS Resale Agreements, the Company has
agreed to sell PCS services to the Resale Service Providers in each and every
Market for which the Company is awarded or otherwise obtains a PCS license, or
enters into a reciprocal airtime or roaming agreement with any local exchange
carrier or any local wireless operator. Under the PCS Resale Agreements, the
Company will provide the Resale Service Providers with Full Mobility Services.
Full Mobility Services will be provided to the Resale Service Providers as bulk
airtime.
Purchase Commitment and Pricing
Under the PCS Resale Agreements, the Resale Service Providers have each
agreed to Purchase, on a take-or-pay basis, a minimum of five billion MOUs from
the Company (the "PCS Resale Purchase Commitment"). The PCS Resale Agreements
each provide for a staggered PCS Resale Purchase Commitment over the 10-year
term of the agreements. The Resale Service Providers have each agreed to
purchase (i) at least 5% of their respective PCS Resale Purchase Agreement by
the end of three years from the date NextWave first offers Full Mobility Service
on a commercial basis in either the New York City or Los Angeles Market (the
"Commercial Service Date"); (ii) at least 25% of their respective PCS Resale
Purchase Commitment by the end of five years from the Commercial Service Date;
and (iii) 100% of their respective PCS Resale Purchase Commitment by the end of
the term of the agreements. Pricing for Full Mobility Services is derived from a
volume-based rate schedule or a discount from the prevailing market rates for
wireless mobile services, whichever is lower, subject to certain fixed price
floors. The PCS Resale Agreements also provide for additional pricing incentives
if the Resale Service Providers increase their respective annual MOU purchases
by more than 100% on a year-over-year basis or achieve certain average monthly
MOU sales per subscriber. In the event that Cellexis purchases in excess of 10
billion MOUs or UCN, PCN, Flagship or One Stop purchases in excess of five
billion MOUs during the 10-year term of their respective agreement, the parties
to such PCS Resale Agreement will meet to determine the pricing for volume
breaks above such MOU thresholds with respect to such party.
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In addition, for each of the first four billion MOUs purchased by any of
the Resale Service Providers pursuant to their respective agreements, an
additional $0.02 per MOU will be remitted to a third party escrow agent by such
Resale Service Provider to ensure the purchase of its full PCS Resale Purchase
Commitment.
Conditions to PCS Resale Purchase Commitments
Under the PCS Resale Agreements, the obligations of the Resale Service
Providers to fulfill their respective PCS Resale Purchase Commitments at any
time is subject to certain conditions, including (i) the Company's provision of
Full Mobility Service to at least 40 million POPs by December 31, 1998, and at
least 70 million POPs by December 31, 2001; (ii) the Company's provision of
airtime in its Markets meeting jointly agreed upon technical specifications,
including specifications for availability, capacity, coverage, hand-off,
interconnection and service quality; and (iii) the Company's interconnection
with IXCs such as AT&T, Sprint and MCI via trunk connections with their points
of presence at the expense of the IXC and with other long-distance carriers
under similar conditions.
Reseller Switch Interface and Enhanced Services
NextWave will make available to the Resale Service Providers network
services (e.g., customer profile information, authentication and, if
practicable, call detail recording access) and other enhanced services (e.g.,
voice mail, call forwarding and call waiting) at mutually agreed upon prices.
NextWave will also make available to the Resale Service Providers a direct
connection interface to a switch owned and operated by each such Resale Service
Provider, as the case may be, for the delivery of such Resale Service Providers
calls, to and from the Public Switched Telephone Network ("PSTN"). In addition,
NextWave plans to offer a family of enhanced services which may include voice
mail, enhanced voice, short messaging, custom calling features (e.g., call
waiting, three-way calling, call forwarding, etc.), single number service,
e-mail, fax store and forward, star features and information services. These
services will be offered to the Prepaid Service Providers on an individual
and/or package basis on terms to be agreed upon. NextWave will also offer each
of the Resale Service Providers the opportunity to provide its own enhanced
services platform, subject to NextWave's right to set the interface standard for
any connection to NextWave's switches. Any costs involved with such interface
will be borne solely by such Resale Service Provider.
Term and Termination
The 10-year term of the PCS Resale Agreements commences on the first day of
commercial availability of Full Mobility Service in any of the Markets, provided
the conditions to the respective Resale Service Provider's obligation to fulfill
its PCS Resale Purchase Commitment have been met, after which such agreement
will be renewable, at such Resale Service Provider's option, respectively, for
an additional five-year period, at prices to be agreed upon by the parties. One
year prior to the expiration of the initial 10-year term, the parties will meet
to determine the pricing of the five-year renewal period. If the parties are
unable to reach an agreement on the pricing at least six months prior to the
expiration of the initial 10-year term of the PCS Resale Agreements, the then
existing terms and conditions, including pricing, will continue for a transition
period of six months after the expiration of the initial 10-year term.
The Company also has entered into other reseller agreements with regional
wireless service providers. These agreements cover the major metropolitan areas
in many of the Company's 11 regions.
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 interconnect its network with its resellers'
networks to provide a host of value-added products and enhanced services
allowing its customers to be more competitive. The Company expects its networks
will
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support features designed to increase usage and provide consumers greater
capabilities in call management, including the following:
Advanced Handsets. CDMA handsets weighing approximately eight ounces will
offer up to two days of standby time and approximately 240 minutes of 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 PCS service
provider'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 PCS service
provider's 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.
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 business applications. TELE*Code
has entered into a relationship with SONY to develop niche consumer products,
including certain wireless local loop products and services.
The Company believes that its 30 MHz licenses awarded in the C-Block
Auctions, as well as the 10 MHz licenses for which it was named the winning
bidder in the D, E and F-Block Auctions, will provide sufficient bandwidth to
deploy all of these products and services while meeting its targeted usage
levels for basic wireless services. Upon final grant of the licenses for which
it was named the winning bidder in the D, E and F-Block Auctions, the Company
intends to pursue strategic alliances with certain potential partners in its D,
E and F-Block Markets where it may be helpful to avoid network capital costs
associated with additional base stations that may be otherwise required to
deploy these products and services.
Substantially all of these value-added products and services remain under
development by the Company or the manufacturers of CDMA infrastructure
equipment. There can be no assurance if and when such products and services may
be available for sale by the Company.
NETWORK BUILD-OUT
General. The Company intends to launch commercial services in several key
Markets in 1997. The initial Markets that are expected to commence service
include Boston, San Diego, Orlando, and San Antonio.
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The New York City, Los Angeles, Washington, D.C./Baltimore, and Houston Markets
are scheduled to follow with commercial service anticipated early in 1998. The
Company plans to continue to bring additional Markets into service during 1998,
with the majority of C-Block Markets in service by the end of 1998. The Company
intends to commence service in selected D, E and F-Block Markets within one year
of the award of its licenses. Under its network build-out plan, the Company
currently anticipates that it will complete the build-out of its Markets by the
end of 2000, at which time the Company anticipates that 80% of its licensed POPs
will be served.
In May 1996, the Company began its initial site acquisition for the
build-out of its Markets. The Company rapidly staffed its regional engineering
and implementation personnel to manage and support the national network
deployment. As of January 15, 1997, NextWave employed approximately 240 field
engineering and operations personnel. In addition, approximately 300 contractors
and consultants have been engaged to support the Company's current site
development, microwave relocation and network design activities. To more
efficiently manage network deployment, the Company's Markets are grouped into 11
regions. As of January 15, 1997, 17 regional field implementation offices were
established to direct local buildout activities.
The Company has also installed and operated CDMA demonstration systems in
its San Diego and Washington, D.C./Baltimore Markets. At the Republican National
Convention in San Diego in August 1996, the Company conducted the first C-Block
PCS call under a special temporary authority from the FCC. A second system was
installed and activated in Washington, D.C. in October 1996.
Unlike many other PCS operators, NextWave will perform a substantial
portion of its own network design and systems engineering, rather than relying
predominantly on equipment vendors to provide such services. The Company
believes it will garner certain competitive advantages by designing its networks
in-house using its proprietary CDMA engineering tools rather than out-sourcing
such services from equipment vendors. These advantages include optimizing cell
count in the PCS network (rather than over-installing equipment), lower
engineering costs, customized network management, and implementation of common
engineering guidelines and tools. The Company may face certain disadvantages by
performing its own system design and engineering, including increased potential
for system performance disputes with vendors and the Company's reliance on
recruiting and retaining qualified engineering personnel.
Network Planning and Design. The Company's national 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. The Company has
completed its initial regional network engineering plans and is now completing
the review of its network services platform. Switching facilities are now under
development in eight regions with construction at or near completion in three.
Extensive evaluations of network management and operations platforms with
customization to support technical and market trials are underway in the
Company's New York offices. In addition, the Company has initiated preliminary
discussions with CLECs and LECs to establish low cost interconnection with its
network.
Radio Frequency Engineering. Beginning in June 1996, as qualified sites
were identified, the Company conducted extensive RF field measurements and
engineering studies in all of its Markets to optimize the performance of its RF
planning tools and to assess prospective sites for development. During its
initial Market assessments, the Company pre-qualified over 4,000 sites and has
incorporated these sites where practical into its detailed system design.
NextWave has completed its detailed RF engineering plans for deployment of CDMA
systems in its New York City, Los Angeles, Boston, Washington, D.C./Baltimore,
Houston, Cleveland, San Diego, Tampa, San Antonio and Austin Markets. The 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. Since May 1996, the Company has initiated 60-90
day bulk site assessments in all nine initial C-Block regions and has completed
these
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activities in eight regions. To date, all field assessments resulted in
cataloging and identifying over 8,000 qualified sites required to support the
detailed RF design. The Company believes that approximately 20% of its initial
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. The Company has several hundred leases in review and has control of
approximately 10% of the sites required to be leased in 1997. In connection with
the MCI Agreement, MCI has agreed to provide to the Company on competitive
certain terms services to facilitate the build-out of the Company's network,
including leasing locations for switch installation and co-location of NextWave
cell sites with MCI facilities and the use of MCI Metro's facilities and MCI's
long-distance T-1 and T-3 lines for backhaul to interconnect the NextWave
network of base stations and switches.
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 collocate with existing operators
and thereby minimize the necessity of tower construction.
Program/Construction Management. Since May 1996, the Company has completed
detailed requests for quotation for outsourced site acquisition, construction
management, materials and site development services. The Company has entered
into agreements for construction management services with Volt Information
Sciences, Koll Telecom, Black & Veatch, GTE and Stone & Webster to support its
activities. NextWave also has entered into an agreement with LCC International
to provide the Company with no less than $50 million of RF engineering services,
program management services, software and test equipment over a five and one
half year period. The Company has entered into a purchase and supply agreement
with The Allen Group for the purchase by the Company of $50 million worth of
products and services, including test equipment, microwave relocation services,
antennae and other base station materials. The Company is implementing its
network production and staffing plans for each of its 11 regions 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. A comprehensive
project, location and functional coding structure is in place to capture all
network deployment costs. The Company's financial systems are being extended and
integrated with project cost accounting capabilities, workflow management, asset
tracking and detailed budgeting systems. The Company plans to implement bar
code-based asset tracking to control the placement and location of its assets in
each of the regions.
Incumbent Microwave Relocation. NextWave has performed engineering studies
which indicate that there are approximately 750 microwave links, utilized by
utility companies, public safety agencies, corporations and other carriers
within the Company's C, D, E and F-Block spectrum allocation. The Company's
studies indicate that approximately 75% of these links will require relocation
at an average cost of approximately $250,000 per link to permit the launch of
initial service. Of the approximately 550 links requiring relocation, more than
60% of these have been or will be relocated by A, B and C-Block licensees and
will result in payments by the Company to such licensees under a cost sharing
program established by the FCC. The Company expects to have to relocate fewer
than 100 links in order to establish commercial CDMA service in its initial
markets.
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 has completed its initial technical
evaluation of leading network management platforms. 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 utilized 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
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cost-effective PCS network deployment and in pricing the Company's MOUs. In
October 1996, the Company issued its detailed request for quotation regarding
the Company's billing, provisioning and other network interface systems to
support its customer requirements.
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 technology has been implemented on a wide commercial scale in the United
States and certain Asian and South American markets over the last 12 months.
CDMA networks are currently operating in such U.S. markets as Los Angeles,
Chicago, Houston, Dallas-Fort Worth and over 40 other markets worldwide. The
first commercial use of CDMA began in October 1995 in Hong Kong for 800 MHz
cellular operations. Two cellular networks in Korea began operation using CDMA
technology in April 1996. As of December 1996, these Korean CDMA networks had
over 900,000 subscribers. Since November 15, 1995, Sprint has operated a
commercial PCS operation in the Washington, D.C./Baltimore market, and had more
than 115,000 subscribers as of September 1996, representing approximately
one-third of wireless subscribers in that market. 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 than analog systems. 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, analog cellular or other digital PCS 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 temporary increases 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 hand-off, which connects a mobile customer's
call with a new cell site while maintaining a connection with 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. Recent network build-outs 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 loading 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
customers advanced features such as simultaneous voice and data transmission
and, ultimately, high-speed wireless applications such as video, multimedia and
ISDN-rate data services.
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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.
Longer Battery Life. Due to their greater efficiency in power consumption,
CDMA handsets will provide a longer talk time and standby availability than
those utilizing alternative digital or analog technologies.
EQUIPMENT VENDORS
In connection with the construction of its PCS network and the preparation
for launch of commercial service, the Company has entered into numerous
contracts with various vendors of CDMA infrastructure equipment. The Company has
obtained financing commitments from Hughes, Lucent, LGIC, Comdisco and The Allen
Group providing for up to $1.445 billion of vendor financing facilities for the
purchase of CDMA infrastructure equipment and services, $1.25 billion of which
could become available to the Company in 1997. In addition, LGIC has committed
to provide an additional $500 million of financing subject to the Company
meeting certain milestones. Lucent and Hughes have the option, at their
election, to supply up to approximately $1.6 billion of additional equipment for
the build-out of certain Markets, subject to their agreement to provide the
financing for such purchases. These vendor supply arrangements are described
below.
Hughes
Hughes Supply Agreement. Pursuant to the Hughes Supply Agreement, Hughes
has committed to supply and finance the purchase by the Company of PCS
infrastructure equipment and ancillary services. Hughes will provide $245
million of equipment and services to the Company for deployment pursuant to
vendor supply contracts to be entered into pursuant to the Hughes Supply
Agreement (the "Hughes Initial Equipment"). Pursuant to the Hughes Supply
Agreement, Hughes has the option to provide a vendor financing facility to
finance the purchase of up to an additional $755 million in PCS infrastructure
equipment and services through December 31, 2002 (the "Additional Hughes
Equipment"). Hughes would finance the purchases of the Hughes Initial Equipment
under the Hughes Credit Facility described below.
During the 180-day period following the closing of the Equity Offering,
Hughes may deliver a notice to the Company of the availability of an additional
$245 million in vendor financing to finance the purchase of Additional Hughes
Equipment in certain Markets. During the period from June 1, 1998 through
December 31, 2002, the Company will offer to purchase the remaining portion of
the Additional Hughes Equipment for deployment in certain Markets. The Hughes
Supply Agreement provides Hughes with rights to supply such infrastructure
equipment to the Company in those Markets on favorable terms and at competitive
prices.
In connection with the Hughes Supply Agreement, contingent upon the
conversion of the Hughes Convertible Note, the Company has committed to make
certain research and development funding payments to Hughes in the amount of $8
million, payable in 1997. In the event that the price per share
attributable to the Series B Common Stock in the Equity Offering exceeds $8.00
(calculated by subtracting the value of the CTR from the price per Unit in the
Equity Offering), such $8 million will be payable in two equal installments in
October 1997 and October 1998. In the event the price per share attributed to
the Series B Common Stock in the Equity Offering is less than $7.00 (calculated
by subtracting the value of the CTR from the price per Unit in the Equity
Offering), such amount would be increased pursuant to a formula
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based on the public offering price, up to an aggregate of $12 million, and,
subject to certain conditions, would be payable in three installments over three
years.
Hughes Credit Facility. In connection with the Hughes Supply Agreement,
and pursuant to a term sheet dated October 30, 1996, between the Company and
Hughes, Hughes has committed to provide the Company with a vendor credit
facility (the "Hughes Credit Facility") for 100% of the purchase price of PCS
infrastructure equipment and services provided by Hughes for the Hughes Initial
Equipment up to an aggregate of $245 million (the "Hughes Initial Financing").
Of this amount, $150 million will be available immediately upon the satisfaction
of the conditions precedent to funding under the Hughes Credit Facility, and the
remaining $95 million will be available when the Company is providing service
coverage for at least 70% of the POPS in BTAs having at least 55 million POPs.
Amounts borrowed by the Company under the Hughes Credit Facility will be payable
over an eight-year period following the quarter during which such amounts were
borrowed and will bear interest at the six-month LIBOR rate plus an applicable
margin. The Hughes Credit Facility will terminate if no amounts have been
borrowed thereunder by March 30, 1998, and in any event the right to borrow will
terminate on December 31, 1999.
Hughes will have the right to convert up to 11% of the principal of each
loan made in connection with the Hughes Initial Financing into shares of Series
B Common Stock of the Company for two years following the applicable Conversion
Date (as such term is defined below), at a price per share equal to 90% of the
average closing price of such stock over the 30-day period immediately preceding
the earlier of Conversion Date or , 1997. The "Conversion Date" shall
mean the earlier to occur of (i) the date upon which the purchase price for
equipment or services financed under the Hughes Credit Facility becomes
contractually due and payable by the Company or its subsidiaries under the
applicable vendor supply contract with Hughes and (ii) the date upon which such
equipment is placed in commercial service.
Loans made in connection with the Additional Hughes Equipment will bear
interest at the six-month LIBOR rate plus an applicable margin. Interest will be
payable quarterly and will adjust at the end of each six-month interest period,
provided that the total adjustment over the term of the loan will not exceed 2%.
In addition, 10% of each draw under such additional vendor financing facility
will be convertible into registered Series B Common Stock for a period of two
years following the Conversion Date (as such term is defined above) at a price
equal to the average closing price of the Series B Common Stock over the 30-day
period immediately preceding such Conversion Date. On or after the end of the
13th month after the date of each loan made under the facility, Hughes must
exercise its conversion rights if the average closing price of the Series B
Common Stock for any 30-day period is greater than 120% of the conversion price.
In the event Hughes fails to so exercise its rights, Hughes will forfeit its
conversion rights with respect to the applicable loan.
Lucent Technologies
Lucent Procurement Agreement. Pursuant to the Lucent Procurement
Agreement, the Company has committed to purchase $200 million worth of PCS
infrastructure equipment, software and ancillary services ("Lucent Initial
Equipment") by December 31, 1998, for deployment in certain Markets. The
parties' obligations under the Lucent Procurement Agreement are subject to
Lucent's obligation to make loans under the Lucent Credit Facility (as defined
below) becoming effective on or before , 1997.
The Lucent Procurement Agreement provides for appropriate warranty periods
for new equipment, repaired or replacement equipment or parts and services. The
warranty periods run from delivery or, if installed by Lucent, from final
acceptance by the Company or 30 days from the date Lucent submits its notice of
completion of its installation, whichever is sooner. The Lucent Procurement
Agreement provides the Company with certain remedies for equipment failures
which result in system outages of specified duration which remain uncured by
Lucent. The Lucent Procurement Agreement also provides for cancellation and
other remedies of the Company in the case of continuous late deliveries of
equipment by Lucent.
Pursuant to the Lucent Procurement Agreement, Lucent has the option (the
"Lucent Option") to cause the Company to purchase up to an additional $800
million worth of PCS infrastructure equipment and related software and services
("Additional Equipment"), subject to the provision by Lucent of 100% financing
for such purchases and such purchases and financing being on mutually-acceptable
terms and conditions. The
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Lucent Option may be exercised until May 14, 1997. The right of Lucent to
exercise the Lucent Option is contingent on its committing to provide sufficient
additional equipment and related software and services to satisfy the Company's
continuing build-out requirements in Company Markets where Lucent has deployed
the Lucent Initial Equipment. The purchase and financing of any Additional
Equipment shall be on terms and conditions no less favorable to the Company than
those generally available to the Company in the market place at the time of such
purchases.
Lucent Credit Facility. In connection with the Lucent Procurement
Contract, Lucent has committed to provide the Company with a vendor credit
facility (the "Lucent Credit Facility") and, subject to the conditions of the
Lucent Credit Facility, will fund 100% of the contract price of any equipment
and services that becomes contractually due and payable to Lucent and/or its
affiliates under the Lucent Procurement Contract, up to an aggregate of $200
million. Loans made under the Lucent Credit Facility will be made by book entry
against amounts payable to Lucent under the Lucent Procurement Contract, and no
cash will be advanced to the Company. Amounts borrowed by the Company under the
Lucent Credit Facility will be payable over the last five years of an eight-year
period beginning on the last day of the calendar quarter immediately preceding
the calendar quarter during which such amounts were borrowed and will bear
interest at LIBOR plus an applicable margin.
LGIC
LGIC Supply Agreement. Pursuant to the LGIC Supply Agreement, and subject
to the successful completion of the market trial of LGIC PCS equipment in the
Denver Market (see "-- Market Trials"), the Company will purchase and LGIC will
sell at least $300 million worth of PCS infrastructure equipment and ancillary
services from LGIC (the "LGIC Initial Commitment"). Under the LGIC Supply
Agreement, the parties will enter into definitive purchase and supply agreements
for the LGIC Initial Commitment by February 28, 1997, for equipment to be
delivered over the next three years. In addition to the LGIC Initial Commitment,
the LGIC Supply Agreement provides the Company with the right, subject to LGIC's
acceptance, to purchase (i) up to an additional $400 million worth of
infrastructure equipment and ancillary services through December 31, 2002, and
(ii) up to an additional $500 million worth of equipment and services during the
period from January 1, 2000 through December 31, 2002.
LGIC Credit Facility. In connection with the LGIC Supply Agreement, LGIC
has committed to provide the Company with a vendor credit facility (the "LGIC
Credit Facility") for 150% of the contract price (the "Equipment Value") of PCS
infrastructure equipment and services provided by LGIC under vendor supply
contracts to be entered into pursuant to the LGIC Supply Agreement, up to an
aggregate of $1.2 billion, counting as principal all interest that has been
added to principal. LGIC shall fund, subject to the conditions of the LGIC
Credit Facility, loans in an amount equal to 100% of the Equipment Value of any
equipment that becomes contractually committed for delivery under a vendor
supply contract with LGIC to be purchased under any such vendor supply contract.
In addition, LGIC has agreed to provide NextWave with financing for its soft
costs in an amount equal to 50% of the Equipment Value of the equipment that
NextWave commits to purchase as of the date of the delivery obligation. No more
than $700 million in aggregate principal amount shall be available for funding
during the period commencing January 1, 1997 and expiring December 31, 2002.
Loans in excess of $700 million will be available to NextWave only after January
1, 2000, unless an earlier date is approved by LGIC and NextWave, and only if
NextWave has at the time of any such loan raised an aggregate of at least $1
billion in financing (including equity and debt financings, but excluding vendor
financings) since September 30, 1996.
Amounts borrowed by the Company under the LGIC Credit Facility will be
payable over the last five years of an eight-year period beginning on the last
day of the calendar quarter immediately preceding the calendar quarter during
which such amounts were borrowed and will bear interest at LIBOR plus an
applicable margin.
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Vendor Financing -- General Terms and Conditions
The following is a description of the general terms and conditions that are
common to the Company's vendor financing arrangements with Hughes, Lucent and
LGIC (referred to herein as "Vendor Financing").
Guaranties and Security. All obligations of the Company under the Vendor
Financing will be guaranteed (i) on a senior basis, by the RegionalSubs and
LicenseSubs in those regions where equipment purchased with the Vendor Financing
has been installed; and (ii) on a subordinated basis, by all of the RegionalSubs
and LicenseSubs. The obligations of the Company and such guarantors will be
secured by a perfected lien created pursuant to a collateral trust agreement in
favor of a collateral trustee satisfactory to each of the Company's vendors (the
"Trustee Lien") on substantially all tangible and intangible (including
intellectual property) assets of NextWave Wireless, the RegionalSubs and the
LicenseSubs, including, without limitation, (a) the capital stock of each
RegionalSub or LicenseSub, (b) all right, title and interest of NextWave
Wireless and its subsidiaries under all contracts from time to time in effect
pertaining to the purchase of MOUs (the "MOU Contracts"), (c) to the extent
permitted by law and subject to the terms and conditions under which the C-Block
PCS licenses were granted and any prior lien securing deferred payments due to
the United States government for acquisition of the C-Block PCS licenses and the
interest thereon, the C-Block PCS licenses and the proceeds from the sale or
transfer of such licenses (the collateral listed in clauses (a), (b) and (c),
the "Collateral").
Conditions to Vendor Financing. The Vendor Financing is subject to certain
conditions, including (i) the execution and delivery of definitive financing
documentation; (ii) the due issuance of the C-Block PCS licenses and the payment
by the Company of all amounts due and payable to the United States Government in
connection therewith; (iii) the receipt by each of Hughes, LGIC and Lucent of a
business plan of the Company and its subsidiaries, prepared on a national and
regional basis, reasonably satisfactory to each of Hughes, LGIC and Lucent; (iv)
the receipt by the trustee of fully executed consents in respect of each MOU
Contract regarding the payment of amounts pursuant to such contracts to the
trustee in accordance with the Trustee Lien; (v) there not occurring any
material adverse condition or material adverse change in or affecting the
business, operations, property condition or prospects of the Company or any of
its subsidiaries or any default or event of default; (vi) the completion of the
Offerings and receipt by the Company of at least $500 million in connection
therewith; and (vii) the repayment in cash of not more than $40 million in
principal amount of the Bridge Notes.
The Hughes Credit Facility is also subject to, among other things, (i) the
execution of vendor supply contracts reasonably acceptable to Hughes providing
for the purchase and financing of the equipment and services necessary to
build-out each of the operating regions not covered by Hughes vendor supply
contracts at the levels specified in the Company's business plan through the
year 2000, and (ii) before , 1997, the CDMA infrastructure
equipment to be deployed by the Company shall have satisfied certain product and
system acceptance testing requirements.
The LGIC Credit Facility is also subject to, among other things, (i) the
execution of a vendor supply contract by the Company or its subsidiaries and
LGIC satisfactory to LGIC and having an aggregate value of not less than $300
million (as contemplated by the LGIC Strategic Supply Agreement), and (ii) the
repayment in full of all loans funded pursuant to the LG Loan Agreement (see
"Description of Capital Stock -- Other Options, Warrants and Convertible Debt").
The LGIC and Lucent Credit Facilities are further conditioned upon (i) the
receipt by LGIC and Lucent, respectively, of all approvals, consents, permits or
licenses necessary to their respective vendor supply contracts or the LGIC
Credit Facility from the applicable governmental (with respect to LGIC, Korean)
authorities; (ii) the receipt by the Company of all necessary governmental
consents and approvals and the making of all filings required to be made and
notices required to be given under any applicable law; and (iii) the approval by
LGIC and Lucent, respectively, of all material agreements between the Company
and any of its subsidiaries.
The Lucent Credit Facility is also subject to, among other things, (i) the
receipt by Lucent of payment by the Company of all amounts then due to Lucent
under the Lucent Procurement Agreement or any other
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agreement between Lucent and the Company or any of its subsidiaries and (ii) the
execution by the Company of definitive agreements for Vendor Financing in an
aggregate amount of not less than $1 billion, including the Lucent Credit
Facility, with commitments reasonably satisfactory to Lucent.
The making of each subsequent loan under the Vendor Financing will be
subject to the satisfaction by the Company of several ongoing conditions,
including the continued truth of all representations and warranties of the
Company, the absence of any defaults or events of default under the Vendor
Financing, the continuation of the Vendor Supply Contracts and, with respect to
the Lucent and LGIC Credit Facilities, the delivery by the Company of a drawdown
notice to such Vendor at least three or 10 business days, respectively, prior to
the disbursement date.
Mandatory Prepayment Under Vendor Financing. If any RegionalSub sells or
otherwise disposes of or suffers a loss with respect to equipment supplied
pursuant to a Vendor Supply Contract or other assets, the aggregate book value
of which is greater than $5 million and fails to reinvest the proceeds of such
sale, loss or disposition within 270 days after the receipt thereof (180 days
with respect to equipment or other assets supplied by Lucent), then such
proceeds must be used to prepay, without premium or penalty and in an order and
amount consistent with the relative priorities of the Shared Lien, the loans
under the Vendor Financing from the Vendor that supplied such equipment, on a
ratable basis, and any other Vendor Financing being provided to such subsidiary
to finance a to-be-agreed-upon amount of infrastructure equipment and other
assets in such subsidiary's region. In addition, under the Lucent Credit
Facility, if the Company wishes to make any voluntary prepayment of any Vendor
Financing or other bank credit facility, the Company must offer to each lender
under the Vendor Financing or other bank credit facility to prepay such loans,
on a ratable basis, with the amount of such intended prepayment. To the extent
such offer is accepted, the amount the Company intended to prepay will be paid
to such accepting lenders on a ratable basis. Mandatory prepayment of the Hughes
Credit Facility is also required (i) if either the FCC license for a BTA or the
stock of the LicenseSub holding such FCC license is sold or otherwise disposed
of by NextWave (in which case the loans under the Hughes Credit Facility whose
proceeds were used to finance equipment installed in such BTA must be prepaid in
full); (ii) if either NextWave or NextWave Wireless sells or otherwise disposes
of any asset or group of assets the book value of which is greater than $5
million (other than assets sold in the ordinary course of business or assets
unrelated to NextWave's PCS network) (in which case a ratable proportion of such
proceeds must be used to prepay loans made under the Hughes Credit Facility); or
(iii) if the Company makes any voluntary or mandatory prepayment of any
indebtedness (other than a mandatory prepayment with the proceeds of
dispositions of assets), the loans made under the Hughes Credit Facility must be
proportionately prepaid.
MOU Contracts. Pursuant to the Vendor Financing, all payments with respect
to the MOU Contracts (and, under the Lucent Credit Facility, other cash
receipts) will be deposited in a cash collateral account to be disbursed
according to certain procedures agreed to by the parties. Each purchaser under
an MOU Contract (and, under the Lucent Credit Facility, other revenue producing
contract) will enter into a consent and acknowledgment with a trustee and
NextWave and its subsidiaries agreeing to such procedures and committing to make
all payments under its respective MOU Contract to the trustee.
Other Terms of Vendor Financing. The Vendor Financing will contain a
number of covenants that, among other things, limit the ability of NextWave
Wireless, the RegionalSubs and the LicenseSubs (to the extent applicable) to
incur additional indebtedness, create liens and other encumbrances, sell or
otherwise dispose of assets, make acquisitions, investments, loans and advances,
merge or consolidate with another entity or engage in any business other than
the communications service business and related activities, make distributions
to the Company, or enter into transactions with affiliates. In addition, the
Vendor Financing will require compliance with certain specified financial and
operating covenants, including, without limitation, the maintenance of ratios of
total debt to total capitalization, total debt to EBITDA, EBITDA to cash
interest expense and capital expenditure limitations, which are yet to be
determined by the Company and the respective vendors.
The Vendor Financing will contain representations, warranties, covenants,
and events of default customary for such senior credit facilities of similar
size and nature. Specifically, the Company will be deemed
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to be in default under the LGIC and Lucent Credit Facilities if, among other
things, the breach of any term of the PCS licenses would reasonably be expected
to have a material adverse effect on the Company and its subsidiaries or, under
the Lucent Credit Facility, if, among other things, the Company fails to
maintain PCS Licenses including at least 80% of the POPs covered by the PCS
Licenses as originally granted. The Company will be deemed to be in default
under the Hughes Credit Facility if any of the following events, among others,
occur: (i) the termination, revocation or non-renewal by the FCC of the
Company's C-Block PCS licenses if, after giving effect thereto, the aggregate
number of POPs which the Company or its subsidiaries which hold Hughes' supplied
equipment then have a right to serve is less than 90 million or 17 million,
respectively; and (ii) the failure of MOU Contracts representing the sale of at
least 20 billion MOUs (including the MCI Agreement) to be in full force and
effect. Hughes, LGIC and Lucent will each be afforded "most favored lender"
status (other than with respect to commitment availability, pricing and payment
provisions) under their respective Vendor Financings and the Vendor Supply
Contracts.
Comdisco Network Equipment Lease Facility
On November 8, 1996, the Company and Comdisco entered into a five-year
Master Lease Agreement (the "Master Lease Agreement") pursuant to which Comdisco
has agreed, subject to completion of the Offerings and receipt by the Company of
at least $500 million in connection therewith, to provide a $250 million
equipment lease facility to be used to finance the purchase of
telecommunications equipment, including switching and base station equipment and
service costs associated with equipment installation and deployment. The
agreement provides for financing for up to $150 million of equipment purchases
from either Lucent or NorTel, with an additional $100 million in financing to be
available upon the Company's achieving certain financial and operational
milestones. Lease payments by the Company under the Comdisco facility will be
based on interest at the five-year treasury rate plus an applicable margin,
subject to a specified maximum interest rate. The Company has the option to
purchase the equipment subject to the Master Lease Agreement during or at the
end of the lease term.
Allen Group Soft Cost Procurement and Financing
On November 8, 1996, the Company executed a Purchase and Supply Agreement
with The Allen Group, an Ohio-based holding company with several subsidiaries
that provide telecommunications products and services, such as Decibel Products,
Comsearch, Grayson Electronics and Antenna Specialists. Pursuant to the
five-year agreement, subject to completion of the Offerings and receipt by the
Company of at least $500 million in connection therewith, The Allen Group will
supply and finance up to $50 million worth of products and services such as
antennas, test equipment and engineering services. Subject to delays in the
Company's build-out of its PCS networks for reasons beyond the Company's
control, the Company will purchase 40% of the products and services within the
first two years of the term of this agreement and 20% over each of the following
three years. The Company may make monthly drawdowns under the facility and
amounts borrowed under the agreement will bear interest at the prime rate plus
an applicable margin for the first three years of the term of the agreement and
at the prime rate for the remaining two years of the term.
With respect to each loan made during the first three years of the term, no
payments will be due from the Company for a period of 18 months after the
drawdown of each such loan, payments will be interest only for the next eighteen
months and a balloon payment of all principal and accrued but unpaid interest
will be due three years after the drawdown of each such loan. With respect to
each loan made during the last two years of the term, no payments will be due
for a period of 18 months after the drawdown of each such loan, payments will be
interest only for the next six months and a balloon payment of all principal and
accrued but unpaid interest will be due two years after the drawdown of each
such loan. The Allen Group Purchase and Supply Agreement provides that The Allen
Group will hold a purchase money security interest in the equipment purchased
thereunder.
QUALCOMM Equipment Requirements Agreement
Pursuant to the terms of an Equipment Requirements Agreement with QUALCOMM
(the "Equipment Requirements Agreement"), the Company agreed, under certain
conditions, to purchase QUALCOMM
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infrastructure equipment for deployment in Markets representing up to 55 million
POPs. The Equipment Requirements Agreement further states that QUALCOMM will
offer 100% equipment financing for equipment purchased under such agreement. The
terms of any equipment purchases will be established in a further agreement
under negotiation between the parties.
U.S. GOVERNMENT FINANCING
The Company successfully bid $4.9 billion for its 95 BTA licenses in the C,
D, E and F-Block Auctions. The FCC is providing C and F-Block licensees
favorable financing terms which include downpayments (10% for C-Block licenses
and 20% for F-Block licenses), interest only payments (six years for C-Block
licenses and two years for F-Block licenses) and principal amortization (years
seven through 10 for C-Block licenses and years three through 10 for F-Block
licenses). After the downpayments paid by the Company, the combined C and
F-Block obligation is approximately $4.4 billion. This debt is discounted on the
Company's financial statements at the estimated fair market value of $2.8
billion, when the favorable financing terms are reflected at a net present value
basis. See "Certain Indebtedness -- U.S. Government Financing."
MARKET TRIALS
LGIC Market Trial Agreement. The Company and LGIC have entered into a CDMA
Technical and Market Trial Agreement dated as of October 23, 1996 (the "Market
Trial Agreement"), pursuant to which the parties will institute a four-phase
process governing the testing and validation of certain PCS infrastructure
equipment produced by LGIC (the "Trial"). The Trial is intended to allow the
parties to verify the performance of LGIC's CDMA-based equipment, software,
firmware and any associated services (the "Trial Products") at one or more test
sites in the Denver Market. The Trial will be conducted pursuant to trial
specifications to be developed by the Company subject to LGIC's approval. The
Company is purchasing the Trial Products in contemplation of commercial
implementation of such equipment in the Denver Market upon the completion of the
Trial. To further such intent, the parties have agreed that all Trial Products
will be comprised of equipment released to commercial manufacturing and will not
include any prototype or pre-commercial equipment. In addition, the Trial
Products must meet certain minimum functionality requirements set forth in the
Market Trial Agreement.
Under the Market Trial Agreement, LGIC is responsible for providing certain
Trial services and support at no additional charge to the Company. Such support
includes training at either an LGIC training facility or at the Company's
facilities, as well as operations, technical and maintenance support throughout
the testing and initial operational periods of the Trial. In addition, LGIC
engineers will evaluate any reported defects during the Trial and will ensure
that for the duration of the Trial, all upgrades and enhancements to the
software, if any, are loaded or otherwise applied to the Trial Products and that
copies are promptly distributed to the Company. LGIC will also make its
engineers available to provide off-site training to the Company's engineers at
LGIC's standard prices for any additional support that may be needed in
connection with the use or support of the Trial Products.
Lucent Trial Agreement. Pursuant to the Lucent Procurement Agreement,
Lucent and the Company have agreed to use reasonable and diligent efforts to
negotiate and execute as soon as possible a definitive trial agreement by and
among the Company, Lucent and MCI Communications Corporation regarding the
deployment of products, software and services in the Washington, D.C./Baltimore
Market. Such trial agreement will provide that the Company will purchase from
Lucent all of the equipment, software and services required for the trial under
the terms and conditions of the Lucent Procurement Agreement. Pursuant to the
Lucent Procurement Agreement, the Company may purchase from Lucent equipment,
software and services for deployment in the Washington, D.C./Baltimore Market in
connection with the trial prior to the effectiveness of the Lucent Credit
Facility (such purchases, "Gap Purchases"). Gap Purchases will be subject to
pricing and payment terms that are slightly less favorable than those otherwise
provided in the Lucent Procurement Agreement but the Company will be eligible
for purchase credits upon the effectiveness of the Lucent Credit Facility in the
amount that the price for the Gap Purchases exceeded the price the Company would
have paid for such equipment, software and services had the Lucent Credit
Facility been effective.
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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 and B-Block licensees in the Markets, which include AT&T, Sprint
and PrimeCo Personal Communications L.P., have substantial financial resources
and have entered the PCS market earlier than the Company. The FCC has also taken
recent action to allow PCS licensees to partition and disaggregate their PCS
licenses into smaller service areas, which could provide new entrants with
further opportunities to enter the PCS market.
NextWave, through its PCS service providers, 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,
as well as substantial financial resources. Many have been operational for at
least 10 years and are expected to upgrade their networks to provide digital
services in competition with the Company. Principal cellular providers in the
Markets are AirTouch Communications, Inc., Ameritech Cellular, AT&T, Bell
Atlantic NYNEX Mobile, BellSouth Mobility, Inc., GTE Mobile Communications
Corporation and Southwestern Bell, Inc. Because of government mandates, some
cellular providers are required to 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 may offer 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. The FCC is scheduled to begin auctions by April 15, 1997 for 30 MHz of
spectrum in the 2.3 GHz band, to be known as the Wireless Communications Service
("WCS"). The FCC has proposed that WCS providers be permitted to offer a broad
range of fixed, mobile, radiolocation, and satellite broadcast services, some of
which could be in competition with the Company's service offerings.
NextWave will face limited competition from other types of wireless service
providers, such as paging companies, mobile satellite systems, cable or wireless
cable providers and other wireless providers that may seek to utilize spectrum
allocated by the FCC currently or in the future to a variety of wireless
services. Although a less direct substitute for mobile telephone services,
one-way and two-way paging services, for example, may be adequate for those with
more limited two-way communications needs. The FCC has initiated the adoption of
rules to auction traditional paging licenses. The FCC has also commenced
licensing "narrowband PCS" in the 900 MHz band, which includes, among other
services, data messaging, advanced one-way and two-way digital 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
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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 Protection of Proprietary Rights."
EMPLOYEES
As of January 15, 1997, the Company employed 366 persons on a full-time
basis. Of these employees, approximately 240 are dedicated to the build-out of
the Company's network and are managing approximately 300 consultants and
advisers in the Company's network development efforts. 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
52,000 square feet located in San Diego, expiring January 31, 2004. The Company
also maintains leased space for its corporate offices in Hawthorne, New York
(20,000 square feet, expiring May 31, 1999), and in Anaheim, California (35,000
square feet, expiring October 31, 2006). Additionally, NextWave has regional
offices leased in Akron, Baltimore, Boston, Charlotte, Columbus, Cincinnati,
Cleveland, Dallas, Houston, Jacksonville, Los Angeles, New York, Orlando,
Philadelphia, San Antonio, Tampa and Washington, D.C. 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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REGULATION OF THE WIRELESS TELECOMMUNICATIONS INDUSTRY
As holder of licenses granted by the FCC, the Company's ownership structure
and telecommunications operations are and will be subject to various FCC
regulations and other federal, state and local regulations.
OVERVIEW
FCC Authority. 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 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 regulates similar types of mobile service providers.
According to these rules, all "commercial mobile radio service" ("CMRS")
providers that provide substantially similar services are 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 CMRS rate regulation.
No state has filed successfully for authority to regulate CMRS rates.
Commercial Mobile Radio Source Spectrum Ownership Limit. The FCC has
limited the amount of CMRS spectrum (cellular, PCS and SMR) in which an entity
may hold an attributable interest in a given geographic area to 45 MHz. 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 Telecommunications Act required the FCC
to promulgate rules within six months of the bill's enactment in connection with
a provision of the new act that mandates interconnection with the local
telephone exchange network by all requesting telecommunications carriers,
including PCS companies. The Telecommunications Act also preempted all state and
local legal and regulatory barriers to local exchange competition. On August 8,
1996, the FCC issued a 668-page order providing for local exchange competition
for the first time by mandating interconnection (the "Interconnection Order").
Notably, the Interconnection Order has the potential to substantially change the
relationship between local exchange providers and all wireless networks by
mandating interconnection on much more favorable terms than currently exist.
The Telecommunications Act imposes an affirmative duty upon all
telecommunication carriers, including the Company, to interconnect their
networks to each other, directly or indirectly. The Telecommunications Act
further imposes an affirmative duty on incumbent telephone companies to
negotiate in good faith and requires interconnection at any technically feasible
point of the network on just, reasonable, and nondiscriminatory terms and in a
manner equal in quality to that provided by the incumbent telephone company to
itself
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and any affiliate. The incumbent must also offer access to a minimum number of
unbundled elements of its network necessary for the provision of local service,
which a competitor may select in any combination. The Telecommunications Act
requires the incumbent to resell its local service and to provide for access to
rights-of-way (including poles, ducts, conduits) to carriers seeking to offer a
competitive local service. The FCC's Interconnection Order promulgated rules
that track and elaborate upon these statutory requirements.
The FCC required incumbent carriers to enter into reciprocal compensation
arrangements with wireless providers for the transport and termination of
traffic on each others' networks. The Commission also established a pricing
methodology for interconnection and a default interim price range of
$0.002-$0.004 per minute for switching and end office termination and a default
price ceiling of $0.15 per minute for tandem switching and termination through a
tandem switch for those states that have not imposed their own pricing
methodology. These rates represent a substantial change in most current
compensation arrangements between incumbents and wireless carriers, who have
been charged as much as $0.03 to $0.05 per minute for traffic termination.
Additionally, the Interconnection Order effectively prohibits the current
practice by some incumbent local exchange providers of charging a wireless
provider for termination of the incumbent's traffic on the wireless network.
The Interconnection Order also is noteworthy because of the decisions it
includes concerning the regulatory status of wireless providers. Despite
requests from the state public utility commissions and the wireless resale
community, the FCC refused to treat wireless providers, including PCS companies,
for regulatory purposes, as though they are local telephone exchange companies.
Such treatment could have subjected wireless companies to the strict regulatory
requirements imposed on incumbent telephone companies on issues such as
interconnection, access to unbundled elements and resale. The FCC also at least
temporarily rejected arguments to overturn the 1993 decision of Congress that
preempted state rate regulation of wireless carriers and barriers to market
entry such providers may face. While this decision will be reviewed as part of a
separate proceeding, it is helpful to the wireless industry, generally, and
start-up PCS companies, particularly, to avoid state rate regulation and
potential barriers to entry at this time.
Numerous LECs and state regulatory agencies have petitioned for review of
the FCC's Interconnection Order, which petitions have been consolidated for
review before the United States Court of Appeals for the Eighth Circuit. The
Eighth Circuit has imposed a stay of many of the FCC's interconnection rules
pending resolution of petitions for review of the FCC's order. On October 15,
1996, the court extended the stay indefinitely. In staying the FCC's rules, the
Court has determined that petitioners have demonstrated a likelihood of success
on the merits of their arguments that the FCC is without jurisdiction to
establish pricing regulations for intrastate telephone service. The Supreme
Court of the United States has refused to lift the stay. On November 1, 1996, in
response to an emergency motion filed by AirTouch Communications, Inc., a CMRS
carrier, the Eighth Circuit Court lifted the stay only with regard to rules that
require LECs to establish reciprocal compensation arrangements for transport and
termination of local telecommunications traffic with any requesting carrier,
including CMRS carriers, and allow CMRS providers to renegotiate, without
termination liability or penalties, any contract with an incumbent carrier
established before August 8, 1996 that does not provide for reciprocal
compensation. The Eighth Circuit heard oral argument in this case on January 17,
1997. At this time it is not possible to predict when or if the interconnection
rules that have been stayed by the court will go into effect. Other FCC
rulemakings implementing the Telecommunications Act are expected to continue
into 1997.
Other FCC Requirements. In August 1996, the FCC revised its rules to
permit CMRS operators, including PCS licensees, to use their assigned spectrum
to provide fixed local loop and other services on a co-primary basis with mobile
services. The FCC is continuing its proceeding to determine the extent to which
such fixed services fall within the scope of CMRS regulation. In June 1996, the
FCC adopted rules governing the availability and implementation of basic 911 and
Enhanced 911 for wireless services. By the summer of 1997, broadband PCS
licensees like the Company will be required to transmit to a Public Safety
Answering Point ("PSAP") 911 emergency calls from a handset that transmits a
Mobile Identification Number ("MIN") (or its functional equivalent) without any
interception by the carrier for credit checks or other validation procedures. By
winter of 1997, the FCC will require broadband PCS licensees to offer certain
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additional 911 enhancements, including the provision of information regarding
the caller's location. The FCC has requested further comment on: (i) the methods
of ensuring that carriers will continue to upgrade and improve 911 service to
increase its accuracy, availability, and reliability; (ii) a consumer education
program to inform the public on the capabilities and limitations of 911 service;
and (iii) a requirement that any wireless call, including a call from a handset
that does not transmit a MIN, will be transmitted to a PSAP.
The FCC also has adopted a rule requiring broadband PCS licensees to
provide "manual" roaming to enable wireless customers to use their phones when
they are traveling outside of their service areas. "Manual" roaming occurs when
a roamer must establish a relationship with the host system (typically by
supplying a valid credit card number) before the customer can make a call, as
contrasted with "automatic" roaming where roamers may make or receive calls
simply by turning on their phones. The FCC has solicited further comment as to
whether it should require providers of CMRS services, including PCS providers,
to offer "automatic" roaming agreements on a nondiscriminatory basis.
The FCC recently imposed requirements relating to number portability on
broadband PCS, cellular and certain SMR providers. By December 31, 1998, such
licensees must provide their customers with the ability to change carriers while
retaining phone numbers. CMRS providers that are subject to the number
portability requirements must have the capability of delivering calls from their
networks to ported numbers anywhere in the United States. By June 30, 1999, such
providers must be able to offer number portability without impairment of
quality, reliability or convenience when switching service providers, including
the ability to support roaming, throughout their networks. The FCC has solicited
further comment on the appropriate cost-recovery methods regarding long-term
number portability.
The FCC recently revised its rules to allow broadband PCS licensees in the
A, B, D and E-Blocks to partition geographically or disaggregate portions of the
spectrum covered by their licenses at any time to entities that meet minimum
eligibility requirements. For C and F-Block licenses, the FCC will allow such
partitioning and disaggregation at any time to entities that qualify as
"Entrepreneurs" and meet minimum eligibility requirements under FCC regulations.
Such entities would take over partitioned service areas subject to separately
established installment payment obligations. The FCC will apply its current
five-year restriction against complete license transfers (as described below) to
partitioning by C-Block and F-Block licensees to a non-Entrepreneur during the
first five years of the license term, with unjust enrichment penalties
applicable after the five year period on a pro rata basis. The FCC has sought
further comment on whether to allow the disaggregation of cellular spectrum.
In August 1996, the FCC adopted new guidelines and methods for evaluating
the effects of radio frequency emissions from transmitters including PCS mobile
telephones and base stations. The new guidelines, which are generally more
stringent than previous requirements, were effective immediately for hand-held
devices and otherwise became effective January 1, 1997.
The Company cannot predict at this time how the above requirements will
affect its business, results of operations or financial condition.
Other Federal Regulations. Wireless networks are subject to certain
Federal Aviation Administration and FCC 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.
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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 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 licensed broadband PCS
services, the FCC created six separate blocks of spectrum identified as A, B, C,
D, E and F-Blocks. The A, B and C-Blocks are each allocated 30 MHz of spectrum
and the D, E and F Blocks are each allocated 10 MHz. The FCC adopted a 10-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.
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 and B-Block licenses in 51 MTAs.
The C, D, E and F-Block spectrums were allocated on the basis of 493 smaller
BTAs. In addition, there is a CMRS spectrum aggregation cap limiting all CMRS
licensees to an aggregate of 45 MHz of PCS, cellular and SMR spectrum in any
given market.
All but three of the 51 total A-Block licenses and all 51 B-Block licenses
were auctioned in 1995. Three A-Block licenses were awarded separately pursuant
to the FCC's "pioneer's preference" program. The auctioned A and B-Block
licenses were awarded in June 1995. The C and F-Block licenses are reserved for
"Entrepreneurs." See "-- The Entrepreneurs Block".
TELECOMMUNICATIONS ACT OF 1996
On February 8, 1996, the President signed the Telecommunications Act, which
effected a sweeping overhaul of the Communications Act. In particular, the
Telecommunications 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 Telecommunications 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, direct and
indirect, to the provision of interstate and intrastate telecommunications
services.
Implementation of the provisions of the Telecommunications Act is the
responsibility of the FCC, the state public utility commissions and a
federal-state joint board. Much of the implementation of the Telecommunications
Act must be completed in numerous rulemaking proceedings with short statutory
deadlines. Some of these proceedings addressed issues that had already been the
subject of pending rulemakings before the FCC and proceedings in several states.
The Telecommunications Act also directs the FCC to initiate rulemaking
proceedings on local competition matters and to preempt all inconsistent state
and local laws and regulations.
The Telecommunications 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
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telecommunications services. States retain jurisdiction under the
Telecommunications 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 Telecommunications Act which will affect
wireless providers are summarized below. There can be no assurance that these
provisions or their implementation by federal or state regulators will not have
a material adverse effect on the Company.
Expanded Interconnection Obligations. The Telecommunications Act
establishes a general duty of all telecommunications carriers, including C-Block
PCS licensees, to interconnect, directly or indirectly, with other carriers. The
FCC has determined that CMRS-to-CMRS interconnection may be accomplished
indirectly through the interconnection of each CMRS provider to an incumbent
LEC's network. The Telecommunications Act also contains a detailed list of
requirements with respect to the interconnection obligations of LECs. These
"interconnection" obligations include resale, number portability, dialing
parity, access to rights-of-way and reciprocal compensation. As mentioned, the
FCC has determined that for now, CMRS providers such as the Company do not meet
the Telecommunications Act's definition of "local exchange carrier."
LECs designated as "incumbents" have additional obligations to other
telecommunications service providers 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 the
incumbent LEC provides on a retail basis; and to provide actual colocation of
equipment necessary for interconnection or access.
The Telecommunications Act establishes a framework for state commissions to
mediate and arbitrate negotiations between incumbent LECs and carriers
requesting interconnection, services or network elements. The Telecommunications
Act establishes deadlines, policy guidelines for state commission decisionmaking
and federal review or intervention in the event a state commission acts
inconsistently with the Telecommunications Act or fails to act.
In its Interconnection Order implementing the interconnection provisions of
the Telecommunications Act, the FCC determined that LECs are required to enter
into reciprocal compensation arrangements with all CMRS providers for the
transport and termination of LEC-originated traffic. The FCC established default
"proxy" rates for interconnection services which must be used unless or until a
state develops rates based on the Total Element Long Run Incremental Cost
("TELRIC") as provided in the order. Although the portions of the order relating
to pricing have been stayed, including the default proxy rates for
interconnection services, the rules requiring LECs to enter into reciprocal
compensation arrangements with CMRS providers are now in effect.
Review of Universal Service Requirements. The Telecommunications 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. In a Recommended Decision adopted by the
Telecommunications Act-mandated Federal-State Joint Board, the Joint Board
rejected arguments that CMRS providers should be exempted from universal service
obligations, and concluded that, to the extent such carriers provide interstate
service, they must contribute to universal service support mechanisms. The Joint
Board also found that states could require CMRS providers to contribute to state
support mechanisms.
Prohibition Against Subsidized Telemessaging Services. The
Telecommunications Act prohibits LECs from subsidizing telemessaging services
(i.e., voice mail, voice storage/retrieval, live operator services and related
ancillary services) from their telephone exchange service or exchange access.
Conditions on RBOC Provision of In-Region InterLATA Services. The
Telecommunications Act generally requires that before engaging in interLATA
(i.e., long distance) landline services in the states where it also provides
local telephone service, either the RBOC must provide access and interconnection
to one or
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more unaffiliated competing providers of telephone exchange service, or 10
months must have passed after enactment of the Telecommunications Act, during
which time no such provider has requested such access and interconnection more
than three months before the RBOC has applied for authority. These restrictions
on RBOCs providing "in-region" long distance service do not extend to long
distance provided by an RBOC in conjunction with CMRS.
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 Telecommunications 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.
Equal Access. The Telecommunications 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 to long-distance providers of
the user's choice, subject to certain conditions.
Deregulation. The FCC is required to forebear from applying any statutory
or regulatory provision that it determines 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 microwave licensees 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
microwave licensee for costs associated with system modifications and new
equipment required to move to alternate, comparable readily available spectrum
or alternate transmission technologies. This 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.
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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.
Two non-profit clearinghouses have been established to administer the FCC's
cost-sharing plan. Thus, the Company may be required in certain circumstances to
help defray the cost of earlier relocations by A, B and C-Block licensees.
THE ENTREPRENEURS' BLOCK
Eligibility Requirements. As noted above, the FCC designated frequency
blocks C and F as "Entrepreneurs' Blocks." The Company has been awarded certain
licenses in the C-Block. The FCC requires that all C and F-Block bidders fall
within certain maximum revenue and asset size requirements as measured by gross
revenues and total assets. In order to acquire C or F-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 not
more than $125 million in each of the last two years and total assets of not
more 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 for the C-Block Auctions, the Company was
eligible for both a 25% 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.
For the F-Block Auction, the FCC created a new category, "Very Small
Business," defined as an applicant 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 $15 million for the preceding
three calendar years prior to the date the Short Form is filed. As a result of
its classification as a Very Small Business for the F-Block Auction, the Company
was eligible for both a 25% bidding credit and interest-only payments for the
first two years of the license and payments of interest and principal amortized
over the remaining eight years of the initial 10-year term of the license.
If a C-Block licensee maintains an organizational structure in which at
least 25% of its total equity on a fully diluted basis is held by a control
group (the "Control Group") that meets certain requirements (the "Control Group
Requirements"), the FCC excludes certain assets and revenues from such
licensee's total revenues and assets, making it easier for the licensee to meet
the Entrepreneurs Requirements and the Small Business Requirements. The Control
Group Requirements mandate that the Control Group, among other things, have both
actual and legal control of the licensee. Further, the FCC permits licensees to
qualify under the Control Group Requirements pursuant to an alternative
structural option (the "25% Equity Option") in which: (i) an established group
of investors meeting certain financial qualifications, that own at least 15% of
the equity interest on a fully diluted basis and 50.1% of the voting power in
the C-Block licensee and (ii) additional members ("Additional Control Group
Members") that hold at least 10%, on a fully diluted basis, of the equity
interest in the C-Block licensee. Additional Control Group Members must be
either: (a) the same Qualifying Investors in the Control Group, (b) members of
the licensee's management or (c) non-controlling institutional investors,
including venture capital firms. To take advantage of the FCC's 25% Equity
Option, a C-Block licensee must have met the Qualifying Investor Option
requirements at the time it filed its Short Form and must continue to meet the
Qualifying Investor Option requirements for three years following the License
Grant Date. Commencing the fourth year of the license term, the FCC rules (i)
eliminate the requirement that the Additional Control Group Members hold any of
the licensee's equity interest and (ii) allow the licensee to reduce the minimum
required equity interest held by the Qualifying Investors from 15% to 10%.
PCS Auctions. The FCC initiated auctions for the C-Block in December 1995.
On July 1, 1996, Antigone and Devco, each an unsuccessful bidder in the C-Block
Auction, filed a consolidated petition to deny
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the Company's 56 pending C-Block applications filed after the initial C-Block
Auction, or in the alternative, to designate them for a hearing. On January 3,
1997, the FCC issued a Public Notice announcing that NextWave had received a
grant of the 63 C-Block PCS license applications for which it had been the
winning bidder at the FCC C-Block Auctions. The C-Block licenses were granted
subject to the requirement that the Company demonstrate compliance with FCC
foreign ownership regulations within six months from the date of grant. Upon
consummation of the Offerings, the Company believes that it will satisfy those
conditions. For a description of the conditions imposed on the Company relating
to its foreign ownership, see "Risk Factors -- Uncertainty Regarding C-Block
Licenses; Litigation."
License Transfer Restriction and Unjust Enrichment. Within the first five
years of the grant of a C or F-Block license, transfer of the license is
permitted only to another entity eligible for the C or F-Block, such as another
Small Business or Very Small Business. After five years, licenses are freely
transferable, subject to unjust enrichment penalties. If transfer occurs during
years six through 10 of the initial license term to a company that does not
qualify for the same level of auction preferences as the transferor, 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 (i.e., the "FCC unjust enrichment" penalties). In
addition, if the Company wishes to make any change in ownership structure
involving the de facto and de jure control of the Company, it must seek FCC
approval and during the initial license term may be subject to the FCC unjust
enrichment penalties.
Build-Out Requirements. The FCC has mandated that recipients of PCS
licenses adhere to five year and 10-year build-out requirements. Violations of
these regulations could result in license revocations, forfeitures or fines or
other sanctions such as reduction in service area. Under the 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 10 years. 10 MHz
PCS licenses (such as F-Block licenses) are required to reach one-quarter of the
population within five years or make a showing of substantial service within
five years.
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 radio
licensee directly, or (ii) more than 25% of the capital stock of the parent
corporation of a common carrier licensee if the FCC finds that such ownership
would be contrary to the public interest. Because the FCC classifies PCS as a
common carrier offering, PCS licensees are subject to the foreign ownership
limits. In the Telecommunications Act, Congress 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 recently eliminated from its rules
a similar provision restricting non-U.S. citizens from serving as directors or
officers of a common carrier radio licensee. The FCC also recently adopted rules
that, subject to a public interest finding by the FCC, would allow foreign
ownership of common carrier parent companies in excess of 25% to the extent that
the relevant foreign states extend, among other things, reciprocal treatment to
U.S. investors. These rules are referred to as the ECO test.
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).
License Conditions and Penalties for Payment Default. The FCC has
reflected licensee installment payment obligations in a Note and Security
Agreement to the U.S. Treasury that must be executed by prospective licensees as
a condition of license grant pursuant to the terms of these instruments and FCC
rules. 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
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licenses, reauction them, and subject the defaulting party to a penalty
comprising of the difference between the price at which it acquired its license
and the amount of the winning bid at reauction (if lower than the Company's
winning bid), plus an additional penalty of three percent of the subsequent
winning bid.
D, E, and F-Block Auctions. The FCC completed the auction for its D, E and
F-Block PCS licenses on January 14, 1997. The FCC made several significant
changes to the rules governing F-Block licenses, which now offer less favorable
terms than were applicable to C-Block licenses (though the F-Block terms remain
more favorable than the terms governing the D and E-Block licenses). The F-Block
features an upfront payment requirement of $.06 per MHz-pop; an increased
downpayment requirement of 20% of the winning bid; and revision of the available
installment payment plans and bidding credits. For Small Businesses and Very
Small Businesses that win F-Block licenses, the period during which F-Block
licensees may make interest-only payments is two years (as opposed to six years
for C-Block Small Businesses), with payments of principal and interest amortized
over the remaining eight years of the license term. The interest rate for
outstanding principal will be the 10-year Treasury rate at the time of the grant
of license (6.50% as of December 31, 1996). The installment payment plan for
F-Block licenses has also been amended to include late payment fees that will be
imposed if licensees are more than 15 days late in their scheduled installment
payments. For the F-Block Auction, the FCC also has created a "tiered" bidding
credit of 15% for entities that meet the C-Block definition of "Small Business"
(e.g., average gross revenues of not more than $40 million for the past three
years), and 25% for companies that meet a newly created definition of "Very
Small Business," under which qualifying businesses would need to have average
gross revenues of not more than $15 million for the past three years. The
Company participated in the bidding for F-Block licenses through its subsidiary,
NextWave Power Partners, as a Very Small Business and, as such, is eligible for
the favorable financing provisions described above.
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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(a)....... 42 Chairman of the Board, Chief Executive Officer and
President
Janice I. Obuchowski(a)... 45 Vice Chairman, Executive Vice President and Director
C.J. Waylan............... 55 Executive Vice President
Kevin M. Finn(a).......... 55 Senior Vice President, Business Operations -- West and
Director
Roy D. Berger............. 38 Senior Vice President, Market Planning/Customer
Service
Frank A. Cassou........... 39 Senior Vice President, Corporate Development, General
Counsel
Robert Cymbala............ 59 Senior Vice President, Enhanced Services
Raymond P. Dolan.......... 39 Senior Vice President, Business Operations -- East
Edward M. Knapp........... 36 Senior Vice President, Network Engineering &
Operations, Chief Technical Officer
Richard Kornfeld.......... 36 Senior Vice President, Consumer Products
James S. Madsen........... 37 Senior Vice President, New Business
Development -- Sales & Distribution
Raju Patel................ 48 Senior Vice President, Product & Operating Systems --
Management & Development, Chief Strategic Officer
R. Andrew Salony.......... 44 Senior Vice President, Organization
Planning/Facilities/Human Resources
Gene M. Welsh............. 44 Senior Vice President, Finance, Chief Financial
Officer
Mark D. Buckner........... 42 Corporate Treasurer
Norman L. Salvesen........ 44 Corporate Controller
Ha-Young Aum(b)(c)........ 51 Director
Jang-Ho Chung(b)(c)....... 56 Director
Gregory A. Cucchi(b)(c)... 47 Director
Jung-Boo Kim(b)(c)........ 56 Director
Manjin J. Kim(b)(c)....... 60 Director
Muhit U. Rahman(b)(c)..... 40 Director
Nicole N. Salmasi(a)...... 38 Director
Yutaka Sato(b)(c)......... 48 Director
</TABLE>
- ---------------
(a) Elected by holders of Series A Common Stock.
(b) To be elected by holders of Series B Common Stock and Series C Common Stock,
voting separately as a class.
(c) Promptly following the consummation of the Equity Offering, the authorized
number of directors comprising the Company's Board of Directors will be
expanded and the Company's Board of Directors, by a majority vote, will fill
such newly created directorships with certain officers to the Company and
Messrs. Aum, Chung, Cucchi, J. Kim, M. Kim, Rahman and Sato.
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
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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. 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 Orbital Sciences Corporation.
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. and Globecomm Systems Inc.
KEVIN M. FINN has been a Senior Vice President, Business Operations -- West
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.
ROY D. BERGER joined NextWave as Senior Vice President, Market
Planning/Customer Service for NextWave in June 1996. Prior to NextWave, Mr.
Berger held the position of Managing Director-Retail Strategy for the NYNEX
Corporation since December 1995. During his ten years at NYNEX, Mr. Berger
served in a number of different roles in both the telecommunications and
computer retailing/distribution sectors. His positions included Vice
President-Channel Strategy for NYNEX's residential business, Vice
President-Personal Communication Services, and Vice President Marketing for
NYNEX Mobile Communications, prior to joining NYNEX, Mr. Berger held senior
positions with several leading companies in the personal computer retailing and
distribution industry.
FRANK A. CASSOU has been Senior Vice President, Corporate Development and
General Counsel of NextWave 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 13 years. He was outside corporate counsel to
QUALCOMM from June 1991 through February 1996.
ROBERT CYMBALA has been the Senior Vice President, Enhanced Services of
NextWave since May 1996. From October 1993 to April 1996, Mr. Cymbala was
President and Chief Executive Officer of Metro One Telecommunications, a
provider of enhanced directory assistance service. Previously he served Sprint,
as Executive Vice President of Corporate Development and Planning. From August
1995 through May 1996, Mr. Cymbala provided independent consulting services for
telecommunications companies.
RAYMOND P. DOLAN has been the Senior Vice President, Business
Operations -- East 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, Network Engineering and
Operations 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
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<PAGE> 80
positions at NYNEX Mobile. Prior to NYNEX Mobile, he held various positions with
Siemens Transmissions Systems and Sperry Defense Products Group.
RICHARD KORNFELD joined NextWave as Senior Vice President, Consumer
Products in January 1996. Prior to joining NextWave, Mr. Kornfeld was employed
by QUALCOMM for 10 years, most recently serving as Vice President of
Engineering, where he led the development and manufacturing efforts of CDMA
subscriber equipment.
JAMES S. MADSEN has been Senior Vice President, New Business Development,
Sales and Distribution of 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.
RAJU PATEL has been the Senior Vice President, Product and Operating
Systems -- Management and Development, Chief Strategic Officer 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, Inc.
Previously, Mr. Patel was President and Chief Executive Officer of NAC Inc., a
company which he founded, until its acquisition by Hughes Network Systems, Inc.
R. ANDREW SALONY has been Senior Vice President, Organization
Planning/Facilities/Human Resources since May 1996. For three years prior to
joining the Company he served the executive search firm of Warren Morris &
Madison, Inc. as Managing Partner of its wireless telecommunications division.
From May 1983 to September 1993, Mr. Salony was General Manager for U S WEST's
Cellular Telephone Division in Southern California.
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.
MARK D. BUCKNER, Corporate Treasurer, joined NextWave in March 1996 as Vice
President Finance. Mr. Buckner served as Chief Financial Officer for the
telecommunications companies of U.S. Long Distance Corp. from 1988 to 1993 and
WORLDxCHANGE Communications from 1994 to March 1996. He served in the same
position for The Southwest Venture Partnerships, a firm financing high-growth
companies from 1983 through 1988, and for Medical Polymers Technologies from
June 1993 through 1994. Mr. Buckner practiced public accounting with Arthur
Andersen & Co. from 1977 through 1983.
NORMAN L. SALVESEN, Corporate Controller, joined NextWave in November 1996.
From June 1994 to October 1996, Mr. Salvesen was Vice President-Finance and
Controller with House of Fabrics, Inc. From 1983 to May 1994, he held financial
positions with Toshiba America Information Systems, Inc., including Controller
of the Telecommunications Division, Assistant Corporate Controller and Corporate
Controller. Mr. Salvesen was Controller for Rogers Cablesystems of Southern
California from 1980 through 1983 and practiced public accounting with Fox &
Company from 1978 to 1980.
HA-YOUNG AUM has been President of Pohang Steel America Corp., a
wholly-owned subsidiary of POSCO since April 1995. From July 1993 to April 1995,
Mr. Aum served as Managing Director, Export Department of POSCO. From May 1991
to July 1993, Mr. Aum was Assistant Director, Export Department.
JANG-HO CHUNG has been President of LG Information & Communications, Ltd.
since July 1990. LG Information & Communications, Ltd. is a multinational
corporation which specializes in electronic and telecommunications equipment.
GREGORY A. CUCCHI has been Vice President, Corporate Planning and
Development for PECO Energy Company which is a combined electric, gas and
telecommunications company based in Philadelphia,
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<PAGE> 81
Pennsylvania. Prior to that time, starting in March 1990, Mr. Cucchi served as
Director, Transmission and Distribution Services for PECO Energy Company.
JUNG-BOO KIM has been General Manager, Information & Telecommunications
Business Department of Korea Electric Power Corporation since January 1996.
Korea Electric Power Corporation is Korea's electric utility provider. Korea
Electric Power Corporation is a government-owned enterprise established to
promote electric power resource development.
MANJIN J. KIM has served as Executive Vice President, Strategic Planning of
ILJIN Group since January 1996, where he specializes in the initiation of new
business and the negotiation of joint ventures. From January 1987 to February
1996, Mr. Kim was a Project Leader with Philips Laboratories, North America
where he managed research and development programs.
MUHIT U. RAHMAN has, since November 1993, served as Managing Director of
Triumph Capital Group, Inc., a private equity money management firm which,
through its affiliates, manages two private equity funds. From April 1990 to
March 1993, Mr. Rahman was Co-Head of Corporate Finance at Dabney/Resnick, Inc.
of Beverly Hills, California.
NICOLE N. SALMASI has been a Director of NextWave since 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.
YUTAKA SATO has been President of Wireless Telecommunications Company, a
subsidiary of SONY Electronics, Inc. since January 1995. From April 1995 to the
present Mr. Sato has served as a director of Qualcomm Personal Electronics, a
joint venture between SONY and QUALCOMM. Before joining Wireless
Telecommunications Company, from October 1991 to March 1995, Mr. Sato was
General Manager of the Wireless Telecommunications Division of Infocom Products
Company, a wholly-owned subsidiary of SONY Tokyo.
There are no family relationships among the Company's directors and
executive officers, other than Allen B. Salmasi and Nicole N. Salmasi, who are
husband and wife.
BOARD OF DIRECTORS
Election of Directors. Under the Company's Amended and 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 Equity Offering, the Board 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"),
certain holders of Series B Common Stock issued prior to the Equity Offering and
certain holders of warrants, Bridge Notes and Series A Common Stock exercisable
or convertible into Series B Common Stock issued prior to the Equity 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, PECO Energy
Company, POSAM, QUALCOMM, SONY and Triumph Capital Group, Inc. Immediately
following the Equity Offering, the Company's Board of Directors will expand the
number of directors and fill the newly-created vacancies with the following
directors
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at the respective requests of the Early Investors: Ha-Young Aum at the request
of POSAM, Jang-Ho Chung at the request of LG, Gregory A. Cucchi at the request
of PECO Energy Company, Jung-Boo Kim at the request of Korea Electric Power
Corporation, Manjin J. Kim at the request of ILJIN America Corp., Muhit U.
Rahman at the request of Triumph Capital Group, Inc. and Yutaka Sato at the
request of SONY. QUALCOMM has waived its rights under the Stockholders' Voting
Agreement to have a representative on the Board of Directors. As of January 15,
1997, there were no 6% Stockholders other than MCI, which has declined to have a
representative on the Board of Directors. 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) above, 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 no
more than 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) 10 years from the date of the Stockholders' Voting
Agreement. See "Certain Relationships and Related Transactions" regarding
Hughes' right to designate a representative on the Board of Directors.
Indemnification. The Company's Amended and 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 has also purchased 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 Equity 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. A majority of the members of the Audit Committee will be
"independent directors" as defined under rules of The Nasdaq National Market.
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 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.
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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 -- 500,000
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; 1997 Equity Incentive Plan
On April 1996, the Company adopted the Amended and Restated Stock Option
Plan (the "Option Plan"), which amended and restated the 1995 Stock Option Plan
under which 20 million shares of Series B Common Stock were reserved for
issuance to certain officers, directors, employees and consultants of the
Company. On February , 1997, the Company adopted the 1997 Equity Incentive
Plan (the "Equity Plan") which shall become effective on the date of this
Prospectus and will replace the Option Plan. Under the Equity Plan,
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 Equity 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 Equity 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
administered by the Board of Directors, and after the Equity Offering the Equity
Plan will be administered 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 Equity Plan
may not exceed 10 years. The exercise price of options granted under the Equity
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> 84
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 Equity 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 Equity 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
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 Equity 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 Equity 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 September 30, 1996, options to purchase 18,243,322 shares of Series B
Common Stock at exercise prices ranging from $0.25 to $5.00 per share were
outstanding under the Option Plan and 1,756,678 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> 85
The following table shows for 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(a)
- ---------------------------------- --------------- ---------------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Allen B. Salmasi.................. 700,000 16.3% $.275 7/28/00 $161,000
Janice I. Obuchowski.............. 700,000 16.3% $ .25 7/28/05 $161,000
Kevin M. Finn..................... 500,000 11.6% $ .25 12/18/05 $115,000
Edward M. Knapp................... 600,000 14.0% $ .25 7/3/05 $138,000
James S. Madsen................... 600,000 14.0% $ .25 10/9/05 $138,000
</TABLE>
- ---------------
(a) The Grant Date Present Value was computed using the Black-Scholes option
pricing model with the following weighted average assumptions: dividend
yield of 0.00%; expected volatility of 160.0%; a risk-free interest rate of
5.6%; and an expected life of five years.
The following table sets forth information with respect to (i) the exercise
of stock options by the Named Officers during 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 ($0.275 in the case of
Allen B. Salmasi) 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.................... -- -- 0/500,000 --
Edward M. Knapp.................. -- -- 0/600,000 --
James S. Madsen.................. -- -- 0/600,000 --
</TABLE>
Employee Stock Purchase Plan. On February , 1997, the Company's Board of
Directors approved the 1997 Employee Stock Purchase Plan (the "Purchase Plan")
covering an aggregate of shares of Series B Common Stock. The Purchase
Plan is intended to qualify as an employee stock purchase plan within the
meaning of Section 423 of the Code. Under the Purchase Plan, the Board of
Directors may authorize participation by eligible employees, including officers,
in periodic offerings following the adoption of the Purchase Plan. The offering
period for any offering will be no more than 27 months. As of February , 1997,
the Purchase Plan's initial offering period has not commenced and there are no
outstanding rights to acquire Series B Common Stock under the Purchase Plan.
Employees are eligible to participate if they are employed by the Company
or an affiliate of the Company designated by the Board of Directors. Employees
who participate in an offering can have up to 20% of their earnings withheld
pursuant to the Purchase Plan and applied, on specified dates determined by the
Board of Directors, to the purchase of shares of Series B Common Stock. The
price of Series B Common Stock purchased under the Purchase Plan will be equal
to 85% of the lower of the fair market value of the Series B Common Stock on the
commencement date of each offering period or the relevant purchase date.
Employees
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<PAGE> 86
may end their participation in the offering at any time during the offering
period, and participation ends automatically on termination of employment with
the Company.
In the event of a merger, consolidation, dissolution, or liquidation
involving the Company, or the acquisition of beneficial ownership of at least
50% of the combined voting power of the Company by any person, entity or group
(excluding Company employee benefit plan ownership), the Board of Directors has
discretion to provide that each right to purchase Series B Common Stock will be
assumed or an equivalent right substituted by the successor corporation, or the
Board may shorten the offering period and provide for all sums collected by
payroll deductions to be applied to purchase stock immediately prior to such
merger or other transaction. The Purchase Plan will terminate at the Board's
direction. The Board has the authority to amend or terminate the Purchase Plan,
subject to the limitation that no such action may adversely affect any
outstanding rights to purchase Series B Common Stock.
1997 Non-Employee Director Stock Option Plan
On February , 1997, the Board of Directors adopted a 1997 Non-Employee
Director Stock Option Plan (the "Directors' Plan") and which will be
subsequently approved by the stockholders. The total number of shares of Series
B Common Stock to be reserved for issuance under the Directors' Plan is
shares of Series B Common Stock. The Directors' Plan will provide for
the grant of nonstatutory stock options to certain non-employee directors of the
Company. However, non-employee directors either (i) who are serving on the Board
of Directors as the designated representative of a stockholder of the Company or
(ii) who are immediate family members of any individual who is then a member of
the Board of Directors and is providing services to the Company as an employee
or consultant, shall not be eligible to receive option grants under the
Directors' Plan. The Board of Directors (or, if appointed, a committee of
members of the Board of Directors) shall determine the terms and conditions of
each option grant, which must be consistent with the terms of the Directors'
Plan. No eligible non-employee director may receive an option to purchase more
than 150,000 shares of Series B Common Stock in a single calendar year. Each
option will be subject to vesting over three years, with one-third of the shares
subject to such option vesting at the end of each year based on continued
service. The Board of Directors may establish a different vesting schedule for
one or more options. The exercise price of all stock options granted under the
Directors' Plan will be equal to the fair market value of a share of Series B
Common Stock on the date of grant of the option. Options granted under the
Directors' Plan will have a term of 10 years. No option granted under the
Directors' Plan will generally be transferable by the optionee other than by
will or the laws of descent or distribution, and each option will be
exercisable, during the lifetime of the optionee, generally only by such
optionee.
Under certain changes of control of the Company, each non-employee director
will have a reasonable time within which to exercise his or her options,
including any part of an option that would not otherwise be exercisable prior to
the effectiveness of the transaction, after which time the options will
terminate. The Board of Directors may amend or terminate the Directors' Plan or
one or more options granted under the Directors' Plan; provided, however, that
no such action may adversely affect any outstanding option. If not terminated
earlier, the Directors' Plan will terminate upon the occurrence of a change in
control which triggers the acceleration of exercisability and vesting of options
granted under the Directors' Plan.
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,
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<PAGE> 87
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. 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, 1996.
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> 88
PRINCIPAL STOCKHOLDERS
The following tables set forth, as of December 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>
AMOUNT AND PERCENTAGE OF
NATURE OF PERCENTAGE OF AMOUNT AND OUTSTANDING
BENEFICIAL OUTSTANDING NATURE OF SERIES A
OWNERSHIP SERIES A BENEFICIAL COMMON STOCK
PRIOR TO COMMON STOCK OWNERSHIP AFTER THE
THE EQUITY PRIOR TO THE AFTER THE EQUITY
NAME AND ADDRESS(1) OFFERING EQUITY OFFERING EQUITY OFFERING OFFERING(2)
- ---------------------------------------- ---------- ---------------------- --------------- -------------
<S> <C> <C> <C> <C>
Allen B. Salmasi
and Nicole N. Salmasi(3).............. 19,091,435 52.7%
Good News Communications Company,
LLC(4)................................ 11,960,866 33.0%
Janice I. Obuchowski(5)................. 1,896,273 5.2%
James S. Madsen(6)...................... 634,467 1.8%
Kevin M. Finn(7)........................ 556,830 1.5%
Edward M. Knapp......................... 130,003 *
All Directors and Officers as a group
(17 persons, including those named
above)................................ 23,244,495 64.1%
</TABLE>
- ---------------
(1) The address for all persons named above (except Good News Communications
Company, LLC) is c/o The Company, 6256 Greenwich Dr., Suite 500, San Diego
CA 92122. 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 Equity Offering, under an irrevocable
election of a majority interest of the holders of Series A Common Stock, all
of the Series A Common Stock (other than 3,000 shares) will convert into
fully paid and nonassessable shares of Series B Common Stock and Series C
Common Stock. 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 Good News Communications Company,
LLC, a limited liability company of which Mr. Stephen Park is the majority
member.
(5) 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.
(6) All shares shown are held of record by Jarrah, Inc., a corporation owned and
controlled by Mr. Madsen and members of his immediate family.
(7) 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> 89
SERIES B COMMON STOCK
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING PERCENTAGE OF OUTSTANDING
SERIES B COMMON STOCK SERIES B COMMON STOCK
AMOUNT AND NATURE OF PRIOR TO THE AFTER THE
NAME AND ADDRESS BENEFICIAL OWNERSHIP EQUITY OFFERING EQUITY OFFERING(1)
- --------------------------------- -------------------- ------------------------- -------------------------
<S> <C> <C> <C>
MCI Telecommunications
Corporation(2)................. 23,673,284 15.8%
1801 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Hughes Network Systems,
Inc.(3)........................ 10,000,000 7.9%
11717 Exploration Lane
Germantown, MD 20876
QUALCOMM Incorporated(4)(5)...... 8,797,221 6.9%
6455 Lusk Avenue
San Diego, CA 92121
PECO Energy Company(4)........... 7,647,222 6.0%
2301 Market Street
Philadelphia, PA 19101
Pohang Steel America Corp.(6).... 6,666,666 5.3%
300 Tice Blvd.
Woodcliff Lake, NJ 07675
Allen B. Salmasi and
Nicole N. Salmasi(7)(8).......... 20,698,308 16.4%
Good News Communications(9)...... 12,879,868 10.2%
Janice I. Obuchowski(7)(10)...... 2,181,974 1.7%
Kevin M. Finn(7)(11)............. 771,215 *
James S. Madsen(7)(12)........... 825,432 *
Edward M. Knapp(7)............... 139,994 *
All Directors and Officers as a
Group (17 persons, including
those named above)(7)(13)...... 26,039,303 19.9%
</TABLE>
- ---------------
(1) Based on shares of Series B Common Stock outstanding, which does
not include options warrants, convertible debt or other or rights to
purchase shares of Series B Common Stock which have not yet
vested, or are not exercisable or convertible within the next 60 days. For
a description of additional options, warrants and convertible debt, see
"Description of Capital Stock -- Options, Warrants and Convertible Debt."
Assumes the conversion of all outstanding Series A Common Stock (other than
3,000 shares) from and after the consummation of the Equity Offering. See
Note (2) on the previous page.
(2) Includes 23,673,284 shares of Series B Common Stock subject to purchase
within 60 days upon exercise of warrants.
(3) Includes 10,000,000 shares of Series B Common Stock subject to purchase
within 60 days upon conversion of a convertible promissory note held by
Hughes.
(4) Includes shares of Series B Common Stock subject to purchase within 60 days
upon exercise of warrants to purchase shares of Series B Common Stock at
$3.00 per shares (the "Series B Warrants") by the following domestic
investors: QUALCOMM, 1,111,111 and PECO Energy Company, 980,556.
(5) Includes 1,019,444 shares of Series B Common Stock subject to purchase
within 60 days upon conversion of a convertible promissory note held by
QUALCOMM.
(6) Excludes 4,419,582 shares of Series B Common Stock which will become
issuable to POSAM 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.
(7) All amounts shown include shares of Series C Common Stock to be
received by members of the Control Group in the Recapitalization which are
subject to redemption pursuant to the terms of the CTRs. See "Description
of Contingent Transfer Rights." The address for these persons is c/o
NextWave, 6256 Greenwich Drive, Suite 500, San Diego, CA 92122.
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<PAGE> 90
(8) 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. Also includes 140,000 shares of Series B Common Stock issuable upon
the exercise of stock options which are exercisable within 60 days after
the date hereof, at an exercise price of $0.275 per share.
(9) All shares shown are held of record by Good News Communications Company,
LLC, a limited liability company of which Mr. Stephen Park is the majority
member. The address for Good News Communications Company, LLC is 7710
Balboa Ave., Suite 227-E, San Diego, California 92111.
(10) All shares are held of record by Freedom Mobilty Inc., a corporation owned
and controlled by Ms. Obuchowski and members of her immediate family.
Includes 140,000 shares of Series B Common Stock issuable upon the
exercise of stock options exercisable within 60 days after the date
hereof, at an exercise price of $0.25 per share.
(11) 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. Includes 100,000 shares of Series B Common Stock issuable upon the
exercise of stock options exercisable within 60 days after the date hereof,
at an exercise price of $0.25 per share and Series B Warrants to purchase
4,934 shares of Series B Common Stock.
(12) All shares shown are held of record by Jarrah, Inc., a corporation owned
and controlled by Mr. Madsen and members of his immediate family. Includes
120,000 shares of Series B Common Stock issuable upon the exercise of stock
options exercisable within 60 days after the date hereof, at an exercise
price of $0.25 per share and Series B Warrants to purchase 153 shares of
Series B Common Stock.
(13) Includes 877,000 shares of Series B Common Stock issuable upon the exercise
of stock options exercisable within 60 days after the date hereof, at
exercise prices of $0.25 to $0.275 per share and Series B Warrants to
purchase 9,083 shares of Series B Common Stock.
For information regarding the election of directors of the Company, see
"Management -- Board of Directors -- Election of Directors" and "Certain
Relationships and Related Transactions" and for information regarding other
voting provisions of the Company's Amended and Restated Certificate of
Incorporation, see "Description of Capital Stock."
AMENDED AND RESTATED SERIES A SHAREHOLDERS AGREEMENT
Pursuant to the terms of the Amended Series A Shareholders Agreement, the
holders of Series A Common Stock (all of whom constitute members of the Control
Group) are restricted from transferring their shares of Series A Common Stock,
Series B Common Stock and Series C Common Stock until the later of (i) three
years from the License Grant Date or such longer period of time as may be
required to comply with the FCC's rules and regulations or (ii) the trading day
following the CTR Expiration Date. After the initial three-year period and until
the tenth anniversary of the License Grant Date, the holders of Series A Common
Stock that comprise the Qualifying Investors of the Control Group cannot
transfer their shares of Series A Common Stock, Series B Common Stock and Series
C Common Stock unless, after such transfer, the Qualifying Investors continue to
own the Required Ownership Percentage. Any transfer of shares which is otherwise
permitted by the foregoing sentence is subject to a first right of purchase by
the Company and, to the extent not purchased by the Company, by the other
Qualifying Investors. In the event of the death of a Series A shareholder, the
shares of Series A Common Stock, Series B Common Stock and Series C Common Stock
held by such shareholder may be transferred only to such shareholder's spouse or
immediate family unless such transfer violates FCC regulations. If such shares
are not transferred as provided above, the Company and then the remaining Series
A shareholders have the right to purchase the shares at "fair market value" (as
defined in the Amended Series A Shareholders Agreement), with a 25% downpayment
in cash and the remainder in a promissory note. The CTR Agreement will provide
that the Company will enforce all of the Company's rights under the foregoing
provisions of the Amended Series A Shareholders Agreement and will not give to
any other party thereto a waiver of any of its obligations under such provisions
or excuse any breach by such other party of any such obligation thereunder. The
Amended Series A Shareholders Agreement also provides that upon conversion of
shares of Series A Common Stock into Series B Common Stock and Series C Common
Stock, the holders will vote their shares to maintain a representative of SONY
on the Board of Directors.
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<PAGE> 91
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Navation 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, with the remaining interests owned by members of his
immediate family. As payment for 5,340,586 of such shares, Navation 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 (the
"Navation Purchase Note").
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 (the "Freedom Purchase Note"). 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 and $186,000 for such services in 1995 and for the nine
months ended September 30, 1996, respectively. 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 1996 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.
Certain stockholders of the Company have entered into the 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). Immediately following the consummation of the Equity Offering,
the Company will appoint the following directors at the request of the Early
Investors: Ha-Young Aum at the request of POSAM, Jang-Ho Chung at the request of
LG, Gregory A. Cucchi at the request of PECO Energy Company, Jung-Boo Kim at the
request of Korea Electric Power Corporation, Manjin J. Kim at the request of
ILJIN America Corp., Muhit U. Rahman at the request of Triumph Capital Group,
Inc. and Yutaka Sato at the request of SONY. See "Management -- Directors and
Executive Officers -- Election of Directors."
Under the terms of the Subscription Agreement (as defined below) between
the Company and Hughes, the Company has agreed upon written notice from Hughes
on or before March 29, 1997, to use its best efforts to cause the appointment of
a Hughes representative to the NextWave Board of Directors. Hughes, the Company
and the Series A stockholders of the Company have also entered into a Special
Voting Agreement pursuant to which such stockholders have agreed for three years
to elect to the Company's Board of Directors a representative designated by
Hughes. See "Business -- Equipment Vendors -- Hughes" and "Description of
Capital Stock -- Other Options, Warrants and Convertible Debt -- Convertible
Debt -- Hughes Subscription Agreement, Convertible Promissory Note and Escrow
Agreement."
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. Stephen Park is the majority member of Good News
Communications Company, LLC, a Series A Common Stockholder of the Company.
During the nine months
90
<PAGE> 92
ended September 30, 1996, the Company recorded consulting revenues and
consulting costs in the amounts of $1,914,000 and $1,832,000, respectively.
In lieu of payment of a $500,000 advisory service fee in connection with a
private placement, Triumph Capital Group, Inc. will be issued 100,000 shares of
Series B Common Stock at a price per share of $5.00.
For a description of agreements between the Company and MCI, see
"Business -- MCI Agreement" and "Description of Capital Stock -- Other Options,
Warrants and Convertible Debt -- Warrants -- MCI Warrants."
See "Management's Discussion and Analysis of Financial Conditions and
Results of Operations -- Liquidity and Capital Resources" for information
regarding loans to the Company from POSAM, PECO and LG. See
"Business -- Equipment Vendors" for information regarding a commitment by LGIC,
the parent corporation of LG, to provide PCS infrastructure equipment and
financing to the Company.
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DESCRIPTION OF CONTINGENT TRANSFER RIGHTS
General. The CTRs will be issued under the CTR Agreement between the
Company and the CTR Agent, a form of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The following summary
of certain provisions of the CTR Agreement does not purport to be complete, and
is subject to, and is qualified in its entirety by reference to, all provisions
of the CTR Agreement, including the definitions of certain terms therein.
Payment at Expiration Date. Each CTR represents the right to receive as of
, 2000 (the date which is three one-half years following consummation
of the Equity Offering) (the "CTR Expiration Date"), subject to adjustment as
described under "Adjustment" below, a number of shares set forth below under
"CTR Formula" of Series B Common Stock (or fraction of a share of Series B
Common Stock) to be determined by the Average Fair Market Value (as defined
below) of the Series B Common Stock for the 60 trading day period ending on the
5th trading day prior to the CTR Expiration Date (the "Valuation Period").
CTR Formula. Each CTR will entitle the holder thereof (the "CTR Holder")
to receive, subject to adjustment as provided in "Adjustment" below, one share
of Series B Common Stock, if the Average Fair Market Value of the Series B
Common Stock during the Valuation Period is less than $ . If the
Average Fair Market Value of the Series B Common Stock during the Valuation
Period is equal to or greater than $ and less than $ , each
CTR Holder will be entitled to receive, subject to adjustment as provided in
"Adjustment" below, a fraction of a share of Series B Common Stock determined by
dividing (A) $ minus the Average Fair Market Value of the Series B
Common Stock during the Valuation Period by (B) the Average Fair Market Value of
the Series B Common Stock during the Valuation Period. If the Average Fair
Market Value of the Series B Common Stock is equal to or greater than
$ during the Valuation Period each CTR will expire and no shares of
Series B Common Stock will be issuable thereunder. The CTR Agreement will
provide that "Average Fair Market Value" with respect to the Series B Common
Stock means the average of the Market Prices of the Series B Common Stock during
the Valuation Period. The CTR Agreement will provide that the term "Market
Price" shall mean (a) the closing sales price of the Series B Common Stock on
The Nasdaq National Market or such other national securities exchange on which
the Series B Common Sock is then listed or admitted for trading, or (b) if the
Series B Common Stock is not then listed or traded on any exchange or The Nasdaq
National Market, the average of the closing bid and ask prices per share on the
Nasdaq Market, (c) or if such quotation is not available, the fair market value
thereof as determined by a nationally recognized investment banking, accounting
or appraisal firm.
Series C Common Stock; Escrow Agreement. As a condition to the
consummation of the Equity Offering, each share of Series A Common Stock (other
than 3,000 shares) will be converted into shares of Series B Common
Stock and shares of Series C Common Stock. Pursuant to the Company's
Amended and Restated Certificate of Incorporation, the Series C Common Stock
will be mandatorily redeemable by the Company if shares of Series B Common Stock
are required to be issued in settlement of the CTRs, at a redemption price of
$.0001 per share of Series C Common Stock. In such event, the CTR Agreement will
provide that the Company will redeem a number of shares of Series C Common Stock
equal to the number of shares of Series B Common Stock issued in settlement of
the CTRs. For a description of the other terms of the Series C Common Stock, see
"Description of Capital Stock -- Series C Common Stock."
Pursuant to the CTR Escrow Agreement to be entered into by the holders of
the Series C Common Stock, the CTR Agent and the Company, the holders of the
Series C Common Stock will transfer to the CTR Agent the Series C Common Stock.
The Escrow Agreement will provide that the CTR Agent will hold the shares of
Series C Common Stock so received in accordance with and pursuant to the terms
of the Escrow Agreement. The CTR Agent will hold such shares of Series C Common
Stock pending redemption pursuant to the terms described in the preceding
paragraph or the early termination of the CTRs pursuant to the provisions of the
CTR Agreement described under "Early Expiration of the CTRs" below. To the
extent shares of Series C Common Stock remain outstanding following settlement
or early termination of the CTRs, the CTR Agent will release such shares of
Series C Common Stock to the registered holders thereof and such shares will
automatically convert into shares of Series B Common Stock.
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An aggregate of shares of Series C Common Stock will be issued to the
Control Group, together with shares of Series B Common Stock, in exchange for
the outstanding shares of Series A Common Stock (other than 3,000 shares) upon
the consummation of the Equity Offering. To the extent the Underwriters'
over-allotment option is not exercised, an equivalent number of shares of Series
C Common Stock will be automatically converted into Series B Common Stock such
that the total remaining outstanding shares of Series C Common Stock will equal
the number of CTRs issued in the Equity Offering.
Early Expiration of the CTRs. If, after 18 months from the closing of the
Equity Offering, the Fair Market Value of the Series B Common Stock exceeds
$ for 30 of any 60 consecutive trading days prior to the CTR Expiration
Date, the CTRs will terminate and no shares of Series B Common Stock will be
issuable thereunder.
Fractional Shares. The CTR Agreement will provide that the Company may pay
cash in lieu of fractional shares, if any, to be issued in respect of the CTRs.
If the Company elects to pay cash in lieu of such fractional shares, the Company
will pay cash in an amount equal to such fractional interest multiplied by the
Average Fair Market Value of the Series B Common Stock during the Valuation
Period.
Delivery of Shares to CTR Holders. The shares of Series B Common Stock to
which holders of CTRs are entitled will be delivered to such holders by the
Company within 30 business days of the CTR Expiration Date.
Certain Purchases and Sales. The CTR Agreement will provide that the
Company will not, and will not permit any of its subsidiaries, officers and
directors to purchase, sell or otherwise dispose of any shares of the Series B
Common Stock in open market transactions, in privately negotiated transactions
or otherwise (other than pursuant to the conversion or exercise of outstanding
securities), on any day during the period commencing 30 trading days before the
Valuation Period and ending on the last day of the Valuation Period.
Amended Series A Shareholders Agreement. As a condition to the
consummation of the Equity Offering, the Amended Series A Shareholders Agreement
will provide that the terms and conditions thereof will apply to the shares of
Series A Common Stock, Series B Common Stock and Series C Common Stock, if any,
to be issued in the Recapitalization to be effected prior to the consummation of
the Offerings. Under the Amended Series A Shareholders Agreement, the holders of
Series A Common Stock will be restricted from transferring their shares of
Series A Common Stock, Series B Common Stock and Series C Common Stock until the
later of (i) three years from the License Grant Date or such longer period as
may be required to comply with the FCC's rules and regulations or (ii) the
trading day following the CTR Expiration Date. The CTR Agreement will provide
that the Company will enforce all of the Company's rights under the Amended
Series A Shareholders Agreement and will not give to any other party thereto a
waiver of any of its obligations thereunder or excuse any breach by such other
party of any such obligation thereunder. For a description of the terms of the
Amended Series A Shareholders Agreement, see "Principal Stockholders."
No Extension of 10% Qualified Investor Holding Period. The CTR Agreement
will provide that the Company will not take any action or fail to take any
action that could reasonably be expected to extend beyond ,
2000, the date on which, pursuant to applicable FCC rules and regulations,
including 47 C.F.R. Section 24.709(b)(5)(i)(D), as currently in effect, as such
section may be amended from time to time, or any similar section, rule or
regulation hereafter adopted by the FCC, the aggregate equity interest in the
Company required to be held by the Qualifying Investors is reduced to 10%.
No Extension of Valuation Period. The CTR Agreement will provide that the
Company will not take any action or fail to take any action that would lengthen
the Valuation Period.
Adjustments. In the event the Company shall in any manner subdivide (by
stock split, stock dividend or otherwise) or combine (by reverse stock split or
otherwise) the number of outstanding shares of the Series B Common Stock, the
Company shall appropriately adjust the CTR Formula. Whenever such an adjustment
is made, the Company shall (i) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment;
(ii) promptly file with the CTR Agent a copy of such certificate; and (iii) mail
a brief summary thereof to each CTR Holder.
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Consolidation, Merger and Sale of Assets. The CTR Agreement will provide
that the Company may, without the consent of the CTR Holders, consolidate with
or merge into any other entity or convey, transfer or lease its properties and
assets substantially as an entirety to any corporation, partnership or trust
organized under the laws of the United States of America, any state thereof or
the District of Columbia, provided that (i) the successor entity assumes the
Company's obligations under the CTRs and the CTR Agreement and (ii) the Company
delivers to the CTR Agent an officer's certificate regarding compliance with the
foregoing.
CTR Separation from Units. The CTRs and the shares of Series B Common
Stock included in the Units will become detachable and separately tradeable 90
days after the closing date of the Equity Offering, or such earlier date as may
be determined by Smith Barney Inc.
No Rights as Stockholders. The CTRs will not confer upon the CTR Holder
any voting rights or any other rights as a stockholder of the Company prior to
their maturity.
Amendments. The CTR Agreement may be amended by the written consent of the
Company and the affirmative vote or the written consent of CTR Holders holding
not less than a majority of the CTRs. Notwithstanding the foregoing, the Company
and the CTR Agent may from time to time supplement or amend the CTR Agreement,
without the approval of any CTR Holder, in order to cure any ambiguity or to
correct or supplement any provision contained in the CTR Agreement, which may be
defective or inconsistent with any other provision in the CTR Agreement, or to
make any other provisions in regard to matters or questions arising under the
CTR Agreement which the Company and the CTR Agent may deem necessary or
desirable and which shall not be inconsistent with the provisions of the CTRs
and which shall not adversely affect the interests of the CTR Holders.
Listing. Application will be made for the quotation of the CTRs on The
Nasdaq National Market.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain United States federal
income tax considerations relevant to the purchase, ownership and disposition of
Units, Series B Common Stock and CTRs by holders acquiring Units on original
issue, but does not purport to be a complete analysis of all potential tax
consequences. The discussion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations, Internal Revenue Service ("IRS")
rulings and pronouncements, and legislative, judicial or administrative action
all in effect as of the date hereof, all of which are subject to changes or
different interpretations at any time. Any such changes or interpretations may
be applied retroactively in a manner that could adversely affect a holder of
Units, Series B Common Stock or CTRs. The succeeding discussion assumes that
holders will acquire Units on original issue as "capital assets" within the
meaning of Section 1221 of the Code.
The Company has not sought and will not seek any rulings from the IRS with
respect to any of the tax consequences discussed below. There can be no
assurance that the IRS will not take a different position concerning the tax
consequences of the purchase, ownership or disposition of Units, Series B Common
Stock and CTRs or that any such position would not be sustained.
The tax treatment of a holder of Units, Series B Common Stock and CTRs may
vary depending on his particular situation or status. Certain holders
(including, but not limited to, insurance companies, tax-exempt organizations,
financial institutions, broker-dealers, persons who are not "United States
persons" within the meaning of Section 7701(a)(30) of the Code, and persons
holding the Units, Series B Common Stock and the CTRs as a part of a "straddle,"
"hedge" or "conversion transaction" except as a result of owning both Series B
Common Stock and the CTRs as discussed below) may be subject to special rules
not discussed below. In addition, the following discussion does not consider the
effect of the applicable foreign, state, local or other tax laws.
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EACH PURCHASER SHOULD CONSULT HIS TAX ADVISER AS TO THE PARTICULAR TAX
CONSEQUENCES TO HIM OF PURCHASING, HOLDING AND DISPOSING OF UNITS, SERIES B
COMMON STOCK OR CTRS, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL
OR FOREIGN TAX LAWS.
ALLOCATION OF BASIS
Each holder of a Unit will have an aggregate tax basis in the Unit equal to
the amount of cash paid by the holder for such Unit. For United States federal
income tax purposes, a holder's aggregate tax basis in the Units will be
allocated between the CTRs and the Series B Common Stock represented by such
Units based on their relative fair market values at the time of the issuance.
The Company will provide holders with its estimate of the relative fair market
values of the CTRs and Series B Common Stock at the time of issuance for this
purpose. There can be no assurance, however, that the IRS will respect the
Company's determination.
CTRS
Characterization of CTRs. The treatment of the CTRs for United States
federal income tax purposes is uncertain. In a published revenue ruling, Revenue
Ruling, 88-31, 1988-1 C.B. 302, the IRS treated "contingent value rights" that
were in many respects similar to the CTRs as cash settlement put options. One
possibly significant difference is the fact that the CTRs are payable only in
Series B Common Stock at their maturity whereas the "contingent value rights"
discussed in Revenue Ruling 88-31 were, at their maturity, payable in cash or
stock at the election of issuer. Thus, although not free from doubt, based on
Revenue Ruling 88-31 and the terms of the CTRs, it is expected that for United
States federal income tax purposes the CTRs constitute a property right that is
economically equivalent to a put option that can only be settled in the issuer's
stock.
Sale or exchange. Generally, a holder will recognize gain or loss upon the
sale or disposition of a CTR in an amount equal to the difference between (i)
the amount of cash and the fair market value of other property received (if any)
in exchange therefor and (ii) the holder's tax basis in the CTR. In general,
such gain or loss will be capital gain or loss if the CTR is held as a capital
asset and will be long-term capital gain or loss if the holder's holding period
for the CTR is more than one year. (For special rules relating to the holding
period, see "Possible Application of Straddle Rules to Series B Common Stock and
CTRs" discussed below.)
Termination of CTRs. The tax consequences of the termination of CTRs on
the CTR Expiration Date is not entirely clear. If Revenue Ruling 88-31 is
dispositive with respect to this issue, the termination would constitute a
taxable event that is treated as a sale or exchange. If so, a holder would
recognize gain (or, subject to certain limitations, loss) on the CTR Expiration
Date in an amount equal to the difference between (i) the fair market value of
the shares of Series B Common Stock received, if any, plus cash paid in lieu of
fractional shares of Series B Common Stock, if any, and (ii) the tax basis in
the CTRs cancelled in the exchange.
Alternatively, it could be argued that Revenue Ruling 88-31 should not be
dispositive of the income tax consequences of the termination of the CTRs
because, unlike the "contingent value rights" addressed in Revenue Ruling 88-31,
the CTRs must be settled in Series B Common Stock and cannot be settled in cash.
Under an alternative interpretation, the termination of the CTRs would be
considered a non-taxable event based on the theory that the CTRs are analogous
to warrants to acquire stock, the exercise or termination of which are generally
not subject to taxation. In the event termination of the CTRs is regarded as a
non-taxable event, the basis in the Series B Common Stock received by a holder
would be equal to the holder's basis in the CTRs cancelled in exchange (except
to the extent allocable to a fractional share for which cash is received). A
holder would recognize gain or loss in an amount equal to the difference between
the amount of cash, if any, received for a fractional share and the holder's
allocable tax basis in such fractional share.
The holding period for any shares of Series B Common Stock received on the
CTR Expiration Date will begin on the CTR Expiration Date and will not include
the holding period during which the CTRs were held.
Some or all of any loss realized on the CTR Expiration Date may be deferred
and a holder's holding period with respect to a CTR may be adjusted under the
straddle rules described below.
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POSSIBLE APPLICATION OF STRADDLE RULES TO COMMON STOCK AND CTRS
The Code provides special rules concerning the recognition of losses and
the determination of holding periods with respect to positions that are part of
a "straddle", which for United States federal income tax purposes is defined as
offsetting positions with respect to personal property. A "position" is an
interest (including an option or warrant) in personal property. For this
purpose, personal property does not include common stock unless the common stock
is part of a straddle where one of the offsetting positions is an option or
warrant with respect to the common stock. Positions are treated as "offsetting"
where the risk of loss from holding one position is substantially diminished by
reason of holding another position.
It is not clear whether shares of Series B Common Stock and CTRs would
constitute offsetting positions that are part of a straddle. Because the risk of
loss from holding Series B Common Stock may be considered substantially
diminished by reason of holding the CTRs and because the value of the CTRs and
the Series B Common Stock may vary inversely over certain ranges of values, the
CTRs and the Series B Common Stock may be considered offsetting positions with
respect to personal property and thus a "straddle." Alternatively, it is
possible that the straddle rules may not apply to holders who purchase Units
upon original issuance, because it is uncertain whether the value of Series B
Common Stock and CTRs purchased on original issuance will vary inversely with
each other.
If the straddle rules apply, any loss realized in a taxable year by a
holder owning both CTRs and Series B Common Stock upon a disposition of either
the CTRs or the Series B Common stock, or any loss realized on the termination
of the CTRs, would be recognized only to the extent such realized loss exceeds
the "unrecognized gain" on the retained position. The unrecognized portion of
such loss would be deferred and treated as a loss sustained in the succeeding
taxable year, the recognition of which would continue to be subject to the
straddle rules.
In addition, if the CTRs and the Series B Common Stock were considered a
"straddle," the holding period for the Series B Common stock and the CTRs would
begin only upon the disposition of the other position. Under this rule, and
subject to the loss deferral rule discussed immediately above, any capital gain
or loss recognized upon the disposition of such Series B Common Stock or CTRs,
whichever occurs first, would be short-term, and any capital gain or loss
recognized upon the disposition of the second position would be long-term or
short-term depending on whether the long-term holding period requirement has
been met, commencing with the disposition of the first position.
The rules governing "straddles" do not apply once a holder entirely
disposes of one position. Holders should also be aware that subsequent
purchasers of the Units, CTRs or Series B Common Stock are subject to certain
special holding period rules governing "straddles."
Section 263(g) of the Code disallows a deduction for interest and carrying
charges allocable to personal property that is part of a straddle and requires
such amounts to be added to the tax basis of such personal property.
The Code directs the Secretary of the Treasury to issue regulations
prescribing the method for determining the portion of a position that is subject
to the straddle rules when the size of the position exceeds the size of the
offsetting position. No such regulations have yet been issued.
THE STRADDLE RULES DESCRIBED ABOVE ARE COMPLEX, AND HOLDERS OF SERIES B
COMMON STOCK AND CTRS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE APPLICATION OF THESE RULES TO THE SERIES B COMMON STOCK AND THE CTRS.
DIVIDENDS RECEIVED DEDUCTION FOR CORPORATE HOLDERS OF SERIES B COMMON STOCK
In general, a corporate holder of Series B Common Stock is not entitled to
a dividends received deduction with respect to dividends received thereon unless
such holder has held the Series B Common Stock for more than 45 days. In
general, the holding period does not include any period in which such holder's
risk of loss is diminished by holding one or more other positions with respect
to property which is substantially similar or
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related to the Series B Common Stock. These rules are intricate, and it is not
clear whether shares of Series B Common Stock and CTRs would be subject to this
suspended holding period rule. Because the value of the Series B Common Stock
and the CTRs may vary inversely over certain ranges of values and because the
CTRs may constitute property which is substantially similar or related to the
Series B Common Stock, a corporate holder's holding period for Series B Common
Stock for this purpose may exclude those days on which it held a CTR, which may
render such holder ineligible for the dividends received deduction with respect
to dividends received on the Series B Common Stock.
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
Amended and Restated Certificate of Incorporation 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 currently 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 January 31, 1997, 36,245,031 shares of Series A Common Stock were issued and
outstanding, held by 28 stockholders of record, 125,931,074 shares of Series B
Common Stock were issued and outstanding, held by 158 stockholders of record,
and no shares of Series C Common Stock were outstanding. After the Equity
Offering, all existing rights to acquire Series C Common Stock will become
rights to acquire the same number of shares of Series B Common Stock.
Upon consummation of the Equity Offering, however, the Company's Restated
Certificate of Incorporation will be amended and restated to provide for
authorized capital stock of 505,000,000 shares, which shall consist of
500,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock, each
having a par value of $.0001 per share. Of the 500,000,000 shares of Common
Stock, 3,000 shares will be designated Series A Common Stock, all of which will
be issued and outstanding and held by members of the Control Group,
shares will be designated Series B Common Stock, of which shares will
be issued and outstanding and shares will be designated Series C
Common Stock of which shares will be issued and outstanding. No shares
of Preferred Stock will be issued and outstanding.
COMMON STOCK
Voting Rights. Upon consummation of the Equity Offering, under the
Company's Amended and 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, voting as a class, to elect a majority of
the Board of Directors. The holders of Series B Common Stock and Series C Common
Stock have the right, voting together 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 and Series C Common Stock, voting together as a class,
shall be required for the Company (i) to amend the Company's Amended and
Restated Certificate of Incorporation or Restated Bylaws in a manner detrimental
to the Series B Common Stock or the Series C Common Stock, provided that except
as required by law, no approval of the Series B Common Stock or the Series C
Common Stock is required if such amendment is necessary to comply with FCC rules
or regulations; (ii) to effect 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
which transaction would result in the Company's stockholders immediately prior
to such transaction not holding at least fifty percent of the voting power of
the surviving or continuing entity; (iv) to conduct a liquidation,
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dissolution or winding up of the Company; (v) to declare dividends, 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; (vi) to effect any capital
reorganization of the Company or any reclassification or recapitalization of the
capital stock of the Company; and (vii) as may otherwise be required by law.
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, Series B Common
Stock and Series C Common Stock shall be subject to certain transfer
restrictions pursuant to the terms of the Company's Amended and 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" or "Very Small Business" under Part 24 of the rules of the FCC
applicable to broadband PCS. See "Principal Stockholders."
In order for the Company to qualify for the Entrepreneurs' Auction and as a
Small Business or Very 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, (i) a
"control group" collectively own at least 25% for the three-year period after
the License Grant Date of the Company's fully diluted equity and (ii) persons or
entities meeting certain FCC qualifications known as "qualifying investors" own
at least 60% of this percentage interest. To remain eligible for the preferences
afforded bidders in the Entrepreneurs' Auction, during the 10-year term of the
PCS license, a control group must maintain the rights to elect a majority of the
members of the Company's Board of Directors and to exercise control over the
Company, and the qualifying investors must continue to own at least 10% of the
Company's fully diluted equity. A control group and the qualifying investors may
satisfy the minimum FCC's Required Ownership Percentage by holding options or
warrants.
Conversion of Series A Common Stock at the Closing of the Equity
Offering. Pursuant to an irrevocable election made by the holders of a majority
of the shares of Series A Common Stock, upon consummation of the Equity Offering
each share of Series A Common Stock (other than 3,000 shares) will be converted
into shares of Series B Common Stock and shares of Series C
Common Stock.
Series C Common Stock. Pursuant to the Company's Amended and Restated
Certificate of Incorporation, the Series C Common Stock will be mandatorily
redeemable by the Company if and to the extent shares of Series B Common Stock
are required to be issued in settlement of the CTRs, at a redemption price of
$.0001 per share of Series C Common Stock. In such event, the Amended and
Restated Certificate of Incorporation will provide that the Company will redeem
a number of shares of Series C Common Stock equal to the number of shares of
Series B Common Stock issued in settlement of the CTRs.
In the event the Company subdivides (by stock dividend, stock split or
otherwise) or combines (by reverse stock split or otherwise), the number of
shares of Series B Common Stock the Company is obligated to appropriately adjust
the number of shares of Series C Common Stock it will be obligated to redeem. In
the event the Company redeems less than all of the then outstanding shares of
Series C Common Stock, the Company will effect such redemption pro rata. In
addition, no fractional shares or scrip representing fractions of shares of
Series C Common Stock will be redeemed in connection with any such redemption.
Upon the CTR Expiration Date, each share of Series C Common Stock which is not
redeemed pursuant to the terms of the Amended and Restated Certificate of
Incorporation will be converted into a share of Series B Common Stock. See
"Description of Contingent Transfer Rights."
An aggregate of shares of Series C Common Stock will be issued to the
Control Group, together with shares of Series B Common Stock, in exchange for
the outstanding shares of Series A Common Stock (other than 3,000 shares) upon
the consummation of the Equity Offering. To the extent the Underwriters'
over-allotment option is not exercised, an equivalent number of shares of Series
C Common Stock will be
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automatically converted into Series B Common Stock such that the total remaining
outstanding shares of Series C Common Stock will equal the number of CTRs issued
in the Equity Offering.
Control Group Warrants. Upon any issuance of shares of Common Stock, or
options, warrants, rights or other securities exercisable for or convertible
into shares of Common Stock, from and until 10 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 or combinations; or (iii) as a dividend or distribution
on Series A, Series B Common Stock or Series C Common Stock for which an
adjustment is made pursuant to (ii) above, which issuance would cause the equity
interest of the Control Group or the Qualifying Investors on a fully-diluted
basis to fall below the Required Ownership Percentage, as defined in the Amended
and Restated Certificate of Incorporation (such issuance, a "Dilutive
Issuance"), the Qualifying Investors automatically shall be issued warrants to
purchase shares of Series B. Common Stock at a price equal to "fair market
value" of the Series B. Common Stock at the time of the Dilutive Issuance in an
amount sufficient to maintain the aggregate equity interest of the Control Group
or the Qualifying Investors in the Company at the Required Ownership Percentage.
Any Control Group Warrants issuable prior to the CTR Expiration Date will expire
on the later of the second anniversary of their issuance or six months after the
CTR Expiration Date. Any Control Group Warrants issuable on or after the CTR
Expiration Date will expire on the Termination Date and will provide that the
exercise price thereof will be the then "fair market value" of the Series B
Common Stock. Expiration of a Control Group Warrant which causes the equity
interest of the Qualifying Investor on a fully diluted basis to fall below the
Required Ownership Percentage shall be deemed to be a Dilutive Issuance. The
issuance of Control Group Warrants will also trigger the Company's obligation to
issue adjustment warrants to MCI. See "-- Other Options, Warrants and
Convertible Debt -- MCI Warrants -- Adjustment Warrants."
Automatic Conversion. 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 at a conversion ratio of one share of Series B
Common Stock for each share of Series A Common, subject to adjustment as
described below (the "Series A Conversion Ratio"). 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.
Adjustment to Series A Conversion Ratio. In the event (i) the outstanding
shares of Series B Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of 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 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
B Common Stock, respectively, into a greater number of shares of 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.
Liquidation. Except to the extent otherwise required by applicable
regulations of the FCC, as codified or otherwise adopted in decisions or orders
of the FCC from time to time, in the event of any liquidation, dissolution or
winding up of the Company, either voluntary or involuntary, subject to the
rights of any holders of Preferred Stock, the assets and funds which remain in
the Company, if any, shall be distributed ratably on a per share basis among the
holders of shares of Series A Common Stock (on the basis of the number of shares
of Series B Common Stock into which such shares of Series A Common Stock are
convertible at the applicable Series A Conversion Ratio), Series B Common Stock
and Series C Common Stock (on the basis of the number of shares of Series B
Common Stock into which such shares of Series C Common Stock are convertible).
Dividends. Except to the extent otherwise required by applicable
regulations of the FCC, as codified or otherwise adopted in decisions or orders
from time to time, as and when dividends are declared and paid by the Company,
whether in cash, property or securities of the Company (other than Series B
Common Stock), the
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holders of Series A Common Stock and Series C Common Stock shall be entitled to
participate in such dividends ratably on a per share basis (on the basis of the
number of shares of Series B Common Stock into which such shares are
convertible) with the holders of the Series B Common Stock.
PREFERRED STOCK
Under the Amended and Restated Certificate of Incorporation, the Board of
Directors is authorized from time to time to provide by resolution for the
issuance of shares of Preferred Stock in one or more series not exceeding in the
aggregate the number of shares of Preferred Stock authorized by the Amended and
Restated Certificate of Incorporation, as amended from time to time; and subject
to the provisions of the Amended and Restated Certificate of Incorporation, to
determine with respect to each such series the voting powers, if any (which
voting powers, if granted, may be full or limited), designations, preferences
and relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions relating thereto, including without
limiting the generality of the foregoing, the voting rights relating to shares
of Preferred Stock of any series (which may be one or more votes per share or a
fraction of a vote per share, which may vary over time and which may be
applicable generally or only upon the happening and continuance of stated events
or conditions), the rate of dividend to which holders of Preferred Stock of any
series may be entitled (which may be cumulative or noncumulative), the rights of
holders of Preferred Stock of any series in the event of liquidation,
dissolution or winding up of the affairs of the Company, the rights, if any, of
holders of Preferred Stock of any series to convert or exchange such shares of
Preferred Stock of such series for shares of any other class or series of
capital stock or for any other securities, property or assets of the Company or
any subsidiary (including the determination of the price or prices or the rate
or rates applicable to such rights to convert or exchange and the adjustment
thereof, the time or times during which the right to convert or exchange shall
be applicable and the time or times during which a particular price or rate
shall be applicable), whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption, including
the date or dates upon or after which they shall be redeemable, and the amount
per share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates, and whether any shares of that
series shall be redeemed pursuant to a retirement or sinking fund or otherwise
and the terms and conditions of such obligation.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION, RESTATED BYLAWS AND DELAWARE LAW
Amended and Restated Certificate of Incorporation and Restated Bylaws
The Restated Bylaws provide that the Company's stockholders may call a
special meeting of stockholders only upon a request of stockholders owning at
least a majority of the Company's capital stock. These provisions of the Amended
and Restated Certificate of Incorporation and Bylaws could discourage potential
acquisition proposals and could delay or prevent a change in control of the
Company. In addition, upon the Termination Date, the Amended and Restated
Certificate of Incorporation provides that the Company's Board of Directors will
be classified into three classes, that any stockholder action may only be taken
at a duly called meeting of stockholders and that special meetings of
stockholders may be called only by the Board of Directors. These provisions are
intended to enhance the likelihood of continuity and stability in the
composition of the Board of Directors and in the policies formulated by the
Board of Directors and to discourage certain types of transactions that may
involve an actual or threatened change of control of the Company. These
provisions are designed to reduce the vulnerability of the Company to an
unsolicited acquisition proposal. These provisions are also intended to
discourage certain tactics that may be used in proxy fights. However, such
provisions could have the effect of discouraging others from making tender
offers for the Company's shares and, as a consequence, they also may inhibit
fluctuations in the market price of the Company's shares that could result from
actual or rumored takeover attempts. Such provisions also may have the effect of
preventing changes in the management of the Company.
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Delaware Takeover Statute
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder;
(ii) upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (a) by persons who are directors and also
officers and (b) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer, or (iii) on or subsequent
to such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock that is not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder, (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
OTHER OPTIONS, WARRANTS AND CONVERTIBLE DEBT
Options. As of September 30, 1996, there were options to purchase
18,243,322 shares of Series B Common Stock outstanding under the Company's
Amended and Restated Stock Option Plan, at exercise prices ranging from $0.25 to
$5.00. Stock options which have been granted under the Amended and Restated
Stock Option Plan generally expire 10 years after the date of grant.
Convertible Debt
Hughes Subscription Agreement, Convertible Promissory Note and Escrow
Agreement
Hughes Subscription Agreement and Convertible Promissory Note. On October
25, 1996, the Company entered into a Subscription Agreement (the "Subscription
Agreement") with Hughes, pursuant to which the Company has sold the Hughes
Convertible Note to Hughes in the principal amount of $50 million. The Hughes
Convertible Note and accrued interest thereon, at a rate of 14% per annum, will
automatically convert into shares of Series B Common Stock at a conversion price
of $5.00 per share (subject to adjustment for stock splits, stock dividends,
combinations and the like) upon the later of the closing of the Equity Offering
or the early termination or expiration of the waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act"). The Hughes
Convertible Note matures on June 30, 1997 if not previously converted. Under the
terms of the Subscription Agreement, the Company has agreed, upon written notice
from Hughes on or before March 29, 1997, to use its best efforts to cause the
appointment of a Hughes representative to the NextWave Board of Directors.
Hughes has the right to have one individual designated by it continue to serve
on the Company's board of directors for three years. The Subscription Agreement
also contains customary representations, warranties and covenants with respect
to the Company. See "Business -- Equipment Vendors."
Hughes Escrow Agreement; Conditions to Release. The proceeds from the sale
of the Hughes Convertible Note were deposited into an escrow account pursuant to
the terms of an Escrow Agreement between Hughes, the Company and The Chase
Manhattan Bank, as escrow agent. A total of $35 million of the Hughes
Convertible Note proceeds were released to the Company in January 1997 when the
Company's
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C-Block licenses were granted. The remaining Hughes Convertible Note proceeds
will be released from the escrow account by the completion of the Equity
Offering.
LG Loans
Convertible Promissory Notes and Loan Agreement. On February 23, 1996, LG
InfoComm, Inc., a California corporation and a subsidiary of LGIC ("LG"),
entered into an agreement with the Company pursuant to which it agreed to make a
convertible loan to the Company in an aggregate principal amount of $10 million
which is convertible into 2 million shares of Series B Common Stock at a
conversion price of $5.00 per share. The loan was funded on June 3, 1996. In
August 1996, LGT advanced to the Company an additional $10 million which is
expected to be evidenced by a convertible promissory note which will be
converted into 2 million shares of Series B Common Stock at $5.00 per share upon
the completion of the Equity Offering. Under a Loan Agreement dated as of
January 6, 1997 (the "LG Loan Agreement"), between the Company and LG, LG lent
an additional $25 million to the Company. The loan will bear interest at 9.6%
and will mature on the earlier of (i) 30 days from the closing of the Equity
Offering or (ii) six months from the drawdown date. In connection with the LG
Loan Agreement, the Company agreed to reduce the conversion price on the $10
million convertible promissory note issued to LG under a loan agreement dated
February 23, 1996 with the Company from $7.00 per share to $5.00 per share of
Series B Common Stock (subject to antidilution adjustments).
In January 1997, the Company and this vendor entered into a stock pledge
agreement, pursuant to which the Company pledged all of the issued and
outstanding capital stock of NextWave Personal Communications Inc. to this
vendor as collateral for the repayment by the Company of the amounts advanced
previously by this vendor. Pursuant to the loan agreement with the vendor, the
Company agreed not to permit or create any liens on the assets of NextWave
Personal Communications Inc. or allow NextWave Personal Communications Inc. to
become obligated with respect to any indebtedness other than liens or
indebtedness in connection with the C-Block payment terms provided by the FCC in
connection with the grant of the Company's C-Block PCS licenses (the "C-Block
Payment Terms"). The Company also agreed that NextWave Personal Communications
Inc. will not transfer, encumber or cause any liens or encumbrances to attach to
the capital stock of NextWave Personal Communications Inc. or the Company's
C-Block PCS licenses, except as otherwise provided by the C-Block Payment Terms.
Finally, the Company agreed to cause NextWave Power Partners to take all steps
necessary to transfer any D-Block PCS licenses finally awarded to NextWave Power
Partners to NextWave Personal Communications Inc. The stock pledge will be
released upon payment of all obligations under the loan agreement with the
vendor.
Other Convertible Debt
The Company issued $130,348,000 aggregate principal amount of Bridge Notes.
The Bridge Notes are convertible at any time into 32,587,000 shares of Series B
Common Stock at a conversion price of $4.00 per share. The Company is obligated
to prepay approximately $ million of Bridge Notes out of the proceeds of the
Debt Offering.
QUALCOMM has made a convertible loan to the Company in an aggregate
principal amount of $398,000 which is convertible into 1,019,444 shares of
Series B Common Stock at a conversion price of $0.39 per share. This loan
matures on June 7, 1999.
In connection with its initial private placement of Series B Common Stock,
the Company issued $38,912,478 aggregate principal amount of Convertible
Promissory Notes to certain foreign investors. The Convertible Promissory Notes
convert automatically into 12,970,826 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 6% per annum.
The Convertible Promissory Notes otherwise mature on May 6, 2001.
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Warrants. The Company issued warrants to purchase 12,975,135 shares of
Series B Common Stock to investors in its private placement of Series B Common
Stock. These warrants have an exercise price of $3.00 per share and expire one
year following the consummation of the Equity Offering. If at the time of
expiration the warrant holder has been unable to exercise a warrant due to FCC
ownership restrictions, 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 FCC regulations.
In connection with certain loans made by PECO, the Company has issued to
PECO warrants to purchase a total of 980,556 shares of Series B Common Stock at
$3.00 per share. 500,000 of these warrants expire November 1, 1998 and 480,556
of these warrants expire March 29, 1999.
In connection with a loan made to the Company by LG, the Company has issued
to LG warrants to purchase 250,000 shares of Series B Common Stock at $3.00 per
share. These warrants expire one year following the consummation of the Equity
Offering. If at the time of expiration LG has been unable to exercise a warrant
due to FCC ownership restrictions, the exercise period of the warrant will be
extended to 90 days after the date LG becomes able to exercise the warrant
without violating FCC regulations. See "Certain Indebtedness -- Convertible
Promissory Notes."
In connection with several third party consultants performing financial
advisory services for the Company, the Company issued to the consultants
warrants to purchase an aggregate of 164,113 shares of Series B Common Stock at
$4.00 per share. These warrants expire one year following the consummation of
the Equity Offering.
In connection with the repayment of the Bridge Notes pursuant to the use of
proceeds from the Offerings, the Company is obligated to issue to the Bridge
Note holders warrants to purchase up to 32,587,000 shares of Series B Common
Stock at an exercise price of $4.00 per share. These warrants expire five years
from the date of issuance.
MCI Warrants
Pursuant to the MCI Warrant Agreement, the Company has granted MCI the
Initial Warrants to purchase shares of Series B Common Stock and has agreed to
grant to MCI upon the occurrence of certain events the Additional Initial
Warrants, the Adjustment Warrants and the Performance Warrants, as described
below.
Initial Warrants. On the date of the MCI Warrant Agreement, the Company
granted MCI warrants to purchase 23,673,284 shares of Series B Common Stock (the
"Initial Warrants"). These warrants have an exercise price of $4.00 per share,
subject to adjustments for certain anti-dilution events, and, subject to
extension in certain circumstances, expire on February 18, 2004. The exercise
price of the Initial Warrants, however, will be adjusted, if necessary, to equal
the exercise price of the Additional Initial Warrants upon the grant of such
Additional Initial Warrants at the consummation of the Equity Offering or
shortly thereafter.
Additional Initial Warrants. Upon the consummation of the Equity Offering
or shortly thereafter, the Company shall issue and deliver to MCI additional
warrants (the "Additional Initial Warrants") to purchase shares of
Series B Common Stock (which, together with the Initial Warrants, will represent
the right to acquire up to 12% of the outstanding shares of the Company's
capital stock, on a Fully-Diluted Basis (the "Initial Grant Percentage"). These
warrants will have an exercise price, subject to adjustment for certain
anti-dilution events, equal to the lesser of (i) $4.00 per share; (ii) 40% of
the price attributable to the Series B Common Stock included in the Units issued
by the Company in the Equity Offering, if such price is less than $7.00 per
share; or (iii) the lowest price per share for shares of Series B Common Stock
(or options, warrants or securities convertible into Series B Common Stock) sold
or issued by the Company on or after June 30, 1996 (and prior to the issuance
and delivery of the Additional Initial Warrants). The Additional Initial
Warrants will, subject to extension in certain circumstances, expire seven and
one-half years after their date of issuance.
Adjustment Warrants. If the Company, at any time after the issuance of the
Additional Initial Warrants and within 10 years from the date of the MCI Warrant
Agreement, sells or issues any capital stock or any
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options, warrants, convertible securities or other rights entitling the holder
thereof to purchase from the Company shares of its capital stock (any such
event, a "Triggering Issuance"), then the Company must issue and deliver to MCI
additional warrants (the "Adjustment Warrants"). The number of shares of Series
B Common Stock issuable upon exercise of Adjustment Warrants will equal the
number of shares necessary to preserve the aggregate percentage of the
outstanding shares of the Company's capital stock (up to 12% as of or shortly
after consummation of the Equity Offering), on a Fully-Diluted Basis, in respect
of which warrants have been issued to MCI. The Adjustment Warrants issued on any
date will have an exercise price, subject to certain exceptions, equal to the
Market Price (as defined) of the Series B Common Stock as of the date one day
prior to the Triggering Issuance relating to such Adjustment Warrants. The
Adjustment Warrants will, subject to extension in certain circumstances, expire
five and one-half years after the issuance date of such Adjustment Warrants.
If, on any date on which Adjustment Warrants are to be issued, there are
any shares of capital stock of the Company outstanding, on a fully diluted
basis, other than (i) shares of Series A Common Stock outstanding on the date of
the Warrant Agreement or (ii) Series B Common Stock, then MCI may require that
the Adjustment Warrants provide MCI with the right to purchase shares of any
class or series of outstanding capital stock of the Company, other than Series A
Common Stock.
Performance Warrants. If MCI purchases an aggregate amount of Full
Mobility Services MOUs exceeding certain incremental thresholds (each such
incremental threshold, a "Performance Threshold"), the Company will issue and
deliver to MCI warrants to purchase shares of Series B Common Stock (such
warrants, the "Performance Warrants"), up to a maximum, together with MCI's
Initial Warrants, Additional Initial Warrants and Adjustment Warrants, of 25% of
the number of outstanding shares of capital stock of the Company, on a
Fully-Diluted Basis, after giving effect to the issuance of such Performance
Warrants. The Performance Thresholds are subject to reduction in the event the
Company sells or transfers any PCS licenses under certain circumstances, fails
to achieve certain levels of Full Mobility Service offerings within a specified
time period, or if MCI has terminated service in any Market in which the
Company's PCS network fails to meet certain service, quality and capacity
requirements. The Performance Warrants are to have an exercise price, subject to
adjustment for certain anti-dilution events, equal to the Market Price (as
defined) of the Series B Common Stock on the last day of the billing period
under the applicable monthly invoice relating to the specific issuance, and the
Performance Warrants are, subject to extension in certain circumstances, to
expire five years after the date of their issuance. If MCI has terminated the
MCI Agreement because of a default by the Company or if MCI has terminated
service under the MCI Agreement in the Los Angeles or New York City Markets due
to the failure of NextWave to meet certain service, quality and capacity
requirements in those markets, MCI may accelerate the Company's obligation to
deliver Performance Warrants.
If, on any date on which Performance Warrants are to be issued, there are
any shares of capital stock of the Company outstanding, on a Fully-Diluted Basis
other than (i) shares of Series A Common Stock outstanding on the date of the
Warrant Agreement or (ii) Series B Common Stock, then MCI may require that the
Performance Warrants provide MCI with the right to purchase shares of any class
or series of outstanding capital stock of the Company, other than Series A
Common Stock.
Mergers and Asset Sales. Under the MCI Warrant Agreement, in the event of
a merger or consolidation to which the Company is a party or any sale of assets
of the Company as an entirety or substantially as an entirety (other than a
merger, consolidation or sale of assets which (i) does not result in any
reclassification or change in any outstanding shares of capital stock, on a
Fully-Diluted Basis, of the Company or (ii) results in the holders of all such
outstanding shares being entitled to receive solely cash and/or securities that
are not equity securities), the surviving or transferee entity (or an issuer of
equity securities in the transaction) must enter into a written agreement with
MCI pursuant to which such entity will assume all of the Company's obligations
under the MCI Warrant Agreement, subject to certain modifications, and the
Company must not enter into any such transaction unless such entity has entered
into such an agreement with MCI. In the event of a merger, consolidation or sale
of all or substantially all of the assets of the Company which results in the
holders of all outstanding shares of the Company's capital stock, on a
Fully-Diluted Basis, being entitled to receive solely cash and/or securities
that are not equity securities, MCI is, subject to certain conditions,
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entitled to receive a cash payment equal to up to approximately 2% (subject to
reduction to the extent that Performance Warrants have theretofore been issued)
of the market value of the capital stock of the Company on a Fully-Diluted
Basis.
Lucent Warrants
On November 15, 1996, the Company entered into a Warrant Purchase Agreement
with Lucent (the "Lucent Warrant Agreement"). Under the Lucent Warrant
Agreement, (the "Common Stock Price"), the Company has granted Lucent warrants
to purchase a number of shares of Series B Common Stock equal to (i) $10
million, divided by (ii) the price per share attributable to the Series B Common
Stock included in the Units issued by the Company in the Equity Offering (the
"Common Stock Price"), at an exercise price equal to the Common Stock Price,
subject to adjustment for certain anti-dilution events (the "Lucent Warrants").
The Lucent Warrants may not be exercised until the earlier to occur of (i)
December 31, 1997, or (ii) the 181st day after the closing of the Equity
Offering. The Lucent Warrants expire on the earlier to occur of (i) June 30,
2002, or (ii) the fifth anniversary of the closing of the Equity Offering.
Comdisco Warrants
In connection with the Master Lease Agreement, on November 1, 1996, the
Company granted Comdisco warrants to purchase 1,500,000 shares of Series B
Common Stock at an exercise price equal to the Common Stock Price, subject to
adjustment for certain anti-dilution events (the "Comdisco Warrants"). The
Comdisco Warrants shall vest from time to time as follows: Comdisco shall have
the right to exercise the warrant to purchase that number of shares of Series B
Common Stock equal to 1% of each "Progress Payment" (as such term is defined in
the Master Lease Agreement) provided, however, that Comdisco shall vest in the
right to purchase all 1,500,000 shares upon the earlier to occur of (i) December
31, 1997, or (ii) the date upon which Comdisco funds equipment purchases
pursuant to the Master Lease Agreement equal $150 million. The Comdisco Warrants
expire on various dates in 2002.
Debt Offering Warrants
In connection with the Debt Offering, the Company will issue, as part of
the Senior Note Units and Senior Discount Note Units, an aggregate of
warrants to purchase Series B Common Stock at an exercise price of $
per share, representing approximately % of the Company's Series B Common
Stock on a fully diluted basis immediately after the consummation of the
Offerings. These warrants will become exercisable the first day that both (a)
they are traded separately from the Senior Note Units or Senior Discount Note
Units, as applicable, and (b) either of the following has occurred: (i) a
"Change of Control" (as defined) of the Company or (ii) , 199 . These
warrants will expire on , 2007.
LISTING
The shares of Series B Common Stock have been approved for quotation on The
Nasdaq National Market, subject to notice of issuance, under the symbol "SURF".
Application will be made to list the Units and the CTRs on The Nasdaq National
Market. The Series B Common Stock and the CTRs will be separately transferable
90 days after the date of the original issuance, or such earlier date as may be
determined by Smith Barney Inc.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Units, Series B Common
Stock and CTRs is Harris Trust Company of California, Los Angeles, California.
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CERTAIN INDEBTEDNESS
U.S. GOVERNMENT FINANCING
The Company successfully bid $4.7 billion, net of a 25% bidding credit, for
63 BTA licenses in the FCC's C-Block Auctions and successfully bid $129 million,
net of bidding credits, for 32 licenses in the D, E and F-Block Auctions. To
date the Company has paid $488 million, representing in excess of 10% of its
total net bids, as downpayment. The FCC has granted NextWave its C-Block
licenses and is expected to grant the D, E & F Block licenses later this year.
When the D and E Block licenses are granted, the Company will be required to pay
$4.6 million, representing the balance of its bid amount. The Company will be
required, pursuant to the FCC's installment payment plan, to execute a note and
security agreement to the U.S. Government creating a first priority security
interest in favor of the FCC in the licenses (and the proceeds of any sale,
thereof). The U.S. Government Financing terms for the remaining 90% balance of
the C-Block indebtedness include a below market interest rate of 6.5% fixed for
the 10-year term. This financing allows the Company to pay interest only on the
principal balance for the first six years, with payments of interest and
principal amortized over the seventh through tenth years of the license term.
When the F-Block licenses are granted, the Company will make a second 10%
downpayment of $12.3 million and have the remaining 80% balance financed with
favorable terms including a below market interest rate (the 10-year Treasury
Note Rate at time of grant) with interest only payments for the first two years
and interest and principal amortized over the third through tenth year. The
favorable financing terms of the C and F-Block licenses significantly reduces
the effective cost of these licenses to the Company on a net present value
basis.
The combined C and F-Block financing is approximately $4.4 billion.
Although the Company's obligation under this financing will be recorded on the
Company's financial statements at its estimated fair market value of $2.8
billion, the amount that would be owed to the U.S. Government if the financing
was declared immediately due and payable would be $4.4 billion plus accrued
interest. 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 U.S. Government
Financing. Payments are deemed untimely for such purposes if not made within 90
days after they become due. The FCC has indicated that, in the event that a
licensee anticipates an inability to make any required payment based upon
bankruptcy, foreclosure or financial distress, there will be a presumption in
favor of granting the licensee's request for a further three-month grace period
before the FCC cancels its licenses, re-auctions them, and subjects the Company
to a penalty, which may be comprised of the difference between the price at
which the Company acquired its licenses and the amount of the winning bid at the
re-auction, plus an additional penalty of 3% of the lesser of the subsequent
winning bid and the defaulting bid. See "Regulation of the Wireless
Telecommunications Industry -- The Entrepreneurs' Block."
DEBT OFFERING
The Company is concurrently offering Senior Note Units consisting
of $ in aggregate principal amount of Senior Notes and
Warrants to purchase an aggregate of shares of Series B Common Stock and
Senior Discount Note Units, consisting of gross proceeds of Senior
Discount Notes and Warrants to purchase an aggregate of
shares of Series B Common Stock of the Company. The Senior Notes and Warrants
are being offered as Senior Note Units, with each Unit consisting of one $1,000
principal amount Note and one Warrant to purchase shares of the Series
B Common Stock. The Senior Discount Notes and Warrants are being offered as
Senior Discount Note Units, with each Unit consisting of one $1,000 principal
amount Note and one Warrant to purchase shares of the Series B Common
Stock. The Senior Notes will be issued at a discount to their principal amount
at maturity and the yield to maturity of the Senior Notes will be %, computed
on the basis of semi-annual compounding of interest, calculated from ,
1997. The Senior Discount Notes will be issued at a discount to their principal
amount at maturity and the yield to maturity of the Senior Discount Notes will
be %, computed on the basis of semi-annual compounding of interest, calculated
from , 1997.
The Senior Notes will bear cash interest at a rate of % per annum on
their principal amount until maturity. The Company will place sufficient funds
from the net proceeds of the Senior Notes into an escrow
106
<PAGE> 108
account (the "Escrow Account") to pre-fund interest payments on the Senior Notes
until , 2000. The Senior Discount Notes will bear interest at a rate
of % per annum on their principal amount until maturity. Cash interest will
accrue on the Senior Notes from the date of the original issue of the Senior
Notes Units (the "Issue Date") and will be payable semi-annually on
and , commencing , 1997. Cash interest will not accrue
or be payable on the Senior Discount Notes prior to , 2002.
Thereafter, cash interest will be payable semi-annually in arrears on each
and , commencing , 2002.
The Notes will represent senior unsecured obligations of the Company,
except that the Senior Notes will be secured by a first priority security
interest in the Escrow Account. Except as set forth below, the Notes will be
effectively subordinated to all liabilities of the Company's subsidiaries,
including indebtedness and trade payables. The Notes will be guaranteed by
NextWave Wireless, which guarantee will be subordinated to any obligations of
NextWave Wireless under the Vendor Financings but will be on a parity with or
senior to all other liabilities of NextWave Wireless. The Indentures governing
the Notes will contain certain covenants which, among other things, will
restrict the ability of the Company and certain of its subsidiaries to: (i)
incur additional indebtedness; (ii) pay dividends or make distributions in
respect of its capital stock or make other restricted payments; (iii) create
liens; (iv) enter into certain transactions with affiliates or related persons;
(v) sell certain assets; (vi) engage in any business other than the
telecommunications business; or (vii) consolidate, merge or sell all or
substantially all of its assets.
There will be no mandatory redemption requirements with respect to the
Notes. The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after , 2002 at specified redemption prices,
together with accrued and unpaid interest to the redemption date. In addition,
the Company, at its option, may redeem up to $ of the originally issued
principal amount of Senior Notes and up to $ of the originally issued
principal amount at maturity of the Senior Discount Notes at any time and from
time to time prior to , 2000 at a redemption price equal to % of
the Senior Notes so redeemed plus accrued and unpaid interest, if any, thereon
to the redemption date and % of the Accreted Value (as defined in the Senior
Discount Notes) at the redemption date of the Senior Discount Notes so redeemed,
in each case out of (i) the net proceeds of one or more public equity offerings
or (ii) a sale of Series B Common Stock of the Company to a strategic equity
investor, in either case for gross proceeds of at least $ ; provided
that at least $ of the originally issued principal amount of Senior
Notes and $ of the originally issued principal amount at maturity of
Senior Discount Notes remain outstanding immediately after giving effect to such
redemption.
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<PAGE> 109
In addition, the Company, at its option, may redeem a portion of the Notes
at a specified redemption price if the Company enters into a certain resale
agreement prior to , 2000. In the event of a Change of Control (as
defined in the Notes), the Company will be required to make an offer to purchase
all outstanding Notes at a purchase price equal to (i) 101% of the principal
amount thereof, in the case of the Senior Notes, plus accrued and unpaid
interest, if any, thereon to the date of purchase and (ii) (a) 101% of the
Accreted Value thereof, in the case of the Senior Discount Notes, if purchased
on or before , 2002, and (b) 101% of the principal amount at
maturity of the Senior Discount Notes, plus accrued and unpaid interest, if any,
thereon, if purchased after , 2002.
BRIDGE NOTES
In April and May 1996, the Company 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 2% 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 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 any
issuance of certain high-yield debt securities, including the Senior Notes and
the Senior Discount Notes issued in the Debt Offering. Holders of an aggregate
of $93 million in principal amount of the Bridge Notes have executed consents
(collectively, the "Consents") permitting the Company to satisfy its prepayment
obligation with cash, Public Debt Securities (as defined below) or any
combination thereof; provided, however, that any Public Debt Securities issued
by the Company to the holders of Bridge Notes will have a public float of at
least the greater of (i) $150 million and (ii) two times the aggregate principal
amount of Bridge Notes which are being prepaid with the relevant Public Debt
Securities, in each case excluding the Public Debt Securities issued to such
holders ("Consenting Holders") pursuant to the Consents. The Public Debt
Securities will be issued to such Consenting Holders at the same time as the
Public Debt Securities sold to the public and will be deemed to have a value for
purposes of the redemption equal to the price at which the Public Debt
Securities are sold to the public. The prepayment of the Bridge Notes will be at
a redemption price of 100% of the principal amount thereof, together with
accrued interest through the date of prepayment, and will also require the
issuance of the warrants described below. "Public Debt Securities" means debt
securities which shall include bonds, notes or any similar securities or units
consisting of any of the foregoing and warrants, issued by the Company pursuant
to an effective registration statement. In the event the Public Debt Securities
are sold to the public in two or more tranches, any prepayment, in whole and in
part, in Public Debt Securities will be divided ratably between and among the
Public Debt Securities in each such tranche unless otherwise determined by the
Company.
Upon consummation of the Debt Offering, the Company would have the right to
deliver Senior Note Units and Senior Discount Note Units in satisfaction of the
Company's prepayment obligation with respect to Bridge Notes held by Consenting
Holders. At the closing of the Debt Offering, Consenting Holders will receive a
fee equal to 5% of the principal amount plus accrued interest of the Bridge
Notes, payable in cash or, if elected by a Consenting Holder in its Consent, in
shares of Series B Common Stock valued at $5.00 per share.
In addition, whether or not the Debt 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 32,587,000 warrants to purchase Series B Common Stock to the holders
of such notes at an exercise price of $4.00 per share, subject to anti-dilution
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 the Bridge
Notes at, or any time after, April 9, 1998, whether pursuant to an optional or
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<PAGE> 110
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
April 9, 2002, and no warrants will be issued.
CONVERTIBLE PROMISSORY NOTES AND VENDOR FINANCING
For information regarding convertible promissory notes outstanding, see
"Description of Capital Stock -- Other Options, Warrants and Convertible Debt."
For a description of indebtedness related to the purchase of PCS infrastructure
equipment and services, see "Business -- Equipment Vendors."
109
<PAGE> 111
SHARES ELIGIBLE FOR FUTURE SALE
The outstanding shares of Series B Common Stock and all Series B Common
Stock issuable upon exercise of outstanding options or warrants or upon
conversion of convertible notes (collectively, "Restricted Shares") constitute
or will constitute restricted securities under Rule 144 of the Securities Act.
Without consideration of the contractual restrictions described below, all of
the shares of Series B Common Stock which constitute Restricted Shares will be
eligible for sale in the public market in accordance with Rule 144 beginning two
years after such securities were acquired.
The holders of shares of Series B Common Stock (including shares
issuable upon conversion of convertible securities and exercise of options and
warrants) have the right, commencing , 1997 (90 days after the
closing of the Equity Offering), to require the Company to file a registration
statement under the Securities Act for the sale of such shares of Series B
Common Stock. The Company is permitted to delay the filing of a registration
statement in connection therewith for up to 120 days, and presently intends to
do so to the extent necessary to avoid having to register any secondary resales
of Series B Common Stock until at least 210 days after the date hereof. 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.
Restricted Shares may not be sold unless they are registered under the
Securities Act or are sold pursuant to an applicable exemption from
registration, including pursuant to Rule 144. In general, assuming the
consummation of the Equity Offering, under Rule 144 as currently in effect, a
person (or persons whose shares are aggregated) who has beneficially owned
shares of Series B Common Stock which constitutes Restricted Shares (or Series A
Common Stock which is converted into shares of Series B Common Stock) 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 shares of Series B Common Stock that does not exceed the greater of 1%
of the then outstanding shares of Series B Common Stock or the average weekly
trading volume of the shares of 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 Securities and Exchange 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 shares of 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.
The Company, its officers, directors, certain of its employees and
stockholders and its affiliates have agreed not to sell, solicit an offer to
buy, contract to sell, grant any option to purchase or otherwise transfer or
dispose of, or register or announce the sale or offering of, any Units, CTRs or
shares of Series B Common Stock of the Company or any securities that are
convertible into, or exercisable or exchangeable for, shares of Series B Common
Stock for a period of 180 days after the date of this Prospectus without the
prior written consent of Smith Barney Inc., subject to certain limited
exceptions included in the Underwriting Agreement. The shares of Series B Common
Stock held by members of the Control Group are subject to certain transfer
restrictions under the Amended Series A Shareholders Agreement. See "Principal
Stockholders."
There currently is no market for the Units, Series B Common Stock or CTRs.
The Company intends to list the Units, the Series B Common Stock and the CTRs on
The Nasdaq National Market following the consummation of the Equity Offering.
There can be no assurance, however, that the Equity Offering will occur or that
an active trading market will develop thereafter. Assuming a public market for
the Units, the Series B Common Stock or the CTRs does develop, no predictions
can be made as to the effect, if any, that market sales of the Units, the Series
B Common Stock and the CTRs or the availability of Series B Common Stock for
sale will have on the market prices 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> 112
UNDERWRITING
Under the terms and subject to the conditions set forth in the Underwriting
Agreement dated the date of this Prospectus (the "Underwriting Agreement") each
of the underwriters named below (the "Underwriters"), for whom Smith Barney
Inc., Lehman Brothers Inc., Bear, Stearns & Co. Inc., Prudential Securities
Incorporated, ING Baring (U.S.) Securities, Inc. and Oppenheimer & Co., Inc. are
acting as Representatives (the "Representatives"), has severally agreed to
purchase and the Company has agreed to sell to each Underwriter, the number of
Units set forth opposite the name of such Underwriter below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS UNITS
---------
<S> <C>
Smith Barney Inc..................................................................
Lehman Brothers Inc. .............................................................
Bear, Stearns & Co. Inc. .........................................................
Prudential Securities Incorporated................................................
ING Baring (U.S.) Securities, Inc. ...............................................
Oppenheimer & Co., Inc............................................................
-------
Total................................................................
=======
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Units offered hereby are
subject to approval of certain legal matters by counsel and to certain other
conditions. The Underwriters are obligated to take and pay for all Units (other
than those covered by the over-allotment option described below) if any are
taken.
The Representatives have advised the Company that initially the
Underwriters propose to offer the Units 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 Unit. Any Underwriter may allow, and such dealers may reallow, a discount
not in excess of $ per Unit to certain other dealers. After the Equity
Offering, the public offering price and such concessions may be changed by the
Underwriters. The Representatives have advised the Company that the Underwriters
do not intend to confirm sales of the Units offered hereby to accounts over
which they exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of
additional Units at the public offering price set forth on the cover page of
this Prospectus, less underwriting discounts and commissions. The Underwriter
may exercise such option only to cover over-allotments, if any, made in
connection with the sale of the Units offered hereby. To the extent that such
option is exercised, each Underwriter will be obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
Units as the number set forth next to such Underwriter's name in the preceding
table bears to the total number of Units in such table.
The Company, the Underwriters and the Representatives have agreed to
indemnify each other against certain liabilities, including under the Securities
Act.
The Company, its officers, directors, certain of its employees and
stockholders and its affiliates have agreed not to sell, solicit an offer to
buy, contract to sell, grant any option to purchase or otherwise transfer or
dispose of, or register or announce the sale or offering of, any Units, CTRs or
shares of Series B Common Stock of the Company, or any securities that are
convertible into, or exercisable or exchangeable for, shares of Series B Common
Stock, for a period of 180 days after the date of this Prospectus without the
prior written consent of Smith Barney Inc., subject to certain limited
exceptions included in the Underwriting Agreement.
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<PAGE> 113
Prior to the Equity Offering, there has been no public market for the
Units, the Series B Common Stock or the CTRs. Accordingly, the initial public
offering price for the Units has been determined by negotiations between the
Company and the Representatives. Among the factors considered in determining the
initial public offering price were the history of, and the prospects for, the
Company's business and the industry in which it competes, an assessment of the
Company's management, its past and present operations, its past and present
earnings and the trend of such earnings, the prospects for earnings of the
Company, the present state of the Company's development, the general condition
of the securities markets at the time of the Equity Offering and the market
prices and earnings of similar securities of comparable companies at the time of
the Equity Offering.
The Series B Common Stock has been approved for quotation, subject to
notice of issuance, on The Nasdaq National Market under the symbol "SURF".
Application will be made to list the Units and the CTRs on The Nasdaq National
Market.
ING Baring (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 an affiliate of ING Baring (U.S.) Securities Inc.
purchased 1,666,666 shares of Series B Common Stock and warrants to purchase
123,356 shares of Series B Common Stock in such private placement. An affiliate
of Prudential Securities Incorporated also purchased 1 million shares of Series
B Common Stock and warrants to purchase 74,013 shares of Series B Common Stock
in such private placement.
LEGAL MATTERS
The legality of the Units, the Series B Common Stock and the CTRs offered
hereby will be passed upon for the Company by Latham & Watkins, San Diego,
California. Certain legal matters in connection with the Equity Offering will be
passed upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP,
New York, New York.
EXPERTS
The financial statements as of December 31, 1995 and September 30, 1996 and
for the periods from May 16, 1995 (inception) to December 31, 1995, the nine
months ended September 30, 1996 and the period from May 16, 1995 to September
30, 1996 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.
112
<PAGE> 114
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act, with respect to the Units, the Series B Common
Stock and the CTRs 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 Units, the Series B Common Stock
and the CTRs 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 Equity 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 this 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. The Commission
maintains a website on the Internet that contains reports, proxy and information
statements and other information (http://www.sec.gov).
113
<PAGE> 115
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.
Area-Based Service: The provision of PCS services in a residential or
business environment offered as an alternative to
or replacement for wireline services.
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.
C-Block Auctions: The C-Block Auction and the C-Block Re-Auction.
C-Block Re-Auction: The FCC Auction of C-Block licenses for which the
high-bidder defaulted on their initial downpayments
to the FCC that commenced July 6, 1996.
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.
D, E and F-Block Auctions: The FCC Auction of 493 10 MHz BTA licenses in the
D-Block, E-Block and F-Block. The F-Block Auction
is restricted to entities meeting certain financial
and other criteria.
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.
114
<PAGE> 116
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.
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.
Full Mobility Service: The provision of digital wireless voice airtime
with mobile inter-cell (base station) hand-off
capability.
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.
LECs: Local exchange carriers.
License Grant Date: The last date on which the FCC issues a C or
F-Block license to the Company.
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
115
<PAGE> 117
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.
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 compresses digital
speech signals prior to transmission in order to
increase the capacity of 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.
116
<PAGE> 118
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants...................................................... F-2
Consolidated Balance Sheet at December 31, 1995 and September 30, 1996................. F-3
Consolidated Statement of Operations for the period from May 16, 1995 (inception) to
September 30, 1995 (unaudited), for the period from May 16, 1995 (inception) to
December 31, 1995, for the nine months ended September 30, 1996, and for the period
from May 16, 1995 (inception) to September 30, 1996.................................. F-4
Consolidated Statement of Cash Flows for the period from May 16, 1995 (inception) to
September 30, 1995 (unaudited), for the period from May 16, 1995 (inception) to
December 31, 1995, for the nine months ended September 30, 1996, and for the period
from May 16, 1995 (inception) to September 30, 1996.................................. F-5
Consolidated Statement of Changes in Stockholders' Equity for the period from May 16,
1995 (inception) to December 31, 1995 and for the nine months ended September 30,
1996................................................................................. F-6
Notes to Consolidated Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE> 119
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 September 30, 1996, and the results of
their operations and their cash flows for the period from May 16, 1995
(inception) to December 31, 1995, the nine months ended September 30, 1996 and
the period from May 16, 1995 (inception) to September 30, 1996 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 audits. We conducted our
audits 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
audits provide 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
January 31, 1997
F-2
<PAGE> 120
NEXTWAVE TELECOM INC.
(a development stage enterprise)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER SEPTEMBER
31, 30,
1995 1996
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 4,486,000 $ 26,102,000
Other current assets........................................... 106,000 1,476,000
----------- ------------
Total current assets................................... 4,592,000 27,578,000
Property and equipment, net...................................... 142,000 15,802,000
Restricted cash.................................................. 875,000 131,760,000
FCC license deposits............................................. 79,225,000 267,182,000
Other assets..................................................... -- 8,788,000
----------- ------------
$84,834,000 $451,110,000
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................... $ 156,000 $ 8,643,000
Accrued liabilities............................................ 348,000 6,856,000
Advances from contingent stock purchase subscribers............ 30,225,000 10,000,000
Advances from related party contingent stock purchase
subscriber.................................................. 4,875,000 --
Current portion of convertible notes payable and capital
leases...................................................... 19,200,000 48,643,000
Notes payable to related party................................. 25,000,000 --
----------- ------------
Total current liabilities.............................. 79,804,000 74,142,000
Convertible notes payable and capital leases, less current
portion........................................................ 24,000 130,845,000
----------- ------------
Total liabilities...................................... 79,828,000 204,987,000
----------- ------------
Commitments (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
47,396,437 shares issued and outstanding.................. 2,000 5,000
Series B, 278,980,556 shares designated: no shares and
99,898,262 shares issued and outstanding.................. -- 10,000
Series C, 1,019,444 shares designated: no shares issued or
outstanding............................................... -- --
Paid-in capital................................................ 6,898,000 291,406,000
Common stock notes receivable.................................. -- (2,810,000)
Deferred charges and unearned compensation..................... -- (25,993,000)
Deficit accumulated during development stage................... (1,894,000) (16,495,000)
----------- ------------
Total stockholders' equity............................. 5,006,000 246,123,000
----------- ------------
$84,834,000 $451,110,000
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 121
NEXTWAVE TELECOM INC.
(a development stage enterprise)
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
MAY 16, 1995 MAY 16, 1995 NINE MONTHS MAY 16, 1995
(INCEPTION) (INCEPTION) ENDED (INCEPTION)
TO SEPTEMBER 30, TO DECEMBER 31, SEPTEMBER 30, TO SEPTEMBER 30,
1995 1995 1996 1996
---------------- --------------- ------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Consulting revenues from
related party............. $ -- $ -- $ 1,914,000 $ 1,914,000
Consulting revenues.......... -- 173,000 44,000 217,000
----------- --------- ------------ ------------
Total revenues............ -- 173,000 1,958,000 2,131,000
----------- --------- ------------ ------------
Operating expenses:
Costs of related
party consulting
revenues.................. -- -- 1,832,000 1,832,000
Consulting costs............. -- 114,000 26,000 140,000
General and administrative... 497,000 1,631,000 11,844,000 13,475,000
Selling and marketing........ 4,000 8,000 370,000 378,000
Research and development..... -- -- 754,000 754,000
----------- --------- ------------ ------------
Total operating
expenses................ 501,000 1,753,000 14,826,000 16,579,000
----------- --------- ------------ ------------
Operating loss................. (501,000) (1,580,000) (12,868,000) (14,448,000)
Debt conversion expense........ -- -- (738,000) (738,000)
Interest expense............... -- (332,000) (2,227,000) (2,559,000)
Interest income................ 1,000 18,000 1,232,000 1,250,000
----------- --------- ------------ ------------
Net loss....................... $ (500,000) $ (1,894,000) $ (14,601,000) $(16,495,000)
=========== ========= ============ ============
Pro forma net loss per share
(unaudited)(Note 2).......... $ $
========= ============
Shares used in computing pro
forma net loss per share
(unaudited)(Note 2)..........
========= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 122
NEXTWAVE TELECOM INC.
(a development stage enterprise)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
MAY 16, 1995 MAY 16, 1995 NINE MONTHS MAY 16, 1995
(INCEPTION) (INCEPTION) ENDED (INCEPTION)
TO SEPTEMBER 30, TO DECEMBER 31, SEPTEMBER 30, TO SEPTEMBER 30,
1995 1995 1996 1996
---------------- --------------- ------------- ----------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net loss............................... $ (500,000) $ (1,894,000) $ (14,601,000) $ (16,495,000)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Debt conversion expense.............. -- -- 738,000 738,000
Non-cash interest charges............ -- 176,000 585,000 761,000
Non-cash compensation................ -- -- 400,000 400,000
Depreciation expense................. 7,000 14,000 290,000 304,000
Amortization of debt issuance
costs.............................. -- -- 171,000 171,000
Changes in:
Other assets....................... (7,000) (106,000) (7,475,000) (7,581,000)
Accounts payable................... 24,000 156,000 8,487,000 8,643,000
Accrued liabilities................ 49,000 348,000 3,794,000 4,142,000
------------- ------------- --------- -------------
Net cash used in operating
activities....................... (427,000) (1,306,000) (7,611,000) (8,917,000)
------------- ------------- --------- -------------
Cash flows from investing activities:
Restricted cash for long-term FCC
licenses............................. -- (875,000) (129,473,000) (130,348,000)
Deposits for long-term FCC licenses.... -- (79,225,000) (187,957,000) (267,182,000)
Purchases of property and equipment.... (89,000) (105,000) (15,282,000) (15,387,000)
------------- ------------- --------- -------------
Net cash used in investing
activities....................... (89,000) (80,205,000) (332,712,000) (412,917,000)
------------- ------------- --------- -------------
Cash flows from financing activities:
Proceeds from issuances of Common
Stock................................ 665,000 5,000,000 29,531,000 34,531,000
Proceeds from issuances of notes
payable and warrants................. -- 40,000,000 10,000,000 50,000,000
Proceeds from issuances of notes
payable to related party............. -- 25,000,000 -- 25,000,000
Proceeds from issuances of convertible
senior subordinated notes payable.... -- -- 130,348,000 130,348,000
Repayment of notes payable to related
party................................ -- -- (9,602,000) (9,602,000)
Debt issuance costs.................... -- -- (2,053,000) (2,053,000)
Advances from contingent stock purchase
subscribers.......................... -- 11,000,000 212,366,000 223,366,000
Advance from related party contingent
stock purchase subscriber............ -- 5,000,000 -- 5,000,000
Private placement issuance costs....... -- -- (9,680,000) (9,680,000)
Capital contributions.................. -- -- 1,078,000 1,078,000
Payments on capital leases............. -- (3,000) (49,000) (52,000)
------------- ------------- --------- -------------
Net cash provided by financing
activities....................... 665,000 85,997,000 361,939,000 447,936,000
------------- ------------- --------- -------------
Net increase in cash and cash
equivalents............................ 149,000 4,486,000 21,616,000 26,102,000
Cash and cash equivalents at beginning
of period.............................. -- -- 4,486,000 --
------------- ------------- --------- -------------
Cash and cash equivalents at end of
period................................. $ 149,000 $ 4,486,000 $ 26,102,000 $ 26,102,000
============= ============= ========= =============
Supplemental cash flow disclosures:
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
============= ============= ========= =============
Conversion of advances from contingent
stock purchase subscribers to Series
B Common Stock and capital
contributions........................ $ -- $ 775,000 $ 213,679,000 $ 214,454,000
============= ============= ========= =============
Conversion of advances from related
party contingent stock purchase
subscribers to Series B Common Stock
and capital contributions............ $ -- $ 125,000 $ 19,875,000 $ 20,000,000
============= ============= ========= =============
Conversion of advances from contingent
stock purchase subscriber to
convertible notes payable............ $ -- $ -- $ 38,912,000 $ 38,912,000
============= ============= ========= =============
Conversion of notes payable to related
party to long-term convertible notes
payable to related party............. $ -- $ -- $ 398,000 $ 398,000
============= ============= ========= =============
Issuance of warrants for purchase of
property and equipment............... $ -- $ -- $ 437,000 $ 437,000
============= ============= ========= =============
Issuance of Common Stock notes
receivable in connection with
issuances of Series A and Series B
Common Stock......................... $ -- $ -- $ 2,810,000 $ 2,810,000
============= ============= ========= =============
Issuance of warrants to purchase Series
B Common Stock in connection with
issuance of notes payable............ $ -- $ 1,000,000 $ 600,000 $ 1,600,000
============= ============= ========= =============
Issuance of warrants to purchase Series
B Common Stock in connection with
issuance of Series B Common Stock.... $ -- $ -- $ 1,138,000 $ 1,138,000
============= ============= ========= =============
Issuances of stock options and warrants
to purchase Series B Common Stock in
connection with non-employee
agreements........................... $ -- $ -- $ 26,342,000 $ 26,342,000
============= ============= ========= =============
Unpaid debt issuance costs............. $ -- $ -- $ 2,165,000 $ 2,165,000
============= ============= ========= =============
Unpaid private placement costs......... $ -- $ -- $ 549,000 $ 549,000
============= ============= ========= =============
Non-cash debt issuance costs........... $ -- $ -- $ 48,000 $ 48,000
============= ============= ========= =============
Non-cash private placement stock option
costs................................ $ -- $ -- $ 65,000 $ 65,000
============= ============= ========= =============
Non-cash private placement Series B
Common Stock costs................... $ -- $ -- $ 848,000 $ 848,000
============= ============= ========= =============
Issuances of stock options to purchase
Series B Common Stock in connection
with non-employee agreements......... $ -- $ -- $ 117,000 $ 117,000
============= ============= ========= =============
Acquisitions of equipment under capital
lease obligations.................... $ -- $ 51,000 $ 231,000 $ 282,000
============= ============= ========= =============
Unamortized debt discount related to
debt converted to equity............. $ -- $ -- $ 439,000 $ 439,000
============= ============= ========= =============
Interest paid.......................... $ -- $ 32,000 $ 312,000 $ 344,000
============= ============= ========= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 123
NEXTWAVE TELECOM INC.
(a development stage enterprise)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A SERIES B COMMON DEFERRED CHARGES
COMMON STOCK COMMON STOCK STOCK AND
------------------------ ------------------------- PAID-IN NOTES UNEARNED
NUMBER OF SHARES AMOUNT NUMBER OF SHARES AMOUNT CAPITAL RECEIVABLE COMPENSATION
---------------- ------ ---------------- ------- ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuances of Series A Common
Stock to founding stockholders
during May through November 1995
at $0.25 per share.............. 20,000,000 $2,000 -- $ -- $ 4,998,000 $ -- $ --
Issuance during November 1995 of
warrants to purchase 500,000
shares of Series B Common Stock
exercisable at $3.00 per
share........................... -- -- -- -- 1,000,000 -- --
Capital contributions during
December 1995 (Note 7).......... -- -- -- -- 900,000 -- --
Net loss......................... -- -- -- -- -- -- --
---------- ------ ----------- ------ ------------ ----------- -----------
Balance at December 31, 1995..... 20,000,000 2,000 -- -- 6,898,000 -- --
Issuances during February 1996 of
options to purchase 466,667
shares of Series B Common Stock
exercisable at $0.25 per share
(valued by an independent
appraiser)...................... -- -- -- -- 117,000 -- --
Issuances of Series A Common
Stock to founding stockholders
during March 1996 through May
1996 at $0.25 per share......... 35,760,000 4,000 -- -- 8,936,000 (2,510,000) --
Capital contributions during
March 1996 and June 1996 (Note
7).............................. -- -- -- -- 2,178,000 -- --
Issuances of Series B Common
Stock during May 1996 at $3.00
per share, net of issuance costs
of $12,332,000.................. -- -- 78,533,836 8,000 220,822,000 (300,000) --
Issuances of Series B Common
Stock during May 1996 at $5.00
per share, net of issuance costs
of $65,000...................... -- -- 4,620,300 -- 23,037,000 -- --
Issuances during March 1996
through June 1996 of warrants to
purchase 13,705,691 shares of
Series B Common Stock
exercisable at $3.00 per share
(valued by an independent
appraiser)...................... -- -- -- -- 2,476,000 -- --
Issuance during May 1996 of
options to purchase 200,000
shares of Series B Common Stock
exercisable at $3.00 per share
(valued by an independent
appraiser)...................... -- -- -- -- 437,000 -- --
Issuance during May 1996 of
warrants to purchase 64,113
shares of Series B Common Stock
exercisable at $4.00 per share
(valued by an independent
appraiser)...................... -- -- -- -- 113,000 -- --
Issuances during August 1996 of
warrants to purchase 23,773,284
shares of Series B Common Stock
exercisable at $4.00 per share
(valued by an independent
appraiser)...................... -- -- -- -- 25,211,000 -- (25,211,000)
Conversion during August 1996 of
15% of Series A Common Stock
into Series B Common Stock at a
ratio of one share of Series A
Common Stock into two shares of
Series B Common Stock........... (8,363,563) (1,000) 16,727,126 2,000 (1,000) -- --
Exercise of common stock
options......................... -- -- 17,000 -- 51,000 -- --
Compensatory stock options
issued.......................... -- -- -- -- 1,131,000 -- (782,000)
Net loss......................... -- -- -- -- -- -- --
---------- ------ ----------- ------ ------------ ----------- -----------
Balance at September 30, 1996.... 47,396,437 $5,000 99,898,262 $10,000 $291,406,000 $(2,810,000) $(25,993,000)
========== ====== =========== ====== ============ =========== ===========
<CAPTION>
DEFICIT
ACCUMULATED
DURING TOTAL
DEVELOPMENT STOCKHOLDERS'
STAGE EQUITY
---------------- ----------------
<S> <<C> <C>
Issuances of Series A Common
Stock to founding stockholders
during May through November 1995
at $0.25 per share.............. $ -- $ 5,000,000
Issuance during November 1995 of
warrants to purchase 500,000
shares of Series B Common Stock
exercisable at $3.00 per
share........................... -- 1,000,000
Capital contributions during
December 1995 (Note 7).......... -- 900,000
Net loss......................... (1,894,000) (1,894,000)
----------- ------------
Balance at December 31, 1995..... (1,894,000) 5,006,000
Issuances during February 1996 of
options to purchase 466,667
shares of Series B Common Stock
exercisable at $0.25 per share
(valued by an independent
appraiser)...................... -- 117,000
Issuances of Series A Common
Stock to founding stockholders
during March 1996 through May
1996 at $0.25 per share......... -- 6,430,000
Capital contributions during
March 1996 and June 1996 (Note
7).............................. -- 2,178,000
Issuances of Series B Common
Stock during May 1996 at $3.00
per share, net of issuance costs
of $12,332,000.................. -- 220,530,000
Issuances of Series B Common
Stock during May 1996 at $5.00
per share, net of issuance costs
of $65,000...................... -- 23,037,000
Issuances during March 1996
through June 1996 of warrants to
purchase 13,705,691 shares of
Series B Common Stock
exercisable at $3.00 per share
(valued by an independent
appraiser)...................... -- 2,476,000
Issuance during May 1996 of
options to purchase 200,000
shares of Series B Common Stock
exercisable at $3.00 per share
(valued by an independent
appraiser)...................... -- 437,000
Issuance during May 1996 of
warrants to purchase 64,113
shares of Series B Common Stock
exercisable at $4.00 per share
(valued by an independent
appraiser)...................... -- 113,000
Issuances during August 1996 of
warrants to purchase 23,773,284
shares of Series B Common Stock
exercisable at $4.00 per share
(valued by an independent
appraiser)...................... -- --
Conversion during August 1996 of
15% of Series A Common Stock
into Series B Common Stock at a
ratio of one share of Series A
Common Stock into two shares of
Series B Common Stock........... -- --
Exercise of common stock
options......................... -- 51,000
Compensatory stock options
issued.......................... -- 349,000
Net loss......................... (14,601,000) (14,601,000)
----------- ------------
Balance at September 30, 1996.... $ (16,495,000) $ 246,123,000
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 124
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 five wholly-owned subsidiaries that
hold substantially all of the assets of the Company. NextWave was formed to
build and operate Personal Communications Services ("PCS") networks. NextWave
Personal Communications Inc. was formed to acquire PCS licenses obtained
pursuant to the Federal Communications Commission's ("FCC") PCS C-Block
auctions. NextWave Power Partners Inc. was formed to act as a joint venture with
certain utility companies, energy management firms, and other strategic partners
and acquire PCS licensees in the FCC's D, E and F-Block auctions. NextWave
Partners Inc. was formed to hold NextWave's interest in NextWave Power Partners
Inc. TELE*Code Inc. was formed to provide CDMA-based products and engineering
services to the Company and third parties. NextWave Wireless Inc. was formed to
act as an operating company and parent company for additional subsidiaries to be
formed for each of the Company's PCS service 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 obligations to the FCC, (ii) build
out the PCS network infrastructure necessary to provide service and (iii) cover
its operational expenses. During January 1997, the FCC granted the Company
C-Block PCS licenses in 63 basic trading areas. The C-Block licenses were
granted subject to the requirement that the Company demonstrate compliance with
FCC foreign ownership regulations within six months from the date of license
grant and that the Company undertake various reporting obligations to the FCC to
notify the agency of the steps being taken by the Company to ensure regulatory
compliance. Although there can be no assurance, management believes that the
Company will satisfy these conditions upon the consummation of the Company's
initial public equity and debt offerings. These licenses are also subject to
petitions for reconsideration or appeal filed by other C-Block auction
participants. The total bid by the Company for the C-Block auctions was
$4,743,648,000 of which $79,225,000 and $237,182,000 was on deposit with the FCC
as of December 31, 1995 and September 30, 1996, respectively. During January
1997, following the FCC's notice of grant, the Company paid the remaining
downpayment of $237,183,000 to the FCC.
The remaining $4,269,283,000 will be paid pursuant to U.S. Government
financing. Such U.S. Government financing is payable quarterly with payments of
interest only through January 2003 and equal principal and interest payments
from April 2003 through January 2007. The interest rate is fixed at the ten-year
Treasury Note rate (6.5% at December 31, 1996) at the date of license grant,
resulting in quarterly interest-only payments, commencing in April 1997, in the
amount of $69,376,000 ($277,503,000 per year).
During August 1996, the Company deposited $30,000,000 with the FCC to
participate in the D, E and F-Block auctions. During January 1997, the D, E, and
F-Block auctions ended with the FCC naming the Company the winning bidder on
licenses in 32 basic trading areas with net bids totaling $128,972,000. These
licenses required downpayments of $13,475,000, resulting in a refund to the
Company of $16,525,000 due from the FCC. Upon the grant of these licenses, the
Company will make a final downpayment of $16,945,000. The remaining $98,552,000
will be paid pursuant to U.S. Government financing made to the Company. Such
U.S. Government financing will be payable quarterly with payments of interest
only for the first two years after the grant of the licenses and then equal
principal and interest payments in the third through tenth years after the grant
of the licenses. The interest will be fixed at the ten-year Treasury Note rate
(6.5% at December 31, 1996) at the date of license grant, resulting in quarterly
interest only payments of approximately $1,601,000 ($6,406,000 per year).
F-7
<PAGE> 125
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's applications for these licenses may be subject to challenges
by various competing bidders and other interested parties in the D, E and
F-Block auctions. There can be no assurance that the Company will be successful
in defending any such challenges should they occur and will be finally awarded
any or all of these licenses. Any grant by the FCC of D, E, and F-Block PCS
licenses may be conditioned on the Company's compliance with the FCC's foreign
ownership restrictions within a specified period of time. Additionally, the
Company participated in the F-Block auction as a small business (as defined by
FCC rules) and there can be no assurance that there will not be challenges of
the Company's status as a small business for purposes of the F-Block. If the
Company were found to be ineligible or otherwise disqualified from holding the
D, E or F-Block PCS licenses, the FCC could impose substantial financial and
regulatory penalties on it, up to and including the refusal to grant such
licenses. In the event that the Company were denied the D, E or F-Block PCS
licenses, the Company would not be authorized to offer PCS services in those
basic trading areas for which it was the winning bidder in those auctions.
The Company will be required, pursuant to the FCC's installment payment
plan, to execute note and security agreements to the U.S. Government, creating
first priority security interests in favor of the FCC for all licenses (and the
proceeds of any sales thereof) in the event of a default. The Company's failure
to comply on an ongoing basis with FCC regulations, including those related to
foreign ownership restrictions, network build-out requirements and control group
ownership requirements could result in the FCC ordering divestiture of non-U.S.
stockholders, issuance of substantial fines or denial of renewal or revocation
of the licenses.
Based on the Company's capital resources as of September 30, 1996, which
are comprised primarily of cash and cash equivalents of $26,102,000 and
$18,650,000 of equity, along with $69,670,000 of debt financing raised
subsequent to September 30, 1996, the Company will be required to raise
additional financing in order to meet its financial obligations and achieve its
business plan through 1997 and beyond. The successful implementation of the
Company's strategy, among other things, is necessary for the Company to be able
to meet its debt service and significant capital requirements. In addition, the
Company's ability to satisfy its debt service obligations once its PCS networks
are operational will be dependent upon the Company's future performance, which
is subject to a number of factors that are beyond the Company's control. There
can be no assurance that the Company's PCS networks can be completed or that,
once completed, the Company will generate sufficient cash flow from operating
activities to meet its debt service and working capital requirements. Any
failure or delay in meeting these debt service requirements, and in particular,
the requirements of the debt obligations to the U.S. Government, could have a
material adverse effect upon the Company's business, results of operations and
financial condition. Although there can be no assurance, management believes
that the Company's capital resources at September 30, 1996, along with the
proceeds from completed transactions as well as the equity and debt offerings
planned for 1997 and the consummation of vendor financing necessary for network
build-out (Notes 10 and 11) will be adequate to meet its capital requirements
through 1997. Although there can be no assurance, management also believes that,
in addition to its C-Block licenses, the Company will be awarded all D, E and
F-Block licenses for which it was named the winning bidder in the FCC auctions
which concluded in January 1997 and will be successful in meeting its operating
plan to build out its PCS networks and commence providing PCS services in
certain markets by the end of 1997.
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.
F-8
<PAGE> 126
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. During the period from inception to December 31,
1995, 100% of total revenues was from one customer, and during the nine months
ended September 30, 1996, 98% of total revenues was from another customer.
PROPERTY AND EQUIPMENT
All property and equipment is stated at cost and depreciated or amortized
using the straight-line method over its estimated useful life of 3 to 5 years or
the remaining lease term, whichever is shorter. Repair and maintenance costs are
charged to expense as incurred.
LICENSE COSTS
As of September 30, 1996, the Company had recorded $237,182,000 of license
costs representing funds remitted in satisfaction of the first downpayment
requirement for the C-Block auctions. During January 1997, the Company remitted
an additional downpayment of $237,183,000 and recorded $3,204,822,000 as an
intangible asset representing the cost of the acquired licenses, with cost
determined as (i) the present value of the deferred payment obligation provided
by the U.S. Government using a risk-adjusted fair value discount rate of 14.0%
and (ii) the downpayments. The U.S. Government financing, which provides for
favorable terms, including a below market interest rate equal to the ten-year
Treasury Note rate (6.5% at December 31, 1996) at the date of license grant over
the ten-year life of the financing, is available to the Company because it
qualifies as a small business as defined by the FCC rules and regulations. The
FCC C-Block licenses expire in January 2007 but typically are renewable for a
nominal fee. The licenses will be amortized using the straight-line method over
their estimated useful lives of 40 years.
During January 1997 the D, E and F-Block auctions ended with the FCC naming
the Company the winning bidder on 32 licenses and the Company depositing
$13,475,000 as a downpayment. When the licenses are granted, later this year, a
second downpayment of $16,945,000, will be made and an intangible asset of
$98,976,000 will be recorded using the same assumptions as above.
CAPITALIZATION OF INTEREST COST
Interest costs incurred during the period of time that internally
constructed assets are being made ready for their intended use are capitalized
as part of the cost of acquiring such assets to the extent that these interest
costs relate to financing obtained in order to prepare such assets for use.
Assets considered to qualify for capitalization of related interest cost include
PCS infrastructure and FCC licenses. As of September 30, 1996, PCS
infrastructure construction activity had not commenced, and no PCS licenses had
been awarded to the Company; therefore, no interest costs have been capitalized.
F-9
<PAGE> 127
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LONG-LIVED ASSETS
The Company investigates potential impairments of long-lived assets,
certain identifiable intangibles, and any 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 is
recognized when the sum of the expected future net cash flows is less than the
carrying amount of the asset. No such losses have been identified by the
Company.
DEBT DISCOUNTS AND ISSUE COSTS
Underwriting discounts taken and costs incurred related to issuances of
debt instruments are deferred and amortized, using the effective interest
method, over the term of the respective debt instruments.
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 PER SHARE (UNAUDITED)
Pro forma net loss per share is computed based on the weighted average
number of common shares and common stock equivalents, using the treasury stock
method, outstanding during the respective periods after giving retroactive
effect to the conversion, which occurred upon the closing of the FCC C-Block
auction during May 1996, of all then 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 and convertible notes payable
issued since June 10, 1995 have been included as outstanding for all periods and
all Series B Common Stock warrants and Series B Common Stock options granted
since June 10, 1995 have been included as outstanding for all periods using the
treasury stock method and an estimated price per share attributable to the
Series B Common Stock issued by the Company in the initial public offering of
$ per share. Historical net loss 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 during May 1996.
DIVERSIFICATION OF CREDIT RISK
The Company's financial instruments that are subject to concentrations of
credit risk consist primarily of cash and cash equivalents. 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.
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, restricted cash,
deposits, accounts payable, accrued liabilities and advances from contingent
stock purchase subscribers, approximate fair value because of the short
maturities of these financial instruments. See Note 5 for fair value information
for the Company's notes payable, capital leases, and notes payable to related
party.
F-10
<PAGE> 128
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK-BASED COMPENSATION
The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method and provides pro forma
disclosures of net loss and net loss per share as if the fair value-based
methods prescribed by Financial Accounting Standards Board Statement No. 123
(FAS 123) had been applied in measuring compensation expense (Note 8).
Compensation charges for non-employee stock-based compensation is measured using
fair value-based methods prescribed by FAS 123.
INTERIM RESULTS (UNAUDITED)
The consolidated financial statements for the period from May 16, 1995
(inception) to September 30, 1995 have been prepared on the same basis as the
consolidated financial statements for the period from May 16, 1995 (inception)
to December 31, 1995 and include all adjustments, consisting of only normal
recurring adjustments, necessary for the fair statement of results of the
interim period.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the
current period presentation.
NOTE 3 -- COMPOSITION OF PROPERTY AND EQUIPMENT, NET
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Property and equipment, net:
Construction in process................................ $ -- $ 9,875,000
Computers and related equipment........................ 142,000 3,709,000
Furniture and fixtures................................. 9,000 996,000
Test equipment......................................... -- 709,000
Office equipment....................................... 5,000 664,000
Leasehold improvements................................. -- 153,000
-------- -----------
156,000 16,106,000
Less accumulated depreciation and amortization......... (14,000) (304,000)
-------- -----------
$142,000 $ 15,802,000
======== ===========
</TABLE>
The Company leases certain computer equipment under non-cancelable capital
leases. As of December 31, 1995 and September 30, 1996, the total recorded value
of leased equipment, net of accumulated amortization of $3,000 and $50,000,
respectively, was $48,000 and $232,000, respectively.
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 7,975,135 shares of
Series B Common Stock for $3.00 per share. Of this $36,000,000, $20,000,000 was
originally issued in the form of a convertible note payable, which was converted
into a contingent stock subscription agreement. 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
F-11
<PAGE> 129
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common shares, on a fully diluted basis ("qualified public offering"). 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 subscribed stock and warrants were issued in May 1996 upon the
FCC's announcement that NextWave was the winning bidder in the FCC's C-Block
Auction for PCS licenses in 56 basic trading areas, thereby satisfying all
conditions necessary for issuance of such stock and warrants. Debt conversion
expense was charged in the amount of $588,000 upon the issuance of such warrants
to purchase 4,419,584 shares of Series B Common Stock as these warrants were
issued as an inducement to convert the $20,000,000 convertible note payable.
During February 1996 to June 1996, investors executed contingent
subscription agreements to purchase in aggregate 67,555,330 shares of Series B
Common Stock for $3.00 per share for aggregate gross proceeds in the amount of
$202,666,000 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
qualified public offering. 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 subscribed stock and warrants were
issued in May 1996 upon the FCC's announcement that NextWave was the winning
bidder in the FCC's C-Block Auction for PCS licenses in 56 basic trading areas,
thereby satisfying all conditions necessary for issuance of such stock and
warrants. Due to FCC foreign ownership restrictions, $38,912,000 of the
contingent subscription agreements were issued in the form of convertible
promissory notes (Note 5).
During August 1996, a certain investor executed a subscription agreement to
purchase shares of Series B Common Stock for gross proceeds of $10,000,000.
Pursuant to the subscription agreement, the issuance of such subscribed stock is
contingent upon the Company's compliance with FCC foreign ownership
restrictions.
F-12
<PAGE> 130
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- NOTES PAYABLE, CAPITAL LEASES AND NOTES PAYABLE TO RELATED PARTY
<TABLE>
<CAPTION>
ESTIMATED
SEPTEMBER FAIR VALUE AT
DECEMBER 31, 30, SEPTEMBER 30,
1995 1996 1996
------------ ------------ -------------
<S> <C> <C> <C>
Convertible note payable, $20,000,000 face value,
non-interest bearing, due on the earlier of 45 days
after the completion of the FCC auction or June 30,
1996, unsecured, net of $824,000 unamortized discount
at December 31, 1995................................. $ 19,176,000 $ -- $ --
Convertible senior subordinated notes, bearing interest
(commencing January 1997) at 2.0% per annum for the
first 2 years and 12.0% per annum for the remaining 4
years, due April 2002, unsecured..................... -- 130,348,000 97,482,000
Convertible promissory notes, bearing interest
(commencing May 1997) at 6.0% per annum, due on
demand if not fully converted by May 1997 or
otherwise due May 2001, unsecured.................... -- 38,912,000 26,273,000
Convertible note payable, $10,000,000 face value,
bearing interest at the prime rate (8.25% at
September 30, 1996), due June 1997, unsecured, net of
$400,000 unamortized discount at September 30,
1996................................................. -- 9,600,000 9,496,000
Convertible note payable to related party (Note 10),
bearing interest at 6.0% per annum, due June 1999,
secured by substantially all of the assets of the
Company.............................................. -- 398,000 317,000
Obligations under capital leases, bearing interest at
9.8% to 13.6% per annum, monthly principal and
interest payments of $3,400 to $8,000 through June
1999................................................. 48,000 230,000 230,000
------------ ----------- -----------
19,224,000 179,488,000 $133,798,000
===========
Less current portion................................... (19,200,000) (48,643,000)
------------ -----------
$ 24,000 $130,845,000
============ ===========
Notes payable to related party (Note 10), bearing
interest at 6.0% per annum, due 30 days after the
completion of the FCC C-Block auction, secured by
substantially all of the assets of the Company....... $ 25,000,000 $ --
============ ===========
</TABLE>
As of December 31, 1995, the $20,000,000 face value unsecured note payable
was convertible into a contingent stock subscription agreement to purchase up to
6,666,666 shares of Series B Common Stock for $3.00 per share (Note 4). In
connection with the $20,000,000 unsecured note payable, the Company issued to
the lender, in lieu of interest and also as an inducement to convert, warrants
to purchase an aggregate of 980,556 shares of Series B Common Stock for $3.00
per share. 500,000 of these warrants expire in November 1998 and 480,556 of
these warrants expire in March 1999. Based on an independent valuation, the
Company recorded a related debt discount of $1,000,000, and this amount was
amortized to interest expense until March 1996 when the lender converted its
entire $20,000,000 note payable into a contingent stock purchase subscription
agreement. Additionally, based on an independent valuation, the Company charged
$150,000 to debt conversion expense in connection with the warrants granted as
an inducement to convert.
The proceeds from the issuances during April 1996 to May 1996 of the
$130,348,000 aggregate principal amount of Convertible Senior Subordinated Notes
Due 2002 (the "Bridge Notes") were subject to restrictions which were removed
upon the formal grant of the C-Block PCS licenses to the Company by the FCC
(Note 1). Each holder of the Bridge Notes may convert all or any portion of such
notes into shares of Series B Common Stock at any time after October 6, 1996 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 the issuance of certain high-yield debt securities and to issue certain
warrants to the note holders.
F-13
<PAGE> 131
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
If the Company prepays such notes prior to various dates ranging from April 1998
to May 1998, the number of shares issuable upon exercise of the warrants shall
be 32,587,000. These warrants expire on various dates ranging from April 2001 to
May 2001. If the Company prepays the Bridge Notes at any time after April 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.
At September 30, 1996, letters of credit totaling $1,412,000 associated
with certain operating lease arrangements, were issued pursuant to the terms of
a $1,500,000 letter of credit line. Securities, including cash and cash
equivalents subject to such restrictions are classified as restricted cash.
The $38,912,000 aggregate principal amount of convertible promissory notes
were issued to foreign investors and the principal and interest 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 May 1997, 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. The convertible promissory
notes otherwise become due in May 2001.
The $10,000,000 note payable is convertible into shares of Series B Common
Stock at $5.00 per share. In connection with the issuance of this note payable,
the Company issued to the lender warrants to purchase 250,000 shares of Series B
Common Stock at $3.00 per share. Such warrants are exercisable for a period of
one year from the consummation of a qualified public offering (Note 4). The
Company recorded a related debt discount of $600,000 based on an independent
valuation, and this amount is being amortized to interest expense over the term
of the note payable.
As of December 31, 1995, $20,000,000 of the $25,000,000 notes payable to
related party (Note 10) was convertible into a contingent stock purchase
subscription agreement to purchase up to 6,666,666 shares of Series B Common
Stock for $3.00 per share (Note 4). The lender had 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 7). The remaining $4,602,000 of the $25,000,000 notes payable
was not convertible. During March 1996, the lender converted $15,000,000 of its
original $25,000,000 notes payable into a contingent stock purchase subscription
agreement. 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.
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), was
restricted for the benefit of the holders of the note payable and contingent
stock purchase subscription agreements pending the outcome of the FCC auction
and additional deposit requirements. During May 1996, another $130,834,000 was
paid to the FCC in order to meet the balance of the initial deposit requirement
of $210,059,000 for the original C-Block auction, which concluded during May
1996. During June and July 1996, another $6,985,000 and $20,138,000,
respectively, were submitted to the FCC as deposits in connection with a C-Block
re-auction held during July 1996. During August 1996, the Company deposited
$30,000,000 with the FCC to participate in the D, E and F-Block auctions,
bringing the total amount on deposit with the FCC at September 30, 1996 to
$267,182,000.
F-14
<PAGE> 132
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying values of the Company's notes payable and notes payable to
related party at December 31, 1995 and its capital leases at December 31, 1995
and September 30, 1996 approximate fair value because of the short maturities of
these financial instruments. The fair values of the Company's notes payable and
note payable to related party at September 30, 1996 were estimated based on an
estimated fair value risk-adjusted interest rate of 14.0%. This fair value
risk-adjusted interest rate is based on rates obtained by other comparable
wireless telecommunications companies for debt financing.
NOTE 6 -- INCOME TAXES
The Company has not recorded provisions for income taxes as it has
generated net operating losses for income tax purposes.
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Net operating loss carryforwards.......................... $ 758,000 $ 6,303,000
Less valuation allowance.................................. (758,000) (6,303,000)
-------- ----------
Net deferred tax asset.......................... $ -- $ --
======== ==========
</TABLE>
At December 31, 1995 and September 30, 1996, the Company provided deferred
tax asset valuation allowances for deferred tax assets which management
determined were not "more likely than not" to be realized. At December 31, 1995
and September 30, 1996, the Company had net operating loss carryforwards for
federal and state income tax reporting purposes in the amounts of approximately
$1,900,000 and $15,800,000, respectively. These federal and state net operating
loss carryforwards expire beginning in 2010 and 2003, respectively. Due to
substantial changes in the Company's ownership, there are annual limitations on
the utilization of its net operating loss carryforwards as prescribed by the
Internal Revenue Code.
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
F-15
<PAGE> 133
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 (other than 3,000 shares) to convert, at the then applicable
conversion ratio as defined in the Restated Certificate of Incorporation, into
Series B Common 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 shares of 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, 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. During March 1996, an
additional $1,100,000 of proceeds were contributed to the Company's capital by
the contingent stock purchase subscribers to fund the Company's operating
expenses. Additionally, $1,078,000 of interest income earned by investors on the
funds advanced for contingent stock purchase subscriptions while these funds
were restricted was contributed to the Company's capital by the investors.
During April 1996, the Company accepted a $300,000 promissory note as
consideration for the issuance of a contingent stock purchase subscription
agreement (Note 4). The note bears interest at 6.0% per annum and all principal
and accrued interest are due and payable in full during May 1997. The note may
be prepaid at any time without penalty.
F-16
<PAGE> 134
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- EMPLOYEE BENEFIT PLANS, STOCK OPTIONS AND STOCK WARRANTS
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 from inception to December 31,
1995 or the nine months ended September 30, 1996.
STOCK OPTION PLANS
The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its plan. No compensation cost has been
recognized for its employee stock option grants, which are fixed in nature, as
the options have been granted at fair market value as determined by the
Company's Board of Directors. Had compensation cost for the Company's
stock-based compensation plan been determined based on the fair value at the
grant dates for awards under this plan consistent with the method of Financial
Accounting Standards Board Statement No. 123, the Company's net loss and pro
forma net loss per share (unaudited) would have been increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
PERIOD FROM MAY 16,
1995 (INCEPTION) TO NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
------------------- ------------------
<S> <C> <C>
Net loss
As reported..................................... $(1,894,000) $(14,601,000)
Pro forma....................................... $(1,965,000) $(15,635,000)
Pro forma net loss per share (unaudited)
As reported..................................... $ $
Pro forma....................................... $ $
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants during the period from inception to December 31,
1995 and the nine months ended September 30, 1996, respectively: dividend yield
of 0.0% for both periods; expected volatility of 160.0% and 118.5%; a risk-free
interest rate of 5.6% and 5.9%; and an expected life of 5.0 years for both
periods.
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, 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.
F-17
<PAGE> 135
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 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 September 30, 1996, no such
stock appreciation rights had been granted.
Employee transactions under the Option Plan during the period from
inception to December 31, 1995 and the nine months ended September 30, 1996, are
summarized as follows:
<TABLE>
<CAPTION>
MAY 16, 1995 (INCEPTION) NINE MONTHS ENDED
TO DECEMBER 31, 1995 SEPTEMBER 30, 1996
---------------------------- -----------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EMPLOYEE STOCK OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------------------------------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of
period.......................... -- -- 4,300,000 $ 0.25
Granted........................... 4,300,000 $ 0.25 12,588,655 $ 2.10
Exercised......................... -- -- 17,000 $ 3.00
Forfeited......................... -- -- -- --
--------- ----------
Outstanding at end of period...... 4,300,000 $ 0.25 16,871,655 $ 1.63
========= ==========
Options exercisable at period
end............................. -- 648,000
Weighted-average fair value of
options granted during the
period.......................... $0.23 $1.36
</TABLE>
The following table summarizes information about employee stock options
outstanding at September 30, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- ----------------------------------
NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF EXERCISE OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
PRICES SEPTEMBER 30, 1996 CONTRACTUAL LIFE EXERCISE PRICE SEPTEMBER 30, 1996 EXERCISE PRICE
--------------------- ------------------ ---------------- -------------- ------------------ --------------
<S> <C> <C> <C> <C> <C>
0.25 to $0.28........ 11,005,355 9.3 years $ 0.25 648,000 $ 0.26
$3.00................ 2,304,000 9.7 years $ 3.00 -- --
$5.00................ 3,562,300 9.8 years $ 5.00 -- --
---------- -------
16,871,655 648,000
========== =======
</TABLE>
During the period from inception to December 31, 1995 and the nine months
ended September 30, 1996, the Company recorded debt conversion expense, interest
expense and compensation expense related to
F-18
<PAGE> 136
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
non-statutory stock options and stock warrants granted to non-employees in the
aggregate amounts of $176,000 and $1,723,000, respectively. During May 1996, the
Company entered into an agreement with a vendor which provides for the issuance
of options to purchase 200,000 shares of Series B Common Stock for $3.00 per
share as consideration for $1,000,000 of services to be performed. This amount
has been recorded as unearned compensation and is being amortized over the
service period of one year. Also during the nine months ended September 30,
1996, the Company, based on an independent valuation, recorded an additional
$131,000 of unearned compensation related to 505,000 nonstatutory Series B
Common Stock options granted to non-employees. This amount is also being
amortized over the respective service periods.
During August 1996, the Company entered into a ten-year airtime sale
agreement with a customer. The ten-year term starts upon the Company's
commencing PCS network operations in any market and may be renewed at the
election of the customer for an additional five-year term. Pursuant to the
agreement, the Company initially granted the customer warrants to purchase
23,673,284 shares of Series B Common Stock, subject to adjustment for certain
dilutive events, which expire in February 2004. These warrants are initially
exercisable for $4.00 per share; however, this exercise price is subject to
change based on the price of the Company's Series B Common Stock upon
consummation of an initial public offering. Pursuant to FAS 123, due to the
variable nature of the terms of these warrants, it is not possible to reasonably
estimate their fair value. Accordingly, the Company has recorded a deferred
charge equal to the excess of the estimated fair value of the Series B Common
Stock over the exercise price of the warrants ("intrinsic value") of
approximately $25,000,000 at September 30, 1996. The amount of this deferred
charge is subject to change based on changes in the intrinsic value of the
related warrants until the fair value of these warrants is reasonably estimable,
which will occur upon the closing of an initial public offering of the Company's
Series B Common Stock. This deferred charge will be amortized to cost of sales
on a straight-line basis over the ten-year term of the agreement.
The terms of this agreement also provide for the issuance of additional
warrants to purchase shares of the Company's Series B Common Stock up to a
maximum of 12% and 25%, respectively, of the Company's outstanding shares of
capital stock, on a fully diluted basis, upon the consummation of an initial
public offering of the Company's Series B Common Stock and the customer's
periodic purchases of aggregate amounts of minutes of use exceeding certain
incremental thresholds. These warrants will expire seven and one-half and five
years after the date of their issuance, respectively, and are also subject to
anti-dilution adjustments. As the exercise prices of these warrants are also
variable until the consummation of an initial public offering of the Company's
Series B Common Stock and the customer's periodic purchases of aggregate amounts
of minutes of use exceeding certain incremental thresholds, respectively, and
the related fair value is not reasonably estimable, the Company will record
deferred charges equal to the aggregate intrinsic value of the number of
warrants expected to be issued on the date that the Company is committed to
issue such warrants. The deferred charges recorded are subject to change until
the terms of these warrants become fixed and it is possible to reasonably
estimate the warrants' fair value. The deferred charges will be amortized to
cost of sales on a straight-line basis over the remaining term of the agreement.
Pursuant to this agreement, in the event of certain mergers or sales of assets
of the Company, the other entity must enter into an agreement with the customer
to maintain all of the terms of the customer's warrants, or, if only cash
proceeds are to be received by the Company in such merger or sale of assets, the
customer is, subject to certain conditions, entitled to receive a cash payment
equal to up to approximately 2% of the market value of the capital stock of the
Company on a fully diluted basis.
Also during the nine months ended September 30, 1996, the Company, based on
an independent valuation, recorded a deferred charge in the amount of $211,000
related to warrants to purchase 100,000 shares of Series B Common Stock for
$4.00 per share granted to an outside consultant for services performed in
connection with the airtime sale agreement.
F-19
<PAGE> 137
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Non-employee transactions under the Option Plan, including warrants issued
in connection with financing arrangements, during the periods from inception to
December 31, 1995 and the nine months ended September 30, 1996 are summarized as
follows:
<TABLE>
<CAPTION>
MAY 16, 1995 (INCEPTION)
NINE MONTHS ENDED
TO DECEMBER 31, 1995 SEPTEMBER 30, 1996
------------------------ ---------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NON-EMPLOYEE STOCK OPTIONS AND WARRANTS SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------------------------------------------ ------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period........ -- -- 500,000 $ 3.00
Granted................................... 500,000 $ 3.00 38,914,755 $ 3.54
Exercised................................. -- -- -- --
Forfeited................................. -- -- -- --
------- ---------
Outstanding at end of period.............. 500,000 $ 3.00 39,414,755 $ 3.54
======= =========
Options and warrants exercisable at
period end............................ 500,000 14,836,471
Weighted-average fair value of options and
warrants granted during the period based
on an independent valuation............. $0.17 $0.69
</TABLE>
The following table summarizes information about non-employee stock options
and warrants outstanding at September 30, 1996:
<TABLE>
<CAPTION>
OPTIONS AND WARRANTS OUTSTANDING OPTIONS AND WARRANTS EXERCISABLE
------------------------------------------------------ -----------------------------------
NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF EXERCISE OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
PRICES SEPTEMBER 30, 1996 CONTRACTUAL LIFE EXERCISE PRICE SEPTEMBER 30, 1996 EXERCISE PRICE
----------------- ------------------ ---------------- -------------- ------------------ --------------
<S> <C> <C> <C> <C> <C>
$0.25............ 971,667 5.5 years $ 0.25 466,667 $ 0.25
$3.00-$4.00...... 38,443,088 5.2 years $ 3.62 14,369,804 $ 3.01
--------- ---------
39,414,755 14,836,471
========= =========
</TABLE>
F-20
<PAGE> 138
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- COMMITMENTS
The Company leases office space and equipment under various operating and
capital lease arrangements with terms ranging from one to ten years. Rent
expense for the period from May 16, 1995 (inception) to December 31, 1995 and
for the nine months ended September 30, 1996 was $19,000 and $453,000,
respectively. Future minimum rental commitments under non-cancelable operating
and capital leases are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
----------- --------
<S> <C> <C>
Three months ending December 31, 1996......................... $ 619,000 $ 36,000
Year ending December 31, 1997................................. 2,404,000 139,000
Year ending December 31, 1998................................. 2,735,000 68,000
Year ending December 31, 1999................................. 2,350,000 20,000
Year ending December 31, 2000................................. 2,085,000 --
Year ending December 31, 2001................................. 1,531,000 --
Thereafter.................................................... 3,918,000 --
------- ------
$15,642,000 263,000
=======
Less amount representing interest (33,000)
------
$230,000
======
</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 from inception to December 31, 1995 and the nine
months ended September 30, 1996, the Company recorded consulting expenses of
$120,000 and $186,000, respectively, related to the services received from this
firm and had related accounts payable of $93,000 and $0 at December 31, 1995 and
September 30, 1996, respectively.
During November 1995, the Company received an advance related to a
contingent stock purchase subscription agreement in the amount of $5,000,000
(Note 4) 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 from inception to
December 31, 1995 and the nine months ended September 30, 1996, the Company
recorded interest expense of $124,000 and $484,000, respectively, related to the
notes payable and had related interest payable of $124,000 and $308,000 at
December 31, 1995 and September 30, 1996, respectively. During March 1996, the
investor converted $15,000,000 of the $25,000,000 note payable into a contingent
stock purchase subscription agreement (Note 5). During June 1996, $9,602,000 of
the $10,000,000 unconverted portion was repaid with the remaining $398,000
converted into a long-term note payable, which is convertible into Series C
Common Stock (Note 5). During November 1995, the Company also entered into an
equipment requirements agreement with this same stockholder pursuant to which
the stockholder will supply certain infrastructure equipment to the Company.
Pursuant to the terms of the agreement, the Company has committed to purchase
from the stockholder, at prices to be negotiated, certain infrastructure
equipment. The Company has also agreed to utilize and implement certain
technology of the stockholder 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. Additionally, during the
nine months ended September 30, 1996, the Company recorded expenses of $142,000
related to services performed by this stockholder in connection with the
planning and design of the Company's network, and had related accounts payable
of $142,000 at September 30, 1996.
F-21
<PAGE> 139
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 nine months ended September 30, 1996, the Company
recorded consulting revenues and consulting costs related to this agreement in
the amounts of $1,914,000 and $1,832,000, respectively, and had no related
accounts payable at September 30, 1996.
During May 1996, the company issued a $135,000 loan to an officer of the
Company. The loan bears interest at 6.0% per annum and matures on the earlier of
January 15, 1998 or termination of employment, except that the officer is
obligated to apply any future bonus amounts, net of applicable taxes, to
repayment of the loan.
During May 1996, in connection with the sale of Series A Common Stock to
founders, the Company accepted promissory notes bearing interest at 6.0% per
annum in the aggregate amount of $2,510,000. The principal balance and all
accrued interest are due and payable in full on October 5, 1997. These notes may
be prepaid at any time without penalty and are secured by the shares of Series A
Common Stock for which they were issued.
During May 1996, the Company entered into an agreement with a vendor, a
shareholder of which is an officer of the Company, which provides for the
issuance of options to purchase 200,000 shares of Series B Common Stock at $3.00
per share as consideration for $1,000,000 of services to be performed.
NOTE 11 -- SUBSEQUENT EVENTS
In October 1996, the Company entered into a subscription agreement with a
vendor, pursuant to which the Company issued a convertible promissory note to
the vendor in the principal amount of $50,000,000 (the "Note") of which
$35,000,000 was released to the Company in January 1997 when the Company's
C-Block licenses were granted (Note 1), with the remaining proceeds to be
released from escrow upon the closing of an initial public offering of Series B
Common Stock. The Note and accrued interest thereon, at a rate of 14% per annum,
will automatically convert into shares of Series B Common Stock at a conversion
price of $5.00 per share (subject to certain anti-dilution adjustments) upon the
later of the closing of an initial public offering of Series B Common Stock or
the early termination or expiration of the waiting periods under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976 ("HSR Act"). The Note matures June
1997 if not previously converted. The Company also entered into a strategic
supply and development agreement with this vendor, pursuant to which the vendor
has agreed to supply and finance the purchase by the Company of up to
$1,000,000,000 of PCS infrastructure equipment and associated ancillary
services, subject to certain conditions. In connection with this agreement, the
vendor has made a binding commitment to provide the Company with a vendor credit
facility for 100% of the purchase price of PCS infrastructure equipment and
services from the vendor in certain markets pursuant to one or more vendor
supply contracts to be entered into pursuant to the agreement, up to an
aggregate of $245,000,000, subject to the terms and conditions set forth
therein. In addition, under this agreement, the vendor would have the option to
provide a vendor financing facility to finance the purchase of up to an
additional $755,000,000 in PCS infrastructure equipment and services. Such
option would commence in June 1998 and continue until December 2002. In
connection with the strategic supply and development agreement, the Company,
contingent upon conversion of the Note, has committed to make certain research
and development funding payments to the vendor in the amount of $8,000,000,
payable in April 1997. In the event that the price per share of the Series B
Common Stock in the initial public offering of Series B Common Stock exceeds
$8.00 (calculated by subtracting the value of the contingent transfer right from
the price per unit in the initial public offering of Series B Common Stock),
such $8,000,000 will be payable in two equal installments in October 1997 and
October 1998. In the event the price per share of the Series B Common Stock in
the initial public offering of Series B Common Stock is less than
F-22
<PAGE> 140
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$7.00 (calculated by subtracting the value of the contingent transfer right from
the price per unit in the initial public offering of Series B Common Stock),
such amount would be increased pursuant to a formula based on the public
offering price, up to an aggregate of $12,000,000, and, subject to certain
conditions, payable in three installments over three years.
In November 1996, a Series B Common Stockholder of the Company loaned the
Company $18,000,000, collateralized by funds on deposit with the FCC related to
the D, E and F-Block auctions. The loan bears interest at 9.6% per annum and
matures on the earlier of thirty days from the closing of an initial public
offering of Series B Common Stock or May 1997.
In November 1996, the Company's letter of credit line (Note 5) was
increased to $5,000,000.
In November 1996, the Company and a vendor signed a procurement agreement,
pursuant to which the Company has agreed to purchase, and the vendor has agreed
to finance and supply, up to $200,000,000 of PCS infrastructure equipment for
deployment in certain of the Company's markets. The procurement agreement also
provides that the vendor will have the right to supply equipment for certain
other markets, up to an aggregate of $1,000,000,000, subject to the provision by
the vendor of 100% financing for such purchases. In connection with the
procurement agreement, the Company entered into a warrant purchase agreement
with the vendor. Under the warrant agreement, the Company granted the vendor
warrants to purchase the number of shares of Series B Common Stock equal to
$10,000,000, divided by the price per share attributable to the Series B Common
Stock included in certain units issued by the Company in an initial public
offering of the Company's Series B Common Stock (the "Common Stock Price"), at
an exercise price equal to the Common Stock Price, subject to adjustment for
certain anti-dilution events. These warrants may not be exercised until the
earlier to occur of (i) December 31, 1997, or (ii) the 181st day after the
closing of an initial public offering of the Company's Series B Common Stock.
The warrants expire on the earlier to occur of (i) June 30, 2002, or (ii) the
fifth anniversary of the closing of an initial public offering of the Company's
Series B Common Stock. In January 1997 the Company recorded the $6,676,000 fair
value of these warrants, based on an independent appraisal.
In November 1996, the Company entered into a supply agreement with a vendor
which provides for vendor financing for the Company for 150% of the purchase
price of PCS infrastructure equipment and services, subject to certain
conditions, up to an aggregate of $1,200,000,000. The supply agreement provides
for the Company to purchase up to $300,000,000 in equipment, assuming successful
completion of a market trial of the vendor's equipment in a certain market.
After $700,000,000 of loans have been drawn down by the Company under the
vendor's credit facility, additional financing will become available subject to
the Company raising a certain target level of capital. In January 1997, the
Company and this vendor entered into a stock pledge agreement, pursuant to which
the Company pledged all of the issued and outstanding capital stock of NextWave
Personal Communications Inc. to this vendor as collateral for the repayment by
the Company of amounts to be advanced previously by this vendor. Pursuant to the
loan agreement with the vendor, the Company agreed not to permit or create any
liens on the assets of NextWave Personal Communications Inc. or allow NextWave
Personal Communications Inc. to become obligated with respect to any
indebtedness other than liens or indebtedness in connection with the C-Block
payment terms provided by the FCC in connection with the grant of the Company's
C-Block PCS licenses (the "C-Block Payment Terms"). The Company also agreed that
NextWave Personal Communications Inc. will not transfer, encumber or cause any
liens or encumbrances to attach to the capital stock of NextWave Personal
Communications Inc. or the Company's C-Block PCS licenses, except as otherwise
provided by the C-Block Payment Terms. Finally, the Company agreed to cause
NextWave Power Partners to take all steps necessary to transfer any D, E and
F-Block PCS licenses finally awarded to NextWave Power Partners to NextWave
Personal Communications Inc. The stock pledge will be released upon payment of
all obligations under the loan agreement with the vendor.
F-23
<PAGE> 141
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In November 1996, the Company entered into a master lease agreement
providing for a $250,000,000 equipment lease facility to be used for the
purchase of switching equipment. Under the lease facility, $150,000,000 can be
drawn down during the first year and the additional $100,000,000 may be drawn
down in future periods subject to the Company meeting certain financial and
operational milestones. In connection with the master lease agreement, in
November 1996, the Company granted the leasing company warrants to purchase
1,500,000 shares of Series B Common Stock at an exercise price equal to the
initial public offering price of the Series B Common Stock, subject to
adjustment for certain anti-dilution events. These warrants shall vest from time
to time as follows: the leasing company shall have the right to exercise the
warrant to purchase that number of shares of Series B Common Stock equal to 1%
of each progress payment, as defined in the master lease agreement, provided,
however, that the leasing company shall vest in the right to purchase all
1,500,000 shares upon the earlier to occur of (i) December 31, 1997, or (ii) the
date upon which payments made by the Company pursuant to the master lease
agreement equal $150,000,000. The warrants expire on various dates in 2002. As
the variable terms of these warrants preclude the reasonable estimation of their
fair value, the Company will record the aggregate intrinsic value of the
warrants until such time as the warrants' terms are fixed and their aggregate
fair value can be reasonably estimated and recorded. Based on the terms of these
warrants, their exercise price is equal to the initial public offering price of
the Company's Series B Common Stock, which is estimated to exceed its current
fair value, and, therefore, they have no intrinsic value.
In November 1996, the Company executed a purchase and supply agreement with
a vendor. Pursuant to the five-year agreement, subject to completion of the
initial public offering of Series B Common Stock, the vendor will supply and
finance up to $50,000,000 worth of products and services such as antennas, test
equipment and engineering services. The Company will purchase 40% of the
products and services within the first two years of the term of this agreement
and 20% over each of the following three years, subject to changes resulting
from delays in the Company's build-out of its PCS networks for reasons beyond
the Company's control. The Company may make monthly draw downs under the
facility and amounts borrowed under the agreement will bear interest at the
prime rate plus an applicable margin for the first three years of the term of
the agreement and at the prime rate for the remaining two years of the term.
In December 1996, the Company entered into a promissory note agreement with
a vendor, which provides for financing of services of up to $10,000,000. The
note, which matures on March 31, 1997 and bears interest at the prime rate, as
defined, plus two percent, was issued in consideration for trade accounts
payable. The Company had outstanding accounts payable to this vendor in the
amount of $3,200,000 at September 30, 1996.
In January 1997, a Series B Common Stockholder of the Company loaned the
Company $25,000,000. The loan bears interest at 9.7% and will mature on the
earlier of July 1997 or thirty days from the closing of an initial public
offering of the Company's Series B Common Stock.
During January 1997, the FCC granted the Company C-Block PCS licenses in 63
basic trading areas. Following the FCC's notice of grant, the Company made the
final required downpayment for the C-Block auctions in the amount of
$237,183,000 (Note 1).
In January 1997, the D, E, and F-Block auctions ended with the FCC naming
the Company the winning bidder licenses in 32 basic trading areas with net bids
totaling $128,972,000. These licenses required downpayments of $13,475,000,
resulting in a refund to the Company of $16,525,000 by the FCC. Upon the grant
of these licenses the Company will make a final downpayment of $16,945,000 (Note
1).
From October 1996 to January 1997, the Company issued 3,730,000 shares of
Series B Common Stock for $5.00 per share to certain investors for aggregate
consideration of $18,650,000.
F-24
<PAGE> 142
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
From October 1996 to January 1997, the Company issued promissory notes in
the aggregate amount of $19,670,000, including $15,000,000 which is restricted
as to withdrawal until the closing of an initial public offering of Series B
Common Stock.
NOTE 12 -- UNAUDITED PRO FORMA BALANCE SHEET INFORMATION
The following schedule sets forth the Company's actual and unaudited pro
forma balance sheet as of September 30, 1996. The unaudited pro forma balance
sheet as of September 30, 1996 is based on the actual balance sheet as of
September 30, 1996, adjusted to give pro forma effect to: (i) the remaining
downpayment paid to the FCC during January 1997 related to the grant of C-Block
PCS licenses (Notes 1 and 11) to the Company for the 63 basic trading areas in
which the Company was named high bidder, (ii) significant financing transactions
entered into by the Company subsequent to September 30, 1996, (iii) the grant of
all FCC licenses to the Company for which it was named high bidder in both
C-Block auctions based on the terms of the license award, (iv) the remaining
downpayment required to be made to the FCC related to the grant of D, E and
F-Block PCS licenses to the Company (Notes 1 and 11) for the 32 basic trading
areas in which the Company was named high bidder, (v) the expected award of all
FCC licenses to the Company for which it was named high bidder in the D, E and
F-Block auctions based on the anticipated terms of the license award, and (vi)
the proposed Equity and Notes offerings (the "Offerings").
The unaudited pro forma balance sheet information is not necessarily
indicative of: (i) the financial position of the Company as of September 30,
1996 that would actually have existed if the events described had occurred on
September 30, 1996, (ii) the financial position that may be obtained in the
future or (iii) all future significant non-cash charges that may result from
various warrants issued by the Company to third parties.
F-25
<PAGE> 143
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
UNAUDITED
ADJUSTMENTS
FOR FCC
UNAUDITED LICENSE GRANT
ACTUAL UNAUDITED PRO FORMA TRANSACTIONS
SEPTEMBER 30, PRO FORMA SEPTEMBER 30, EXPECTED TO BE
1996 ADJUSTMENTS 1996 CONSUMMATED
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 26,102,000 $ 54,670,000(1) $ 35,587,000 $ (420,000)(11)
18,650,000(2)
18,000,000(3)
25,000,000(4)
(106,835,000)(5)
Other current assets.............................. 1,476,000 1,476,000
------------ ------------ ------------ ------------
Total current assets......................... 27,578,000 9,485,000 37,063,000 (420,000)
Property and equipment, net........................ 15,802,000 15,802,000
Restricted cash.................................... 131,760,000 15,000,000(1) 16,412,000
(130,348,000)(5)
FCC license deposits............................... 267,182,000 (237,182,000)(5) 30,000,000 (30,000,000)(11)
Capitalized FCC licenses........................... -- 474,365,000(5) 3,204,822,000 30,420,000(11)
2,730,457,000(6) 68,556,000(12)
Other assets....................................... 8,788,000 6,676,000(8) 15,464,000
------------ ------------ ------------ ------------
$451,110,000 $2,868,453,000 $3,319,563,000 $ 68,556,000
============ ============ ============ ============
LIABILITIES, MANDATORILY REDEEMABLE COMMON
STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 8,643,000 $ (3,200,000)(10) $ 5,443,000 $
Accrued liabilities............................... 6,856,000 6,856,000
Advances from contingent stock
purchase subscribers............................. 10,000,000 10,000,000
Current portion of notes payable, convertible
notes payable and capital leases................ 48,543,000 69,670,000(1) 164,513,000
18,000,000(3)
25,000,000(4)
3,200,000(10)
------------ ------------ ------------ ------------
Total current liabilities.................... 74,142,000 112,670,000 186,812,000 --
Convertible notes payable and capital leases,
less current portion............................. 130,845,000 130,845,000
Senior notes payable...............................
Senior discount notes payable......................
U.S. Government financing.......................... -- 2,730,457,000(6) 2,730,457,000 68,556,000(12)
------------ ------------ ------------ ------------
Total liabilities............................ 204,987,000 2,843,127,000 3,048,114,000 68,556,000
------------ ------------ ------------ ------------
Series C Common Stock, mandatorily redeemable,
$.0001 par value, shares authorized: no
shares issued or outstanding actual or pro forma;
shares issued and outstanding as adjusted.........
Commitments (Note 9)
Stockholders' equity:
Common stock, $0.0001 par value, 500,000,000 shares
authorized:
Series A, 60,000,000 shares designated: 47,396,437
shares issued and outstanding actual; 36,245,031
pro forma; 3,000 shares issued and outstanding
as adjusted..................................... 5,000 (1,000)(7) 4,000
Series B, 278,980,556 shares designated: 99,898,262
shares issued and outstanding actual; 125,931,074
pro forma; shares issued and outstanding
as adjusted..................................... 10,000 2,000(7) 12,000
Series C, 1,019,444 shares designated: no shares
issued or outstanding actual, pro forma or
as adjusted..................................... -- --
Paid-in capital................................... 291,406,000 18,650,000(2) 331,731,000
(1,000)(7)
6,676,000(8)
15,000,000(9)
Common stock notes receivable..................... (2,810,000) (2,810,000)
Deferred charges and unearned compensation........ (25,993,000) (15,000,000)(9) (40,993,000)
Deficit accumulated during development stage...... (16,495,000) (16,495,000)
------------ ------------ ------------ ------------
Total stockholders' equity................... 246,123,000 25,326,000 271,449,000 --
------------ ------------ ------------ ------------
$451,110,000 $2,868,453,000 $3,319,563,000 $ 68,556,000
============ ============ ============ ============
<CAPTION>
UNAUDITED AS
ADJUSTED FOR UNAUDITED
FCC LICENSE AS ADJUSTED
GRANT UNAUDITED FOR OFFERING
TRANSACTIONS ADJUSTMENTS TRANSACTIONS
EXPECTED TO BE FOR OFFERING EXPECTED TO BE
CONSUMMATED, TRANSACTIONS CONSUMMATED,
SEPTEMBER 30, EXPECTED TO BE SEPTEMBER 30,
1996 CONSUMMATED 1996
-------------- -------------- --------------
<S> <C<C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 35,167,000
Other current assets..................................... 1,476,000
------------ ------------
Total current assets................................ 36,643,000
Property and equipment, net............................... 15,802,000
Restricted cash........................................... 16,412,000
FCC license deposits...................................... --
Capitalized FCC licenses.................................. 3,303,798,000
Other assets.............................................. 15,464,000
------------ ------------
$3,388,119,000
============ ============
LIABILITIES, MANDATORILY REDEEMABLE COMMON STOCK AND STOCK
EQUITY
Current liabilities:
Accounts payable......................................... $ 5,443,000
Accrued liabilities...................................... 6,856,000
Advances from contingent stock purchase subscribers...... 10,000,000
Current portion of notes payable, convertible notes
payable and capital leases............................. 164,513,000
------------ ------------
Total current liabilities........................... 186,812,000
Convertible notes payable and capital leases, less current
portion.................................................. 130,845,000
Senior notes payable......................................
Senior discount notes payable.............................
U.S. Government financing................................. 2,799,013,000
------------ ------------
Total liabilities................................... 3,116,670,000
------------ ------------
Series C Common Stock, mandatorily redeemable, $.0001 par
value, shares authorized: no shares issued or
outstanding actual or pro forma; shares issued and
outstanding as adjusted..................................
Commitments (Note 9)
Stockholders' equity:
Common stock, $0.0001 par value, 500,000,000 shares
authorized:
Series A, 60,000,000 shares designated: 47,396,437 shares
issued and outstanding actual; 36,245,031 pro forma;
3,000 shares issued and outstanding as adjusted........ 4,000
Series B, 278,980,556 shares designated: 99,898,262
shares issued and outstanding actual; 125,931,074 pro
forma; shares issued and outstanding as adjusted.... 12,000
Series C, 1,019,444 shares designated: no shares issued
or outstanding actual, pro forma or as adjusted........ --
Paid-in capital.......................................... 331,731,000
Common stock notes receivable............................ (2,810,000)
Deferred charges and unearned compensation............... (40,993,000)
Deficit accumulated during development stage............. (16,495,000)
------------ ------------
Total stockholders' equity.......................... 271,449,000
------------ ------------
$3,388,119,000
============ ============
</TABLE>
F-26
<PAGE> 144
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
UNAUDITED PRO FORMA ADJUSTMENTS
(1) To reflect the issuances subsequent to September 30, 1996 of promissory
notes in the aggregate amount of $69,670,000, including $15,000,000 which is
restricted as to withdrawal until the closing of an initial public offering of
Series B Common Stock.
(2) To reflect the issuance of 3,730,000 shares of Series B Common Stock
for $5.00 per share to certain investors subsequent to September 30, 1996 for
aggregate consideration of $18,650,000.
(3) To reflect the receipt of a loan in the amount of $18,000,000,
collateralized by funds on deposit with the FCC related to the D, E and F-Block
auctions, during November 1996 from a Series B Common Stockholder.
(4) To reflect the receipt of a loan during January 1997 from a certain
vendor and Series B Common Stockholder in the amount of $25,000,000, which will
be repaid with proceeds from the Offerings.
(5) To reflect payment during January 1997 of the remaining FCC license
downpayment, related to the C-Block auctions which closed during May 1996 and
July 1996, in the aggregate amount of $237,183,000 and application of the entire
downpayment to capitalized FCC licenses.
(6) To reflect capitalization as an intangible asset of FCC licenses for
the C-Block granted during January 1997, subject to compliance with FCC foreign
ownership regulations within six months from date of grant (Note 1), and U.S.
Government financing payable to the FCC with a fixed stated interest rate of
6.50% (net of the aggregate downpayments of $474,365,000 and without any related
accrued interest). The amount of U.S. Government financing recorded is based on
the aggregate bid for the FCC licenses of $4,743,648,000 as adjusted, pursuant
to Accounting Principles Board Opinion No. 21, to reflect the fair value of the
debt based on an estimated fair value risk-adjusted market interest rate of
14.0%. The Company has estimated this fair value rate of interest based on
risk-adjusted rates obtained by other comparable companies in the wireless
telecommunications industry for debt financing. The amount of the intangible
asset is based on the fair value of the FCC debt plus the aggregate downpayments
in the amount of $474,365,000. 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.
(7) To reflect the conversion of 11,151,406 shares of Series A Common Stock
into 22,302,812 shares of Series B Common Stock upon the occurrence of certain
dilutive events.
(8) To reflect the issuance of warrants with an aggregate fair value, as
determined by an independent appraiser, of $6,676,000 granted to an equipment
vendor in connection with an agreement to provide PCS infrastructure equipment
and services. The number of such warrants will be equal to $10,000,000 divided
by the price per share of Series B Common Stock issued in the initial public
offering, subject to adjustment for certain anti-dilution events. (Note 11).
(9) To reflect warrants issued to a customer in connection with an airtime
agreement (Note 8).
(10) To reflect the execution of a promissory note with a vendor in
consideration for trade accounts payable in the amount of approximately
$3,200,000 at September 30, 1996.
UNAUDITED ADJUSTMENTS FOR FCC LICENSE GRANT TRANSACTIONS EXPECTED TO BE
CONSUMMATED.
(11) To reflect application of the FCC deposits related to the D, E, and
F-Block auctions against the FCC license debt and payment of the remaining FCC
license downpayments related to such auctions.
F-27
<PAGE> 145
NEXTWAVE TELECOM INC.
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) To reflect capitalization as an intangible asset of FCC licenses for
the D, E and F-Block auctions expected to be awarded and related U.S. Government
financing with a fixed stated interest rate equal to the 10-year Treasury Note
rate (6.50% at December 31, 1996) at the date of award (net of the aggregate
downpayments of $30,420,000 and without any related accrued interest). The
amount of U.S. Government financing is recorded based on the aggregate bid for
the FCC licenses of $128,972,000 as adjusted, pursuant to Accounting Principles
Board Opinion No. 21, to reflect the fair value of the debt based on an
estimated fair value risk-adjusted market interest rate of 14.0%. The Company
has estimated this fair value rate of interest based on risk-adjusted rates
obtained by other comparable companies in the wireless telecommunications
industry for debt financing. The amount of the intangible asset is based on the
fair value of the FCC debt plus the aggregate downpayments of $30,420,000.
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.
UNAUDITED ADJUSTMENTS FOR OFFERING TRANSACTIONS EXPECTED TO BE CONSUMMATED
(13) To reflect the issuance of Units consisting of one share of
Series B Common Stock and one Series B Common Stock contingent transfer right at
an aggregate price of $ per share, net of estimated underwriting discounts
of % and issuance costs of $ , resulting in net proceeds of
$ from the initial public Equity Offering.
(14) To reflect the conversion of Series A Common Stock (other than 3,000
shares) into shares of Series B Common Stock and shares of
Series C Common Stock.
(15) To reflect the issuance of: (i) units consisting of one
warrant to purchase Series B Common Stock and $ principal amount of
Senior Notes Payable and (ii) units consisting of one warrant to
purchase Series B Common Stock and $ principal amount of Senior
Discount Notes Payable, for aggregate gross proceeds of $ , $
of which is to be restricted for the payment of interest on the notes. For
purposes of this unaudited pro forma presentation, $ of the proceeds
from this units offering have been allocated to the warrants based on the
estimated relative fair values of the notes and warrants. In addition,
underwriting discounts at % of gross proceeds and other issuance costs of
$ are estimated and have been reflected herein. The actual fair market
value of these warrants at their grant date may vary from this estimate,
resulting in different amounts being allocated to paid-in capital as well as
different interest charges on a prospective basis.
(16) To reflect the exchange of $ aggregate principal amount of
Bridge Notes for equal amounts of units including Senior Notes and warrants and
Senior Discount Notes and warrants, including related non-cash charges to
operations in the amount of $ , assuming an estimated fair value of the
warrants issued of $ . Additionally, this adjustment reflects a %
($ ) fee payable by the Company at the closing of the notes offering to
the Bridge Note holders consenting to exchange of the Bridge Notes as well as
the repayment of the $ outstanding balance of the Bridge Notes which
will become due and payable upon the closing of the Debt Offering. The actual
fair market value of these warrants at their grant date may vary from this
estimate, resulting in different amounts being allocated to paid-in capital as
well as different interest charges on a prospective basis.
F-28
<PAGE> 146
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING CONTAINED HEREIN, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT RELATES
IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH
STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 15
Use of Proceeds........................ 31
Dividend Policy........................ 31
Dilution............................... 32
Capitalization......................... 33
Selected Consolidated Financial Data... 35
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 36
The Wireless Telecommunications
Industry............................. 41
Business............................... 44
Regulation of The Wireless
Telecommunications Industry.......... 68
Management............................. 77
Principal Stockholders................. 87
Certain Relationships and Related
Transactions......................... 90
Description of Contingent Transfer
Rights............................... 92
Certain Federal Income Tax
Considerations....................... 94
Description of Capital Stock........... 97
Certain Indebtedness................... 106
Shares Eligible for Future Sale........ 110
Underwriting........................... 111
Legal Matters.......................... 112
Experts................................ 112
Additional Information................. 113
Glossary of Selected Terms............. 114
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE
EQUITY OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE UNITS, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS 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.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
UNITS
LOGO
NEXTWAVE TELECOM INC.
SERIES B COMMON STOCK
CONTINGENT TRANSFER RIGHTS
------------------------
PROSPECTUS
, 1997
------------------------
SMITH BARNEY INC.
LEHMAN BROTHERS
BEAR, STEARNS & CO. INC.
PRUDENTIAL SECURITIES INCORPORATED
ING BARINGS
OPPENHEIMER & CO., INC.
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 147
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 Amended and Restated Certificate of Incorporation and Bylaws
(the "Indemnification Provisions") provide for the indemnification of present or
former directors and officers of the Company and persons serving as present or
former directors, officers, employees, agents, or trustees of another
corporation or entity at the request of the Company (each, an "Indemnified
Party"). The Indemnification Provisions specifically indemnify to the fullest
extent permitted by Delaware law the Indemnified Parties against all expenses,
including counsel fees, incurred in connection with any action, suit, or
proceeding, whether civil, criminal, administrative or investigative. The
Indemnification Provisions require the Company to pay for or reimburse any
expenses incurred by an Indemnified Party in reasonable intervals and in advance
of the final disposition of such proceeding provided that the Indemnified Party
undertakes to repay such amount should it be determined ultimately that he or
she is not entitled to indemnification by the Company.
The Indemnification Provisions further provide that the Indemnified Party
may seek a judicial determination of his or her right to indemnification should
the Company fail to pay a claim in full within 90 days of its submission to the
Company. The Indemnified Party is entitled to indemnification for all expenses
of prosecuting such a claim against the Company if the claim is successful in
whole or in part.
The Indemnification Provisions permit the Company to present as a defense
to any claim initiated by a director or officer seeking indemnification that the
claimant has not met the standards of conduct which make it permissible under
the Delaware General Corporation Law (or other applicable law) to indemnify the
director or officer for such amount claimed. Such defense is inapplicable where
the claim in question is yet to be adjudicated and for which the director or
officer has entered into the required undertaking.
In addition, the Company's Amended and Restated Certificate of
Incorporation provides that, pursuant to the Delaware General Corporation Law,
its directors shall not be liable for monetary damages for conduct as a
director. This provision in the Amended and Restated Certificate of
Incorporation does not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as injunctive or other forms of
II-1
<PAGE> 148
nonmonetary relief will remain available under Delaware law. Furthermore, 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, for payment of dividends
or approval of stock repurchases or redemptions that are unlawful under Delaware
law. In addition, each director and officer shall continue to be subject to
liability for any act or omission for which such elimination of liability is not
permitted under the Delaware General Corporation Law.
The Company has entered or will enter into indemnification agreements with
its directors and certain executive officers (each, an "Indemnified Party"). An
Indemnified Party is specifically indemnified and held harmless under such
indemnification agreements for costs and expenses, including without limitation,
damages, judgments, fines, penalties, settlements and costs, attorneys' fees and
disbursements, costs of attachment or similar bonds, and costs of investigation
reasonably incurred in connection with a threatened, pending or completed claim,
action, suit or proceeding by reason of the fact that the Indemnified Party (i)
is or was a director, or officer of the Company; or (ii) is or was serving as a
director, trustee, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise at the request of the
Company. The Company shall not be liable under the indemnification agreements
for any claim to the extent that: (i) the Indemnified Party receives payment
under a valid, enforceable and collectible insurance policy; (ii) the
Indemnified Party is indemnified and actually paid otherwise than pursuant to an
indemnification agreement; (iii) the Indemnified Party is adjudged to be liable
for negligence or misconduct in the performance of his or her duty; (iv) the
Indemnified Party gains in fact any personal profit or advantage to which he or
she is not legally entitled to; (v) the Indemnified Party is required to
disgorge profits from the purchase or sale of securities pursuant to Section
16(b) of the Securities Exchange Act of 1934, as amended; or (vi) the
Indemnified Party brought about or contributed to the claim by his or her
dishonesty so long as it is judicially determined that he or she (a) committed
acts of active and deliberate dishonesty, (b) with actual dishonest purpose and
intent, (c) which acts were material to the claim against the Indemnified Party.
In the event of payment under an indemnification agreement, the Company is
to be subrogated to the extent of such payment to all of the rights of recovery
of the Indemnified Party. The indemnification agreements provide that the
Company will advance the costs and expenses incurred by the Indemnified Party in
advance of final disposition of an action, suit, or proceeding if he or she
undertakes to repay amounts advanced should it be ultimately determined that he
or she is not entitled to be indemnified by the Company. Under the
indemnification agreements, no expenses other than actual judgments or verdicts
may be indemnified without the prior consent of the Company. The indemnification
agreements further provide that an Indemnified Party may seek a judicial
determination of his or her right to indemnification should the Company fail to
pay his or her claim in full within 30 days of its submission to the Company.
The indemnification agreements and provisions for advancing expenses in
such agreements are expressly not exclusive of any other rights of
indemnification or advancement of expenses pursuant to the Delaware General
Corporation Law and the Company's Amended and Restated Certificate of
Incorporation and Bylaws.
The Company maintains insurance policies covering officers and directors
under which the insurers agree to pay, subject to certain exclusions, including
certain violations of securities laws, for any claim made against the directors
and officers of the Company for a wrongful act that they may become legally
obligated to pay or for which the Company is required to indemnify the officers
or directors. The policies have limits of up to $70,000,000 in the aggregate,
subject to retentions of up to $500,000 in the aggregate. The Company believes
that its Certificate of Incorporation and Bylaw provisions, indemnification
agreements and insurance policies are necessary to attract and retain qualified
persons as directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Series A Common Stock. The Company sold 55,760,000 shares of Series A
Common Stock to 28 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
II-2
<PAGE> 149
Stock were sold for a purchase price of $0.25 per share, for an aggregate
consideration of $13,940,000, $11,430,000 of which was paid in cash and
$2,510,000 of which was paid in promissory notes issued by the 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
78,533,836 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 $235,601,562, which was paid in
cash, retirement of $15,000,000 and $20,000,000 of indebtedness payable to
QUALCOMM and PECO, respectively, as described below, and satisfaction of certain
commission obligations payable by the Company. 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 12,975,135 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 $38,912,478 aggregate principal
amount of 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
approximately $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 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.
Between November 13, 1996 and January 10, 1997, the Company issued an
aggregate of 3,770,000 shares of Series B Common Stock to two vendors and three
consultants in connection with the execution of network equipment contracts and
the performance of consulting services. In addition, the Company has executed
Subscription Agreements in the aggregate amount of $27 million with one
consultant and one telecommunications vendor. The Company relied upon an
exemption from registration under Section 4(2) of the Securities Act in
connection with these transactions.
Other Convertible Debt. In November 1995, the Company entered into a
convertible loan agreement with QUALCOMM to borrow $25,000,000, of which
$398,000 was convertible into a promissory note which is convertible at $0.39
per share into 1,019,444 shares of Series C Common Stock (which shall become
rights to acquire Series B Common Stock after the Equity 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 the November 1995
issuance of the convertible note, and the Company relied upon an exemption from
registration under Section 3(a)(9) of the Securities Act in connection with the
issuance of the second convertible promissory note and the retirement of $15
million of indebtedness in exchange for Series B Common Stock.
II-3
<PAGE> 150
Between October 29, 1996 and January 29, 1996, the Company issued
convertible promissory notes convertible into an aggregate of 16,321,454 shares
of Series B Common Stock to three vendors and their affiliates and one
consultant in connection with the execution of network equipment contracts and
the performance of consulting services. The conversion prices for the shares in
such transactions ranged from $5.00 to $5.50. The Company relied upon an
exemption from registration under Section 4(2) of the Securities Act in
connection with these transactions.
Between November 26, 1996 and January 28, 1997, the Company issued
convertible promissory notes convertible into an aggregate of 1,800,000 shares
of Series B Common Stock at a conversion price of $5.00 per share to three
foreign entities for an aggregate purchase price of $9 million in connection
with the execution of telecommunications services agreements. The Company relied
upon an exemption from registration under Regulation S of the Securities Act in
connection with these transactions.
PECO Note and Warrants. On November 20, 1995, the Company and PECO Energy
Co. ("PECO") entered into a loan agreement pursuant to which the Company
borrowed $20 million 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. The Company retired $20 million of
indebtedness in exchange for 6,666,666 shares of Series B Common Stock and
warrants to purchase 480,556 shares of Series B Common Stock at an exercise
price of $3.00 per share in May 1996, and relied upon an exemption from
registration under Section 3(a)(9) 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
Corp. 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 an exemption from registration under Rule 701 promulgated under Regulation
E of the Securities Act in connection with such transactions. In addition, the
Company issued warrants to purchase 64,113 shares of Series B Common Stock at
$4.00 per share to two parties in connection with financial advisory services
rendered in May, 1996. Between August 22, 1996 and November 1, 1996, the Company
issued warrants to purchase an aggregate of 25,273,284 shares of Series B Common
Stock to one vendor and one reseller customer in connection with the execution
of network equipment contracts and a reseller contract and the performance of
consulting services. In addition, the Company issued a warrant to a vendor the
number of exercisable shares of which is equal to $10 million divided by an
exercise price equal to the Equity Offering price. The Company relied upon an
exemption from registration under Section 4(2) of the Securities Act in
connection with these transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.(2)
3.1 Amended and Restated Certificate of Incorporation of Registrant.(2)
3.2 Restated Bylaws of Registrant, as currently in effect.(2)
3.3 Form of Certificate of Amendment to Restated Certificate of Incorporation relating
to reverse stock split.(2)
3.4 Form of Amended and Restated Certificate of Incorporation to be filed prior to
closing of the Equity Offering.(2)
</TABLE>
II-4
<PAGE> 151
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
<C> <S>
4.1 Installment Plan Note by the Company in favor of the FCC relating to the C-Block PCS
licenses.(2)
4.2 Security Agreement between the Company and the FCC relating to the C-Block PCS
Licenses.(2)
4.3 Form of Senior Note Indenture, together with form of Senior Note.(4)
4.4 Form of Senior Discount Note Indenture, together with form of Senior Discount
Note.(4)
4.5 Form of Common Stock Certificate.(2)
4.6 Form of CTR Agreement.(2)
4.7 Form of CTR Escrow Agreement.(2)
4.8 Form of CTR Certificate.(2)
4.9 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.(3)
5.1 Opinion of Latham & Watkins re: securities offered.(2)
8.1 Opinion of Latham & Watkins re: tax matters.(2)
10.1 Amended and Restated Stock Option Plan.(3)
10.2 Form of Incentive Stock Option under the Plan.(3)
10.3 1997 Equity Incentive Plan.(2)
10.4 Form of Nonstatutory Stock Option Agreement.(3)
10.5 1997 Employee Stock Purchase Plan of the Company.(2)
10.6 1997 Non-Employee Director Stock Option Plan.(2)
10.7 Promissory Note, together with Stock Pledge Agreement, from Navation, Inc.(1)
10.8 Promissory Note, together with Stock Pledge Agreement, from Freedom Mobility Inc.(1)
10.9 Amended and Restated Series A Shareholders Agreement between the Company and the
holders of Series A Common Stock dated as of November 15, 1995.(3)
10.10 Form of Convertible Promissory Note issued to foreign investors convertible into
Series B Common Stock.(3)
10.11 Form of Warrants to Purchase Series B Common Stock.(3)
10.12 Registration Rights with purchasers of Series B Common Stock, Warrants and
Convertible Promissory Notes.(3)
10.13 Amended and Restated Shareholders' Rights Agreement among the Company and its
shareholders dated as of November 30, 1996, but effective as of May 8, 1996,
together with form of Registration Rights.(1)
10.14 Amended and Restated Stockholders' Voting Agreement dated as of April 9, 1996, but
effective as of November 30, 1995, among the Company and its Shareholders.(1)
10.15 Airtime Sale Agreement dated as of August 22, 1996 between the Company and MCI.(2)
10.16 Warrant Agreement dated as of August 22, 1996 between the Company and MCI.(2)
10.17 Warrant dated August 29, 1996 by the Company in favor of MCI.(2)
10.18 Registration Rights Agreement dated as of August 22, 1996 between the Company and
MCI.(2)
10.19 Strategic Supply and Development Agreement dated as of October 29, 1996 by and
between the Company and Hughes.(2)
10.20 Registration Rights Agreement dated as of October 29, 1996 between the Company and
Hughes.(1)
10.21 Special Voting Agreement dated as of October 29, 1996 between the Company, Hughes
and the Stockholders listed therein.(1)
10.22 Convertible Promissory Note dated as of November 1, 1995 by the Company in favor of
Hughes.(2)
10.23 Escrow Agreement dated as of October 29, 1996, as amended, between the Company,
Hughes and The Chase Manhattan Bank.(2)
10.24 Purchase and Supply Agreement dated as of November 8, 1996 between the Company and
The Allen Group.(2)
</TABLE>
II-5
<PAGE> 152
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
<C> <S>
10.25 Registration Rights Agreement dated as of November 8, 1996 between the Company and
The Allen Group.(1)
10.26 Loan Agreement and Term Note dated as of November 12, 1996 between the Company and
POSAM.(2)
10.27 Master Lease Agreement dated October 28, 1996 between the Company and Comdisco.(2)
10.28 Strategic Supply Agreement dated as of October 30, 1996 between the Company and
LGIC.(2)
10.29 CDMA Technical and Market Trial Agreement dated as of October 23, 1996 between the
Company and LGIC.(2)
10.30 Loan Agreement dated as of February 23, 1996 between the Company and LG.(3)
10.31 Loan Agreement and Promissory Note dated as of January 6, 1997 between the Company
and LG.(2)
10.32 Stock Pledge Agreement dated January 6, 1997 between the Company and LG.(2)
10.33 Agreement for Procurement of Personal Communications Services Products, Licensed
Materials and Services dated as of November 15, 1996 between NextWave Wireless and
Lucent.(2)
10.34 Warrant Purchase Agreement dated as of November 15, 1996 between the Company and
Lucent.(2)
10.35 Warrant dated as of November 15, 1996 by the Company in favor of Lucent.(2)
10.36 Equipment Requirements Agreement dated as of November 30, 1995 between the Company
and QUALCOMM.(2)
10.37 PCS Resale Agreement dated as of September 19, 1996 between NextWave Wireless and
Cellexis.(2)
10.38 PCS Resale Agreement dated as of September 19, 1996 between NextWave Wireless and
UCN.(2)
10.39 PCS Resale Agreement dated as of October 29, 1996 between NextWave Wireless and
PCN.(2)
10.40 PCS Resale Agreement dated as of December 2, 1996 between NextWave Wireless and
Flagship.(2)
10.41 PCS Resale Agreement dated as of November 4, 1996 between NextWave Wireless and One
Stop.(2)
10.42 PCS Infrastructure Deployment Services Master Agreement dated as of July 30, 1996
between the Company and LLC, L.L.C.(2)
10.43 Agreement dated as of March 12, 1996 between the Company and LCC, LLC.(3)
10.44 Form of Indemnification Agreement between the Company and each of its officers and
directors.(1)
10.45 Form of Warrant Agreement relating to the Company's public warrants, together with
form of Warrant.(4)
11.1 Calculation of Pro Forma Net Loss Per Share (Unaudited).(2)
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 and Exhibit 8.1).
23.3 Consent of Ha-Young Aum.(1)
23.4 Consent of Jang-Ho Chung.(1)
23.5 Consent of Gregory A. Cucchi.(1)
23.6 Consent of Jung-Boo Kim.(1)
23.7 Consent of Manjin J. Kim.(1)
23.8 Consent of Muhit U. Rahman.(1)
</TABLE>
II-6
<PAGE> 153
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
<C> <S>
23.9 Consent of Yutaka Sato.(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.
(3) Previously filed.
(4) Filed as an exhibit to Registration Statement No. 333-5829.
(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.
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-7
<PAGE> 154
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of San
Diego, State of California, on February 3, 1997.
NEXTWAVE TELECOM INC.
By: /s/ ALLEN B. SALMASI
------------------------------------
Allen B. Salmasi
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to 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 February 3, 1997
- ------------------------------------------ Officer and Director
Allen B. Salmasi
/*/ GENE M. WELSH Senior Vice President, February 3, 1997
- ------------------------------------------ Finance, Chief Financial
Gene M. Welsh Officer and Director (Chief
Financial and Accounting
Officer)
/*/ JANICE I. OBUCHOWSKI Vice Chairman, Executive February 3, 1997
- ------------------------------------------ Vice President and Director
Janice I. Obuchowski
/*/ KEVIN M. FINN Senior Vice President and February 3, 1997
- ------------------------------------------ Director
Kevin M. Finn
/*/ NICOLE N. SALMASI Director February 3, 1997
- ------------------------------------------
Nicole N. Salmasi
/s/ ALLEN B. SALMASI February 3, 1997
- ------------------------------------------
Allen B. Salmasi
Attorney-in-Fact
</TABLE>
II-8
<PAGE> 155
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 Underwriting Agreement.(2)
3.1 Amended and Restated Certificate of Incorporation of Registrant.(2)
3.2 Restated Bylaws of Registrant, as currently in effect.(2)
3.3 Form of Certificate of Amendment to Restated Certificate of Incorporation relating
to reverse stock split.(2)
3.4 Form of Amended and Restated Certificate of Incorporation to be filed prior to
closing of the Equity Offering.(2)
4.1 Installment Plan Note by the Company in favor of the FCC relating to the C-Block PCS
licenses.(2)
4.2 Security Agreement between the Company and the FCC relating to the C-Block PCS
Licenses.(2)
4.3 Form of Senior Note Indenture, together with form of Senior Note.(4)
4.4 Form of Senior Discount Note Indenture, together with form of Senior Discount
Note.(4)
4.5 Form of Common Stock Certificate.(2)
4.6 Form of CTR Agreement.(2)
4.7 Form of CTR Escrow Agreement.(2)
4.8 Form of CTR Certificate.(2)
4.9 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.(3)
5.1 Opinion of Latham & Watkins re: securities offered.(2)
8.1 Opinion of Latham & Watkins re: tax matters.(2)
10.1 Amended and Restated Stock Option Plan.(3)
10.2 Form of Incentive Stock Option under the Plan.(3)
10.3 1997 Equity Incentive Plan.(2)
10.4 Form of Nonstatutory Stock Option Agreement.(3)
10.5 1997 Employee Stock Purchase Plan of the Company.(2)
10.6 1997 Non-Employee Director Stock Option Plan.(2)
10.7 Promissory Note, together with Stock Pledge Agreement, from Navation, Inc.(1)
10.8 Promissory Note, together with Stock Pledge Agreement, from Freedom Mobility Inc.(1)
10.9 Amended and Restated Series A Shareholders Agreement between the Company and the
holders of Series A Common Stock dated as of November 15, 1995.(3)
10.10 Form of Convertible Promissory Note issued to foreign investors convertible into
Series B Common Stock.(3)
10.11 Form of Warrants to Purchase Series B Common Stock.(3)
10.12 Registration Rights with purchasers of Series B Common Stock, Warrants and
Convertible Promissory Notes.(3)
10.13 Amended and Restated Shareholders' Rights Agreement among the Company and its
shareholders dated as of November 30, 1996, but effective as of May 8, 1996,
together with form of Registration Rights.(1)
10.14 Amended and Restated Stockholders' Voting Agreement dated as of April 9, 1996, but
effective as of November 30, 1995, among the Company and its Shareholders.(1)
10.15 Airtime Sale Agreement dated as of August 22, 1996 between the Company and MCI.(2)
10.16 Warrant Agreement dated as of August 22, 1996 between the Company and MCI.(2)
10.17 Warrant dated August 29, 1996 by the Company in favor of MCI.(2)
10.18 Registration Rights Agreement dated as of August 22, 1996 between the Company and
MCI.(2)
</TABLE>
<PAGE> 156
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
<C> <S>
10.19 Strategic Supply and Development Agreement dated as of October 29, 1996 by and
between the Company and Hughes.(2)
10.20 Registration Rights Agreement dated as of October 29, 1996 between the Company and
Hughes.(1)
10.21 Special Voting Agreement dated as of October 29, 1996 between the Company, Hughes
and the Stockholders listed therein.(1)
10.22 Convertible Promissory Note dated as of November 1, 1995 by the Company in favor of
Hughes.(2)
10.23 Escrow Agreement dated as of October 29, 1996, as amended, between the Company,
Hughes and The Chase Manhattan Bank.(2)
10.24 Purchase and Supply Agreement dated as of November 8, 1996 between the Company and
The Allen Group.(2)
10.25 Registration Rights Agreement dated as of November 8, 1996 between the Company and
The Allen Group.(1)
10.26 Loan Agreement and Term Note dated as of November 12, 1996 between the Company and
POSAM.(2)
10.27 Master Lease Agreement dated October 28, 1996 between the Company and Comdisco.(2)
10.28 Strategic Supply Agreement dated as of October 30, 1996 between the Company and
LGIC.(2)
10.29 CDMA Technical and Market Trial Agreement dated as of October 23, 1996 between the
Company and LGIC.(2)
10.30 Loan Agreement dated as of February 23, 1996 between the Company and LG.(3)
10.31 Loan Agreement and Promissory Note dated as of January 6, 1997 between the Company
and LG. (2)
10.32 Stock Pledge Agreement dated January 6, 1997 between the Company and LG.(2)
10.33 Agreement for Procurement of Personal Communications Services Products, Licensed
Materials and Services dated as of November 15, 1996 between NextWave Wireless and
Lucent.(2)
10.34 Warrant Purchase Agreement dated as of November 15, 1996 between the Company and
Lucent.(2)
10.35 Warrant dated as of November 15, 1996 by the Company in favor of Lucent.(2)
10.36 Equipment Requirements Agreement dated as of November 30, 1995 between the Company
and QUALCOMM.(2)
10.37 PCS Resale Agreement dated as of September 19, 1996 between NextWave Wireless and
Cellexis.(2)
10.38 PCS Resale Agreement dated as of September 19, 1996 between NextWave Wireless and
UCN.(2)
10.39 PCS Resale Agreement dated as of October 29, 1996 between NextWave Wireless and
PCN.(2)
10.40 PCS Resale Agreement dated as of December 2, 1996 between NextWave Wireless and
Flagship.(2)
10.41 PCS Resale Agreement dated as of November 4, 1996 between NextWave Wireless and One
Stop.(2)
10.42 PCS Infrastructure Deployment Services Master Agreement dated as of July 30, 1996
between the Company and LLC, L.L.C.(2)
10.43 Agreement dated as of March 12, 1996 between the Company and LCC, LLC.(3)
10.44 Form of Indemnification Agreement between the Company and each of its officers and
directors.(1)
10.45 Form of Warrant Agreement relating to the Company's public warrants, together with
form of Warrant.(4)
11.1 Calculation of Pro Forma Net Loss Per Share (Unaudited).(2)
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 and Exhibit 8.1).
23.3 Consent of Ha-Young Aum.(1)
</TABLE>
<PAGE> 157
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
<C> <S>
23.4 Consent of Jang-Ho Chung.(1)
23.5 Consent of Gregory A. Cucchi.(1)
23.6 Consent of Jung-Boo Kim.(1)
23.7 Consent of Manjin J. Kim.(1)
23.8 Consent of Muhit U. Rahman.(1)
23.9 Consent of Yutaka Sato.(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.
(3) Previously filed.
(4) To be filed as an exhibit to Registration Statement No. 333-5829.
(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.
<PAGE> 1
EXHIBIT 10.7
PROMISSORY NOTE
$1,334,612.25 May 1,1996
San Diego, California
FOR VALUE RECEIVED, Navation Inc. ("Maker") hereby promises to pay to
NextWave Telecom Inc., a Delaware corporation ("Holder") One Million Three
Hundred Thirty-Four Thousand Six Hundred Twelve and 25/100 Dollars
($1,334,612.25) together with interest on the unpaid principal at a rate equal
to six percent (6%) per annum. Interest shall be calculated based on a 360 day
year, actual days elapsed. The entire principal balance together with all
accrued interest shall be due and payable in full on the one (1) year
anniversary of the earlier of (i) the date the Company prepays less than all of
the Convertible Senior Subordinated Notes issued to certain purchasers pursuant
to the terms of that certain Securities Purchase Agreement or (ii) October 5,
1996. This Promissory Note may be prepaid at any time and from time to time, in
whole or in part, without penalty or notice. Maker acknowledges that this is a
full recourse Promissory Note as against it and all its assets.
This Promissory Note is being delivered pursuant to the terms of that
certain Subscription Agreement dated May 1, 1996 (the "Agreement"), which
Agreement is incorporated in whole by this reference, pursuant to which Maker
purchased shares of Holder's Series A Common Stock (the "Shares"). Payment for
certain of the Shares (the "Restricted Shares") is being made by delivery of a
check for the par value of the such Shares and this Promissory Note to Holder.
The Restricted Shares are subject to a right of repurchase by Holder on the
terms set forth in the Agreement.
This Promissory Note is issued in connection with, and is governed by
the terms, conditions and provisions of, and Maker's obligations under this
Promissory Note are secured pursuant to, that certain Pledge Agreement (the
"Pledge Agreement") between Maker and Holder entered into concurrently herewith.
Reference to the Pledge Agreement is made for a more complete statement of the
rights, remedies, duties, benefits and obligations of Maker and Holder,
including without limitation, events of default on this Promissory Note and
acceleration of the indebtedness evidenced hereby. Holder is entitled to all the
benefits of the Pledge Agreement and the Pledge Agreement is incorporated in
this Promissory Note in its entirety by this reference.
Upon the occurrence of a Default hereunder (as defined below), Holder
may, at its option and with written notice to Maker of acceleration, declare
immediately due and payable the entire unpaid principal balance of this
Promissory Note, together with all accrued interest thereon, plus any other
amounts payable at the time of such declaration pursuant to this Promissory
Note. For purposes of this Promissory Note, Maker shall be in "Default" if
Maker: (i) fails to pay when due any payment of principal or interest due under
this Note; (ii) admits in writing its inability to pay its debts as they become
due, or makes a general assignment for the benefit of creditors or files any
petition or action for relief under any bankruptcy, reorganization, insolvency
or moratorium law, or any other law or laws for relief of, or relating to,
debtors; or (iii) an involuntary petition is filed against Maker under any
bankruptcy, reorganization, insolvency or moratorium law, or any other law or
laws for relief of, or relating to, debtors unless such petition shall be
dismissed or vacated within thirty (30) days of the date thereof.
<PAGE> 2
No extension of time for the payment of this Promissory Note, or any
installment hereof, made by agreement by the Holder hereof with the Maker shall
affect the original liability under the terms of this Promissory Note by Maker.
The acceptance by Holder of any payment hereunder which is less than the payment
in full of all amounts due and payable at the time of such payment shall not
constitute a waiver of the right to accelerate at that time or any subsequent
time or nullify any prior acceleration without the express consent of Holder
except as and to the extent otherwise provided by law. No delay on the part of
the Holder in exercising any rights hereunder shall operate as a waiver of the
rights of the Holder. No covenant, provision or Default hereunder may be waived
except by a written instrument signed by the waiving party, and no such waiver
shall extend to or impair any obligation not expressly waived.
If Holder should institute collection efforts of any nature whatsoever
to attempt to collect any and all amounts due hereunder upon the default of
Maker, Maker shall be liable to pay to Holder immediately and without demand all
reasonable costs and expenses of collection incurred by Holder, including
without limitation, reasonable attorneys' fees, whether or not suit or other
action or proceeding be instituted.
The provisions of this Promissory Note are intended by Maker to be
severable and divisable and the invalidity or unenforceability of a provision or
term hereof shall not invalidate or render unenforeceable the remainder of this
Promissory Note or any part thereof.
This Promissory Note shall be governed and construed in accordance with
the laws of the State of California without regard to principles of conflict of
laws.
IN WITNESS WHEREOF, this Promissory Note is executed on the date first
above written in San Diego, California.
Navation Inc.
By: /s/ Allen Salmasi
----------------------------
Title: CEO
-------------------------
2
<PAGE> 3
STOCK PLEDGE AGREEMENT
This STOCK PLEDGE AGREEMENT is made and effective as of May 1, 1996, by
and among Navation Inc. ("Pledgor") and NextWave Telecom Inc. ("Secured Party")
with respect to the following facts:
A. Contemporaneously with the execution of this Stock Pledge
Agreement, Pledgor is delivering a Promissory Note of even date herewith to
Secured Party in the principal amount of $1,334,612.25 (the "Note") to evidence
certain obligations and liabilities of Pledgor to Secured Party pursuant to that
certain Subscription Agreement by and among Pledgor and Secured Party dated
effective as of May 1, 1996 (the "Subscription Agreement"), as amended;
B. Pledgor desires to secure its obligations under the Note by
granting Secured Party a first priority security interest in 5,340,585 shares of
Series A Common Stock of Secured Party owned by Pledgor (the "Shares").
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants described herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
Pledgor and Secured Party, it is agreed as follows:
1. Pledge. Pledgor hereby delivers, pledges and grants a first
priority security interest to Secured Party in the Shares and in all rights or
other distributions issued as an addition to, in substitution or in exchange
for, or on account of, any Shares (collectively the "Rights"), and all proceeds
of the foregoing, now or hereafter acquired by Pledgor. The original
certificates evidencing the foregoing described items are hereby delivered to
Secured Party endorsed in blank, with signatures properly guaranteed. The Shares
and the Rights which come into the possession of Secured Party, and the proceeds
of each of the foregoing, are hereinafter collectively referred to as the
"Collateral."
2. Obligations Secured. The security interest granted pursuant to this
Stock Pledge Agreement is given as security for the full and timely payment,
performance and satisfaction of any and all of Pledgor's presently existing or
hereafter arising obligations and liabilities owing to Secured Party whether
existing by reason of the Note, this Stock Pledge Agreement and/or the
Agreement, including all interest on the Note and extensions, modifications and
renewals thereof. All such obligations and liabilities of Pledgor are hereafter
collectively referred to as the "Obligations." The Obligations shall include,
without limitation, any and all amounts expended by Secured Party in accordance
with the terms of this Stock Pledge Agreement, including reasonable
out-of-pocket costs of investigation and reasonable attorneys' fees and costs.
3. Transfer and Duties.
(a) Pledgor hereby appoints Secured Party as its attorney-in-fact
to arrange, at any time during the existence of, or after the occurrence of, a
Default (as hereinafter defined), for the transfer of the Collateral on the
books of Company to the name of Secured Party or to the name of Secured Party's
nominee.
<PAGE> 4
(b) Secured Party shall have no duty with respect to the Collateral
other than the duty to use reasonable care in its possession. Without limiting
the generality of the foregoing, Secured Party shall be under no obligation to
take any steps necessary to preserve rights in the Collateral against any other
parties, to sell same if it threatens to decline in value, or to exercise any
rights represented thereby; provided, however, that Secured Party may, at its
option, do so, and any and all expenses incurred in connection therewith shall
be for the sole account of Pledgor.
(c) Pledgor represents to Secured Party that Pledgor has made its
own arrangements for keeping informed of changes or potential changes affecting
the Collateral (including, but not limited to, rights to convert, rights to
subscribe, payment of dividends, reorganization or other exchanges, tender
offers and voting rights) and Pledgor agrees that Secured Party shall have no
responsibility or liability for informing Pledgor of any such changes or
potential changes or for taking any action or omitting to take any action with
respect thereto.
4. Subsequent Receipts by Pledgor. In the event Pledgor shall become
entitled to receive, or shall receive, in connection with any of the Collateral,
(i) any stock certificate, including any certificate representing a stock
dividend or any certificate in connection with any increase or reduction of
capital, reclassification, merger, consolidation, sale of assets, combination of
shares, stock split or spin-off, (ii) any option, warrant or right, whether as
an addition to or in substitution of any of the Collateral, or otherwise, (iii)
any dividend or distribution payable in property, including securities issued as
a dividend on the Collateral, or (iv) any other distributions of any kind
whatsoever, Pledgor shall accept same as encumbered by the security interest
created hereby, and shall deliver same forthwith to Secured Party in the exact
form received, including as appropriate, Pledgor's endorsement of appropriate
stock powers duly executed in blank, to be held as a part of the Collateral,
subject to the terms hereof, or, in the case of a cash dividend payable with
respect to the Shares, to be applied as a payment of principal due under the
Note; provided, however, that for so long as no Default (as defined in Paragraph
7 below) is in existence and there is no condition or event in existence which,
with notice or lapse of time, or both, would become a Default, Pledgor shall
have sole voting rights with respect to the Collateral.
5. Representations by Pledgor. Pledgor warrants and represents to
Secured Party that (a) Pledgor has power and authority to enter into this Stock
Pledge Agreement and to pledge the Shares for the purposes described herein, (b)
Pledgor is the legal record and beneficial owner of all of the Shares, (c) all
of the Shares are owned by Pledgor free of any pledge, mortgage, lien or
security interest of any kind, except as created hereby or other junior liens
consented to in writing by Secured Party, (d) the execution and delivery by
Pledgor of this Stock Pledge Agreement, and the performance of its terms, will
not result in any violation or default under the terms of any agreement or
instrument, or any law or governmental rule or regulation applicable to Pledgor
or the Shares, including, without limitation, securities registration,
securities disclosure or similar laws, and (e) upon execution and delivery by
Pledgor of this Stock Pledge Agreement and upon delivery of the Shares to
Secured Party, this Stock Pledge Agreement shall create a valid and perfected
first priority security interest in the Shares and the proceeds thereof, subject
to no prior or subordinate security interest.
6. Covenants by Pledgor. Pledgor hereby covenants that, until such
time as the Obligations have been fully paid, performed and satisfied: (a)
Pledgor will not sell, convey or
2
<PAGE> 5
otherwise dispose of any of the Collateral or any interest therein, or create,
incur or permit to exist any pledge, mortgage, lien, charge, encumbrance or any
security interest whatsoever in or with respect to any of the Collateral, or the
proceeds thereof, other than the security interest created hereby and junior
liens consented to in writing by Secured Party; (b) Pledgor will defend Secured
Party's right, title and security interest in and to the Collateral against the
claims of any person or entity; and (c) Pledgor shall promptly execute,
acknowledge and deliver all such instruments and take all such actions as
Secured Party from time to time may reasonably request in order to ensure to
Secured Party the benefits of the lien in and to the Shares intended to be
created by this Stock Pledge Agreement.
7. Default. As used herein, the term "Default" shall mean the
occurrence of any one or more of the following events or conditions: (a) the
failure of full and timely payment, or full and timely performance and
satisfaction, whether by acceleration or otherwise, of any of the Obligations in
accordance with their terms; or (b) the occurrence of an event of default
specified in any of the Obligations.
8. Secured Party's Rights Upon Default.
(a) Upon the occurrence or existence of a Default, Secured Party
shall have, in addition to any other rights given by law or the rights hereunder
or in the Note, all of the rights and remedies with respect to the Collateral of
a secured party under the California Uniform Commercial Code. Secured Party's
rights shall include, without limitation, the right to proceed immediately to
have any or all of the Collateral registered in Secured Party's name or in the
name of a nominee, to exercise all voting rights with respect to the Collateral
and all other corporate rights, privileges or options pertaining thereto as if
Secured Party were the absolute owner thereof, and to receive any, and to
continue to apply, all cash dividends against the Obligations. In addition, with
respect to the Collateral, or any part thereof, which shall then be or shall
thereafter come into the possession or custody of Secured Party, Secured Party
may sell or cause the same to be sold at any broker's board or at public or
private sale, in one or more sales or lots, at such price as Secured Party may
deem best, and for cash or on credit or for future delivery, without assumption
of any credit risk, and the purchaser of any or all of the Collateral so sold
shall thereafter hold the same absolutely, free from any claim, encumbrance or
right of any kind whatsoever. Unless the Collateral threatens to decline
speedily in value or becomes of a type sold on a recognized market, Secured
Party will give Pledgor reasonable notice of the time and place of any public
sale thereof, or of the time after which any private sale or other intended
disposition is to be made. Any sale of the Collateral conducted in conformity
with reasonable commercial practices of banks, insurance companies or other
financial institutions disposing of property similar to the Collateral, whether
conducted solely by Secured Party or in concert with other creditors of Pledgor,
shall be deemed to be commercially reasonable. Any requirements of reasonable
notice shall be met if such notice is mailed to Pledgor, at the address provided
by Pledgor to Secured Party, at least ten (10) days before the time of the sale
or disposition. Any other requirement of notice, demand or advertisement for
sale, is, to the extent permitted by law, hereby waived by Pledgor. Secured
Party may, in its own name, or in the name of a designee or nominee, buy at any
public sale of the Collateral. Pledgor will pay to Secured Party all expenses
(including court costs and reasonable attorneys' fees and expenses) of, or
incident to, the enforcement of any of the provisions hereof. In connection with
any sale of Collateral by Secured Party, Secured Party shall have the right to
execute any document or form, in its name or
3
<PAGE> 6
the name of Pledgor, which may be necessary or desirable in connection with such
sale. Upon the occurrence or existence of any Event of Default and all times
thereafter, Secured Party shall be entitled to receive and retain for its own
account any and all dividends at any time declared upon any of the Collateral.
(b) In view of the fact that federal and state securities laws may
impose certain restrictions on the method by which a sale of the Collateral may
be effected after an Event of Default and prohibit or prevent the advertising
for sale of all or any part of the Collateral as required by the California
Uniform Commercial Code, Pledgor agrees that upon the occurrence or existence of
a Default, Secured Party may, from time to time, attempt to sell all or any part
of the Collateral by one or more private placements or sales restricting the
bidder and prospective purchasers to those who will represent and agree that
they are purchasing for investment only and not for distribution or resale. In
so doing, Secured Party may solicit offers to buy the Collateral, or any part of
it for cash, from a limited number of investors deemed by Secured Party, in its
reasonable judgment, to be respectable parties who might be interested in
purchasing the Collateral, and if Secured Party solicits such offers from not
less than four (4) such investors, then the acceptance by Secured Party of the
highest offer obtained therefrom shall be deemed to be a commercially reasonable
method of disposition of such Collateral.
(c) Notwithstanding anything contained in this Section 8 to the
contrary, Secured Party's rights under this Section 8 are limited to the extent
the exercise of such rights would cause Secured Party to violate Section 310(b)
of the Communications Act of 1934, as amended, and rules or regulations
promulgated thereunder by the Federal Communications Commission.
9. Application of Proceeds. The proceeds of any disposition of all or
any part of the Collateral, as provided in Paragraph 8 above, shall be applied
as follows: (i) first, to the costs and expenses incurred in connection
therewith or incidental thereto, including reasonable attorneys' fees and legal
expenses; (ii) second, to the satisfaction of the Obligations; (iii) third, to
the payment of any other amounts required by applicable law; (iv) fourth, to
satisfy any amounts owing which are secured by junior liens consented to in
writing by Secured Party; and (v) fifth, to Pledgor to the extent of any surplus
remaining.
10. Consent. Pledgor hereby consents that, from time to time, before or
after the occurrence or existence of a Default, with or without notice to or
assent from Pledgor, any other security at any time held by or available to
Secured Party for any of the Obligations or any other security at any time held
by or available to Secured Party of any other person, firm or corporation
secondarily or otherwise liable for any of the Obligations, may be exchanged,
surrendered or released and any of the Obligations may be changed, altered,
renewed, continued, surrendered, compromised, waived or released, in whole or in
part, as Secured Party may see fit, and Pledgor shall remain bound under this
Stock Pledge Agreement notwithstanding any such exchange, surrender, release,
alteration, renewal, extension, continuance, compromise, waiver or inaction, or
extension of further credit.
11. Termination of Security Interest. Upon full payment and performance
of all of the Obligations by Pledgor and upon payment of all additional costs
and expenses provided herein, this Stock Pledge Agreement shall terminate and
Secured Party shall deliver to Pledgor, at Pledgor's
4
<PAGE> 7
expense, such of the Pledged Stock as shall not have been sold, or otherwise
disposed of pursuant to this Stock Pledge Agreement.
12. Cumulative Remedies and Binding Effect. The rights and remedies
provided herein are cumulative and are in addition to, and not exclusive of, any
rights or remedies provided in other instruments and agreements between Secured
Party and Pledgor, or as provided by law, including without limitation, the
rights and remedies of a secured party under the California Commercial Code.
This Stock Pledge Agreement is binding upon and shall inure to the benefit of
the parties hereto, and their successors and assigns.
13. Governing Law. This Stock Pledge Agreement has been accepted and is
performable within San Diego County, California. This Stock Pledge Agreement
shall be governed and construed in accordance with the internal laws of the
State of California (determined without regard to the principles of conflicts of
law).
14. Assignment. This Stock Pledge Agreement and the security interest
created hereby shall be transferable and assignable by the Secured Party, in
whole or in part, at such times and upon such terms as it deems advisable and,
upon any such transfer or assignment, the transferee or assignee shall succeed
to all rights and powers of the Secured Party hereunder to the extent of any
such transfer or assignment.
15. Miscellaneous. This Stock Pledge Agreement supersedes any and all
other agreements, either oral or in writing, among the parties hereto with
respect to the transaction described herein and contains all of the covenants
and agreements among the parties with respect to such matter. No term or
condition of this Stock Pledge Agreement shall be deemed to have been waived nor
shall there by any estoppel to enforce any provision of this Stock Pledge
Agreement except by written instrument of the party charged with such waiver or
estoppel. No amendment or modification of this Stock Pledge Agreement shall be
deemed effective unless and until executed in writing by all of the parties
hereto. No failure or delay by the Secured Party in exercising any right, power,
or privilege hereunder shall operate as a waiver thereof, and no single or
partial exercise thereof shall preclude any other or further exercise or the
exercise of any other right, power, or privilege. All agreements and covenants
contained herein are severable and in the event that any of them, or a portion
thereof, shall be held to be invalid or unenforceable by any court of competent
jurisdiction, this Stock Pledge Agreement shall be interpreted as if such
invalid agreements or covenants, or such invalid or unenforceable portion, were
not contained herein. In any action or proceeding brought to enforce or
interpret any provision of this Stock Pledge Agreement, the prevailing party
shall be entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
[The Remainder of This Page Intentionally Left Blank]
5
<PAGE> 8
PLEDGOR: SECURED PARTY:
Navation Inc. NextWave Telecom Inc.
By: /s/ ALLEN SALMASI By: /s/ FRANK A. CASSOU
----------------------------- --------------------------------
Allen Salmasi Frank A. Cassou,
Title: CEO Senior Vice President,
Corporate Development
6
<PAGE> 1
EXHIBIT 10.8
PROMISSORY NOTE
$134,007.50 May 1,1996
San Diego, California
FOR VALUE RECEIVED, Freedom Mobility Inc. ("Maker") hereby promises to
pay to NextWave Telecom Inc., a Delaware corporation ("Holder") One Hundred
Thirty-Four Thousand Seven and 50/100 Dollars ($134,007.50) together with
interest on the unpaid principal at a rate equal to six percent (6%) per annum.
Interest shall be calculated based on a 360 day year, actual days elapsed. The
entire principal balance together with all accrued interest shall be due and
payable in full on the one (1) year anniversary of the earlier of (i) the date
the Company prepays less than all of the Convertible Senior Subordinated Notes
issued to certain purchasers pursuant to the terms of that certain Securities
Purchase Agreement or (ii) October 5, 1996. This Promissory Note may be prepaid
at any time and from time to time, in whole or in part, without penalty or
notice. Maker acknowledges that this is a full recourse Promissory Note as
against it and all its assets.
This Promissory Note is being delivered pursuant to the terms of that
certain Subscription Agreement dated May 1, 1996 (the "Agreement"), which
Agreement is incorporated in whole by this reference, pursuant to which Maker
purchased shares of Holder's Series A Common Stock (the "Shares"). Payment for
certain of the Shares (the "Restricted Shares") is being made by delivery of a
check for the par value of the such Shares and this Promissory Note to Holder.
The Restricted Shares are subject to a right of repurchase by Holder on the
terms set forth in the Agreement.
This Promissory Note is issued in connection with, and is governed by
the terms, conditions and provisions of, and Maker's obligations under this
Promissory Note are secured pursuant to, that certain Pledge Agreement (the
"Pledge Agreement") between Maker and Holder entered into concurrently herewith.
Reference to the Pledge Agreement is made for a more complete statement of the
rights, remedies, duties, benefits and obligations of Maker and Holder,
including without limitation, events of default on this Promissory Note and
acceleration of the indebtedness evidenced hereby. Holder is entitled to all the
benefits of the Pledge Agreement and the Pledge Agreement is incorporated in
this Promissory Note in its entirety by this reference.
Upon the occurrence of a Default hereunder (as defined below), Holder
may, at its option and with written notice to Maker of acceleration, declare
immediately due and payable the entire unpaid principal balance of this
Promissory Note, together with all accrued interest thereon, plus any other
amounts payable at the time of such declaration pursuant to this Promissory
Note. For purposes of this Promissory Note, Maker shall be in "Default" if
Maker: (i) fails to pay when due any payment of principal or interest due under
this Note; (ii) admits in writing its inability to pay its debts as they become
due, or makes a general assignment for the benefit of creditors or files any
petition or action for relief under any bankruptcy, reorganization, insolvency
or moratorium law, or any other law or laws for relief of, or relating to,
debtors; or (iii) an involuntary petition is filed against Maker under any
bankruptcy, reorganization, insolvency or moratorium law, or any other law or
laws for relief of, or relating to, debtors unless such petition shall be
dismissed or vacated within thirty (30) days of the date thereof.
<PAGE> 2
No extension of time for the payment of this Promissory Note, or any
installment hereof, made by agreement by the Holder hereof with the Maker shall
affect the original liability under the terms of this Promissory Note by Maker.
The acceptance by Holder of any payment hereunder which is less than the payment
in full of all amounts due and payable at the time of such payment shall not
constitute a waiver of the right to accelerate at that time or any subsequent
time or nullify any prior acceleration without the express consent of Holder
except as and to the extent otherwise provided by law. No delay on the part of
the Holder in exercising any rights hereunder shall operate as a waiver of the
rights of the Holder. No covenant, provision or Default hereunder may be waived
except by a written instrument signed by the waiving party, and no such waiver
shall extend to or impair any obligation not expressly waived.
If Holder should institute collection efforts of any nature whatsoever
to attempt to collect any and all amounts due hereunder upon the default of
Maker, Maker shall be liable to pay to Holder immediately and without demand all
reasonable costs and expenses of collection incurred by Holder, including
without limitation, reasonable attorneys' fees, whether or not suit or other
action or proceeding be instituted.
The provisions of this Promissory Note are intended by Maker to be
severable and divisable and the invalidity or unenforceability of a provision or
term hereof shall not invalidate or render unenforeceable the remainder of this
Promissory Note or any part thereof.
This Promissory Note shall be governed and construed in accordance with
the laws of the State of California without regard to principles of conflict of
laws.
IN WITNESS WHEREOF, this Promissory Note is executed on the date first
above written in San Diego, California.
Freedom Mobility Inc.
By: /s/ Janice Obuchowski
------------------------
Title: President
---------------------
2
<PAGE> 3
STOCK PLEDGE AGREEMENT
This STOCK PLEDGE AGREEMENT is made and effective as of May 1, 1996, by
and among Freedom Mobility Inc. ("Pledgor") and NextWave Telecom Inc. ("Secured
Party") with respect to the following facts:
A. Contemporaneously with the execution of this Stock Pledge
Agreement, Pledgor is delivering a Promissory Note of even date herewith to
Secured Party in the principal amount of $134,007.50 (the "Note") to evidence
certain obligations and liabilities of Pledgor to Secured Party pursuant to that
certain Subscription Agreement by and among Pledgor and Secured Party dated
effective as of May 1, 1996 (the "Subscription Agreement"), as amended;
B. Pledgor desires to secure its obligations under the Note by
granting Secured Party a first priority security interest in 536,244 shares of
Series A Common Stock of Secured Party owned by Pledgor (the "Shares").
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants described herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
Pledgor and Secured Party, it is agreed as follows:
1. Pledge. Pledgor hereby delivers, pledges and grants a first
priority security interest to Secured Party in the Shares and in all rights or
other distributions issued as an addition to, in substitution or in exchange
for, or on account of, any Shares (collectively the "Rights"), and all proceeds
of the foregoing, now or hereafter acquired by Pledgor. The original
certificates evidencing the foregoing described items are hereby delivered to
Secured Party endorsed in blank, with signatures properly guaranteed. The Shares
and the Rights which come into the possession of Secured Party, and the proceeds
of each of the foregoing, are hereinafter collectively referred to as the
"Collateral."
2. Obligations Secured. The security interest granted pursuant to this
Stock Pledge Agreement is given as security for the full and timely payment,
performance and satisfaction of any and all of Pledgor's presently existing or
hereafter arising obligations and liabilities owing to Secured Party whether
existing by reason of the Note, this Stock Pledge Agreement and/or the
Agreement, including all interest on the Note and extensions, modifications and
renewals thereof. All such obligations and liabilities of Pledgor are hereafter
collectively referred to as the "Obligations." The Obligations shall include,
without limitation, any and all amounts expended by Secured Party in accordance
with the terms of this Stock Pledge Agreement, including reasonable
out-of-pocket costs of investigation and reasonable attorneys' fees and costs.
3. Transfer and Duties.
(a) Pledgor hereby appoints Secured Party as its attorney-in-fact
to arrange, at any time during the existence of, or after the occurrence of, a
Default (as hereinafter defined), for the transfer of the Collateral on the
books of Company to the name of Secured Party or to the name of Secured Party's
nominee.
<PAGE> 4
(b) Secured Party shall have no duty with respect to the
Collateral other than the duty to use reasonable care in its possession. Without
limiting the generality of the foregoing, Secured Party shall be under no
obligation to take any steps necessary to preserve rights in the Collateral
against any other parties, to sell same if it threatens to decline in value, or
to exercise any rights represented thereby; provided, however, that Secured
Party may, at its option, do so, and any and all expenses incurred in connection
therewith shall be for the sole account of Pledgor.
(c) Pledgor represents to Secured Party that Pledgor has made its
own arrangements for keeping informed of changes or potential changes affecting
the Collateral (including, but not limited to, rights to convert, rights to
subscribe, payment of dividends, reorganization or other exchanges, tender
offers and voting rights) and Pledgor agrees that Secured Party shall have no
responsibility or liability for informing Pledgor of any such changes or
potential changes or for taking any action or omitting to take any action with
respect thereto.
4. Subsequent Receipts by Pledgor. In the event Pledgor shall become
entitled to receive, or shall receive, in connection with any of the Collateral,
(i) any stock certificate, including any certificate representing a stock
dividend or any certificate in connection with any increase or reduction of
capital, reclassification, merger, consolidation, sale of assets, combination of
shares, stock split or spin-off, (ii) any option, warrant or right, whether as
an addition to or in substitution of any of the Collateral, or otherwise, (iii)
any dividend or distribution payable in property, including securities issued as
a dividend on the Collateral, or (iv) any other distributions of any kind
whatsoever, Pledgor shall accept same as encumbered by the security interest
created hereby, and shall deliver same forthwith to Secured Party in the exact
form received, including as appropriate, Pledgor's endorsement of appropriate
stock powers duly executed in blank, to be held as a part of the Collateral,
subject to the terms hereof, or, in the case of a cash dividend payable with
respect to the Shares, to be applied as a payment of principal due under the
Note; provided, however, that for so long as no Default (as defined in Paragraph
7 below) is in existence and there is no condition or event in existence which,
with notice or lapse of time, or both, would become a Default, Pledgor shall
have sole voting rights with respect to the Collateral.
5. Representations by Pledgor. Pledgor warrants and represents to
Secured Party that (a) Pledgor has power and authority to enter into this Stock
Pledge Agreement and to pledge the Shares for the purposes described herein, (b)
Pledgor is the legal record and beneficial owner of all of the Shares, (c) all
of the Shares are owned by Pledgor free of any pledge, mortgage, lien or
security interest of any kind, except as created hereby or other junior liens
consented to in writing by Secured Party, (d) the execution and delivery by
Pledgor of this Stock Pledge Agreement, and the performance of its terms, will
not result in any violation or default under the terms of any agreement or
instrument, or any law or governmental rule or regulation applicable to Pledgor
or the Shares, including, without limitation, securities registration,
securities disclosure or similar laws, and (e) upon execution and delivery by
Pledgor of this Stock Pledge Agreement and upon delivery of the Shares to
Secured Party, this Stock Pledge Agreement shall create a valid and perfected
first priority security interest in the Shares and the proceeds thereof, subject
to no prior or subordinate security interest.
6. Covenants by Pledgor. Pledgor hereby covenants that, until such
time as the Obligations have been fully paid, performed and satisfied: (a)
Pledgor will not sell, convey or
2
<PAGE> 5
otherwise dispose of any of the Collateral or any interest therein, or create,
incur or permit to exist any pledge, mortgage, lien, charge, encumbrance or any
security interest whatsoever in or with respect to any of the Collateral, or the
proceeds thereof, other than the security interest created hereby and junior
liens consented to in writing by Secured Party; (b) Pledgor will defend Secured
Party's right, title and security interest in and to the Collateral against the
claims of any person or entity; and (c) Pledgor shall promptly execute,
acknowledge and deliver all such instruments and take all such actions as
Secured Party from time to time may reasonably request in order to ensure to
Secured Party the benefits of the lien in and to the Shares intended to be
created by this Stock Pledge Agreement.
7. Default. As used herein, the term "Default" shall mean the
occurrence of any one or more of the following events or conditions: (a) the
failure of full and timely payment, or full and timely performance and
satisfaction, whether by acceleration or otherwise, of any of the Obligations in
accordance with their terms; or (b) the occurrence of an event of default
specified in any of the Obligations.
8. Secured Party's Rights Upon Default.
(a) Upon the occurrence or existence of a Default, Secured Party
shall have, in addition to any other rights given by law or the rights hereunder
or in the Note, all of the rights and remedies with respect to the Collateral of
a secured party under the California Uniform Commercial Code. Secured Party's
rights shall include, without limitation, the right to proceed immediately to
have any or all of the Collateral registered in Secured Party's name or in the
name of a nominee, to exercise all voting rights with respect to the Collateral
and all other corporate rights, privileges or options pertaining thereto as if
Secured Party were the absolute owner thereof, and to receive any, and to
continue to apply, all cash dividends against the Obligations. In addition, with
respect to the Collateral, or any part thereof, which shall then be or shall
thereafter come into the possession or custody of Secured Party, Secured Party
may sell or cause the same to be sold at any broker's board or at public or
private sale, in one or more sales or lots, at such price as Secured Party may
deem best, and for cash or on credit or for future delivery, without assumption
of any credit risk, and the purchaser of any or all of the Collateral so sold
shall thereafter hold the same absolutely, free from any claim, encumbrance or
right of any kind whatsoever. Unless the Collateral threatens to decline
speedily in value or becomes of a type sold on a recognized market, Secured
Party will give Pledgor reasonable notice of the time and place of any public
sale thereof, or of the time after which any private sale or other intended
disposition is to be made. Any sale of the Collateral conducted in conformity
with reasonable commercial practices of banks, insurance companies or other
financial institutions disposing of property similar to the Collateral, whether
conducted solely by Secured Party or in concert with other creditors of Pledgor,
shall be deemed to be commercially reasonable. Any requirements of reasonable
notice shall be met if such notice is mailed to Pledgor, at the address provided
by Pledgor to Secured Party, at least ten (10) days before the time of the sale
or disposition. Any other requirement of notice, demand or advertisement for
sale, is, to the extent permitted by law, hereby waived by Pledgor. Secured
Party may, in its own name, or in the name of a designee or nominee, buy at any
public sale of the Collateral. Pledgor will pay to Secured Party all expenses
(including court costs and reasonable attorneys' fees and expenses) of, or
incident to, the enforcement of any of the provisions hereof. In connection with
any sale of Collateral by Secured Party, Secured Party shall have the right to
execute any document or form, in its name or
3
<PAGE> 6
the name of Pledgor, which may be necessary or desirable in connection with such
sale. Upon the occurrence or existence of any Event of Default and all times
thereafter, Secured Party shall be entitled to receive and retain for its own
account any and all dividends at any time declared upon any of the Collateral.
(b) In view of the fact that federal and state securities laws may
impose certain restrictions on the method by which a sale of the Collateral may
be effected after an Event of Default and prohibit or prevent the advertising
for sale of all or any part of the Collateral as required by the California
Uniform Commercial Code, Pledgor agrees that upon the occurrence or existence of
a Default, Secured Party may, from time to time, attempt to sell all or any part
of the Collateral by one or more private placements or sales restricting the
bidder and prospective purchasers to those who will represent and agree that
they are purchasing for investment only and not for distribution or resale. In
so doing, Secured Party may solicit offers to buy the Collateral, or any part of
it for cash, from a limited number of investors deemed by Secured Party, in its
reasonable judgment, to be respectable parties who might be interested in
purchasing the Collateral, and if Secured Party solicits such offers from not
less than four (4) such investors, then the acceptance by Secured Party of the
highest offer obtained therefrom shall be deemed to be a commercially reasonable
method of disposition of such Collateral.
(c) Notwithstanding anything contained in this Section 8 to the
contrary, Secured Party's rights under this Section 8 are limited to the extent
the exercise of such rights would cause Secured Party to violate Section 310(b)
of the Communications Act of 1934, as amended, and rules or regulations
promulgated thereunder by the Federal Communications Commission.
9. Application of Proceeds. The proceeds of any disposition of all or
any part of the Collateral, as provided in Paragraph 8 above, shall be applied
as follows: (i) first, to the costs and expenses incurred in connection
therewith or incidental thereto, including reasonable attorneys' fees and legal
expenses; (ii) second, to the satisfaction of the Obligations; (iii) third, to
the payment of any other amounts required by applicable law; (iv) fourth, to
satisfy any amounts owing which are secured by junior liens consented to in
writing by Secured Party; and (v) fifth, to Pledgor to the extent of any surplus
remaining.
10. Consent. Pledgor hereby consents that, from time to time, before or
after the occurrence or existence of a Default, with or without notice to or
assent from Pledgor, any other security at any time held by or available to
Secured Party for any of the Obligations or any other security at any time held
by or available to Secured Party of any other person, firm or corporation
secondarily or otherwise liable for any of the Obligations, may be exchanged,
surrendered or released and any of the Obligations may be changed, altered,
renewed, continued, surrendered, compromised, waived or released, in whole or in
part, as Secured Party may see fit, and Pledgor shall remain bound under this
Stock Pledge Agreement notwithstanding any such exchange, surrender, release,
alteration, renewal, extension, continuance, compromise, waiver or inaction, or
extension of further credit.
11. Termination of Security Interest. Upon full payment and performance
of all of the Obligations by Pledgor and upon payment of all additional costs
and expenses provided herein, this Stock Pledge Agreement shall terminate and
Secured Party shall deliver to Pledgor, at Pledgor's
4
<PAGE> 7
expense, such of the Pledged Stock as shall not have been sold, or otherwise
disposed of pursuant to this Stock Pledge Agreement.
12. Cumulative Remedies and Binding Effect. The rights and remedies
provided herein are cumulative and are in addition to, and not exclusive of, any
rights or remedies provided in other instruments and agreements between Secured
Party and Pledgor, or as provided by law, including without limitation, the
rights and remedies of a secured party under the California Commercial Code.
This Stock Pledge Agreement is binding upon and shall inure to the benefit of
the parties hereto, and their successors and assigns.
13. Governing Law. This Stock Pledge Agreement has been accepted and is
performable within San Diego County, California. This Stock Pledge Agreement
shall be governed and construed in accordance with the internal laws of the
State of California (determined without regard to the principles of conflicts of
law).
14. Assignment. This Stock Pledge Agreement and the security interest
created hereby shall be transferable and assignable by the Secured Party, in
whole or in part, at such times and upon such terms as it deems advisable and,
upon any such transfer or assignment, the transferee or assignee shall succeed
to all rights and powers of the Secured Party hereunder to the extent of any
such transfer or assignment.
15. Miscellaneous. This Stock Pledge Agreement supersedes any and all
other agreements, either oral or in writing, among the parties hereto with
respect to the transaction described herein and contains all of the covenants
and agreements among the parties with respect to such matter. No term or
condition of this Stock Pledge Agreement shall be deemed to have been waived nor
shall there by any estoppel to enforce any provision of this Stock Pledge
Agreement except by written instrument of the party charged with such waiver or
estoppel. No amendment or modification of this Stock Pledge Agreement shall be
deemed effective unless and until executed in writing by all of the parties
hereto. No failure or delay by the Secured Party in exercising any right, power,
or privilege hereunder shall operate as a waiver thereof, and no single or
partial exercise thereof shall preclude any other or further exercise or the
exercise of any other right, power, or privilege. All agreements and covenants
contained herein are severable and in the event that any of them, or a portion
thereof, shall be held to be invalid or unenforceable by any court of competent
jurisdiction, this Stock Pledge Agreement shall be interpreted as if such
invalid agreements or covenants, or such invalid or unenforceable portion, were
not contained herein. In any action or proceeding brought to enforce or
interpret any provision of this Stock Pledge Agreement, the prevailing party
shall be entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
[The Remainder of This Page Intentionally Left Blank]
5
<PAGE> 8
PLEDGOR: SECURED PARTY:
Freedom Mobility Inc. NextWave Telecom Inc.
/s/ Janice Obuchowski By: /s/ Allen Salmasi
- ----------------------------- -----------------------------------
By: Janice Obuchowski Allen Salmasi,
Title: President Chief Executive Officer
6
<PAGE> 1
Exhibit 10.14
CREDIT AGREEMENT
DATED AS OF OCTOBER 6, 1995
AMONG
FIBERITE, INC.,
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
AS AGENT,
AND
THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO
ARRANGED BY
BA SECURITIES, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
<S> <C>
ARTICLE I
DEFINITIONS.................................................. 1
1.1 Certain Defined Terms................................................................................... 1
1.2 Other Interpretive Provisions........................................................................... 28
1.3 Accounting Principles................................................................................... 29
ARTICLE II
THE CREDITS.................................................. 29
2.1 Amounts and Terms of Commitments........................................................................ 29
(a) The Term A Credit............................................................................. 29
(b) The Term B Credit............................................................................. 30
(c) The Revolving Credit.......................................................................... 30
2.2 Loan Accounts........................................................................................... 30
2.3 Procedure for Borrowing................................................................................. 31
2.4 Conversion and Continuation Elections................................................................... 31
2.5 Voluntary Termination or Reduction of Revolving
Commitments....................................................................................... 33
2.6 Optional Prepayments.................................................................................... 33
2.7 Mandatory Prepayments of Loans.......................................................................... 34
2.8 Repayment............................................................................................... 35
(a) The Term A Credit............................................................................. 35
(b) The Term B Credit............................................................................. 35
(c) The Revolving Credit.......................................................................... 36
2.9 Interest............................................................................................... 36
2.10 Fees .................................................................................................. 36
(a) Arranger and Agency Fees..................................................................... 36
(b) Commitment Fees.............................................................................. 37
2.11 Computation of Fees and Interest....................................................................... 37
2.12 Payments by the Company................................................................................ 37
2.13 Payments by the Lenders to the Agent................................................................... 38
2.14 Sharing of Payments, Etc............................................................................... 39
ARTICLE III
THE LETTERS OF CREDIT............................................. 39
3.1 The Letter of Credit Subfacility........................................................................ 39
3.2 Issuance, Amendment and Renewal of Letters of Credit.................................................... 41
3.3 Risk Participations, Drawings and Reimbursements........................................................ 43
3.4 Repayment of Participations............................................................................. 45
3.5 Role of the Issuing Lenders............................................................................. 45
3.6 Obligations Absolute.................................................................................... 46
3.7 Cash Collateral Pledge.................................................................................. 47
3.8 Letter of Credit Fees................................................................................... 47
3.9 Uniform Customs and Practice............................................................................ 48
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ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY..................................... 48
4.1 Taxes................................................................................................... 48
4.2 Illegality.............................................................................................. 50
4.3 Increased Costs and Reduction of Return................................................................. 50
4.4 Funding Losses.......................................................................................... 51
4.5 Inability to Determine Rates............................................................................ 52
4.6 Certificates of Lenders................................................................................. 52
4.7 Substitution of Lenders................................................................................. 52
4.8 Survival................................................................................................ 53
ARTICLE V
CONDITIONS PRECEDENT.............................................. 53
5.1 Documentary Conditions of Initial Credit Extensions..................................................... 53
(a) Credit Agreement and Notes................................................................ 53
(b) Resolutions and Incumbency of Company .................................................... 53
(c) Resolutions and Incumbency of Parent...................................................... 53
(d) Organization Documents; Good Standing..................................................... 54
(e) Legal Opinions............................................................................ 54
(f) Solvency Opinion.......................................................................... 54
(g) Payment of Fees........................................................................... 54
(h) Certificate............................................................................... 54
(i) Security Agreement, etc................................................................... 55
(j) Guaranty.................................................................................. 55
(k) Pledge Agreements......................................................................... 55
(l) Real Property............................................................................. 55
(m) Landlord's Consents ...................................................................... 56
(n) Purchase Agreement Assignment............................................................. 56
(o) Purchase Agreements, and Other Documents.................................................. 56
(p) Other Documents........................................................................... 56
5.2 Other Conditions to Initial Loan or Letter of Credit.................................................... 56
(a) Capitalization of the Company............................................................. 56
(b) Capitalization of the Parent.............................................................. 57
(c) Subordinated Notes........................................................................ 57
(d) Purchase.................................................................................. 57
5.3 Conditions to All Credit Extensions..................................................................... 57
(a) Notice, Application....................................................................... 57
(b) Continuation of Representations and Warranties............................................ 57
(c) No Existing Default....................................................................... 57
ARTICLE VI
REPRESENTATIONS AND WARRANTIES..................................... 58
6.1 Corporate Existence and Power..................................................................... 58
6.2 Corporate Authorization; No Contravention......................................................... 58
6.3 Governmental Authorization........................................................................ 59
6.4 Binding Effect.................................................................................... 59
6.5 Litigation........................................................................................ 59
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6.6 No Default........................................................................................ 59
6.7 ERISA Compliance.................................................................................. 60
6.8 Use of Proceeds; Margin Regulations............................................................... 60
6.9 Title to Properties............................................................................... 60
6.10 Taxes............................................................................................. 61
6.11 Financial Condition............................................................................... 61
6.12 Environmental Matters............................................................................. 62
6.13 Regulated Entities................................................................................ 62
6.14 No Burdensome Restrictions........................................................................ 62
6.15 Copyrights, Patents, Trademarks and Licenses, etc................................................. 63
6.16 Subsidiaries...................................................................................... 63
6.17 Insurance......................................................................................... 63
6.18 Solvency, etc..................................................................................... 63
6.19 Purchase, etc..................................................................................... 63
6.20 Real Property..................................................................................... 64
6.21 Swap Obligations.................................................................................. 64
6.22 Full Disclosure................................................................................... 64
ARTICLE VII
AFFIRMATIVE COVENANTS............................................. 65
7.1 Financial Statements.............................................................................. 65
7.2 Certificates; Other Information................................................................... 66
7.3 Notices........................................................................................... 67
7.4 Preservation of Corporate Existence, Etc.......................................................... 68
7.5 Maintenance of Property........................................................................... 68
7.6 Insurance......................................................................................... 69
7.7 Payment of Obligations............................................................................ 69
7.8 Compliance with Laws.............................................................................. 69
7.9 Compliance with ERISA............................................................................. 69
7.10 Inspection of Property and Books and Records...................................................... 69
7.11 Environmental Laws................................................................................ 70
7.12 Interest Rate Protection.......................................................................... 70
7.13 Use of Proceeds................................................................................... 70
7.14 Further Assurances................................................................................ 70
ARTICLE VIII
NEGATIVE COVENANTS............................................... 71
8.1 Limitation on Liens............................................................................... 71
8.2 Disposition of Assets............................................................................. 73
8.3 Consolidations and Mergers........................................................................ 73
8.4 Loans and Investments............................................................................. 73
8.5 Limitation on Indebtedness........................................................................ 74
8.6 Transactions with Affiliates...................................................................... 75
8.7 Use of Proceeds................................................................................... 76
8.8 Contingent Obligations............................................................................ 76
8.9 Joint Ventures.................................................................................... 76
8.10 Lease Obligations................................................................................. 76
8.11 Minimum Fixed Charge Coverage..................................................................... 77
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8.12 Minimum Interest Coverage......................................................................... 77
8.13 Maximum Leverage.................................................................................. 77
8.14 Minimum Net Worth................................................................................. 77
8.15 Maximum Capital Expenditures...................................................................... 78
8.16 Restricted Payments............................................................................... 78
8.17 ERISA............................................................................................. 79
8.18 Change in Business................................................................................ 79
8.19 Amendments to Certain Documents................................................................... 79
8.20 Accounting Changes................................................................................ 79
ARTICLE IX
EVENTS OF DEFAULT............................................... 79
9.1 Event of Default........................................................................................ 79
(a) Non-Payment............................................................................... 79
(b) Representation or Warranty................................................................ 79
(c) Specific Defaults......................................................................... 80
(d) Other Defaults............................................................................ 80
(e) Cross-Default............................................................................. 80
(f) Insolvency; Voluntary Proceedings......................................................... 80
(g) Involuntary Proceedings................................................................... 81
(h) ERISA..................................................................................... 81
(i) Monetary Judgments........................................................................ 81
(j) Non-Monetary Judgments.................................................................... 81
(k) Change of Control......................................................................... 81
(l) Guarantor Defaults........................................................................ 82
(m) Collateral Documents, etc................................................................. 82
9.2 Remedies.......................................................................................... 82
9.3 Rights Not Exclusive.............................................................................. 83
ARTICLE X
THE AGENT................................................... 83
10.1 Appointment and Authorization..................................................................... 83
10.2 Delegation of Duties.............................................................................. 83
10.3 Liability of Agent................................................................................ 84
10.4 Reliance by Agent................................................................................. 84
10.5 Notice of Default................................................................................. 85
10.6 Credit Decision................................................................................... 85
10.7 Indemnification of Agent.......................................................................... 85
10.8 Agent in Individual Capacity...................................................................... 86
10.9 Successor Agent................................................................................... 86
10.10 Withholding Tax................................................................................... 87
10.11 Collateral Matters................................................................................ 88
ARTICLE XI
MISCELLANEOUS................................................. 89
11.1 Amendments and Waivers............................................................................ 89
11.2 Notices........................................................................................... 90
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11.3 No Waiver; Cumulative Remedies.................................................................... 91
11.4 Costs and Expenses................................................................................ 91
11.5 Company Indemnification........................................................................... 92
11.6 Payments Set Aside................................................................................ 92
11.7 Successors and Assigns............................................................................ 92
11.8 Assignments, Participations, etc.................................................................. 93
11.9 Confidentiality................................................................................... 94
11.10 Set-off........................................................................................... 95
11.11 Automatic Debits of Fees.......................................................................... 95
11.12 Notification of Addresses, Lending Offices, Etc................................................... 96
11.13 Counterparts...................................................................................... 96
11.14 Severability...................................................................................... 96
11.15 No Third Parties Benefited........................................................................ 96
11.16 Governing Law and Jurisdiction.................................................................... 96
11.17 Waiver of Jury Trial.............................................................................. 97
11.18 Subsidiary References............................................................................. 97
11.19 Entire Agreement.................................................................................. 97
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SCHEDULES
Schedule 1.1 Commitments, Revolving Percentages, Term A
Percentages, Term B Percentages
Schedule 6.5 Litigation
Schedule 6.11 Permitted Liabilities
Schedule 6.12 Environmental Matters
Schedule 6.16 Subsidiaries and Minority Interests
Schedule 6.17 Insurance Matters
Schedule 6.20 Real Property
Schedule 8.1 Permitted Liens
Schedule 8.5 Permitted Indebtedness
Schedule 8.8 Contingent Obligations
Schedule 11.2 Lending Offices; Addresses for Notices
EXHIBITS
Exhibit A Form of Notice of Borrowing
Exhibit B Form of Notice of Conversion/Continuation
Exhibit C Form of Compliance Certificate
Exhibit D Form of Promissory Note
Exhibit E Form of Security Agreement
Exhibit F Form of Trademark Security Agreement
Exhibit G Form of Guaranty
Exhibit H Form of Company Pledge Agreement
Exhibit I Form of Parent Pledge Agreement
Exhibit J Form of Landlord's Consent
Exhibit K Form of Purchase Agreement Assignment
Exhibit L Form of Opinion of Counsel to the Company and
the Parent
Exhibit M Form of Opinion of Local Counsel to the Company
Exhibit N Intentionally Omitted
Exhibit O Form of Opinion of Special Counsel to the Agent
Exhibit P Form of Solvency Opinion
Exhibit Q Form of Assignment and Acceptance
Exhibit R Form of Patent Security Agreementy
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CREDIT AGREEMENT
This CREDIT AGREEMENT is entered into as of October 6, 1995, among
FIBERITE, INC., a Delaware corporation (the "Company"), the several financial
institutions from time to time party to this Agreement (collectively the
"Lenders"; individually each a "Lender"), and BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as agent for the Lenders.
WHEREAS, the Lenders have agreed to make available to the Company term
loans and a revolving credit facility with a letter of credit subfacility upon
the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms. The following terms have the following
meanings:
Acquired Businesses means ICI Composites, Inc. and
Fiberite Europe GmbH.
Acquisition means any transaction or series of related
transactions for the purpose of, or resulting directly or indirectly
in, (a) the acquisition of all or substantially all of the assets of a
Person, or of any business or division of a Person, (b) the acquisition
of in excess of 50% of the capital stock, partnership interests,
membership interests or equity of any Person, or otherwise causing any
Person to become a Subsidiary, or (c) a merger or consolidation or any
other combination with another Person (other than a Person that is a
Subsidiary) provided that the Company or a Subsidiary is the surviving
entity.
Adjusted Working Capital means the excess of:
(a) (i) the consolidated current assets of the Company and its
Subsidiaries, less (ii) the amount of cash and cash equivalents
included in such consolidated current assets;
over
(b) (i) consolidated current liabilities of the Company and
its Subsidiaries, less (ii) the amount of short-term Indebtedness
(including current maturities of long-term
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Indebtedness) of the Company and its Subsidiaries included in such
consolidated current liabilities.
Affected Lender -- see Section 4.7.
Affiliate means, as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person. A Person shall be deemed to control
another Person if the controlling Person possesses, directly or
indirectly, the power to direct or cause the direction of the
management and policies of such other Person, whether through the
ownership of voting securities or membership interests, by contract, or
otherwise. Without limiting the foregoing, any Person which is an
officer, director or shareholder of the Company, or a member of the
immediate family of any such officer, director or shareholder, shall be
deemed to be an Affiliate of the Company.
Agent means BofA in its capacity as agent for the Lenders
hereunder, and any successor agent arising under Section 10.9.
Agent-Related Persons means BofA and any successor agent
arising under Section 10.9, together with their respective Affiliates
(including the Arranger), and the officers, directors, employees,
agents and attorneys-in-fact of such Persons and Affiliates.
Agent's Payment Office means the address for payments set
forth on Schedule 11.2 in relation to the Agent, or such other address
as the Agent may from time to time specify.
Agreement means this Credit Agreement.
Applicable Base Rate Margin means (a) initially, 1.50% in the
case of any Revolving Loan or Term A Loan bearing interest based on the
Base Rate and 2.00% in the case of any Term B Loan bearing interest
based on the Base Rate, and (b) on and after any date specified below
on which the Applicable Base Rate Margin is to be adjusted, the rate
per annum set forth in the table below for the applicable Loan opposite
the applicable Leverage Ratio and Interest Coverage Ratio:
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Applicable Base Applicable
Leverage Ratio Rate Margin for Base Rate
and Interest Revolving Loans Margin for
Coverage Ratio and Term A Loans Term B Loans
Leverage Ratio greater
than 3.00 to 1 or 1.50% 2.00%
Interest Coverage
Ratio less than 3.50 to 1
Leverage Ratio less
than 3.00 to 1 1.25% 2.00%
and Interest Coverage
Ratio greater than 3.50 to 1
Leverage Ratio less than 2.50 1.00% 2.00%
to 1 and Interest Coverage
Ratio greater than 4.00 to 1
The Applicable Base Rate Margin shall be adjusted, to the extent
applicable, 45 days (or, in the case of the last calendar quarter of
any year, 90 days) after the end of each calendar quarter, based on the
Leverage Ratio and Interest Coverage Ratio as of the last day of such
calendar quarter; it being understood that if the Company fails to
deliver the financial statements required by subsection 7.1(a) or
7.1(b)(ii), as applicable, and the related Compliance Certificate
required by subsection 7.2(b) by the 45th day (or, if applicable, the
90th day) after any calendar quarter, the Applicable Base Rate Margin
shall be 1.50% for any Revolving Loan or Term A Loan bearing interest
based on the Base Rate and 2.00% for Term B Loan bearing interest based
on the Base Rate until such financial statements and Compliance
Certificate are delivered. Notwithstanding the foregoing, the
Applicable Base Rate Margin shall not be reduced at any time before
September 30, 1996.
Applicable Offshore Rate Margin means (a) initially, 2.75% in
the case of any Revolving Loan or Term A Loan bearing interest based on
the Offshore Rate and 3.25% in the case of any Term B Loan bearing
interest based on the Offshore Rate, and (b) on and after any date
specified below on which the Applicable Offshore Rate Margin is to be
adjusted, the rate per annum set forth in the table below for the
applicable Loan opposite the applicable Leverage Ratio and Interest
Coverage Ratio:
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Applicable Applicable
Offshore Offshore
Leverage Ratio Rate Margin for Rate
and Interest Revolving Loans Margin for
Coverage Ratio and Term A Loans Term B Loans
Leverage Ratio greater
than 3.00 to 1 or 2.75% 3.25%
Interest Coverage
Ratio less than 3.50 to 1
Leverage Ratio less
than 3.00 to 1 and 2.50% 3.25%
Interest Coverage
Ratio greater than 3.50 to 1
Leverage Ratio less than 2.50 2.25% 3.25%
to 1 and Interest Coverage
Ratio greater than 4.00 to 1
The Applicable Offshore Rate Margin shall be adjusted, to the extent
applicable, 45 days (or, in the case of the last calendar quarter of
any year, 90 days) after the end of each calendar quarter, based on the
Leverage Ratio and Interest Coverage Ratio as of the last day of such
quarter; it being understood that if the Company fails to deliver the
financial statements required by subsection 7.1(a) or 7.1(b)(ii), as
applicable, and the related Compliance Certificate required by
subsection 7.2(b) by the 45th day (or, if applicable, the 90th day)
after any calendar quarter, the Applicable Offshore Rate Margin shall
be 2.75% for Revolving Loans and Term A Loans bearing interest based on
the Offshore Rate and 3.25% for Term B Loans bearing interest based on
the Offshore Rate until such financial statements and Compliance
Certificate are delivered. Notwithstanding the foregoing, the
Applicable Offshore Rate Margin shall not be reduced at any time before
September 30, 1996.
Arranger means BA Securities, Inc., a Delaware corporation.
Assignee - see subsection 11.8(a).
Assignment and Acceptance - see subsection 11.8(a).
Attorney Costs means and includes (i) all reasonable fees and
disbursements of any law firm or other external counsel and (ii) the
reasonable allocated cost of internal legal services and all reasonable
disbursements of internal counsel incurred after the Closing Date.
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BAI means Bank of America Illinois, an Illinois banking
corporation.
Bankruptcy Code means the Federal Bankruptcy Reform Act
of 1978 (11 U.S.C. Section101, et seq.).
Base Rate means, for any day, the higher of: (a) 0.50% per
annum above the latest Federal Funds Rate; and (b) the rate of interest
in effect for such day as publicly announced from time to time by BAI
in Chicago, Illinois as its "reference rate." (The "reference rate" is
a rate set by BAI based upon various factors including BAI's costs and
desired return, general economic conditions and other factors, and is
used as a reference point for pricing some loans, which may be priced
at, above, or below such announced rate.) Any change in the reference
rate announced by BAI shall take effect at the opening of business on
the day specified in the public announcement of such change.
Base Rate Loan means a Loan that bears interest based on the
Base Rate.
BofA means Bank of America National Trust and Savings
Association, a national banking association.
Borrowing means a borrowing hereunder consisting of Revolving
Loans, Term A Loans or Term B Loans of the same Type made to the
Company on the same day by the Lenders under Article II and, in the
case of Offshore Rate Loans, having the same Interest Period.
Borrowing Date means any date on which a Borrowing occurs
under Section 2.3.
Business Day means any day other than a Saturday, Sunday or
other day on which commercial banks in New York City, Chicago or San
Francisco are authorized or required by law to close and, if the
applicable Business Day relates to any Offshore Rate Loan, means such a
day on which dealings are carried on in the applicable offshore dollar
interbank market.
Capital Adequacy Regulation means any guideline, request or
directive of any central bank or other Governmental Authority, or any
other law, rule or regulation, whether or not having the force of law,
in each case regarding capital adequacy of any bank or of any
corporation controlling a bank.
Capital Expenditures means all expenditures which, in
accordance with GAAP, would be required to be capitalized and shown on
the consolidated balance sheet of the Company, but excluding
expenditures made in connection with the replacement, substitution or
restoration of assets to the
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extent financed (i) from insurance proceeds (or other similar
recoveries) paid on account of the loss of or damage to the assets
being replaced or restored or (ii) with awards of compensation arising
from the taking by eminent domain or condemnation of the assets being
replaced.
Carlisle means Carlisle Enterprises, L.P.
Cash Collateralize means to pledge and deposit with or deliver
to the Agent, for the benefit of the Agent, the Issuing Lenders and the
Lenders, as additional collateral for the L/C Obligations, cash or
deposit account balances pursuant to documentation in form and
substance satisfactory to the Agent and the Issuing Lenders (which
documents are hereby consented to by the Lenders). Derivatives of such
term shall have corresponding meanings. The Company hereby grants the
Agent, for the benefit of the Agent, the Issuing Lenders and the
Lenders, a security interest in all such cash and deposit account
balances. Cash collateral shall be maintained in blocked, non-interest
bearing deposit accounts at BAI.
"Cash Equivalent Investments" shall mean (i) securities issued
or directly and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof (provided that the
full faith and credit of the United States of America is pledged in
support thereof) having maturities of not more than three years from
the date of acquisition, (ii) marketable direct obligations issued by
any State of the United States of America or any local government or
other political subdivision thereof rated (at the time of acquisition
of such security) at least AA by Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc. ("S&P") or the equivalent
thereof by Moody's Investors Service, Inc. ("Moody's") having
maturities of not more than one year from the date of acquisition,
(iii) U.S. dollar denominated time deposits, certificates of deposit
and bankers' acceptances of (x) any Lender, (y) any domestic commercial
bank of recognized standing having capital and surplus in excess of
$250,000,000 or (z) any bank whose short-term commercial paper rating
(at the time of acquisition of such security) by S&P is at least A-1 or
the equivalent thereof (any such bank, an "Approved Bank"), in each
case with maturities of not more than six months from the date of
acquisition, (iv) commercial paper and variable or fixed rate notes
issued by any Lender or Approved Bank or by the parent company of any
Lender or Approved Bank and commercial paper and variable rate notes
issued by, or guaranteed by, any industrial or financial company with a
short-term commercial paper rating (at the time of acquisition of such
security) of at least A-1 or the equivalent thereof by S&P or at least
P-1 or the equivalent thereof by Moody's, or guaranteed by any
industrial company with a long-term unsecured debt rating
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(at the time of acquisition of such security) of at least AA or the
equivalent thereof by S&P or at least Aa or the equivalent thereof by
Moody's and in each case maturing within one year after the date of
acquisition and (v) repurchase agreements with any Lender or any
primary dealer maturing within one year from the date of acquisition
that are fully collateralized by investment instruments that would
otherwise be Cash Equivalent Investments; provided that the terms of
such repurchase agreements comply with the guidelines set forth in the
Federal Financial Institutions Examination Council Supervisory Policy
-- Repurchase Agreements of Depository Institutions With Securities
Dealers and Others, as adopted by the Comptroller of the Currency on
October 31, 1985.
CFILP means Carlisle-Fiberite Investors, L.P.
Change of Control means that (i) DLJMB and CFILP collectively
cease to own, beneficially and of record, at least 51% of each class of
capital stock of the Parent; (ii) any Person, or two or more Persons
acting in concert, acquires the beneficial ownership of 15% or more of
any class of capital stock of the Company; or (iii) the Parent ceases
to own, beneficially and of record, 100% of each class of capital stock
of the Company.
Closing Date means the date on which all conditions precedent
set forth in Sections 5.1 and 5.2 are satisfied or waived by all
Lenders (or, in the case of subsection 5.1(g), waived by the Person
entitled to receive the applicable payment).
Code means the Internal Revenue Code of 1986.
Collateral Document means the Security Agreement, each
Trademark Security Agreement, each Patent Security Agreement, each
Pledge Agreement, each Mortgage and any other document pursuant to
which collateral securing the liabilities of the Company or any
Guarantor under any Loan Document is granted to the Agent for the
benefit of itself and the Lenders.
Commercial Letter of Credit means any Letter of Credit which
is drawable upon presentation of a sight draft and other documents
evidencing the sale or shipment of goods purchased by the Company in
the ordinary course of business.
Commitment means, as to each Lender, such Lender's Revolving
Commitment, Term A Commitment or Term B Commitment, as applicable.
Company - See the Preamble.
Company Pledge Agreement - see subsection 5.1(k).
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Compliance Certificate means a certificate substantially in
the form of Exhibit C.
Computation Period means (a) the period from the Closing Date
through March 31, 1996, (b) the period from the Closing Date through
June 30, 1996, (c) the period from the Closing Date through September
30, 1996 and (d) any period of four consecutive fiscal quarters ending
on or after December 31, 1996.
Consolidated Net Income means, with respect to the Company and
its Subsidiaries for any period, the net income (or loss) of the
Company and its Subsidiaries for such period.
Contingent Obligation means, as to any Person, any direct or
indirect liability of such Person, whether or not contingent, with or
without recourse, (a) with respect to any Indebtedness, lease,
dividend, letter of credit or other obligation (the "primary
obligation") of another Person (the "primary obligor"), including any
obligation of such Person (i) to purchase, repurchase or otherwise
acquire such primary obligation or any security therefor, (ii) to
advance or provide funds for the payment or discharge of any primary
obligation, or to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency or
any balance sheet item, level of income or financial condition of the
primary obligor, (iii) to purchase property, securities or services
primarily for the purpose of assuring the owner of any primary
obligation of the ability of the primary obligor to make payment of
such primary obligation, or (iv) otherwise to assure or hold harmless
the holder of any primary obligation against loss in respect thereof
(each, a "Guaranty Obligation"); (b) with respect to any Surety
Instrument (other than any Letter of Credit) issued for the account of
such Person or as to which such Person is otherwise liable for
reimbursement of drawings or payments; (c) to purchase any materials,
supplies or other property from, or to obtain the services of, another
Person if the relevant contract or other related document or obligation
requires that payment for such materials, supplies or other property,
or for such services, shall be made regardless of whether delivery of
such materials, supplies or other property is ever made or tendered, or
such services are ever performed or tendered; or (d) in respect of any
Swap Contract. The amount of any Contingent Obligation shall, (a) in
the case of Guaranty Obligations, be deemed equal to the stated or
determinable amount of the primary obligation in respect of which such
Guaranty Obligation is made or, if not stated or if indeterminable, the
maximum reasonably anticipated liability in respect thereof, and (b) in
the case of Swap Contracts, be equal to the Swap Termination Value, and
(c) in the case
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of other Contingent Obligations, be equal to the maximum reasonably
anticipated liability in respect thereof.
Contractual Obligation means, as to any Person, any provision
of any security issued by such Person or of any agreement, undertaking,
contract, indenture, mortgage, deed of trust or other instrument,
document or agreement to which such Person is a party or by which it or
any of its property is bound.
Conversion/Continuation Date means any date on which, under
Section 2.4, the Company (a) converts Loans of one Type to the other
Type or (b) continues as Offshore Rate Loans, but with a new Interest
Period, Offshore Rate Loans having Interest Periods expiring on such
date.
Credit Extension means and includes (a) the making of any Loan
hereunder and (b) the Issuance of any Letter of Credit hereunder.
Defense Agreement means any agreement entered into between the
Company and United States Department of Defense concerning the disclosure of
information to third parties so long as such agreement is not materially more
adverse to the Lenders with respect to their inspection, audit and visitation
rights than the draft dated October 2, 1995 of the Special Security Agreement
among AXA, The Equitable Companies Incorporated, Donaldson, Lufkin & Jenrette,
Inc., DLJ Capital Investors, Inc., DLJ Merchant Banking, Inc., Parent, Company,
and the United States Department of Defense.
DLJMB means DLJ Merchant Banking, Inc. and its
Affiliates.
Dollars and $ mean lawful money of the United States.
Dollar Amount means, in relation to any Indebtedness (i)
denominated in Dollars, the amount of such Indebtedness, and (ii)
denominated in a currency other than Dollars, the Dollar Equivalent of
the amount of such Indebtedness on the last day of the
immediately-preceding calendar month.
Dollar Equivalent means, in relation to an amount denominated
in a currency other than Dollars, the amount of Dollars which could be
purchased with such amount at the prevailing foreign exchange spot
rate.
EBITDA means, for any Computation Period, the sum of
(a) Consolidated Net Income of the Company for such period
excluding, to the extent reflected in determining such Consolidated Net
Income, extraordinary gains and losses for such period and other
non-cash or non-recurring charges
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related to but not limited to the adoption of new accounting policies
and plant consolidations or restructurings,
plus
(b) to the extent deducted in determining Consolidated Net
Income, Interest Expense, income tax expense, depreciation, depletion
and amortization for such period.
Effective Amount means, with respect to any outstanding L/C
Obligations on any date, (i) the amount of such L/C Obligations on such
date after giving effect to any Issuances of Letters of Credit
occurring on such date; (ii) the amount of any undrawn Commercial
Letters of Credit which have expired less than 25 days prior to such
date; and (iii) any other changes in the aggregate amount of the L/C
Obligations as of such date, including as a result of any
reimbursements of outstanding unpaid drawings under any Letter of
Credit or any reduction in the maximum amount available for drawing
under Letters of Credit taking effect on such date.
Eligible Assignee means (i) a commercial bank organized under
the laws of the United States, or any state thereof, and having a
combined capital and surplus of at least $100,000,000; (ii) a
commercial bank organized under the laws of any other country which is
a member of the Organization for Economic Cooperation and Development
(the "OECD"), or a political subdivision of any such country, and
having a combined capital and surplus of at least $100,000,000,
provided that such bank is acting through a branch or agency located in
the United States; and (iii) a Person that is primarily engaged in the
business of commercial banking and that is (A) a Subsidiary of a
Lender, (B) a Subsidiary of a Person of which a Lender is a Subsidiary,
or (C) a Person of which a Lender is a Subsidiary.
Environmental Claims means all claims, however asserted, by
any Governmental Authority or other Person alleging potential liability
under any Environmental Law or responsibility for violation of any
Environmental Law.
Environmental Laws means all federal, state or local laws,
statutes, the common law, rules, regulations, ordinances and codes
relating to pollution or protection of public or employee health or the
environment, together with all administrative orders, consent decrees,
licenses, authorizations and permits of any Governmental Authority
implementing them.
ERISA means the Employee Retirement Income Security Act of
1974, as amended, and regulations promulgated thereunder.
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ERISA Affiliate means any trade or business (whether or not
incorporated) under common control with the Company within the meaning
of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of
the Code for purposes of provisions relating to Section 412 of the
Code).
ERISA Event means (a) a Reportable Event with respect to a
Pension Plan; (b) a withdrawal by the Company or any ERISA Affiliate
from a Pension Plan subject to Section 4063 of ERISA during a plan year
in which it was a substantial employer (as defined in Section
4001(a)(2) of ERISA) or a substantial cessation of operations which is
treated as such a withdrawal; (c) a complete or partial withdrawal by
the Company or any ERISA Affiliate from a Multiemployer Plan or
notification that a Multiemployer Plan is in reorganization; (d) the
filing of a notice of intent to terminate, the treatment of a Pension
Plan amendment as a termination under Section 4041 or 4041A of ERISA,
or the commencement of proceedings by the PBGC to terminate a Pension
Plan or Multiemployer Plan; (e) an event or condition which might
reasonably be expected to constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to
administer, any Pension Plan or Multiemployer Plan; or (f) the
imposition of any liability under Title IV of ERISA, other than PBGC
premiums under Section 4007 of ERISA, upon the Company or any ERISA
Affiliate.
Event of Default means any of the events or circumstances
specified in Section 9.1.
Excess Cash Flow means, for any period, the remainder
of
(a) the sum, without duplication, of
(i) Consolidated Net Income for such period,
excluding (a) any extraordinary gains or losses and other
non-cash or, to the extent not paid in cash during such
period, non-recurring charges related to but limited to the
adoption of new accounting policies and plant consolidations
or restructurings and (b) any gains or losses on the sale of
any property to the extent the sale of such property gave rise
to a prepayment pursuant to Section 2.7,
plus
(ii) all depreciation and amortization of assets
(including goodwill and other intangible assets) of the
Company and its Subsidiaries deducted in determining
Consolidated Net Income for such period,
plus
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<PAGE> 19
(iii) any net decrease in Adjusted Working Capital
during such period (exclusive of decreases in working capital
associated with asset sales),
plus
(iv) all federal, state, local and foreign income
taxes (whether paid or deferred) of the Company and its
Subsidiaries deducted in determining Consolidated Net Income
for such period,
less
(b) the sum, without duplication, of
(i) repayments of principal of Term Loans pursuant to
Section 2.7 or Section 2.8, regularly scheduled principal
payments arising with respect to any other long-term
Indebtedness of the Company and its Subsidiaries, and the
portion of any regularly scheduled payments with respect to
capital leases allocable to principal, in each case made
during such period,
plus
(ii) voluntary prepayments of the Term Loans
pursuant to Section 2.6 during such period,
plus
(iii) Capital Expenditures for such period,
plus
(iv) all federal, state, local and foreign
income taxes paid by the Company and its Subsidiaries
during such period,
plus
(v) any net increase in Adjusted Working Capital
during such period (exclusive of increases in working capital
associated with asset sales),
plus
(vi) any non-cash pension income during such
period.
plus
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<PAGE> 20
(vii) any amounts paid pursuant to the purchase
price adjustments set forth in Section 2.3 of the U.S.
Purchase Agreement and Section 2.9 of the German Purchase
Agreement.
Exchange Act means the Securities Exchange Act of 1934, and
regulations promulgated thereunder.
Federal Funds Rate means, for any day, the rate set forth in
the weekly statistical release designated as H.15(519), or any
successor publication, published by the Federal Reserve Bank of New
York (including any such successor, "H.15(519)") on the preceding
Business Day opposite the caption "Federal Funds (Effective)"; or, if
for any relevant day such rate is not so published on any such
preceding Business Day, the rate for such day will be the arithmetic
mean as determined by the Agent of the rates for the last transaction
in overnight Federal funds arranged prior to 9:00 a.m. (New York City
time) on that day by each of three leading brokers of Federal funds
transactions in New York City selected by the Agent.
Fee Letter -- see subsection 2.10(a).
Financial Standby Letter of Credit means any Standby Letter of
Credit which any Lender is required under any Requirement of Law
(including under 12 CFR Part 3, Appendix A, Section 3, clause (b)) to
classify as a financial letter of credit with respect to its issuance
thereof or participation therein pursuant to this Agreement.
Fixed Charge Coverage Ratio means, for the Computation Period
most recently ended on or before such date, the ratio of (a) (i) EBITDA
for such Computation Period less (ii) Capital Expenditures (other than
MIS Expenditures) for such Computation Period to (b) the sum of (i)
Interest Expense for such Computation Period, (ii) cash taxes paid by
the Company and its Subsidiaries for such Computation Period and (iii)
the required installments of principal of the Term Loans for such
Computation Period.
Foreign Subsidiary shall mean each Subsidiary of the Company
organized under the laws of any jurisdiction other than, or conducting
substantially all of its operations or holding substantially all of its
assets outside, the United States.
FRB means the Board of Governors of the Federal Reserve
System, and any Governmental Authority succeeding to any of its
principal functions.
Funded Debt means all Indebtedness of the Company and its
Subsidiaries, excluding (i) Indebtedness of the Company to Subsidiaries
or of Subsidiaries to the Company or other
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<PAGE> 21
Subsidiaries and (ii) Indebtedness of the Company and its Subsidiaries
in respect of Swap Contracts.
GAAP means generally accepted accounting principles set forth
from time to time in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board (or agencies with similar functions of
comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the date
of determination.
German Purchase Agreement means the Business Purchase
Agreement dated as of the Closing Date between Fiberite Europe GmbH, as
seller, and DALIA Verwaltungsgesellschaft mbh as buyer, and the Parent,
as guarantor, amended from time to time in accordance with Section
8.19.
German Transition Services Agreement means the Transition
Services Agreement dated as of the Closing Date, between Deutsche ICI
GmbH and DALIA Verwaltungsgesellschaft mbh as amended from time to time
in accordance with Section 8.19.
Governmental Authority means any nation or government, any
state or other political subdivision thereof, any central bank (or
similar monetary or regulatory authority) thereof, any entity
exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, and any
corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
Guarantor means (a) as of the Closing Date, the Parent and (b)
thereafter, the Parent and each other Person which from time to time
executes and delivers a counterpart of the Guaranty.
Guaranty means the guaranty substantially in the form of
Exhibit G which will be executed by the Parent on the Closing Date and
from time to time by other Guarantors.
Guaranty Obligation has the meaning specified in the
definition of Contingent Obligation.
Honor Date -- see subsection 3.3(b).
Indebtedness of any Person means, without duplication, (a) all
indebtedness of such Person for borrowed money; (b) all obligations
issued, undertaken or assumed by such Person as the deferred purchase
price of property or services (other than trade payables entered into
in the ordinary course of business on ordinary terms); (c) all non-
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<PAGE> 22
contingent reimbursement or payment obligations with respect to Surety
Instruments; (d) all obligations of such Person evidenced by notes,
bonds, debentures or similar instruments; (e) all indebtedness of such
Person created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with
respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property); (f) all
obligations of such Person with respect to capital leases; (g) all
indebtedness referred to in clause (a) through (f) above secured by (or
for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in property
(including accounts and contracts rights) owned by such Person, even
though such Person has not assumed or become liable for the payment of
such Indebtedness; and (h) all Guaranty Obligations of such Person in
respect of indebtedness or obligations of others of the kinds referred
to in clauses (a) through (g) above.
Indemnified Liabilities -- see Section 11.5.
Indemnified Person -- see Section 11.5.
Independent Auditor -- see subsection 7.1(a).
Initial Parent Stockholders means the purchasers under
the Securities Purchase Agreement.
Insolvency Proceeding means, with respect to any Person, (a)
any case, action or proceeding with respect to such Person before any
court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution,
winding-up or relief of debtors (including any proceeding under the
Bankruptcy Code) or (b) any general assignment for the benefit of
creditors, composition, marshalling of assets for creditors, or other,
similar arrangement in respect of such Person's creditors generally or
any substantial portion of such creditors.
Interest Coverage Ratio means, for the Computation Period most
recently ended on or before such date, the ratio of (a) EBITDA for such
Computation Period to (b) Interest Expense for such Computation Period.
Interest Expense means for any period the consolidated
interest expense of the Company and its Subsidiaries for such period
(including all imputed interest on capital leases but excluding
amortization of fees and expenses in connection with the Purchase, this
Agreement and the transactions contemplated by the foregoing).
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<PAGE> 23
Interest Payment Date means (i) as to any Offshore Rate Loan,
the last day of each Interest Period applicable to such Loan and, in
the case of any Offshore Rate Loan with a six-month Interest Period,
the three-month anniversary of the first day of such Interest Period,
and (ii) as to any Base Rate Loan, the last Business Day of each
calendar quarter.
Interest Period means, as to any Offshore Rate Loan, the
period commencing on the Borrowing Date of such Loan or on the
Conversion/Continuation Date on which the Loan is converted into or
continued as an Offshore Rate Loan, and ending (i) in the case of
Offshore Rate Loans made or converted during the period from the
Closing Date through the earlier of November 1, 1995 and the Primary
Syndication Date, one week thereafter and (ii) in the case of Offshore
Rate Loans made or converted at any time after the earlier of November
1, 1995 and the Primary Syndication Date, one, two, three or six months
thereafter, as selected by the Company in its Notice of Borrowing or
Notice of Conversion/Continuation; provided that:
(i) if any Interest Period would otherwise end on a
day that is not a Business Day, such Interest Period shall be
extended to the following Business Day unless the result of
such extension would be to carry such Interest Period into
another calendar month, in which event such Interest Period
shall end on the preceding Business Day;
(ii) any Interest Period that begins on the last
Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at
the end of such Interest Period) shall end on the last
Business Day of the calendar month at the end of such Interest
Period;
(iii) no Interest Period applicable to a Term A Loan
or a Term B Loan or portion of either thereof shall extend
beyond any date upon which is due any scheduled principal
payment in respect of the Term A Loans or Term B Loans, as
applicable, unless the aggregate principal amount of Term A
Loans or Term B Loans, as applicable, represented by Base Rate
Loans, or by Offshore Rate Loans having Interest Periods that
will expire on or before such date, equals or exceeds the
amount of such principal payment; and
(iv) no Interest Period for any Revolving Loan shall
extend beyond the scheduled Revolving Termination Date.
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<PAGE> 24
IRS means the Internal Revenue Service, and any Governmental
Authority succeeding to any of its principal functions under the Code.
Issuance Date -- see subsection 3.1(a).
Issue means, with respect to any Letter of Credit, to issue or
to extend the expiry of, or to renew or increase the amount of, such
Letter of Credit; and the terms "Issued," "Issuing" and "Issuance" have
corresponding meanings.
Issuing Lender means each of BAI and in its capacity as issuer
of one or more Letters of Credit hereunder, together with (i) any
replacement letter of credit issuer arising under subsection 10.1(b) or
Section 10.9 and (ii) any other Lender which the Agent and the Company
have approved in writing as an "Issuing Lender" hereunder.
Joint Venture means a corporation, partnership, limited
liability company, joint venture or other similar legal arrangement
(whether created by contract or conducted through a separate legal
entity) which is not a Subsidiary of the Company or any of its
Subsidiaries and which is now or hereafter formed by the Company or any
of its Subsidiaries with another Person in order to conduct a common
venture or enterprise with such Person.
Landlord's Consent means a document substantially in the form
of Exhibit J, with appropriate insertions, or such other form as shall
be acceptable to the Required Lenders.
L/C Advance means each Lender's participation in any L/C
Borrowing in accordance with its Revolving Percentage.
L/C Amendment Application means an application form for
amendment of an outstanding standby or commercial documentary letter of
credit as shall at any time be in use at the applicable Issuing Lender,
as such Issuing Lender shall request.
L/C Application means an application form for issuances of a
standby or commercial documentary letter of credit as shall at any time
be in use at the applicable Issuing Lender, as such Issuing Lender
shall request.
L/C Borrowing means an extension of credit resulting from a
drawing under any Letter of Credit which shall not have been reimbursed
on the date when made nor converted into a Borrowing of Revolving Loans
under subsection 3.3(c).
L/C Commitment means the commitment of the Issuing Lenders to
Issue, and the commitment of the Lenders severally to participate in,
Letters of Credit from time to
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<PAGE> 25
time Issued or outstanding under Article III, in an aggregate amount
not to exceed on any date the lesser of $10,000,000 and the amount of
the Revolving Commitment; it being understood that the L/C Commitment
is a part of the Revolving Commitment, rather than a separate,
independent commitment.
L/C Fee Rate means, at any time, (i) 0.50% in the case of each
Commercial Letter of Credit and (ii) the Applicable Offshore Rate
Margin for Revolving Loans in the case of each Financial Standby Letter
of Credit and each Non-Financial Standby Letter of Credit; provided
that each of the foregoing rates shall be increased by 2% at any time
an Event of Default exists.
L/C Obligations means at any time the sum of (a) the aggregate
undrawn amount of all Letters of Credit then outstanding, plus (b) the
amount of all unreimbursed drawings under all Letters of Credit,
including all outstanding L/C Borrowings.
L/C-Related Documents means the Letters of Credit, the L/C
Applications, the L/C Amendment Applications and any other document
relating to any Letter of Credit, including any of the applicable
Issuing Lender's standard form documents for letter of credit
issuances.
Lender has the meaning specified in the introductory clause
hereto. References to the "Lenders" shall include each Issuing Lender
in its capacity as such; for purposes of clarification only, to the
extent that any Issuing Lender may have any rights or obligations in
addition to those of the other Lenders due to its status as Issuing
Lender, its status as such will be specifically referenced.
Lending Office means, as to any Lender, the office or offices
of such Lender specified as its "Lending Office" or "Domestic Lending
Office" or "Offshore Lending Office", as the case may be, on Schedule
11.2, or such other office or offices as such Lender may from time to
time specify to the Company and the Agent.
Letters of Credit means any letters of credit (whether standby
letters of credit or commercial documentary letters of credit) Issued
by an Issuing Lender pursuant to Article III.
Leverage Ratio means
(a) for the Computation Period ending March 31, 1996,
the ratio of
(i) Funded Debt as of March 31, 1996
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<PAGE> 26
to
(ii) EBITDA for such Computation Period multiplied by
the quotient of (y) 365 divided by (z) the number of days in
such Computation Period;
(b) for the Computation Period ending June 30, 1996,
the ratio of
(i) Funded Debt as of June 30, 1996
to
(ii) EBITDA for such Computation Period multiplied by
the quotient of (y) 365 divided by (z) the number of days in
such Computation Period;
(c) for the Computation Period ending September 30,
1996, the ratio of
(i) Funded Debt as of September 30, 1996
to
(ii) EBITDA for such Computation Period multiplied by
the quotient of (y) 365 divided by (z) the number of days in
such Computation Period; and
(d) for each Computation Period ending on or after
December 31, 1996, the ratio of
(i) Funded Debt as of any date
to
(ii) EBITDA for such Computation Period most recently
ended on or before such date.
Lien means any security interest, mortgage, deed of trust,
pledge, hypothecation, assignment, charge or deposit arrangement,
encumbrance, lien (statutory or other) or preferential arrangement of
any kind or nature whatsoever in respect of any property (including
those created by, arising under or evidenced by any conditional sale or
other title retention agreement, the interest of a lessor under a
capital lease, or any financing lease having substantially the same
economic effect as any of the foregoing, but not including the interest
of a lessor under an operating lease).
Loan means an extension of credit by a Lender to the Company
under Article II or Article III in the form of a Revolving Loan, Term
Loan or L/C Advance. Each Revolving Loan and each Term Loan may be
divided into tranches which
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are a Base Rate Loan or an Offshore Rate Loan (each a "Type" of Loan).
Loan Documents means this Agreement, any Notes, the Fee
Letter, the L/C-Related Documents, the Guaranty, the Collateral
Documents and all other documents delivered to the Agent or any Lender
in connection herewith.
Margin Stock means "margin stock" as such term is defined in
Regulation G, T, U or X of the FRB.
Material Adverse Effect means (a) a material adverse change
in, or a material adverse effect upon, the operations, business,
properties, condition (financial or otherwise) or prospects of the
Company; (b) a material impairment of the ability of the Company to
perform under any Loan Document; or (c) a material adverse effect upon
the legality, validity, binding effect or enforceability against the
Company of any Loan Document.
MIS Expenditures means Capital Expenditures made by the
Company relating to the Company's new management information system;
provided, that such Capital Expenditures shall only be considered MIS
Expenditures to the extent that the aggregate amount of such
expenditures does not exceed $2,000,000.
Mortgage means a mortgage, leasehold mortgage, deed of trust
or similar document granting a Lien on real property in appropriate
form for filing or recording in the applicable jurisdiction and
otherwise reasonably satisfactory to the Agent.
Multiemployer Plan means a "multiemployer plan", within the
meaning of Section 4001(a)(3) of ERISA, with respect to which the
Company or any ERISA Affiliate may have any liability.
Net Cash Proceeds means
(a) with respect to the sale, transfer, or other
disposition by the Company or any Subsidiary of any
asset (including any stock of any Subsidiary), the
aggregate cash proceeds (including cash proceeds
received by way of deferred payment of principal
pursuant to a note, installment receivable or
otherwise, but only as and when received) received by
the Company or any Subsidiary pursuant to such sale,
transfer or other disposition, net of (i) the direct
costs relating to such sale, transfer or other
disposition (including, without limitation, sales
commissions and legal, accounting and investment
banking fees), (ii) taxes paid or payable as a result
thereof (after taking into account any available tax
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<PAGE> 28
credits or deductions and any tax sharing
arrangements), (iii) amounts required to be applied to
the repayment of any Indebtedness secured by a Lien on
the asset subject to such sale, transfer or other
disposition (other than the Loans) and (iv) any reserve
for adjustment in respect of the sale price of such
asset (until such amount is available to the Company or
the applicable Subsidiary); and
(b) with respect to any issuance of equity securities or Other
Debt, the aggregate cash proceeds received by the Company or
any Subsidiary pursuant to such issuance, net of the direct
costs relating to such issuance (including, without
limitation, sales and underwriter's commissions and legal,
accounting and investment banking fees).
Net Worth means the Company's consolidated stockholders'
equity plus all non-cash or non-recurring charges after the Closing
Date related to but not limited to the adoption of new accounting
policies and plant consolidations or restructurings to the extent such
charges were deducted in determining such consolidated stockholders
equity.
Non-Financial Standby Letter of Credit means any
Standby Letter of Credit that is not a Financial Standby
Letter of Credit.
Note means a promissory note executed by the Company in favor
of a Lender pursuant to subsection 2.2(b), in substantially the form of
Exhibit D.
Notice of Borrowing means a notice in substantially the form
of Exhibit A.
Notice of Conversion/Continuation means a notice in
substantially the form of Exhibit B.
Obligations means all advances, debts, liabilities,
obligations, covenants and duties arising under any Loan Document owing
by the Company to any Lender, the Agent, or any Indemnified Person,
whether direct or indirect (including those acquired by assignment),
absolute or contingent, due or to become due, or now existing or
hereafter arising.
Offshore Rate means, for any Interest Period, with respect to
Offshore Rate Loans comprising part of the same Borrowing, the rate of
interest per annum (rounded upward, if the resulting rate is not an
integral multiple of 1/16 of 1%, to the next 1/16th of 1%) determined
by the Agent as follows:
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Offshore Rate = IBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"Eurodollar Reserve Percentage" means for any day for any
Interest Period the maximum reserve percentage (expressed as a
decimal, rounded upward, if the resulting decimal is not an
integral multiple of 1/100 of 1%, to the next 1/100th of 1%)
in effect on such day applicable to any Lender under
regulations issued from time to time by the FRB for
determining the maximum reserve requirement (including any
emergency, supplemental or other marginal reserve requirement)
with respect to Eurocurrency funding (currently referred to as
"Eurocurrency liabilities"); and
"IBOR" means the rate of interest per annum determined by the
Agent as the rate at which Dollar deposits in the approximate
amount of BAI's Offshore Rate Loan for such Interest Period
would be offered by BofA's Grand Cayman Branch, Grand Cayman
B.W.I. (or such other office as may be designated for such
purpose by BofA), to major banks in the offshore dollar
interbank market at their request at approximately 11:00 a.m.
(New York City time) two Business Days prior to the
commencement of such Interest Period.
The Offshore Rate shall be adjusted automatically as to all
Offshore Rate Loans then outstanding as of the effective date of any
change in the Eurodollar Reserve Percentage.
Offshore Rate Loan means a Loan that bears interest based on
the Offshore Rate.
Organization Documents means, for any corporation, the
certificate or articles of incorporation, the bylaws, any certificate
of determination or instrument relating to the rights of preferred
shareholders of such corporation, any shareholder rights agreement, and
all applicable resolutions of the board of directors (or any committee
thereof) of such corporation.
Other Debt means debt securities of the Company and its
Subsidiaries, other than as permitted by Section 8.5.
Other Taxes means any present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies
which arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Document.
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Parent means Fiberite Holdings, Inc., a Delaware
corporation.
Parent Pledge Agreement - see subsection 5.1(k).
Participant -- see subsection 11.8(c).
Patent Security Agreement -- see subsection 5.1(i).
PBGC means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal functions
under ERISA.
Pension Plan means a pension plan (as defined in Section 3(2)
of ERISA) subject to Title IV of ERISA with respect to which the
Company or any ERISA Affiliate may have any liability.
Permitted Liens -- see Section 8.1.
Permitted Swap Obligations means all obligations (contingent
or otherwise) of the Company or any Subsidiary existing or arising
under Swap Contracts, provided that each of the following criteria is
satisfied: (a) such obligations are (or were) entered into by such
Person in the ordinary course of business for the purpose of directly
mitigating risks associated with liabilities, commitments or assets
held or reasonably anticipated by such Person, or changes in the value
of securities issued by such Person in conjunction with a securities
repurchase program not otherwise prohibited hereunder, and not for
purposes of speculation or taking a "market view;" and (b) such Swap
Contracts do not contain (i) any provision ("walk-away" provision)
exonerating the non-defaulting party from its obligation to make
payments on outstanding transactions to the defaulting party, or (ii)
any provision creating or permitting the declaration of an event of
default, termination event or similar event upon the occurrence of an
Event of Default hereunder (other than an Event of Default under
subsection 9.1(a).
Person means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust,
unincorporated association, joint venture or Governmental Authority.
Plan means an employee benefit plan (as defined in Section
3(3) of ERISA) which the Company sponsors or maintains or to which the
Company makes, is making, or is obligated to make contributions and
includes any Pension Plan.
Pledge Agreement means the Company Pledge Agreement or
the Parent Pledge Agreement.
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<PAGE> 31
Primary Syndication Date means the first date upon which BAI
assigns any of its commitments pursuant to Section 11.8.
Public Offering means the offering of shares of stock or
Indebtedness registered under the Securities Act of 1933.
Purchase means the purchase by the Company of ICI Composites,
Inc. and the assets and liabilities of Fiberite Europe GmbH pursuant to
the Purchase Agreements.
Purchase Agreement means the U.S. Purchase Agreement or
the German Purchase Agreement.
Purchase Agreement Assignment means a Purchase Agreement
Assignment in the form of Exhibit K, with appropriate insertions.
Replacement Lender -- see Section 4.7.
Reportable Event means, any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder, other than any such
event for which the 30-day notice requirement under ERISA has been
waived in regulations issued by the PBGC or administrative
pronouncements.
Required Lenders means, at any time, Lenders having an
aggregate Total Percentage of 60% or more.
Required Revolving Lenders means, at any time, Lenders having
an aggregate Revolving Percentage of 60% or more.
Requirement of Law means, as to any Person, any law (statutory
or common), treaty, rule or regulation or determination of an
arbitrator or of a Governmental Authority, in each case applicable to
or binding upon such Person or any of its property or to which such
Person or any of its property is subject.
Responsible Officer means the chief executive officer or the
president of the Company, or any other officer having substantially the
same authority and responsibility; or, with respect to compliance with
financial covenants, the chief financial officer or the treasurer of
the Company, or any other officer having substantially the same
authority and responsibility.
Revolving Commitment means, as to any Lender, the commitment
of such Lender to make Revolving Loans pursuant to subsection 2.1(c).
The initial amount of each Lender's Revolving Commitment is set forth
on Schedule 1.1.
Revolving Loan -- see Section 2.1.
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<PAGE> 32
Revolving Percentage means, as to any Lender, the percentage
which (a) the amount of such Lender's Revolving Commitment is of (b)
the aggregate amount of all of the Lenders' Revolving Commitments.
Revolving Termination Date means the earlier to occur of:
(a) December 31, 2000; and
(b) the date on which the Revolving Commitment
terminates in accordance with the provisions of
this Agreement.
SEC means the Securities and Exchange Commission, or any
Governmental Authority succeeding to any of its principal functions.
Sellers means ICI American Holdings, Inc. and Deutsche
ICI GmbH.
Securities Purchase Agreement means the Securities Purchase
Agreement dated as of the Closing Date, among Parent and the Initial
Parent Stockholders named therein.
Security Agreement -- see subsection 5.1(g).
Shareholder Agreement means the Shareholder Agreement dated as
of the Closing Date, among the Company, DLJMB, Carlisle and the other
Initial Parent Stockholders.
Standby Letter of Credit means any Letter of Credit that is
not a Commercial Letter of Credit.
Subordinated Notes means the subordinated notes of the Parent
issued pursuant to the Securities Purchase Agreement.
Subsidiary of a Person means any corporation, association,
partnership, limited liability company, joint venture or other business
entity of which more than 50% of the voting stock, membership interests
or other equity interests is owned or controlled directly or indirectly
by such Person, or one or more of the Subsidiaries of such Person, or a
combination thereof. Unless the context otherwise clearly requires,
references herein to a "Subsidiary" refer to a Subsidiary of the
Company.
Surety Instruments means all letters of credit (including
standby and commercial), banker's acceptances, bank guaranties, surety
bonds and similar instruments.
Swap Contract means any agreement, whether or not in writing,
relating to any transaction that is a rate swap, basis swap, forward
rate transaction, commodity swap,
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<PAGE> 33
commodity option, equity or equity index swap or option, bond, note or
bill option, interest rate option, forward foreign exchange
transaction, cap, collar or floor transaction, currency swap,
cross-currency rate swap, swaption, currency option or any other,
similar transaction (including any option to enter into any of the
foregoing) or any combination of the foregoing, and, unless the context
otherwise clearly requires, any master agreement relating to or
governing any or all of the foregoing.
Swap Termination Value means, in respect of any one or more
Swap Contracts, after taking into account the effect of any legally
enforceable netting agreement relating to such Swap Contracts, (a) for
any date on or after the date such Swap Contracts have been closed out
and termination value(s) determined in accordance therewith, such
termination value(s), and (b) for any date prior to the date referenced
in clause (a) the amount(s) determined as the mark-to-market value(s)
for such Swap Contracts, as determined based upon one or more
mid-market or other readily available quotations provided by any
recognized dealer in such Swap Contracts (which may include any
Lender).
Tax Sharing Agreement means the Tax Sharing Agreement dated as
of the Closing Date, between the Company and the Parent as amended from
time to time pursuant to Section 8.19.
Taxes means any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding, in the case of each Lender and the Agent,
such taxes (including income taxes or franchise taxes) as are imposed
on or measured by such Lender's or the Agent's, as the case may be, net
income by the jurisdiction (or any political subdivision thereof) under
the laws of which such Lender or the Agent, as the case may be, is
organized, maintains a lending office or is carrying on business.
Term A Commitment means, as to any Lender, the commitment of
such Lender to make a Term A Loan pursuant to subsection 2.1(a). The
amount of each Lender's Term A Commitment is set forth on Schedule 1.1.
Term A Loan -- see subsection 2.1(a).
Term A Percentage means, as to any Lender, the percentage
which (a) the Term A Commitment of such Lender (or, after the making of
the Term A Loans, the principal amount of such Lender's Term A Loan) is
of (b) the aggregate amount of Term A Commitments (or after the making
of the Term A Loans, the aggregate principal amount of all Term A
Loans). The initial amount of the Term A Loan Percentage
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<PAGE> 34
for each Lender is set forth such Lender's name on Schedule 1.1.
Term B Commitment means, as to any Bank, the commitment of
such Lender to make a Term B Loan pursuant to subsection 2.1(b). The
amount of each Bank's Term B Commitment is set forth on Schedule 1.1.
Term B Loan -- see subsection 2.1(b).
Term B Percentage means, as to any Lender, the percentage
which (a) the Term B Commitment of such Lender (or, after the making of
the Term B Loans, the principal amount of such Lender's Term B Loan) is
of (b) the aggregate amount of Term B Commitments (or after the making
of the Term B Loans, the aggregate principal amount of all Term B
Loans). The initial amount of the Term B Loan Percentage for each
Lender is set forth such Lender's name on Schedule 1.1.
Term Loan means a Term A Loan or a Term B Loan.
Total Percentage means, as to any Lender the percentage which
(a) the aggregate amount of such (i) Lender's Revolving Commitment plus
(ii) such Lender's Term A Commitment (or, after the making of the Term
A Loans, the outstanding principal amount of such Lender's Term A
Loans) plus (iii) such Lender's Term B Commitment (or, after the making
of the Term B Loans, the outstanding principal amount of such Lender's
Term B Loans) is of (b) the aggregate amount of (i) the Revolving
Commitments of all Lenders plus (ii) the Term A Commitments of all
Lenders (or, after the making of the Term A Loans, the outstanding
principal amount of all Term A Loans) plus (iii) the Term B Commitments
of all Lenders (or, after the making of the Term B Loans, the
outstanding principal amount of all Term B Loans); provided that after
the Revolving Commitments have been terminated, "Total Percentage"
shall mean as to any Lender the percentage which the aggregate
principal amount of such Lender's Loans is of the aggregate principal
amount of all Loans. The initial Total Percentage for each Lender is
set forth opposite such Lender's name on Schedule 1.1.
Trademark Security Agreement -- see subsection 5.1(i).
Transition Services Agreement means the U.S. Transition
Services Agreement or the German Transition Services
Agreement.
Type has the meaning specified in the definition of
"Loan."
Unfunded Pension Liability means the excess of a Pension
Plan's benefit liabilities under Section 4001(a)(16)
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<PAGE> 35
of ERISA, over the current value of such Pension Plan's assets,
determined in accordance with the assumptions used for funding such
Pension Plan pursuant to Section 412 of the Code for the applicable
plan year.
United States and U.S. each means the United States of
America.
Unmatured Event of Default means any event or circumstance
which, with the giving of notice, the lapse of time, or both, would (if
not cured or otherwise remedied during such time) constitute an Event
of Default.
U.S. Purchase Agreement means the Purchase Agreement dated as
of the Closing Date, between ICI American Holdings, Inc., as seller,
the Company, as buyer, and the Parent, as guarantor as amended from
time to time pursuant to Section 8.19.
U.S. Transition Services Agreement means the Transition
Services Agreement dated as of the Closing Date, between ICI
Composites, Inc. and ICI American Holdings, Inc. as amended
from time to time pursuant to Section 8.19.
1.2 Other Interpretive Provisions.
(a) The meanings of defined terms are equally applicable to
the singular and plural forms of the defined terms.
(b) The words "hereof", "herein", "hereunder" and similar
words refer to this Agreement as a whole and not to any particular provision of
this Agreement; and subsection, Section, Schedule and Exhibit references are to
this Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other
writings, however evidenced.
(ii) The term "including" is not limiting and
means "including without limitation."
(iii) In the computation of periods of time from a
specified date to a later specified date, the word "from" means "from
and including"; the words "to" and "until" each mean "to but
excluding"; and the word "through" means "to and including."
(d) Unless otherwise expressly provided herein, (i) references
to agreements (including this Agreement) and other contractual instruments shall
be deemed to include all subsequent amendments and other modifications thereto,
but only to the extent such amendments and other modifications are not
prohibited by the terms of any Loan Document, and (ii) references to any
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<PAGE> 36
statute or regulation are to be construed as including all statutory and
regulatory provisions consolidating, amending, replacing, supplementing or
interpreting the statute or regulation.
(e) The captions and headings of this Agreement are for
convenience of reference only and shall not affect the interpretation of this
Agreement.
(f) This Agreement and the other Loan Documents may use
several different limitations, tests or measurements to regulate the same or
similar matters. All such limitations, tests and measurements are cumulative and
shall each be performed in accordance with their terms.
(g) This Agreement and the other Loan Documents are the result
of negotiations among and have been reviewed by counsel to the Agent, the
Company and the other parties, and are the products of all parties. Accordingly,
they shall not be construed against the Lenders or the Agent merely because of
the Lenders' or the Agent's involvement in their preparation.
1.3 Accounting Principles.
(a) Unless the context otherwise clearly requires, all
accounting terms not expressly defined herein shall be construed, and all
financial computations required under this Agreement shall be made, in
accordance with GAAP, consistently applied; provided that if the Company
notifies the Agent that the Company wishes to amend any covenant in Article VIII
to eliminate the effect of any change in GAAP on the operation of such covenant
(or if the Agent notifies the Company that the Required Lenders wish to amend
Article VIII for such purpose), then the Company's compliance with such covenant
shall be determined on the basis of GAAP in effect immediately before the
relevant change in GAAP became effective, until either such notice is withdrawn
or such covenant is amended in a manner satisfactory to the Company and the
Required Lenders.
(b) References herein to "fiscal year" and "fiscal quarter"
refer to such fiscal periods of the Company.
ARTICLE II
THE CREDITS
2.1 Amounts and Terms of Commitments. (a) The Term A Credit. Each
Lender severally agrees, on the terms and conditions set forth herein, to make a
single loan to the Company (each such loan, a "Term A Loan") on the Closing Date
in an amount not to exceed such Lender's Term A Percentage of $50,000,000.
Amounts borrowed as Term A Loans which are repaid or prepaid by the Company may
not be reborrowed. The Term A
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<PAGE> 37
Commitments shall expire concurrently with the making of the Term A Loans on the
Closing Date.
(b) The Term B Credit. Each Lender severally agrees, on the
terms and conditions set forth herein, to make a single loan to the Company
(each such loan, a "Term B Loan") on the Closing Date in an amount not to exceed
such Lender's Term B Percentage of $25,000,000. Amounts borrowed as Term B Loans
which are repaid or prepaid by the Company may not be reborrowed. The Term B
Commitments shall expire concurrently with the making of the Term B Loans on the
Closing Date.
(c) The Revolving Credit. Each Lender severally agrees, on the
terms and conditions set forth herein, to make loans to the Company (each such
loan, a "Revolving Loan"), from time to time on any Business Day during the
period from the Closing Date to the Revolving Termination Date, in an aggregate
amount not to exceed at any time outstanding such Lender's Revolving Percentage
of $25,000,000; provided that, after giving effect to any Borrowing of Revolving
Loans, the aggregate amount of all Revolving Loans plus the Effective Amount of
all L/C Obligations shall not exceed the Revolving Commitment; and provided,
further, the amount of all Revolving Loans made on the Closing Date shall not
exceed $19,000,000. Within the foregoing limits, and subject to the other terms
and conditions hereof, the Company may borrow under this subsection 2.1(c),
prepay under Section 2.6 and reborrow under this subsection 2.1(c).
2.2 Loan Accounts. (a) The Loans made by each Lender and the Letters of
Credit Issued by each Issuing Lender shall be evidenced by one or more accounts
or records maintained by such Lender or Issuing Lender, as the case may be, in
the ordinary course of business. The accounts or records maintained by the
Agent, each Issuing Lender and each Lender shall be conclusive (absent manifest
error) as to the amount of the Loans made by the Lenders to the Company and the
Letters of Credit Issued for the account of the Company, and the interest and
payments thereon. Any failure so to record or any error in doing so shall not,
however, limit or otherwise affect the obligation of the Company hereunder to
pay any amount owing with respect to any Loan or any Letter of Credit.
(b) Upon the request of any Lender made through the Agent, the
Loans made by such Lender may be evidenced by one or more Notes, instead of loan
accounts. Each such Lender shall endorse on the schedules annexed to its Note(s)
the date, amount and maturity of each Loan made by it and the amount of each
payment of principal made by the Company with respect thereto. Each such Lender
is irrevocably authorized by the Company to endorse its Note(s) and each
Lender's record shall be rebuttable presumptive evidence of the matters set
forth therein; provided, however, that the failure of a Lender to make, or an
error in making, a notation thereon with respect to any Loan shall not
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<PAGE> 38
limit or otherwise affect the obligations of the Company hereunder or under any
Note to such Lender.
2.3 Procedure for Borrowing. (a) Each Borrowing shall be made upon the
Company's irrevocable written notice delivered to the Agent in the form of a
Notice of Borrowing (which notice must be received by the Agent (i) prior to
8:30 a.m. (San Francisco time) three Business Days prior to the requested
Borrowing Date, in the case of Offshore Rate Loans; and (ii) prior to 8:30 a.m.
(San Francisco time) on the requested Borrowing Date, in the case of Base Rate
Loans), specifying:
(A) the amount of the Borrowing, which shall
be in an amount of $500,000 or a higher integral multiple of
$100,000;
(B) the requested Borrowing Date, which
shall be a Business Day;
(C) the Type of Loans comprising the
Borrowing; and
(D) in the case of Offshore Rate Loans, the
duration of the Interest Period applicable to such Loans
included in such notice.
(b) The Agent will promptly notify each Lender of its receipt
of any Notice of Borrowing and of the amount of such Lender's share of such
Borrowing based upon such Lender's Revolving Percentage, Term A Percentage or
Term B Percentage, as applicable.
(c) Each Lender will make the amount of its share of each
Borrowing available to the Agent for the account of the Company at the Agent's
Payment Office by 11:00 a.m. (San Francisco time) on the Borrowing Date
requested by the Company in funds immediately available to the Agent. The
proceeds of all Loans will then be made available to the Company by the Agent at
such office by crediting the account of the Company on the books
of BAI with the aggregate of the amounts made available to the Agent by the
Lenders and in like funds as received by the Agent.
(d) After giving effect to any Borrowing, there may not be
more than seven different Interest Periods in effect.
2.4 Conversion and Continuation Elections. (a) The Company
may, upon irrevocable written notice to the Agent in accordance
with subsection 2.4(b):
(i) elect to convert, on any Business Day, any Base
Rate Loans (in an aggregate amount of $500,000 or a higher integral
multiple of $100,000) into Offshore Rate Loans;
-31-
<PAGE> 1
EXHIBIT 10.14
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.
<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:
<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
<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]
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto each executed this Amended and
Restated Stockholders' Voting Agreement as of the date first written above.
COMPANY: NEXTWAVE TELECOM INC.,
A DELAWARE CORPORATION
By: /s/ Allen Salmasi
--------------------------------
Its: CEO
-------------------------------
[Signature Page to Stockholders' Voting Agreement]
<PAGE> 7
SERIES A SHAREHOLDERS:
NAVATION INC., a California corporation
By: /s/ Allen Salmasi
------------------------------------
Its: CEO
-----------------------------------
FREEDOM MOBILITY, INC.,
a Washington, D.C. corporation
By: /s/ Janice Obuchowski
------------------------------------
Its: President
-----------------------------------
MARIN-FINN INDUSTRIES, INC.
a California corporation
By: /s/ Kevin M. Finn
------------------------------------
Its: President
----------------------------------
JARRAH, INC., a California corporation
By: /s/ James Madsen
------------------------------------
Its: Vice President
-----------------------------------
GOOD NEWS COMMUNICATIONS
COMPANY, L.L.C.,
a Delaware limited liability company
By: /s/ Kevin M. Finn
------------------------------------
Its: President
-----------------------------------
[Signature Page 2 to Stockholders' Voting Agreement]
7
<PAGE> 8
SERIES A SHAREHOLDERS (CONTINUED):
/s/ Mark D. Buckner
---------------------------------------
Mark Buckner
/s/ Kevin Carroll
---------------------------------------
Kevin Carroll
/s/ Frank A. Cassou
---------------------------------------
Frank A. Cassou
/s/ Houtan Dehesh
---------------------------------------
Houtan Dehesh
/s/ Mark Gaudino
---------------------------------------
Mark Gaudino
/s/ John W. Ketchum
---------------------------------------
John W. Ketchum
/s/ Edward Knapp
---------------------------------------
Edward Knapp
/s/ Richard Kornfeld
---------------------------------------
Richard Kornfeld
/s/ Xu Lewis
---------------------------------------
Xu Lewis
[Signature Page 3 to Stockholders' Voting Agreement]
8
<PAGE> 9
SERIES A SHAREHOLDERS (CONTINUED):
/s/ Theresa McCarthy
----------------------------------------
Theresa McCarthy
/s/ Alan Pate
----------------------------------------
Alan Pate
/s/ Mara Ransom
----------------------------------------
Mara Ransom
/s/ Greg Theisen
----------------------------------------
Greg Theisen
/s/ Mark Wallace
----------------------------------------
Mark Wallace
/s/ Rod Walton
----------------------------------------
Rod Walton
/s/ Szu-Wei Wang
----------------------------------------
Szu-Wei Wang
/s/ Adam Gould
----------------------------------------
Adam Gould
/s/ Roy D. Berger
----------------------------------------
Roy D. Berger
[Signature Page 4 to Stockholders' Voting Agreement]
9
<PAGE> 10
SERIES A SHAREHOLDERS (CONTINUED):
/s/ Rajendra Patel
------------------------------------
Rajendra Patel
[Signature Page to Stockholders' Voting Agreement]
12
<PAGE> 11
SERIES A SHAREHOLDERS (CONTINUED):
/s/ R. Andrew Salony
------------------------------------
R. Andrew Salony
[Signature Page to Stockholders' Voting Agreement]
13
<PAGE> 12
SERIES A SHAREHOLDERS (CONTINUED):
/s/ Cecil J. Waylan
-----------------------------------
Cecil J. Waylan
[Signature Page to Stockholders' Voting Agreement]
14
<PAGE> 13
SERIES A SHAREHOLDERS (CONTINUED):
/s/ Gene M. Welsh
-----------------------------------
Gene M. Welsh
[Signature Page to Stockholders' Voting Agreement]
15
<PAGE> 14
SERIES A SHAREHOLDERS (CONTINUED):
/s/ Ray Dolan
-----------------------------------
Ray Dolan
[Signature Page to Stockholders' Voting Agreement]
16
<PAGE> 15
SERIES B SHAREHOLDERS:
Aspen Venture Capital Partners, L.L.C.
a Delaware limited liability company
By: /s/ Shahyar Zayanderoudi
---------------------------------
Its: Shahyar Zayanderoudi
---------------------------------
<PAGE> 16
SERIES B SHAREHOLDERS (CONTINUED):
Bastion Capital Fund, L.P.
By: /s/ Daniel Villanueva
--------------------------------
Its:
--------------------------------
Daniel Villanueva, President of
Villanueva Investments, General
Partner of Bastion Partners LP,
GP of Bastion Capital Fund LP
<PAGE> 17
SERIES B SHAREHOLDERS (CONTINUED):
BAY HARBOUR PARTNERS, LTD.
------------------------------------
By: /s/ Steven A. Van Dyke
-------------------------------
Its: INVESTMENT MANAGER
-------------------------------
<PAGE> 18
SERIES B SHAREHOLDERS (CONTINUED):
BDES PARTNERS
-------------------------------------
By: /s/ David Brokman
--------------------------------
Its: General Partner
--------------------------------
<PAGE> 19
SERIES B SHAREHOLDERS:
BEST AMERICAN INVESTMENTS
/s/ Frank Zarabi
-------------------------------
By: Frank Zarabi
--------------------------
Its: G. Partner
--------------------------
<PAGE> 20
SERIES B SHAREHOLDERS (CONTINUED):
BT Holdings (NY), Inc.
By: /s/ Lawrence M. Hudson
---------------------------
Its: Managing Director
---------------------------
<PAGE> 21
SERIES B SHAREHOLDERS (CONTINUED):
CCC Omni Investment Partners, L.P.
------------------------------------
By: /s/ Robert D. Blyer
-------------------------------
Robert D. Blyer
Its: General Partner
-------------------------------
<PAGE> 22
SERIES B SHAREHOLDERS (CONTINUED):
CERBERUS PARTNERS, L.P.
By: CERBERUS ASSOCIATES, L.P.
By: /s/ Stephen Feinberg
----------------------------------
Stephen Feinberg, General Partner
<PAGE> 23
SERIES B SHAREHOLDERS (CONTINUED):
CHAGFORD INC.
---------------------------------
By: /s/ Gilbert Scharf
----------------------------
Its: President
----------------------------
<PAGE> 24
SERIES B SHAREHOLDERS:
Coverall North America, Inc.
a Delaware corporation
By: /s/ Shahyar Zayanderoudi
---------------------------------
Its: CEO
---------------------------------
<PAGE> 25
SERIES B SHAREHOLDERS (CONTINUED):
Crescent/MACH I Partners, L.P.
By: TCW Asset Management Company,
its Investment Advisors
----------------------------------
By: /s/ Robert Blyer
----------------------------------
Its: Managing Director
----------------------------------
By: /s/ Nicholas J. Tell, Jr.
----------------------------------
Its: Senior Vice President
----------------------------------
<PAGE> 26
SERIES B SHAREHOLDERS (CONTINUED):
DCM Investment Inc.
By: /s/ Hitoshi Imafuku
----------------------------------
Its: Vice President
----------------------------------
<PAGE> 27
SERIES B SHAREHOLDERS (CONTINUED):
DICKSTEIN & CO., L.P.
By: Dickstein Partners, L.P.
By: Dickstein Partners Inc.
By: /s/ Stephan Cornich
----------------------------------
Name: Stephan Cornich
Title: VP
<PAGE> 28
SERIES B SHAREHOLDERS (CONTINUED):
ESR Special Account
By: /s/ Elaine Sharon Ruditsky
----------------------------------
Its: General Partner
----------------------------------
<PAGE> 29
SERIES B SHAREHOLDERS (CONTINUED):
/s/ Peter R. Formanek
---------------------------------------
Peter R. Formanek
<PAGE> 30
SERIES B SHAREHOLDERS (CONTINUED):
Gotham Capital III L.P.
By: /s/ Daniel Nir
----------------------------------
Its: General Partner
----------------------------------
<PAGE> 31
SERIES B SHAREHOLDERS (CONTINUED):
Hopewell Partners
---------------------------------------
By: /s/ Paul S. Levy
----------------------------------
Its: Partner
----------------------------------
<PAGE> 32
SERIES B SHAREHOLDERS (CONTINUED):
ILJIN Corporation
By: /s/ Hun Joo Lee
----------------------------------
Its: President
----------------------------------
16
<PAGE> 33
SERIES B SHAREHOLDERS:
ILJIN Diamond Company Ltd., a corporation
organized under the laws of Korea
By: /s/ Kwan Woo Lee
----------------------------------
Mr. Kwan Woo Lee, President
<PAGE> 34
SERIES B SHAREHOLDERS:
ING Capital Corporation
By: /s/ Loring Grussous
--------------------------------
Title: Senior Vice President
--------------------------------
<PAGE> 35
SERIES B SHAREHOLDERS: (CONTINUED):
Itochu Corporation
By: /s/ K. Sonoda
--------------------------------
Title: K. Sonoda, General Manager
--------------------------------
<PAGE> 36
SERIES B SHAREHOLDER:
Kemper Communications
By: /s/ James Valentine
--------------------------------
Title: Managing Partner
--------------------------------
<PAGE> 37
M. KINGDON OFFSHORE N.V.
SERIES B SHAREHOLDERS (CONTINUED):
/s/ Alan Winters
---------------------------------------
By: Kingdon Capital Management Corp.;
as its Investment Advisor
By: ALAN WINTERS
----------------------------------
Its: Vice President
----------------------------------
<PAGE> 38
M. KINGDON PARTNERS, L.P.
SERIES B SHAREHOLDERS (CONTINUED):
/s/ Alan Winters
---------------------------------------
By: Kingdon Capital Management Corp.;
as its Investment Advisor
By: ALAN WINTERS
----------------------------------
Its: Vice President
----------------------------------
<PAGE> 39
M. KINGDON ASSOCIATES, L.P.
SERIES B SHAREHOLDERS (CONTINUED):
/s/ Alan Winters
---------------------------------------
By: Kingdon Capital Management Corp.;
as its Investment Advisor
By: ALAN WINTERS
----------------------------------
Its: Vice President
----------------------------------
<PAGE> 40
SERIES B SHAREHOLDERS (CONTINUED):
Korea Electric Power Corporation,
a corporation organized under the laws
of Korea
By: KIM JUNG BOO
----------------------------------
Its: General Manager
----------------------------------
<PAGE> 41
SERIES B SHAREHOLDERS (CONTINUED):
LCC, L.L.C., a Delaware limited
liability company
By: /s/ Peter A. Deliso
-----------------------------------
Title: V.P. General Counsel
---------------------------------
<PAGE> 42
SERIES B SHAREHOLDERS (CONTINUED):
LG InfoComm, Inc.
a California corporation
By: /s/ Eun Young Yu
-----------------------------------
Its: President & CEO
----------------------------------
<PAGE> 43
SERIES B SHAREHOLDERS (CONTINUED):
/s/ Phil Lifshitz
--------------------------------------
By: Phil Lifshitz
-----------------------------------
<PAGE> 44
SERIES B SHAREHOLDERS (CONTINUED):
Manchester Resorts, L.P.,
a California limited partnership
By: Manchester Resorts, Incorporated
a California corporation
By: /s/ Brad Raulston
-----------------------------------
Its: Secretary
----------------------------------
<PAGE> 45
SERIES B SHAREHOLDERS (CONTINUED):
Millison New Media Fund,
a California Limited Partnership
By: /s/ David M. Millison
-------------------------------------------
Its: President, Millison Investment Mgmt., Inc.
------------------------------------------
G.P. of Millison New Media Fund, Inc.
------------------------------------------
<PAGE> 46
SERIES B SHAREHOLDERS (CONTINUED):
Millison NextWave Fund, L.P.,
a Delaware limited partnership
-------------------------------------
By: /s/ David M. Millison
--------------------------------
Its: President, Millison Investment
Management, Inc.
General Partner
-------------------------------
<PAGE> 47
SERIES B SHAREHOLDERS (CONTINUED):
New Mill Investments,
a California General Partnership
By: /s/ Frank A. Cassou
--------------------------------
Its: Administration Partner
--------------------------------
<PAGE> 48
SERIES B SHAREHOLDERS (CONTINUED):
N.W. Telecom, L.P., a
California Limited Partnership
-------------------------------------
By: /s/ Bryan Ezralow
--------------------------------
Title: General Partner
<PAGE> 49
SERIES B SHAREHOLDERS (CONTINUED):
Och-Ziff Capital Management, L.P., a
limited partnership organized under the
laws of the State of Delaware
By: /s/ Daniel S. Och
---------------------------------
Its: Daniel S. Och
---------------------------------
<PAGE> 50
SERIES B SHAREHOLDERS (CONTINUED):
PECO Energy Company,
A Pennsylvania Utility Company
By: /s/ Gregory A. Cucchi
---------------------------------
Its: VP
---------------------------------
<PAGE> 51
SERIES B SHAREHOLDERS (CONTINUED):
Pohang Steel America Corp.,
a Delaware corporation
By: /s/ Ha-Young Aum
---------------------------------
Its: President
<PAGE> 52
SERIES B SHAREHOLDERS (CONTINUED): PRUDENTIAL SECURITIES GROUP, INC.
/s/ Martin Pfinsgraff
-----------------------------------
By: Martin Pfinsgraff
---------------------------------
Its: Chief Financial Officer
<PAGE> 53
SERIES B SHAREHOLDERS (CONTINUED):
QUALCOMM Incorporated,
a Delaware corporation
By: /s/ A. F. Thornley
---------------------------------
Its: CFO
<PAGE> 54
SERIES B SHAREHOLDERS (CONTINUED): QUEST FUND MANAGEMENT
/s/ Doug Barnett
-------------------------------
By: Doug Barnett
---------------------------------
Its: President
<PAGE> 55
SERIES B SHAREHOLDERS (CONTINUED): ROBERT FLEMING INC.
/s/ Robert Fleming Jr.
-------------------------------
By: A. Levy
---------------------------------
Its: President
<PAGE> 56
SERIES B SHAREHOLDERS (CONTINUED):
For ROBINA CREDIT LIMITED
/s/ Ratana Chiraseiyinupraphand Joyce Choi Chun Lee
------------------------------- -------------------
Authorized Signatures
By: Ratana Chiraseiyinupraphand Joyce Choi Chun Lee
------------------------------- -------------------
Its: Executive Director Executive Director
--------------------------- -------------------
<PAGE> 57
SERIES B SHAREHOLDERS (CONTINUED):
/s/ Pejman Salimpour
-----------------------------------
Pejman Salimpour
<PAGE> 58
SERIES B SHAREHOLDERS (CONTINUED):
SEOUL MOBILE TELECOMMUNICATIONS CORP.,
a corporation organized under the laws of Korea
By: /s/ I.J. Chung
-----------------------------------
Its:
----------------------------------
<PAGE> 59
SERIES B SHAREHOLDERS (CONTINUED):
SONY ELECTRONICS INC.,
a Delaware corporation
By: /s/ Yutaka Sato
-----------------------------------
Its: President Wireless Telecom Co.
----------------------------------
<PAGE> 60
SERIES B SHAREHOLDERS (CONTINUED):
SUK AM CORPORATION, a corporation organized
under the laws of Korea
By: /s/ Nam Soo Kim
-----------------------------------
Its: President
----------------------------------
<PAGE> 61
SERIES B SHAREHOLDERS (CONTINUED):
Taehung Corporation, a corporation
organized under the laws of Korea
/s/ Kee-Byung Kim
------------------------------------
By: Kee-Byung Kim
Its: President
<PAGE> 62
SERIES B SHAREHOLDERS (CONTINUED):
TCW Shared Opportunity Fund II, L.P.
---------------------------------------
By: TCW Investment Management Company,
its Investment Advisors
By: /s/ Robert Blyer
----------------------------------
Its: Managing Director
----------------------------------
By: /s/ Nicholas J. Tell, Jr.
----------------------------------
Its: Senior Vice President
----------------------------------
<PAGE> 63
SERIES B SHAREHOLDERS (CONTINUED):
TEL-COAD JOINT VENTURE GROUP
By: /s/ Ulrich T. Keller Jr.
-----------------------------------
Its: President
-----------------------------------
<PAGE> 64
SERIES B SHAREHOLDERS (CONTINUED):
THE JAY GOLDMAN MASTER LIMITED PARTNERSHIP
By: /s/ Jay Goldman
---------------------------------
Title: General Partner
-------------------------------
<PAGE> 65
SERIES B SHAREHOLDERS (CONTINUED):
THIRD POINT PARTNERS
By: /s/ Daniel Loeb
----------------------------------
Its: President
----------------------------------
<PAGE> 66
SERIES B SHAREHOLDERS (CONTINUED):
Triumph-California Limited Partnership
By: Triumph-California Advisors, L.P.-
General Partner
By: Triumph-California Advisors, Inc.-
General Partner
By: /s/ Muhit M. Rahman
--------------------------------
Title: Managing Director
--------------------------------
<PAGE> 67
SERIES B SHAREHOLDERS (CONTINUED):
Triumph-Connecticut Limited Partnership
By: /s/ Frederick W. McCarthy
----------------------------------
Its: Managing General Partner
----------------------------------
<PAGE> 68
SERIES B SHAREHOLDERS (CONTINUED):
TROPHY HUNTER INVESTMENTS, LTD.
By: /s/ Steven A. Van Dyke
----------------------------------
Its: PRESIDENT OF G.P.
----------------------------------
<PAGE> 69
SERIES B SHAREHOLDERS:
Union Communications 96,
a California general partnership
By: /s/ David Shalom
----------------------------------
Its: G.P.
----------------------------------
<PAGE> 70
SERIES B SHAREHOLDERS (CONTINUED):
Union Communications, Co.
/s/ P. Nazarian
---------------------------------------
By: Paryiz Nazarian
----------------------------------
Its: General Partner
----------------------------------
<PAGE> 71
SERIES B SHAREHOLDERS (CONTINUED):
Gem Telecom Partners
By: /s/ Gerald Unterman
----------------------------------
Its: General Partner
----------------------------------
<PAGE> 1
EXHIBIT 10.20
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT dated as of October 29, 1996, is by
and between NextWave Telecom Inc., a Delaware corporation (the "COMPANY") and
Hughes Network Systems, Inc. ("HUGHES").
THE COMPANY AND HUGHES COVENANT AND AGREE AS FOLLOWS:
1. Definitions. For purposes of this Agreement:
(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 issued by the Company upon conversion of
the convertible promissory note purchased by Hughes pursuant to that certain
Subscription Agreement of even date herewith by and between the Company and
Hughes (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 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(k);
(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 Registrable Securities;
(d) the term "HOLDER" means Hughes or any assignee thereof in
accordance with SECTION 13;
(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 asked prices for each trading day) 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 mutually agreed
by the Company and the Holder, or (iv) if no such agreement can be reached,
then the fair market value thereof as determined by an independent nationally
recognized investment banking firm selected by investment banking firms
representing each of the Company and the Holder(s), respectively. The Company
shall pay all costs of all determinations of fair market value by such
nationally recognized investment banking firm.
(f) the term "PRIOR REGISTRATION RIGHTS AGREEMENTS" means,
collectively, that certain Registration Rights Agreement dated as of May 8,
1996,
<PAGE> 2
that certain Registration Rights Agreement dated as of April 8, 1996 and that
certain Registration Rights Agreement dated as of August 22, 1996.
2. Request for Registration.
(a) If the Company receives at any time after the earlier of (i)
January 1, 1998, or (ii) six (6) 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, of SUBSECTION 2(b) and of
SECTION 5, 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 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) 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 6(a)) 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.
2
<PAGE> 3
(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
has remained effective for a period of ninety (90) consecutive days, 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 8.
(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; provided,
however, that during such period, the Company shall not be entitled to file any
other registration statement relating to the Company's securities pursuant to
any other outstanding registration rights agreement or for any other secondary
offering.
(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.
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, of SUBSECTION 3(b) and of
SECTION 5, 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
3
<PAGE> 4
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 6(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.
(c) Notwithstanding the foregoing, the Company is obligated to effect
only two such registrations pursuant to this SECTION 3 during each twelve month
period after the first registration statement filed hereunder; provided,
however, that the Company shall be deemed to fulfill such obligation only when
such registration has become effective and has remained effective for a period
of ninety (90) consecutive days, 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 8.
(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; provided, however,
that during such period, the Company shall not be entitled to file any other
registration statement relating to the Company's securities pursuant to any
other outstanding registration rights agreement or for any other secondary
offering.
(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 involved may be immediately sold to the public without
registration thereof, whether pursuant to Rule 144 or otherwise.
4
<PAGE> 5
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 SECTIONS 5 AND 9, cause to be registered under the Act all of the
Registrable Securities that each such Holder has requested to be registered.
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 8 below.
5. PRIOR REGISTRATION RIGHTS AGREEMENTS. Notwithstanding any other
provision of this Agreement to the contrary, the Company's obligation to
register Registrable Securities hereunder shall be suspended to the extent that
such registration (i) in the case of a request pursuant to Section 4 hereof,
would reduce the amount of registrable securities requested and entitled to be
included in such registration statement by any holder granted registration
rights pursuant to a Prior Registration Rights Agreement or (ii) in the case of
a request pursuant to Section 2, 3 or 4 hereof, could result in such
registration being declared effective within 120 days of the effective date of
any registration effected pursuant to Section 2 of any of the Prior
Registration Rights Agreements. If less than all of the Registrable Securities
requested by the Holders 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 rights of the Holders arising
pursuant to this Agreement shall be subject in all respects to the rights of
the holders of registration rights granted pursuant to any of the Prior
Registration Rights Agreements.
6. OBLIGATIONS OF THE COMPANY. Whenever required under this Agreement
to effect the registration of any Registrable Securities, the Company will, as
expeditiously as reasonably possible, but subject in each instance to the
limitations set forth in Section 5 hereof:
(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
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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, and
take all such actions reasonably necessary or advisable to enable the
disposition of the Registrable Securities of the Holder in such jurisdictions
as the Registrable Securities covered by the Registration Statement are intended
to be sold; 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; and
use its best efforts to cause such Registrable Securities covered by such
registration statement to be registered with or approved by such other
governmental agencies or authorities (other than the Federal Communications
Commission) as may be necessary to enable the Holders thereof to consummate
the disposition of the Registrable Securities.
(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 light of the circumstances then existing, and prepare
and furnish to each Holder copies of an amended or supplemental prospectus as
may be necessary so that, as thereafter delivered to prospective purchasers of
Registrable Securities, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein in light of the
circumstances under which they were made not misleading.
(g) Use its best efforts to furnish, at the request of any Holder
requesting registration of Registrable Securities pursuant to this Agreement,
on the date that such Registrable Securities are delivered to the underwriters
for sale in connection with a registration pursuant to this Agreement 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
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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 Securities to be listed on each
securities exchange or quotation system on which similar securities issued by
the Company are then listed.
(i) Provide a transfer agent and registrar for all such Registrable
Securities 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 Hughes on behalf of the
Holders as a group, 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 that is not required to be disclosed in such
registration statement or any prospectus in connection therewith.
(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.
(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 Hughes on behalf of
the 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
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earnings statement shall satisfy the provisions of Section 11(a) of the Act and
Rule 158 thereunder.
7. Furnishing of Information.
(a) It will be a condition precedent to the obligations of the Company
to take any action pursuant to this Agreement 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 OR 3 if, due to the operation of
SUBSECTION 7(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) OR 3(a).
8. 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
Holders, as a group (to be selected by Hughes). 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.
9. 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 Holder's 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). 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 advise the Company in writing 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 holders of
registration rights granted pursuant to the Prior Registration Rights
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Agreements, in no event will (i) the amount of securities of the selling
shareholders 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 SECTIONS 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.
10. 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 Agreement.
11. Indemnification. If any Registrable Securities are included in a
registration statement under this Agreement:
(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 11(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
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(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 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 11(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 11(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 11(b) exceed the net proceeds from the offering received
by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
11 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 11, 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
11, 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 11. The payments required by this Section 11
will be made periodically throughout the course of investigation or defense, as
and when bills are
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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 11
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.
(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 11 will survive the completion of any offering of Registrable
Securities in a registration statement under this Agreement, and otherwise.
12. 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
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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.
13. ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Agreement 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.
14. 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.
15. "MARKET STAND-OFF" AGREEMENT. Each Holder 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
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except Series B Common Stock included in such registration, not to exceed 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; provided, however, that notwithstanding the foregoing, the
Holders shall be afforded at least 90 consecutive days in each 12 month period
in which Holders shall not be subject to the restrictions of this SECTION 15.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
16. Termination of Registration Rights. No Holder will be entitled to
exercise any right provided for in this Agreement after the later of (i)
December 31, 2000 or (ii) three years after the date of a Qualified Public
Offering, as defined in the Company's Restated Certificate of Incorporation.
17. Adjustments Affecting Registrable Securities. 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 Securities in a registration undertaken pursuant hereto. However,
nothing in this Agreement shall limit the Company's ability to register, offer
and sell securities.
18. 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 Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company and Hughes have executed this Agreement
on this 29th day of October, 1996.
HUGHES NETWORK SYSTEMS, INC.
By: /s/ Pradman Kaul
----------------------------------
Its: President & COO
Address: HNS-Attn: Sheldon Fisher-DCM
11717 Exploration Ln.
Germantown, MD 20876
NEXTWAVE TELECOM INC.
By: Allen Salmasi
---------------------------------
Its: CEO & President
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EXHIBIT 10.21
NEXTWAVE TELECOM INC. SPECIAL VOTING AGREEMENT
THIS SPECIAL VOTING AGREEMENT (this "Voting Agreement") is entered into
effective as of October 29, 1996 (the "Effective Date") by and among NextWave
Telecom Inc., a Delaware corporation (the "Company"), Hughes Network Systems,
Inc. ("HNS") and the Series A Stockholders of the Company whose names appear on
the signature pages to this Voting Agreement (individually, a "Stockholder" and
collectively, the "Stockholders") with reference to the following facts:
WHEREAS, the Stockholders hold shares of the Company's Series B Common
Stock and/or shares of the Company's Series A Common Stock which convert, upon
the occurrence of certain events, into shares of Series B Common Stock.
Pursuant to the terms of the Restated Certificate, holders of Series B Common
Stock have the right 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 holders of Series A Common Stock.
WHEREAS, the Company is negotiating the terms of a Strategic Supply and
Development Agreement ("Strategic Supply Agreement") with HNS, which provides
for the supply and financing by HNS of up to $1 billion of code division
multiple access infrastructure equipment to the Company and its affiliates. In
connection with the Strategic Supply Agreement, HNS is purchasing convertible
promissory notes having an aggregate purchase price of $50 million, which are
convertible into shares of Series B Common Stock at a conversion price of $5.00
per share.
WHEREAS, the Company and the Stockholders desire to provide for the
voting of the Stockholders' shares of Series B Common Stock, whether now owned
or hereafter acquired, in accordance with the terms hereof to induce HNS to
execute the Strategic Supply Agreement.
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 as follows:
1. Representation on Board of Directors.
1.1 Election of Directors. Each Stockholder agrees, for the
duration of this Voting Agreement, to vote, at any meeting of stockholders at
which directors are elected in person or by proxy, all shares of Series B
Common Stock owned by it in favor of the election, as a director of the
Company, one representative designated by HNS or any affiliate, so long as HNS
or any affiliate holds at least Ten Million Dollars ($10,000,000) aggregate
principal amount of the Company's convertible notes or at least two million
(2,000,000) shares of Series B Common Stock (including securities convertible
or exchangeable for shares of Series B Common Stock), as adjusted for stock
splits, stock dividends, recapitalizations and the like. If necessary, the
Stockholders will cause the Board of Directors to increase the size of the
Board so that the
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number of authorized directors to be elected by the holders of Series B Common
Stock is sufficient to accommodate the election of the HNS designee, taking
into account incumbent directors and any obligations on the part of the
Stockholders to vote their shares in favor of the election of representatives
of other persons.
1.2 Resignation. In the event the member of the Board of Directors
designated by HNS resigns or otherwise ceases to be a member of the Board of
Directors for any reason, in the event such vacancy is filled by the vote of
the Company's stockholders, each Stockholder agrees that it will vote its
shares and otherwise use its best efforts to cause the vacancy to be filled by
a designee chosen by HNS during the term of this Voting Agreement.
1.3 Termination. This Voting Agreement shall remain in effect
until such time as the earlier to occur of (a) HNS' failure to satisfy the
conditions of Section 1.1 hereof or (b) three (3) years from the Effective
Date.
2. Confidential Information. HNS acknowledges and agrees that the
Board may designate a committee of the Board of Directors which shall be
delegated the responsibility of receiving and reviewing information provided
by third parties under non-disclosure or other confidential agreements and
other information obtained from third parties which contains competitive or
other sensitive marketing or pricing data. HNS agrees that its Board designee
will not be a member of such committee, will not have access to such
information, and will not seek the right to inspect any such written
information; provided that HNS' Board Designee will be informed of, will have
access to, and will be permitted to consider and act upon, any information and
data referred to in this paragraph to the extent required to permit such Board
Designee to perform his fiduciary duties as a member of the Board of Directors
of the Company.
3. Miscellaneous.
3.1 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.
3.2 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.
3.3 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.
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3.4 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.
3.5 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.
3.6 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 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.
3.7 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, successors and assigns.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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Exhibit 10.21
IN WITNESS WHEREOF, the parties hereto each executed this Special
Voting Agreement as of the date first written above.
COMPANY: NEXTWAVE TELECOM INC.,
a Delaware corporation
By: /s/ Allen Salmasi
------------------------
Its: CEO & President
[Signature Page 1 to Special Voting Agreement]
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EXHIBIT 10.25
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT dated as of November 8,
1996, is by and between NextWave Telecom Inc., a Delaware corporation (the
"Company") and The Allen Group Inc., a Delaware corporation ("Partner").
THE COMPANY AND PARTNER COVENANT AND AGREE AS FOLLOWS:
1. Definitions. For purposes of this Agreement:
(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 pursuant to that
certain Subscription Agreement of even date herewith by and between the Company
and Partner (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 any shares which are not "restricted
securities" pursuant to Rule 144 or other comparable provisions under the Act
("RULE 144") or which may be sold without registration pursuant to Rule 144(k);
(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 Registrable Securities;
(d) the term "HOLDER" means Partner or any assignee thereof in
accordance with Section 11;
(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 asked prices for each trading day) 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 "PRIOR REGISTRATION RIGHTS AGREEMENTS" means,
collectively, that certain Registration Rights Agreement dated as of May 8,
1996, that certain Registration Rights Agreement dated as of April 8, 1996,
that certain Registration Rights Agreement dated as of August 22, 1996, that
certain Registration Rights Agreement dated as of October 29, 1996 and that
certain Registration Rights Agreement dated November 6, 1996.
<PAGE> 2
2. Request for S-3 Registration.
(a) If the Company receives at any time after January 1, 1998
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) and
SECTION 12, 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 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 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 4(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 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 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 2 during each twelve
month period after the first registration statement filed hereunder; 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
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pay all registration expenses in connection with any registration initiated at
the request of a Holder to the extent provided below in SECTION 6.
(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 S-3 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.
3. 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 7 and Section 12, cause to be registered under the Act all of the
Registrable Securities that each such Holder has requested to be registered.
The registration expenses of the holders of the Registrable Securities incurred
pursuant to this Section 3 shall be paid by the Company to the extent provided
in Section 6 below.
4. Obligations of the Company. Whenever required under this Agreement 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 2, 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
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<PAGE> 4
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.
(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 Agreement, on
the date that such Registrable Securities are delivered to the underwriters for
sale in connection with a registration pursuant to this Agreement 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 Securities 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
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<PAGE> 5
Securities 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 and
accountant selected by the selling stockholders as a group, 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 or accountant in connection with such
registration statement, provided that the Company shall be under no obligation
to disclose proprietary or privileged information.
(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.
(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 3, refrain from filing any such registration statement,
prospectus, amendment or supplement to which one counsel, selected by the
selling stockholders 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 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.
5. Furnishing of Information.
(a) It will be a condition precedent to the obligations of
the Company to take any action pursuant to this Agreement 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
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<PAGE> 6
registration requested pursuant to SECTION 2 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 aggregated offering
price required to originally trigger the Company's obligation to initiate such
registration as specified in SUBSECTION 2(a).
6. 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 selling stockholders, 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 selling stockholders as a group by
Company) and (ii) any proportionate share of brokerage or underwriting fees,
expenses or commissions.
7. 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 3 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 holders of registration rights granted under
the Prior Registration Rights Agreements, in no event will (i) the amount of
securities of the selling shareholders included in the offering be reduced
below 10% of the total amount of the 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 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
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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.
8. Delay of Registration. No Holder will have any right to obtain or
seek an injunction restraining or otherwise delaying any registration pursuant
to Section 3 as the result of any controversy that might arise with respect to
the interpretation or implementation of this Agreement.
9. Indemnification. If any Registrable Securities are included in a
registration statement under this Agreement:
(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 9(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
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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 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 9(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
9(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 9(b) exceed
the gross proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
9 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 9, 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
9, 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 9. The payments required by this Section 9
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 9 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
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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 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 9
will survive the completion of any offering of Registrable Securities in a
registration statement under this Agreement, and otherwise.
10. Reports Under Securities 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 reasonable 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.
11. Assignment of Registration Rights. The rights to cause the Company to
register Registrable Securities pursuant to this Agreement 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
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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.
12. Prior Registration Rights Agreements. Notwithstanding any other
provision of this Agreement to the contrary, the Company's obligation to
register Registrable Securities hereunder shall be suspended to the extent that
such registration (i) in the case of a request pursuant to Section 3 hereof,
would reduce the amount of registrable securities requested and entitled to be
included in such registration statement by any holder granted registration
rights pursuant to a Prior Registration Rights Agreement or (ii) in the case of
a request pursuant to Section 2 or 3 hereof, could result in such registration
being declared effective within 120 days of the effective date of any
registration effected pursuant to Section 2 of any of the Prior Registration
Rights Agreements. If less than all of the Registrable Securities requested by
the Holders 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 rights of the Holders arising pursuant to this
Agreement shall be subject in all respects to the rights of holders of
registration rights granted pursuant to any of the Prior Registration Rights
Agreements.
13. "Market Stand-Off" Agreement. Each Holder 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 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 Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
14. Termination of Registration Rights. No Holder will be entitled to
exercise any right provided for in this Agreement after the later of (i)
December 31, 2000 or (ii) two years after the date of a Qualified Public
Offering, as defined in the Company's Restated Certificate of Incorporation.
15. Adjustments Affecting Registrable Shares. The Company will not
take any action, or permit any change to occur, with respect to its securities
which
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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.
16. Amendments. The approval by Holders of at least 60% in interest
of the Registrable Securities then outstanding hereunder shall be required to
amend, modify or waive the provisions of this Agreement.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
11
<PAGE> 12
IN WITNESS WHEREOF, the Company and Partner have executed this
Agreement on this 8th day of November, 1996.
THE ALLEN GROUP INC.
By: /s/ James LePort
-------------------------
Its: Vice President
-------------------------
Address:
25101 Chagrin Boulevard
Beachwood, OH 44122
Attn: Treasurer
NEXTWAVE TELECOM INC.
By: /s/ Allen Salmasi
-------------------------
Its: CEO & President
-------------------------
12
<PAGE> 1
EXHIBIT 10.44
INDEMNIFICATION AGREEMENT
This Agreement is made as of the __ day of ___________, 199_,
by and between NextWave Telecom Inc., a Delaware Corporation ("the Company"),
and the undersigned (the "Indemnitee"), with reference to the following facts:
The Indemnitee is currently serving as a Director and/or
Officer of the Company and the Company wishes the Indemnitee to continue in such
capacity. The Indemnitee is willing, under certain circumstances, to continue
serving as a Director and/or Officer of the Company. In this connection the
Company and the Indemnitee now agree they should enter into this Indemnification
Agreement in order to provide greater protection to Indemnitee against such
risks of service to the Company.
The Indemnitee has indicated that he or she may not be willing
to continue to serve as a Director and/or Officer of the Company and/or, at the
Company's request, as a director, officer, employee, trustee and/or agent of
another corporation, partnership, joint venture, trust or other enterprise in
the absence of indemnification in addition to that provided in the Restated
Certificate of Incorporation and the Bylaws of the Company;
Section 145 of the General Corporation Law of the State of
Delaware, under which Law the Company is organized,
<PAGE> 2
empowers corporations to indemnify a person serving as a director, officer,
employee or agent of the corporation and a person who serves at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, or other enterprise, and said
Section 145 and the By-Laws of the Company specify that the indemnification set
forth in said Section 145 and in the By-Laws, respectively, shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any By-Law, agreement, vote of stockholders or disinterested
directors or otherwise.
In order to induce the Indemnitee to continue to serve as a
Director and/or Officer of the Company and in consideration of his continued
service, the Company hereby agrees to indemnify the Indemnitee as follows:
1. Indemnity. The Company will indemnify the Indemnitee, his
executors, administrators or assigns, for any Expenses (as defined below) which
the Indemnitee is or becomes legally obligated to pay in connection with any
Proceeding. As used in this Agreement the term "Proceeding" shall include any
threatened, pending or completed claim, action, suit or proceeding, whether
brought by or in the right of the Company or otherwise and whether of a civil,
criminal, administrative or
<PAGE> 3
investigative nature, in which the Indemnitee may be or may have been involved
as a party or otherwise, by reason of the fact that Indemnitee is or was a
director or officer of the Company, by reason of any actual or alleged error or
misstatement or misleading statement made or suffered by the Indemnitee, by
reason of any action taken by him or of any inaction on his part while acting as
such director or officer, or by reason of the fact that he was serving at the
request of the Company as a director, trustee, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise;
provided, that in each such case Indemnitee acted in good faith and in a manner
which he reasonably believed to be in or not opposed to the best interests of
the Company, and, in the case of a criminal proceeding, in addition had no
reasonable cause to believe that his conduct was unlawful. As used in this
Agreement, the term "other enterprise" shall include (without limitation)
employee benefit plans and administrative committees thereof, and the term
"fines" shall include (without limitations) any excise tax assessed with respect
to any employee benefit plan.
2. Expenses. As used in this Agreement, the term
"Expenses" shall include, without limitation, damages, judgments, fines,
penalties, settlements and costs, attorneys' fees and
<PAGE> 4
disbursements and costs of attachment or similar bonds, investigations, and any
expenses of establishing a right to indemnification under this Agreement.
3. Enforcement. If a claim or request under this Agreement is
not paid by the Company, or on its behalf, within thirty days after a written
claim or request has been received by the Company, the Indemnitee may at any
time thereafter bring suit against the Company to recover the unpaid amount of
the claim or request and if successful in whole or in part, the Indemnitee shall
be entitled to be paid also the Expenses of prosecuting such suit. The Company
shall have the right to recoup from the Indemnitee the amount of any item or
items of Expenses theretofore paid by the Company pursuant to this Agreement, to
the extent such Expenses are not reasonable in nature or amounts; provided,
however, that the Company shall have the burden of proving such Expenses to be
unreasonable. The burden of proving that the Indemnitee is not entitled to
indemnification for any other reason shall be upon the Company.
4. Subrogation. In the event of payment under this Agreement,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution
<PAGE> 5
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.
5. Exclusions. The Company shall not be liable under this
Agreement to pay any Expenses in connection with any claim made against the
Indemnitee:
(a) to the extent that payment is actually made
to the Indemnitee under a valid, enforceable and collectible
insurance policy;
(b) to the extent that the Indemnitee is
indemnified and actually paid otherwise than pursuant to this
Agreement;
(c) in connection with a judicial action by or
in the right of the Company, in respect of any claim, issue or
matter as to which the Indemnitee shall have been adjudged to
be liable for negligence or misconduct in the performance of
his duty to the Company unless and only to the extent that any
court in which such action was brought shall determine upon
application that, despite the adjudication of liability but in
view of all the circumstances of the case, the Indemnitee is
fairly and reasonably entitled to indemnity for such expenses
as such court shall deem proper;
<PAGE> 6
(d) if it is proved by final judgment in a court
of law or other final adjudication to have been based upon or
attributable to the Indemnitee's in fact having gained any
personal profit or advantage to which he was not legally
entitled;
(e) for a disgorgement of profits made from the
purchase and sale by the Indemnitee of securities pursuant to
Section 16(b) of the Securities Exchange Act of 1934 and
amendments thereto or similar provisions of any state
statutory law or common law;
(f) brought about or contributed to by the
dishonesty of the Indemnitee seeking payment hereunder;
however, notwithstanding the foregoing, the Indemnitee shall
be protected under this Agreement as to any claims upon which
suit may be brought against him by reason of any alleged
dishonesty on his part, unless a judgment or other final
adjudication thereof adverse to the Indemnitee shall establish
that he committed (i) acts of active and deliberate
dishonesty, (ii) with actual
<PAGE> 7
dishonest purpose and intent, (iii) which acts were material
to the cause of action so adjudicated; or
(g) for any judgment, fine or penalty which the
Company is prohibited by applicable law from paying as
indemnity or for any other reason.
6. Indemnification of Expenses of Successful Party.
Notwithstanding any other provision of this Agreement, to the extent that the
Indemnitee has been successful on the merits or otherwise in defense of any
Proceeding or in defense of any claim, issue or matter therein, including
dismissal without prejudice, Indemnitee shall be indemnified against any and all
Expenses incurred in connection therewith.
7. Partial Indemnification. If the Indemnitee is
entitled under any provision of this Agreement to indemnification by the Company
for some or a portion of Expenses, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify the Indemnitee for the portion
of such Expenses to which the Indemnitee is entitled.
8. Advance of Expenses. Expenses incurred by the
Indemnitee in connection with any Proceeding, except the amount of any
settlement, shall be paid by the Company in advance upon request of the
Indemnitee that the Company pay such Expenses.
<PAGE> 8
The Indemnitee hereby undertakes to repay to the Company the amount of any
Expenses theretofore paid by the Company to the extent that it is ultimately
determined that such Expenses were not reasonable or that the Indemnitee is not
entitled to indemnification.
9. Approval of Expenses. No Expenses for which indemnity
shall be sought under this Agreement, other than those in respect of judgments
and verdicts actually rendered, shall be incurred without the prior consent of
the Company, which consent shall not be unreasonably withheld.
10. Notice of Claim. The Indemnitee, as a condition
precedent to his right to be indemnified under this Agreement, shall give to the
Company notice in writing as soon as practicable of any claim made against him
for which indemnity will or could be sought under this Agreement. Notice to the
Company shall be given at its principal office and shall be directed to the
Corporate Secretary (or such other address as the Company shall designate in
writing to the Indemnitee); notice shall be deemed received if sent by prepaid
mail properly addressed, the date of such notice being the date postmarked. In
addition, the Indemnitee shall give the Company such information and cooperation
as it may reasonably require and as shall be within the Indemnitee's power.
<PAGE> 9
11. Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one
instrument.
12. Indemnification Hereunder Not Exclusive. Nothing
herein shall be deemed to diminish or otherwise restrict the Indemnitee's right
to indemnification under any provision of the Restated Certificate of
Incorporation or By-Laws of the Company and amendments thereto or under law.
13. Governing Law. This Agreement shall be governed by
and construed in accordance with Delaware law.
14. Saving Clause. Wherever there is conflict between any
provision of this Agreement and any applicable present or future statute, law or
regulation contrary to which the Company and the Indemnitee have no legal right
to contract, the latter shall prevail, but in such event the affected provisions
of this Agreement shall be curtailed and restricted only to the extent necessary
to bring them within applicable legal requirements.
15. Coverage. The provisions of this Agreement shall
apply with respect to the Indemnitee's service as a Director and/or Officer of
the Company prior to the date of this Agreement and with respect to all periods
of such service after
<PAGE> 10
the date of this Agreement, even though the Indemnitee may have ceased to be a
Director and/or Officer of the Company.
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and signed as of the day and year first above
written.
NEXTWAVE TELECOM INC.
By______________________
Its_____________________
------------------------
By______________________
Its_____________________
<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
4. NextWave Partners 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 January 31, 1997 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
January 31, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF PERSON ABOUT TO
BECOME A DIRECTOR
I, Ha-Young Aum, hereby consent to being named in the Registration
Statement on Form S-1 (No. 333-5577) of NextWave Telecom Inc. as a person about
to become a director of NextWave Telecom Inc.
Dated: July 31, 1996
/s/ Ha-Young Aum
---------------------------------
Ha-Young Aum
<PAGE> 1
EXHIBIT 23.4
CONSENT OF PERSON ABOUT TO
BECOME A DIRECTOR
I, Jang Ho Chung, hereby consent to being named in the Registration
Statement on Form S-1 (No. 333-5577) of NextWave Telecom Inc. as a person about
to become a director of NextWave Telecom Inc.
Dated: July 29, 1996
/s/ Jang Ho Chung
---------------------------------
Jang Ho Chung
<PAGE> 1
EXHIBIT 23.5
CONSENT OF PERSON ABOUT TO
BECOME A DIRECTOR
I, Gregory A. Cucchi, hereby consent to being named in the Registration
Statement on Form S-1 (No. 333-5577) of NextWave Telecom Inc. as a person about
to become a director of NextWave Telecom Inc.
Dated: August 18, 1996
/s/ Gregory A. Cucchi
---------------------------------
Gregory A. Cucchi
<PAGE> 1
EXHIBIT 23.6
CONSENT OF PERSON ABOUT TO
BECOME A DIRECTOR
I, Jung-Boo Kim, hereby consent to being named in the Registration
Statement on Form S-1 (No. 333-5577) of NextWave Telecom Inc. as a person about
to become a director of NextWave Telecom Inc.
Dated: July 31, 1996
/s/ Jung-Boo Kim
---------------------------------
Jung-Boo Kim
<PAGE> 1
EXHIBIT 23.7
CONSENT OF PERSON ABOUT TO
BECOME A DIRECTOR
I, Manjin Jerome Kim, hereby consent to being named in the Registration
Statement on Form S-1 (No. 333-5577) of NextWave Telecom Inc. as a person about
to become a director of NextWave Telecom Inc.
Dated: July 26, 1996
/s/ Manjin Jerome Kim
---------------------------------
Manjin Jerome Kim
<PAGE> 1
EXHIBIT 23.8
CONSENT OF PERSON ABOUT TO
BECOME A DIRECTOR
I, Muhit U. Rahman, hereby consent to being named in the Registration
Statement on Form S-1 (No. 333-5577) of NextWave Telecom Inc. as a person about
to become a director of NextWave Telecom Inc.
Dated: July 31, 1996
/s/ Muhit U. Rahman
---------------------------------
Muhit U. Rahman
<PAGE> 1
EXHIBIT 23.9
CONSENT OF PERSON ABOUT TO
BECOME A DIRECTOR
I, Yutaka Sato, hereby consent to being named in the Registration
Statement on Form S-1 (No. 333-5577) of NextWave Telecom Inc. as a person about
to become a director of NextWave Telecom Inc.
Dated: August 27, 1996
/s/ Yutaka Sato
---------------------------------
Yutaka Sato
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