<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to __________________________
Commission file number 0-23694
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Nucentrix Broadband Networks, Inc.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 73-1435149
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
200 Chisholm Place, Suite 200, Plano, Texas 75075
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (972) 423-9494
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N/A
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Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report.
Indicate by check T whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
Shares Outstanding
Class as of May 1, 2000
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<S> <C>
Common Stock, $.001 par value 10,148,183
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
NUCENTRIX BROADBAND NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents ......................................... $ 29,643 $ 28,932
Restricted assets - investment in debt securities ................. 251 251
Subscriber receivables, net of allowance for
doubtful accounts of $340 and $407, respectively ................ 982 1,342
Other receivables ................................................. 1,692 934
Prepaid expenses and other ........................................ 1,450 1,228
------------ ------------
Total current assets ................................... 34,018 32,687
Systems and equipment, net ................................................ 52,459 55,993
License and leased license investment, net ................................ 71,767 73,310
Note and lease receivables ................................................ 3,101 3,212
Other assets, net ......................................................... 3,646 3,609
------------ ------------
Total assets ........................................... $ 164,991 $ 168,811
============ ============
Current liabilities:
Accounts payable and accrued expenses ............................. $ 16,160 $ 18,579
Current portion of long-term debt ................................. 1,881 1,845
------------ ------------
Total current liabilities .............................. 18,041 20,424
------------ ------------
Long-term debt, less current portion ...................................... 14,282 14,671
Other long-term liabilities ............................................... 4,125 3,671
Commitments and contingencies (note 8)
Stockholders' equity:
Preferred stock, $.01 par value; 15,000,000 shares
authorized; none issued ..................................... -- --
Common stock, $.001 par value; authorized
30,000,000 shares, 10,148,183 and 10,099,717 shares
outstanding at March 31, 2000 and December 31,1999,
respectively ................................................. 10 10
Additional paid-in capital ........................................ 147,801 147,279
Accumulated deficit ............................................... (19,268) (17,244)
------------ ------------
Total stockholders' equity ............................. 128,543 130,045
------------ ------------
Total liabilities and stockholders' equity ............. $ 164,991 $ 168,811
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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NUCENTRIX BROADBAND NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
(NOTE 2) (NOTE 2)
------------ ------------
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
2000 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenues ........................................................ $ 16,323 $ 18,466
Operating expenses:
Systems operations ...................................... 7,297 8,599
Selling, general and administrative ..................... 8,044 9,156
Depreciation and amortization ........................... 6,967 6,104
------------ ------------
Total operating expenses ..................... 22,308 23,859
------------ ------------
Operating loss ............................... (5,985) (5,393)
Other income (expense):
Interest income ......................................... 495 423
Interest expense ........................................ (354) (321)
Other income ............................................ 3,820 2
------------ ------------
Total other income (expense) ................. 3,961 104
------------ ------------
Loss before reorganization costs ............. (2,024) (5,289)
Reorganization costs .................................... -- (2,311)
------------ ------------
Net loss ..................................... $ (2,024) $ (7,600)
============ ============
Net loss per common share - basic and diluted ................... $ (0.20) N/A
============ ============
Weighted average shares outstanding - basic and diluted ......... 10,111 N/A
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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NUCENTRIX BROADBAND NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
(NOTE 2) (NOTE 2)
------------ ------------
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
2000 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss ..................................................... $ (2,024) $ (7,600)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization ............................ 6,967 6,104
Gain on sale of assets ................................... (3,922) --
Changes in assets and liabilities:
Subscriber and other receivables ................... (398) (954)
Prepaid expenses and other ......................... (64) (158)
Accounts payable, accrued expenses and other
liabilities ........................................ (1,970) 5,057
------------ ------------
Net cash provided by (used in) operating
activities .................................... (1,411) 2,449
------------ ------------
Cash flows from investing activities:
Proceeds from sale of assets ................................. 4,033 --
Purchases of systems and equipment ........................... (1,937) (5,081)
Expenditures for licenses and leased licenses ................ (178) (16)
Proceeds from note receivable ................................ 111 138
------------ ------------
Net cash provided by (used in) investing
activities .................................... 2,029 (4,959)
------------ ------------
Cash flows from financing activities:
Payments on short-term borrowings and notes payable .......... (70) (241)
Payments on long-term debt ................................... (359) (335)
Proceeds from exercise of stock options ...................... 522 --
------------ ------------
Net cash provided by (used in) financing
activities .................................... 93 (576)
------------ ------------
Net increase (decrease) in cash and cash equivalents ................. 711 (3,086)
Cash and cash equivalents at beginning of period ..................... 28,932 30,676
------------ ------------
Cash and cash equivalents at end of period ........................... $ 29,643 $ 27,590
============ ============
Cash paid for interest ............................................... $ 346 $ 391
============ ============
Cash paid for reorganization costs ................................... $ 512 $ 2,311
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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NUCENTRIX BROADBAND NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000
(1) Description of Business
Nucentrix Broadband Networks, Inc. (the "Company") provides wireless
broadband services in medium and small markets in the central United
States. The Company controls up to 196 megahertz ("MHz") of radio
spectrum in the 2.1 gigahertz ("GHz") and 2.5 - 2.7 GHz band licensed
by the Federal Communications Commission ("FCC") in 93 markets
(including three markets for which the Company has entered into letters
of intent to acquire). The Company currently provides high-speed
wireless Internet access service under temporary developmental FCC
licenses in two markets, primarily to medium-sized and small
businesses, small offices/home offices and telecommuters.
At April 30, 2000, the Company provided wireless subscription
television service in 58 markets, including an offering of up to 185
digital channels from DIRECTV, Inc. and its distributors in over 50
markets.
(2) Financial Restructuring
On December 4, 1998, the Company filed a voluntary, pre-negotiated Plan
of Reorganization (the "Plan" or "Plan of Reorganization") under
Chapter 11 of the U.S. Bankruptcy Code ("Bankruptcy Code"). On March
15, 1999, the U.S. Bankruptcy Court for the District of Delaware
confirmed the Plan, and the Company consummated the Plan on April 1,
1999 (the "Effective Date").
The Company adopted Fresh Start Reporting as of the Effective Date, in
accordance with American Institute of Certified Public Accountants
Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code" ("SOP 90-7"). Fresh Start
Reporting resulted in a new reporting entity with assets and
liabilities adjusted to estimated fair value and beginning retained
earnings set to zero. Liabilities subject to compromise were adjusted
to zero in connection with their cancellation under the Plan. In
connection with the debt discharge, the Company recorded an
extraordinary gain of approximately $174.0 million on the Effective
Date.
As a result of the application of Fresh Start Reporting and the
recapitalization of the Company on the Effective Date, financial
information in the accompanying condensed consolidated financial
statements as of March 31, 2000, and December 31, 1999, and for the
three months ended March 31, 2000 (collectively, the "Successor
Period") is presented on a different basis than the financial
information for the three months ended March 31, 1999 (the "Predecessor
Period"). Accordingly, such information is not comparable.
Federal tax law requires that the amount of income from discharge of
indebtedness that occurs in connection with a Chapter 11 bankruptcy be
used to permanently reduce federal tax attributes. These reductions may
be applied to one or more tax items, including but not limited to
pre-bankruptcy net operating loss carryforwards, the tax basis of
certain assets and the tax basis of subsidiary stock ("Tax Attribute
Reduction"). Management is currently considering the impact of
alternatives available to the Company in performing this Tax Attribute
Reduction, but has not yet concluded which alternative it will select.
(3) Liquidity and Capital Resources
The Company's condensed consolidated financial statements have been
presented on a going concern basis which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of
business.
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Although the Company does not expect to generate sufficient cash flow
to fully implement its long-term business strategy without additional
capital or financing, it currently expects that cash on hand and cash
generated from operations and equipment financing from Cisco Systems,
Inc. ("Cisco") will be sufficient to fund operations and capital
requirements at least through the first quarter of 2001. The Company
may seek additional debt or equity financing in 2000 if it accelerates
its business strategy or Internet build-out schedule, consummates any
significant acquisitions or alliances, determines that market
conditions are appropriate for such financing or determines that its
current operating assumptions are inaccurate.
In any event, the Company likely will seek additional capital or
financing before the end of 2001 to enable it to fully implement its
long-term business strategy. Options include the sale of debt or equity
securities, borrowings under secured or unsecured loan arrangements,
including vendor equipment financing, and sales of assets. The Company
can provide no assurance that such financing will be available in a
timely manner or on satisfactory terms.
(4) Principles of Consolidation
The condensed consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries. Significant
intercompany balances and transactions between the entities have been
eliminated in consolidation.
(5) Interim Financial Information
In the opinion of management, the accompanying unaudited condensed
consolidated financial information of the Company contains all
adjustments, consisting only of those of a normal recurring nature,
necessary to present fairly the Company's financial position as of
March 31, 2000, and the results of operations and cash flows for the
three months ended March 31, 2000 and 1999. These results are not
necessarily indicative of the results to be expected for the full
fiscal year. The accompanying financial statements are for interim
periods and should be read in conjunction with the 1999 audited
consolidated financial statements of the Company included in the
Company's 1999 Form 10-K (as amended by Form 10-K/A).
(6) Net Loss Per Common Share - Basic and Diluted
The Company has presented (1) basic loss per share, computed on the
basis of the weighted average number of common shares outstanding
during the period, and (2) diluted loss per share, computed on the
basis of the weighted average number of common shares and all dilutive
potential common shares outstanding during the period. Options to
purchase 728,500 shares and warrants to purchase 825,000 shares of the
Company's common stock issued and outstanding at March 31, 2000, have
not been included in the calculation of diluted loss per share because
their effects are antidilutive. Earnings per share information has not
been presented for the Predecessor Period as the Company was
recapitalized on the Effective Date in connection with the Plan, and
accordingly, per share amounts are not comparable between the
Predecessor Period and the Successor Period.
(7) Sale of Investment in Wireless One, Inc.
In January 2000, the Company exchanged 2,911,725 shares of common stock
in Wireless One, Inc. ("Wireless One") for approximately $3.8 million,
pursuant to Wireless One's plan of reorganization under Chapter 11 of
the Bankruptcy Code. The Company expects to exchange the remainder of
the Company's 547,783 shares of Wireless One common stock for
approximately $700,000 in the second quarter of 2000. Losses recorded
in prior years for Wireless One reduced the Company's investment to
zero. Accordingly, the proceeds are classified as a gain on sale of
assets and included in other income in the accompanying condensed
consolidated statement of operations for the three months ended March
31, 2000.
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(8) Commitments and Contingencies
Certain former directors and officers of the Company, to whom the
Company may have indemnity obligations, are defendants in two
securities lawsuits, one of which is a purported class action lawsuit.
These actions allege, among other things, various violations of federal
and state securities laws. In addition, the Company is a party to two
purported class action lawsuits alleging that the Company overcharged
its customers for administrative late fees. The Company intends to
vigorously defend these matters. While it is not feasible to predict or
determine the final outcome of these proceedings or to estimate the
amounts or potential range of loss with respect to these matters, and
while management does not expect such an adverse outcome, management
believes that an adverse outcome in one or more of these proceedings
that exceeds or otherwise is excluded from applicable insurance
coverage could have a material adverse effect on the consolidated
financial condition, results of operations or cash flows of the
Company. In September 1999, two former stockholders of Heartland
Wireless Communications, Inc. filed a motion in U.S. Bankruptcy Court
to revoke the order confirming the Plan. The Company intends to
vigorously oppose the motion, and it is not possible at this time to
predict the effect of any action by the Bankruptcy Court to revoke the
Plan.
The Company also is a party to other legal proceedings, a majority of
which are incidental to its business. In the opinion of management, and
after consideration for amounts recorded in the accompanying condensed
consolidated financial statements, the ultimate effects of such other
matters are not expected to have a material adverse effect on the
consolidated financial condition, results of operations or cash flows
of the Company.
The Company has entered into a Memorandum of Agreement with Cisco.
Under the agreement with Cisco, the Company is obligated to purchase at
least $13.0 million in base station and customer premises equipment
from Cisco through the end of 2001, subject to Cisco meeting certain
equipment test trial and other conditions. As part of its strategic
alliance with the Company, Cisco has offered a financing facility of up
to $16.25 million for the purchase of such equipment.
(9) Segment Reporting
Historically the Company has been considered to have a single
reportable segment: the distribution of subscription television
services. However, based on the Company's current business strategy to
become a leading provider of wireless broadband services in its
markets, and its plans to provide wireless broadband Internet access in
approximately 20 of its markets by the end of 2001, the Company expects
to be comprised of two reportable segments in 2000: (i) distribution of
subscription television services, and (ii) delivery of wireless
broadband Internet access. As of, and for the quarter ended March 31,
2000, revenues and segment assets related to the delivery of wireless
broadband Internet access were immaterial.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In this Quarterly Report on Form 10-Q, we will refer to Nucentrix Broadband
Networks, Inc., a Delaware corporation, as "the Company," "we," "us" and "our."
FORWARD-LOOKING STATEMENTS
This document contains certain forward-looking statements with respect
to our financial condition, results of operations, business strategy and
financial needs. The words "may," "will," "expect," "believe," "plan," "intend,"
"anticipate," "estimate," "continue" and similar expressions, as they relate to
us, as well as discussions of our strategy and pending transactions, are
intended to identify forward-looking statements. Such statements reflect our
current view of future events and are based on our assessment of, and are
subject to, a variety of factors, contingencies, risks, assumptions and
uncertainties deemed relevant by management, including:
o business and economic conditions in our existing markets,
o competitive technologies, products and services,
o regulatory and interference issues, including grant of two-way
transmission authorizations,
o the capabilities of the Vector Orthogonal Frequency Division
Multiplexing ("VOFDM") technology platform we intend to use
for wireless broadband services,
o with respect to pending transactions, completing definitive
documents, satisfying our due diligence efforts and obtaining
required third party consents, including consent of the
Federal Communications Commission ("FCC"),
o those matters discussed under "Risk Factors" in Part I of our
Annual Report on Form 10-K for 1999 (as amended by Form
10-K/A), and
o those matters discussed elsewhere in this document.
We cannot assure you that any of our expectations will be realized, and
actual results and occurrences may differ materially from our expectations as
stated in this document. We undertake no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise.
OVERVIEW
We provide wireless broadband Internet and wireless subscription
television services using up to 196 megahertz ("MHz") of radio spectrum licensed
by the FCC in the 2.1 gigahertz ("GHz") and 2.5 - 2.7 GHz range, primarily in
medium and small markets in the central United States. This spectrum commonly is
referred to together as "Multichannel Multipoint Distribution Service," or
"MMDS," and is referred to together as "MMDS" in this document. We own the basic
trading area ("BTA") authorization, or otherwise license or lease MMDS spectrum,
in 93 markets covering approximately 9.1 million total households, including
three markets covering over 460,000 total households for which we have entered
into letters of intent to acquire.
Our business strategy is to become a leading provider of wireless
broadband services using our high-capacity radio spectrum in medium and small
markets. We currently provide always-on, high-speed wireless Internet access
service under temporary developmental FCC licenses to over 215 accounts serving
an estimated 1,700 end users in two of our 93 markets, primarily to medium-sized
and small businesses, small offices/home offices and telecommuters. Our service
offerings include Internet access from 256 Kbps to 1.54 Mbps, or up to 50 times
faster than service provided over standard telephone lines. Through a national
independent contractor, we also provide value-added services such as technical
support, e-mail, Web hosting and design, domain name registration and domain
name and maintenance changes. We launched our first Internet market,
Sherman-Denison, Texas, in February 1999 followed by our second market, Austin,
Texas, in May 1999.
In February 2000, we announced a strategic alliance and agreement with
Cisco Systems, Inc. ("Cisco") to pursue testing and deployment of wireless
broadband services using VOFDM technology on a Cisco Powered Network(R). The
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agreement includes two field trials to be completed in Austin and Amarillo,
Texas between September 2000 and the end of 2000. We expect to launch at least
20 total markets by the end of 2001 using this technology.
Historically, we have used our spectrum to provide wireless
subscription television services. We presently have wireless subscription
television transmission facilities constructed and operating in 58 markets in
nine states. At April 30, 2000, we had about 125,000 wireless subscription
television customers, including about 117,000 customers who subscribed only to
programming service provided over our MMDS spectrum, and 8,000 "combo"
subscribers who subscribed to both our MMDS programming service and to DIRECTV
programming service sold by us. In addition, at April 30, 2000, there were
approximately 17,000 customers who received only DIRECTV programming sold by us.
Our business strategy contemplates a decline in revenues, wireless
subscription television subscribers and EBITDA in 2000 and beyond, as we
continue to allocate more of our spectrum and other resources to develop and
expand our wireless broadband Internet and other wireless broadband Internet
protocol ("IP")-based businesses.
In connection with the FCC's rules on MMDS two-way communications
services, the FCC has announced a one-week "filing window" for applications for
two-way authorizations from July 3, 2000, to July 10, 2000. We intend to file
two-way applications for a number of our markets in this filing window,
including Austin and Sherman/Denison. All such applications must meet FCC
interference protection rules or contain the consent of co-channel and adjacent
channel licensees in our markets and neighboring markets. All complete
applications that have not been opposed within 120 days after the close of the
filing window will be granted. Although we believe we will be able to file for
and receive two-way authorizations to replace our developmental authorizations
in Austin and Sherman/Denison, there can be no assurance that we will receive
such authorizations in these or other markets.
Cisco Systems and Cisco Powered Network are trademarks of Cisco
Systems, Inc. DIRECTV is a registered trademark of DIRECTV, Inc., a subsidiary
of the Hughes Electronics unit of General Motors Corporation.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 1999
As a result of the application of Fresh Start Reporting, in connection
with our Plan of Reorganization ("Plan of Reorganization" or "Plan") that became
effective April 1, 1999, financial information in the accompanying unaudited
condensed consolidated financial statements for the three months ended March 31,
2000 (the "Successor Period"), is presented on a different basis than the
financial information for the three months ended March 31, 1999 (the
"Predecessor Period"). Accordingly, such information is not comparable. However,
certain trends addressed within the discussion of operating results below will
be based on a comparison of the two three-month periods.
Revenues; Subscribers. Our revenues consist primarily of monthly fees
paid by wireless subscription television subscribers for basic programming,
premium programming, equipment rental and other miscellaneous fees, revenue from
our agency relationships with DIRECTV and its distributors, as well as fees
generated from start-up Internet operations in Austin and Sherman/Denison,
Texas. Our revenues for the first quarter of 2000 were $16.3 million, compared
to $18.5 million for the first quarter of 1999. The average number of wireless
subscription television subscribers for the three months ended March 31, 2000,
was 130,478 compared to 155,377 for the same period of 1999. In addition,
during the three months ended March 31, 2000, we had 15,323 average subscribers
who received only DIRECTV programming sold by us. As of January 1, 2000 we do
not include these customers in our reported wireless subscription television
subscriber base, but we do receive certain agency revenue from DIRECTV related
to these accounts, as well as equipment lease payments from a portion of these
customers. We also do not include these customers or their related revenues in
our calculation of recurring average revenue per subscriber. Prior year
calculations have been revised to conform with this presentation.
The decline in revenues over the periods presented resulted primarily
from fewer total wireless subscription television subscribers as we continued to
shift our principal focus from providing wireless subscription television
services to developing and expanding our wireless broadband IP-based services.
Additional factors contributing to a loss in subscribers over the periods
presented were decreased marketing of MMDS subscription television services,
overall increased competition for cable television services, and a loss of
subscribers in Austin in the second quarter of 1999, which resulted from a
technology conversion that caused some existing subscribers to fall outside of
the coverage range of the new technology.
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Recurring average revenue per subscriber was $36.03 in the first
quarter of 2000, compared to $35.10 in the same quarter last year. Internet
service revenues for the three months ended March 31, 2000, were not material.
System Operations Expense. Systems operations expense includes
programming costs, channel lease payments, labor and overhead relating to
service calls and churn, transmitter site and tower rentals, certain repairs and
maintenance expenditures and Internet service costs. Programming costs (with the
exception of minimum payments) and channel lease payments (with the exception of
certain fixed payments) are variable expenses based on the number of
subscribers. System operations expense was $7.3 million, or 44.7% of revenues,
for the first quarter of 2000, compared to $8.6 million, or 46.6% of revenues,
for the first quarter of 1999. System operations expense decreased over the
periods presented due to lower programming expense as a result of lower
subscriber count and a larger proportion of DIRECTV subscribers, which have
lower programming costs. Average monthly churn was 2.9% for both the first
quarter of 2000 and the first quarter of 1999.
Selling, General and Administrative (SG&A) Expense. SG&A expense for
the first quarter of 2000 was $8.0 million, or 49.3% of revenues, compared to
$9.2 million, or 49.6% of revenues, for the same period last year. SG&A expense
for the quarters ending March 31, 2000 and 1999, included $364,000 and $166,000,
respectively, in costs associated with our Internet operations, which primarily
included labor and marketing expenses incurred to launch the Austin and
Sherman/Denison markets. Excluding Internet costs and revenues, SG&A would have
been 47.3% and 48.7% of revenues for the quarters ending March 31, 2000 and
1999, respectively. The decrease in SG&A expense for the quarter ending March
31, 2000, was primarily due to savings from consolidation of certain market
offices and management, and lower bad debt expense due to improved collections.
This decrease was partially offset by increased costs to improve service at our
customer care center and increased expenditures in preparation for the trial
launch of wireless broadband Internet service using Cisco's VOFDM technology in
two markets.
Depreciation and Amortization. Depreciation and amortization expense
includes depreciation of systems and equipment and amortization of license and
leased license investment and other intangibles. Our policy is to capitalize the
excess of direct costs of subscriber installations over installation fees. These
direct costs include reception materials and equipment on subscriber premises
and installation labor and overhead. These direct costs are capitalized as
systems and equipment in the accompanying condensed consolidated balance sheets.
Depreciation and amortization expense was $7.0 million for the first quarter of
2000, compared to $6.1 million for the first quarter of 1999. The increase in
the current quarter is primarily due to increased depreciation on DIRECTV
subscriber equipment due to more DIRECTV subscribers.
Operating Loss. We generated operating losses of $6.0 million for the
first quarter of 2000, compared to a loss of $5.4 million for the first quarter
of 1999. This was primarily due to increased depreciation on DIRECTV subscriber
equipment, partially offset by lower programming expense, decreased marketing
costs and savings from consolidation of certain market offices and management.
EBITDA. "EBITDA," or earnings before interest, taxes, depreciation and
amortization and non-recurring items, is widely used by analysts, investors and
other interested parties in the Internet, cable television and
telecommunications industries. EBITDA is also a widely accepted financial
indicator of a company's ability to incur and service indebtedness. EBITDA is
not a financial measure determined by generally accepted accounting principles
and should not be considered as an alternative to net income as a measure of
operating results or to cash flows as a measure of funds available for
discretionary or other liquidity purposes. EBITDA may not be comparably
calculated from one company to another. EBITDA was $982,000 for the quarter
ended March 31, 2000, compared to $711,000 for the same period in 1999. The
increase in EBITDA over the prior year period primarily was due to lower
programming expenses for fewer subscribers, lower compensation and facilities
costs resulting from the consolidation of field offices and personnel and
decreased marketing expenditures for our wireless subscription television
service.
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Interest Income. Interest income was $495,000 for the three months
ended March 31, 2000, compared to $423,000 for the three months ended March 31,
1999. The slight increase in interest expense was due to higher earnings during
the current year on larger unrestricted cash balances.
Interest Expense. We incurred interest expense of $354,000 for the
first quarter of 2000 compared to $321,000 for the first quarter of 1999.
Interest expense increased slightly in 2000 because of higher debt balances
related to capital lease obligations incurred when we leased back 31 tower sites
that we sold during the fourth quarter of 1999 and the first quarter of 2000.
Other Income/Expense. During the first quarter of 2000, we received
$3.8 million in exchange for our equity interest in Wireless One, Inc.
("Wireless One"), which announced confirmation of its plan of reorganization in
November 1999. The entire amount received was recognized as other income, as our
investment balance had been reduced to zero during 1997 as a result of Wireless
One losses.
Reorganization Costs. During the first quarter of 1999, we incurred
$2.3 million in expenses related to our reorganization under Chapter 11. These
costs were for financial and legal advisors, accountants and administrative
costs. There were no reorganization costs in the current year.
Net Loss. We have recorded net losses since our inception. During the
first quarter of 2000, we incurred a net loss of $2.0 million compared to a net
loss of $7.6 million for the first quarter of 1999. The improvement in net loss
resulted primarily from $3.8 million in other income recognized in connection
with the sale of our equity interest in Wireless One and from lower
reorganization costs in the current year. Earnings per share information has not
been presented for the Predecessor Period as the Company was recapitalized on
April 1, 1999, in connection with our Plan, and, accordingly, per share amounts
are not comparable between the Predecessor Period and the Successor Period.
LIQUIDITY AND CAPITAL RESOURCES
The wireless broadband and wireless subscription television businesses
are capital-intensive. Since inception, we have spent funds to lease or
otherwise acquire MMDS channel rights in various markets and operating systems,
to construct operating systems and to finance initial system operating losses.
Our primary sources of capital have been subscription fees, debt financing, the
sale of common stock and the sale of MMDS channel rights that were not essential
to our business strategy. The approval by the FCC of the use of MMDS spectrum
for digital two-way communications services allows us to use our spectrum to
provide wireless broadband services such as high-speed Internet access, voice
over IP ("VoIP") and/or fixed-wireless telecommunications services. The growth
of our business by using our spectrum to provide two-way communications services
will require substantial investment in capital expenditures for the development
and launch of wireless broadband services.
Cash used in operations was $1.4 million during the three months ended
March 31, 2000, compared to cash provided by operations of $2.4 million during
the same period of 1999. Cash used by operations in the current year was
primarily for payment of accrued property taxes and reorganization costs. Cash
provided by operations for the first quarter of 1999 was primarily related to
$2.2 million for DIRECTV agency revenue received but not yet earned.
Cash provided by investing activities was $2.0 million during the three
months ended March 31, 2000, compared to cash used in investing activities of
$5.0 million for the first quarter of 1999. Cash provided by investing
activities during the first quarter of 2000 included $3.8 million from the
exchange for our equity interest in Wireless One, and approximately $200,000
from the sale of one escrowed tower site related to a previously announced sale
and leaseback transaction with SBA Towers, Inc. Prior year cash used in
investing activities included capitalized subscriber installation costs and
purchases of wireless subscription television customer premises equipment.
Cash provided by financing activities was $93,000 during the three
months ended March 31, 2000, compared to cash used in financing activities of
$576,000 during the comparable 1999 period. Cash provided by financing
activities in the current year included principal payments on our BTA debt,
which was more than offset by $522,000 in cash proceeds received from the
exercise of employee stock options. Cash used in the first quarter of 1999 was
for principal
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<PAGE> 12
payments on our BTA debt, capital lease obligations and other notes payable,
several of which have been fully repaid.
At April 30, 2000 we had approximately $30.2 million of unrestricted
cash and cash equivalents and $650,000 in restricted cash representing
collateral securing various outstanding letters of credit to certain of our
vendors. $399,000 of restricted cash represents bank certificates of deposit
pledged as collateral for long-term operating leases and are therefore
considered non-current and included in other assets on the accompanying
condensed consolidated balance sheets.
FUTURE CASH REQUIREMENTS
Our goal is to become a leading provider of wireless broadband services
in our markets. To implement this strategy, we plan to (1) offer high-speed
Internet access service to medium-sized and small businesses in at least 20
markets by the end of 2001, (2) increase our geographic scope for wireless
broadband services by acquisitions or business combinations and (3) offer
telephony services including VoIP and/or fixed-wireless telecommunications
services.
We estimate that a launch of a new wireless broadband network system
providing high-speed Internet access in a typical market will involve an initial
expenditure of approximately $500,000 to $900,000 for network equipment,
depending upon the system design and type and sophistication of the equipment.
In addition, we estimate that the acquisition and installation of each new
Internet subscriber will cost between $1,500 and $1,800 depending upon the type
of customer. This includes charges for equipment, labor, overhead and direct
commissions. This may be offset partially by installation and other up-front
fees. Other launch costs include the cost of securing adequate space for
marketing facilities in markets not previously operating a wireless subscription
television business, as well as costs related to employees. As a result of these
costs, operating losses are likely to be incurred by a system during the
start-up period.
In December 1999, we closed the sale of 30 communications towers for
approximately $6.2 million. In the first quarter of 2000, we closed the sale of
an additional tower for approximately $200,000. In April 2000, we closed the
sale of an additional tower for approximately $200,000. The sale of two
additional tower sites has been closed into escrow, pending satisfaction of
certain closing conditions specific for each site. Approximately $200,000 will
be paid to us for each of the remaining escrowed sites for which closing
conditions are satisfied on or before May 19, 2000. We lease back space on the
towers which have been sold for our wireless broadband Internet and video
operations under antenna site agreements. We also received $3.8 million in the
first quarter of 2000 in exchange for a portion of our equity interest in
Wireless One, which announced confirmation of its plan of reorganization in
November 1999. We expect to receive an additional $700,000 for the remainder of
our equity interest in Wireless One in the second quarter of 2000.
Although we do not expect to generate sufficient cash flow to fully
implement our long-term business strategy without additional capital or
financing, we currently expect that cash on hand and cash generated from
operations, plus equipment financing under our strategic alliance with Cisco,
will be sufficient to fund operations and capital requirements through at least
the first quarter of 2001.
We may seek additional capital or financing in 2000 if we accelerate
our business strategy and/or Internet market build-out schedule, consummate any
significant acquisitions or alliances, determine that market conditions are
appropriate for such financing, or our current operating assumptions prove to be
inaccurate. In any event, we likely will seek additional capital or financing
before the end of 2001 to implement our long-term business strategy. Options
include the sale of debt or equity securities, borrowings under secured or
unsecured loan arrangements, including vendor equipment financing, and sales of
assets. We cannot provide assurance that such financing will be available in a
timely manner and on satisfactory terms.
COMMITMENTS AND CONTINGENCIES
Certain former directors and officers of the Company, to whom we may
have indemnity obligations, are defendants in two securities lawsuits, one of
which is a purported class action lawsuit. These actions allege, among other
things, various violations of federal and state securities laws. In addition, we
are a party to two purported class action lawsuits alleging that we overcharged
our customers for administrative late fees. We intend to vigorously defend the
above matters. While it is not feasible to predict or determine the final
outcome of these proceedings or to estimate the amounts or potential range of
loss with respect to these matters, and while we do not expect such an adverse
outcome,
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<PAGE> 13
we believe that an adverse outcome in one or more of these proceedings that
exceeds or otherwise is excluded from applicable insurance coverage could have a
material adverse effect on the consolidated financial condition, results of
operations or cash flows of the Company. In September 1999, two former
stockholders of Heartland Wireless Communications, Inc. ("Heartland Wireless")
filed a motion in U.S. Bankruptcy Court to revoke the order confirming our Plan.
We intend to vigorously oppose the motion, and it is not possible at this time
to predict the effect of any action by the Bankruptcy Court to revoke the Plan.
Under our agreement with Cisco, we are obligated to purchase at least
$13.0 million in base station and customer premises equipment from Cisco through
the end of 2001, subject to Cisco meeting certain equipment test trial and other
conditions. As part of our strategic alliance, Cisco has offered a financing
facility of up to $16.25 million for the purchase of such equipment. In the
alternative, we may pursue other financing, or purchase such equipment with
available cash.
INFLATION
We do not believe that inflation has had or is likely to have any
significant impact on our operations. We believe that we will be able to
increase subscriber rates, if necessary, to keep pace with inflationary
increases in costs.
RECENTLY ISSUED ACCOUNTING PRINCIPLES
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activity"
("SFAS 133"), which requires that all derivatives be recognized in the statement
of financial position as either assets or liabilities and measured at fair
value. In addition, all hedging relationships must be designated, reassessed and
documented pursuant to the provisions of SFAS No. 133. In July 1999, the FASB
issued SFAS No. 137, which delayed the effective date of SFAS No. 133. SFAS No.
133 is now effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000. We expect that the adoption of SFAS No. 133 will not have an
impact on our financial condition, results of operations or cash flows.
RECENT EVENTS
In March 2000, we entered into a letter of intent to acquire all of the
MMDS wireless broadband assets in the greater Fayetteville and Fort Smith,
Arkansas areas for $4.2 million in common stock of the Company. These markets
are contiguous with our existing BTAs in northeast Oklahoma and southwest
Missouri, and cover over 200,000 total households. The transaction is subject to
customary closing conditions, including due diligence, completion of definitive
agreements and receipt of all required regulatory approvals. We expect to close
this transaction in the third quarter of 2000.
In addition, in April 2000, we entered into a letter of intent to
acquire all of the MMDS wireless broadband assets in the greater Rockford,
Illinois area for $5.6 million in common stock of Nucentrix and the assumption
of $400,000 in BTA debt. This market is contiguous with our existing BTAs in
central Illinois, and covers over 250,000 total households. The transaction is
subject to customary closing conditions, including due diligence, completion of
definitive agreements and receipt of all required regulatory approvals. We
expect to close this transaction in the third quarter of 2000.
In April 2000, we closed the sale of one tower site to SBA Towers, Inc.
for approximately $200,000 in connection with a previously announced sale and
leaseback transaction, and extended the deadline for closing the remaining two
tower sites to May 19, 2000.
13
<PAGE> 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in marketable securities
(which consist of commercial paper). At March 31, 2000, our marketable
securities were recorded at a fair value of approximately $650,000, with an
overall weighted average return of approximately 5% and an overall weighted
average life of less than one year. The marketable securities held by us have
exposure to price risk, which is estimated as the potential loss in fair value
due to a hypothetical change of 50 basis points (10% of our overall average
return on marketable securities) in quoted market prices. This hypothetical
change would have an immaterial effect on the recorded value of the marketable
securities.
We are not exposed to material future earnings or cash flow
fluctuations from changes in interest rates on long-term debt since 100% of our
long-term debt is at a fixed rate as of March 31, 2000. The fair value of our
long-term debt at March 31, 2000, is estimated to be $16.2 million based on the
overall rate of the long-term debt of 10% and an overall maturity of seven years
compared to terms and rates currently available in long-term financing markets.
To date we have not entered into any derivative financial instruments to manage
interest rate risk and currently are not evaluating the future use of any such
financial instruments.
We do not currently have any exposure to foreign currency transaction
gains or losses. All other business transactions are in U.S. dollars.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in certain legal proceedings as described in note 8 of
the notes to condensed consolidated financial statements included in Part I,
Item 1 of this report and in "Item 3 - Legal Proceedings" in our Annual Report
on Form 10-K (as amended by Form 10-K/A) for 1999. We also are a party, from
time to time, to routine litigation incident to our business. We do not believe
that any other pending litigation matter will have a material adverse effect on
our financial condition, results of operations or cash flows.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended March 31, 2000, we issued 6,766 shares of our
common stock to the holders of certain prepetition claims in satisfaction of
such claims. These securities were issued pursuant to our Plan of Reorganization
under Section 1145(a) of the U.S. Bankruptcy Code ("Bankruptcy Code") and,
accordingly, are exempt from the registration requirements of Section 5 of the
Securities Act of 1933, as amended ("Securities Act"). However, pursuant to
Section 1145(c) of the Bankruptcy Code, the issuance of the securities pursuant
to the Plan is deemed a public offering of the securities and, therefore, the
securities are not "restricted" securities for purposes of Rule 144 promulgated
under the Securities Act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
2.1 Plan of Reorganization under Chapter 11 of the U. S.
Bankruptcy Code (incorporated by reference to Exhibit
2.1 to the Company's Current Report on Form 8-K dated
January 19, 1999).
2.2 Order Confirming the Plan of Reorganization Under
Chapter 11 of the U.S. Bankruptcy Code, dated as of
March 15, 1999 (incorporated by reference to Exhibit
2.2 to the Company's Registration Statement on Form
S-1 filed with the SEC on June 17, 1999, No.
333-80929).
3.1 Amended and Restated Certificate of Incorporation of
the Company (incorporated by reference to Exhibit 3.1
to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999 (the "March 1999
10-Q")).
3.2 Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 to the March 1999 Form
10-Q).
*10.1 Nonqualified Stock Option Agreement between
Registrant and Russell A. Wiseman dated as of January
31, 2000.
*27 Financial Data Schedule.
- ----------------------
*Filed herewith.
(b) REPORTS ON FORM 8-K
NONE.
15
<PAGE> 16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Dated: May 8, 2000 NUCENTRIX BROADBAND NETWORKS, INC.
By: /s/ Carroll D. McHenry
-------------------------------------------------
Carroll D. McHenry
Chairman of the Board, President and Chief
Executive Officer (Principal Executive Officer)
By: /s/ Marjean Henderson
-------------------------------------------------
Marjean Henderson
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
16
<PAGE> 17
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
2.1 Plan of Reorganization under Chapter 11 of the U.S. Bankruptcy
Code (incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K dated January 19, 1999).
2.2 Order Confirming the Plan of Reorganization Under Chapter 11
of the U.S. Bankruptcy Code, dated as of March 15, 1999
(incorporated by reference to Exhibit 2.2 to the Company's
Registration Statement on Form S-1 filed with the SEC on June
17, 1999, No. 333-80929).
3.1 Amended and Restated Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999 (the "March 1999 10-Q")).
3.2 Restated Bylaws of the Company (incorporated by reference to
Exhibit 3.2 to the March 1999 Form 10-Q).
*10.1 Nonqualified Stock Option Agreement between Registrant and
Russell A. Wiseman dated as of January 31, 2000.
*27 Financial Data Schedule.
</TABLE>
- --------------------
*Filed herewith
<PAGE> 1
EXHIBIT 10.1
NONQUALIFIED STOCK OPTION AGREEMENT
GRANTED TO: Russell A. Wiseman
DATE OF GRANT: January 31, 2000
GRANTED PURSUANT TO: Nucentrix Broadband Networks, Inc.
First Amended and Restated 1999
Share Incentive Plan
NUMBER OF UNDERLYING 80,000 shares
SHARES OF COMMON
STOCK:
EXERCISE PRICE: $24.75 per share
VESTING SCHEDULE: See Section 4 below
1. This Nonqualified Stock Option Agreement (the "Agreement") is made
and entered into as of January 31, 2000, between Nucentrix Broadband Networks,
Inc., a Delaware corporation (the "Company"), and Russell A. Wiseman
("Employee"). It is the intent of the Company and Employee that the Option (as
defined in Paragraph 2 below) will not qualify as an "incentive stock option"
under Section 422 of the Internal Revenue Code of 1986, as amended from time to
time (the "Code").
2. Employee is granted an option (the "Option") by the Compensation
Committee of the Company's Board of Directors (the "Committee") to purchase
80,000 shares of common stock of the Company, par value $.001 ("Common Stock")
pursuant to the Company's First Amended and Restated 1999 Share Incentive Plan
(the "Plan"). Capitalized terms not defined herein shall have the meanings
ascribed thereto in the Plan. The Option granted hereunder is a matter of
separate inducement and is not in lieu of salary or other compensation for
Employee's services.
3. The Option's exercise price is $24.75 per share, such exercise price
being in the judgment of the Committee not less than one hundred percent (100%)
of the Fair Market Value of a share of Common Stock on the date of grant.
4. Subject to Paragraphs 5, 6, 7 and 8 below, the Option shall become
fully exercisable in accordance with the following vesting schedule:
(a) 5% will automatically vest and become exercisable on each
of the first five anniversaries of the date of Employee's commencement of
employment with the Company (the "Start Date"); and
<PAGE> 2
(b) up to 75% will vest and become exercisable as follows
(such portion hereinafter referred to as the "Contingent Portion"):
(i) if the average closing sales price of the Common Stock
equals or exceeds $25.92 per share for any 20 consecutive trading days between
the Start Date and the first anniversary of the Start Date, one-fifth of the
Contingent Portion will vest on such 20th trading day;
(ii) if the average closing sales price of the Common Stock
equals or exceeds $31.10 per share for any 20 consecutive trading days between
the Start Date and the second anniversary of the Start Date, two-fifths of the
Contingent Portion will vest on such 20th trading day;
(iii) if the average closing sales price of the Common Stock
equals or exceeds $35.47 per share for any 20 consecutive trading days between
the Start Date and the third anniversary of the Start Date, three-fifths of the
Contingent Portion will vest on such 20th trading day;
(iv) if the average closing sales price of the Common Stock
equals or exceeds $41.14 per share for any 20 consecutive trading days between
the Start Date and the fourth anniversary of the Start Date, four-fifths of the
Contingent Portion will vest on such 20th trading day; and
(v) if the average closing sales price of the Common Stock
equals or exceeds $47.31 per share for any 20 consecutive trading days between
the Start Date and the fifth anniversary of the Start Date, all of the
Contingent Portion will vest on such 20th trading day.
As used in this Agreement, "average closing sales price" shall mean:
(i) if the Company's Common Stock is publicly traded, the average of the closing
prices as reported by the OTC Bulletin Board, The Nasdaq Stock Market or other
applicable regional or national securities exchange or quotation system on which
the Common Stock is so traded or quoted for any applicable period; or (ii) if
there is no public trading market for such shares, the fair value of such shares
on the applicable date of determination as determined by the Committee after
taking into consideration all factors which it deems appropriate, including
without limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arms' length.
Notwithstanding anything herein to the contrary, if the Employee is
employed by the Company on the date which is 30 days immediately prior to the
Expiration Date (such date referred to herein as the "Final Vesting Date"), the
unvested portion, if any, of the Option will immediately vest and become
exercisable on such date.
5. Subject to Paragraphs 6 and 7 below, the unexercised portion of the
Option, unless sooner terminated, shall expire seven years after the Start Date
(the
2
<PAGE> 3
"Expiration Date") and, notwithstanding anything contained herein to the
contrary, no portion of the Option may be exercised after the Expiration Date.
6. If prior to the Expiration Date, Employee's employment with the
Company or any subsidiary corporation terminates, the Option will terminate on
the applicable date as described below, provided, however, that none of the
events described below shall extend the period of exercisability beyond the
Expiration Date:
(a) If the employment of Employee is terminated by reason of
Employee's death while in the employ of the Company or any subsidiary
corporation, the Option shall immediately become fully exercisable and remain
exercisable for twelve (12) months after Employee's death and shall be
exercisable by the executor or administrator of the estate of the deceased
Employee or the person or persons to whom the deceased Employee's rights under
the Option shall pass by will or the laws of descent or distribution;
(b) If the employment of Employee is terminated by the Company
or any subsidiary corporation for reason of Employee's "Permanent Disability"
(as defined below), the Option shall immediately become fully exercisable on the
date of such termination and shall remain exercisable for six (6) months after
such date; provided, however, that if Employee dies during the six month period
following such date and Employee has not exercised the Option, the Option shall
remain exercisable for an additional twelve (12) months after Employee's death
and shall be exercisable by the executor or administrator of the estate of the
deceased Employee or the person or persons to whom the deceased Employee's
rights under the Option shall pass by will or the laws of descent or
distribution;
(c) If the employment of Employee is terminated by the Company
or any subsidiary corporation for "Cause" (as defined below), the Option shall,
to the extent not previously exercised, immediately become null and void on the
date of such termination;
(d) If the employment of Employee is terminated by the Company
or any subsidiary corporation other than (X) for "Cause", (Y) for reason of
Employee's death or "Permanent Disability," the Option, to the extent vested and
not previously exercised, shall immediately become fully exercisable on the date
of such termination and shall remain exercisable for thirty (30) days after such
date and the unvested portion of the Option shall be canceled;
(e) If the employment of Employee is terminated by the
Employee prior to the Final Vesting Date, the unvested portion of the Option
shall immediately become null and void on the date of such termination and the
vested portion of the Option shall, to the extent not previously exercised,
remain exercisable for thirty (30) days after the date of such termination; or
3
<PAGE> 4
(f) If the employment of Employee is terminated by the
Employee on or after the Final Vesting Date, the Option shall, to the extent not
previously exercised, remain exercisable for thirty (30) days after the date of
such termination.
For purposes of this Agreement, the terms "Permanent
Disability" and "Cause" shall have the meanings ascribed to such terms in the
Employee's employment agreement with the Company, as amended from time to time
(the "Employment Agreement"), or any successor agreement, or if Employee does
not have an employment agreement with the Company, such terms shall have the
meanings ascribed to them on Annex A attached hereto.
7. Upon the occurrence of a "Change in Control" (as defined in the
Plan), the Option shall immediately become fully exercisable and shall terminate
thirty (30) days after the occurrence of the Change in Control. Upon such
termination, Employee shall receive, with respect to the unexercised portion of
the Option, an amount in cash, in one or more kinds of property (including the
property, if any, payable in the transaction) or in a combination thereof, as
the Committee, in its discretion, shall determine, equal to the product of (X)
the amount, if any, by which the Fair Market Value of a share of Common Stock
immediately prior to the occurrence of such Change in Control exceeds the
exercise price per share specified in Paragraph 3 hereof and (Y) the number of
shares with respect to which the Option remained exercisable on the date of such
termination; provided, however, that the apportionment and kind of property, if
any, to be received by the Employee shall not differ in any material respect
from the property to be received by the holders of Common Stock.
8. Notwithstanding anything to the contrary contained herein, if
Employee's employment with the Company for any reason does not begin on or
before April 3, 2000, the Option hereby granted shall be canceled and forfeited
effective as of May 1, 2000.
9. Employee may exercise the Option regardless of whether any other
option that Employee has been granted by the Company remains unexercised. In no
event may Employee exercise the Option for a fraction of a share or for less
than 100 shares unless such number is the remaining balance for which the Option
is then exercisable.
10. The Option's exercise price shall be paid by Employee on the date
the Option is exercised, in full in cash or, in the sole discretion of the
Committee, in shares of Common Stock or any other method that the Committee
shall prescribe, including, without limitation, by the withholding of shares or
the delivery of an executed promissory note to the Company on such terms and
conditions as the Committee shall determine in its sole discretion.
11. The Company or any subsidiary corporation may withhold from sums
due or to become due to Employee from the Company or any subsidiary corporation
an amount necessary to satisfy its obligation to withhold taxes incurred by
reason of the issuance or disposition of shares pursuant to the Option, or may
require Employee to reimburse the Company or any subsidiary corporation in such
amount. The exercise of
4
<PAGE> 5
the Option shall not be effective until the withholding tax liability associated
with the exercise of the Option has been satisfied.
12. Employee shall not have any of the rights of a stockholder with
respect to the shares of Common Stock underlying the Option while the Option is
unexercised.
13. Any exercise of this Option shall be in writing addressed to the
Corporate Secretary of the Company at the principal place of business of the
Company, specifying the Option being exercised and the number of shares to be
purchased, accompanied by payment therefor.
14. This Option shall not be transferable otherwise than by will or the
laws of descent and distribution, and shall be exercisable, during Employee's
lifetime, only by Employee. Notwithstanding the foregoing, but subject to the
approval of the form of the transfer by the Committee which approval shall not
be unreasonably withheld, this Option may be transferred by Employee solely to
Employee's spouse, siblings, parents, children and grandchildren or trusts for
the benefit of such persons, subject to any restriction included in this
Agreement.
15. If the Company, in its sole discretion, shall determine that it is
necessary, to comply with applicable securities laws, the certificate or
certificates representing the shares purchased pursuant to the exercise of the
Option shall bear an appropriate legend in form and substance, as determined by
the Company, giving notice of applicable restrictions on transfer under or in
respect of such laws.
16. The Company agrees that at the time of exercise of the Option it
will use reasonable efforts in good faith to have an effective Registration
Statement on Form S-8 under the Securities Act of 1933, as amended (the "Act"),
which includes a prospectus that is current with respect to the shares subject
to the Option. Employee covenants and agrees with the Company that if, at the
time of exercise of the Option, there does not exist a Registration Statement on
an appropriate form under the Act, which Registration Statement shall have
become effective and shall include a prospectus that is current with respect to
the shares subject to the Option, (i) that he or she is purchasing the shares
for his or her own account and not with a view to the resale or distribution
thereof, (ii) that any subsequent offer for sale or sale of any such shares
shall be made either pursuant to (x) a Registration Statement on an appropriate
form under the Act, which Registration Statement shall have become effective and
shall be current with respect to the shares being offered and sold, or (y) a
specific exemption from the registration requirements of the Act and applicable
state securities laws, but in claiming such exemption, Employee shall, prior to
any offer for sale or sale of such shares, obtain a favorable written opinion
from counsel for or approved by the Company as to the applicability of such
exemption and (iii) that Employee agrees that the certificates evidencing such
shares shall bear a legend to the effect of the foregoing.
17. This Agreement is subject to all terms, conditions, limitations and
restrictions contained in the Plan, which shall be controlling in the event of
any conflicting or inconsistent provisions.
5
<PAGE> 6
18. This Agreement is not a contract of employment and the terms of
Employee's employment shall not be affected hereby or by any agreement referred
to herein except to the extent specifically so provided herein or therein.
Nothing herein shall be construed to impose any obligation on the Company or any
subsidiary corporation to continue Employee's employment, and it shall not
impose any obligation on Employee's part to remain in the employ of the Company
or any subsidiary corporation.
19. Employee acknowledges and agrees that neither the Company, its
stockholders nor its directors and officers, has any duty or obligation to
disclose to the Employee any material information regarding the business of the
Company or any subsidiary corporation or affecting the value of the Common Stock
before or at the time of a termination of the employment of Employee by the
Company or any subsidiary corporation, including, without limitation, any
information concerning plans for the Company or any subsidiary corporation to
make a public offering of its securities or to be acquired by or merged with or
into another firm or entity.
IN WITNESS WHEREOF, the undersigned have executed this Agreement
as of the date first written above.
NUCENTRIX BROADBAND NETWORKS, INC.
By: /s/ Carroll D. McHenry
----------------------------------
Carroll D. McHenry
Chairman and Chief Executive Officer
ACCEPTED: /s/ Russell A. Wiseman
----------------------------
Russell A. Wiseman
6
<PAGE> 7
ANNEX A
TO NONQUALIFIED STOCK OPTION AGREEMENT
BETWEEN NUCENTRIX BROADBAND NETWORKS, INC. ("NUCENTRIX")
AND RUSSELL A. WISEMAN
"Cause" shall mean a finding by a majority of the directors of Nucentrix that
you have:
(1) acted with gross negligence or willful misconduct in connection with
the performance of your duties as an officer of Nucentrix;
(2) engaged in a material act of insubordination or of common law fraud
against Nucentrix or its employees;
(3) acted against the best interests of Nucentrix in a manner that has or
could have a material adverse affect on the financial condition of
Nucentrix;
(4) been convicted of a crime or pleaded nolo contendere (other than minor
infractions and traffic violations);
(5) materially violated your duty of loyalty to Nucentrix which results or
may reasonably be expected to result in material injury to Nucentrix or
any subsidiary; or
(6) engaged in chronic alcohol or drug abuse.
"Permanent Disability" shall mean any physical or mental disability which
renders you unable to perform the essential functions of your job as an employee
of Nucentrix on a full-time basis with or without reasonable accommodation for
180 calendar days whether or not consecutive, within any period of 12
consecutive months.
7
<TABLE> <S> <C>
<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 29,643
<SECURITIES> 251
<RECEIVABLES> 2,674
<ALLOWANCES> 340
<INVENTORY> 0
<CURRENT-ASSETS> 34,018
<PP&E> 52,459
<DEPRECIATION> 0
<TOTAL-ASSETS> 164,991
<CURRENT-LIABILITIES> 18,041
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 128,533
<TOTAL-LIABILITY-AND-EQUITY> 164,991
<SALES> 16,323
<TOTAL-REVENUES> 16,323
<CGS> 0
<TOTAL-COSTS> 22,308
<OTHER-EXPENSES> (4,315)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 354
<INCOME-PRETAX> (2,024)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,024)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,024)
<EPS-BASIC> (.20)
<EPS-DILUTED> (.20)
</TABLE>
