DEFM14A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. 1)
Filed by the Registrant
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Filed by a Party other than the
Registrant o
Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to Rule
§240.14a-12
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CLEARWIRE CORPORATION
(Name of Registrant as Specified In
Its Charter)
(Name of Person(s) Filing Proxy
Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act
Rules 14a-6(i)(4)
and 0-11.
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(1) |
Title of each class of securities to which transaction applies:
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(2) |
Aggregate number of securities to which transaction applies:
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(3) |
Per unit price or other underlying value of transaction computed
pursuant to Exchange Act
Rule 0-11
(set forth the amount on which the filing fee is calculated and
state how it was determined):
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(4) |
Proposed maximum aggregate value of transaction:
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$1,645,798,946.30
$64,679.90
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by
Exchange Act
Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
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(1) |
Amount Previously Paid:
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$64,679.90
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(2) |
Form, Schedule or Registration Statement No.:
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S-4, 333-153128
New Clearwire Corporation
August 22, 2008, October 9, 2008
To the Stockholders of Clearwire Corporation:
We cordially invite you to attend a special meeting of
stockholders of Clearwire Corporation, which we refer to as
Clearwire, which will be held at the Woodmark Hotel,
1200 Carillon Point, Kirkland, Washington 98033, on
Thursday, November 20, 2008, at 9:00 a.m., Pacific
Standard Time.
At the special meeting, we will ask you to consider and vote on,
among other matters, a proposal to approve and adopt the
Transaction Agreement and Plan of Merger, which we refer to as
the Transaction Agreement, dated as of May 7, 2008, by and
among Clearwire, Sprint Nextel Corporation, which we refer to as
Sprint, Comcast Corporation, which we refer to as Comcast, Time
Warner Cable Inc., which we refer to as Time Warner Cable,
Bright House Networks, LLC, which we refer to as Bright House
Networks, Google Inc., which we refer to as Google, and Intel
Corporation, which we refer to as Intel, including the issuance
of common stock of New Clearwire Corporation, which we refer to
as New Clearwire, contemplated therein. In the proxy
statement/prospectus accompanying this notice, we refer to
Comcast, Time Warner Cable, Bright House Networks and Google
collectively as the Strategic Investors, to the Strategic
Investors together with Intel as the Investors, and to the
transactions contemplated by the Transaction Agreement as the
Transactions.
Pursuant to the Transaction Agreement, Clearwire and Sprint will
combine their respective Worldwide Inter-Operability for
Microwave Access, which we refer to as WiMAX, businesses in
conjunction with the Investors contribution of an
aggregate of $3.2 billion in capital to the new company.
We are proposing the Transactions because we believe they will
enable us to realize our vision for, and will expedite the
deployment of, the first nationwide next generation Internet
Protocol, which we refer to as IP, based mobile broadband
network, providing a true mobile broadband experience for
consumers, businesses, public safety organizations and
educational institutions. The board of directors of Clearwire
believes the Transactions are strategically and financially
beneficial to Clearwire and will create a stronger company with
the potential to create significant value for stockholders.
At the special meeting, we will also ask you to consider and
vote on, among other matters, a proposal to adopt the restated
certificate of incorporation of New Clearwire, a new
wholly-owned subsidiary formed by Clearwire, and a proposal to
approve and adopt the New Clearwire Corporation 2008 Stock
Compensation Plan, which we refer to as the New Clearwire Stock
Plan, each of which is contemplated as part of the Transactions.
For a discussion of the risks relating to the Transactions,
see the section titled Risk Factors beginning on
page 30 of this proxy statement/prospectus.
If the Transactions are completed, New Clearwire, the registrant
of the registration statement of which this proxy
statement/prospectus forms a part, expects to issue up to
166,326,321 shares of its Class A common stock, par
value $0.0001 per share, which we refer to as the New Clearwire
Class A Common Stock, to holders of Clearwire Class A
common stock, par value $0.0001 per share, which we refer to as
the Clearwire Class A Common Stock, on the closing of the
Transactions. Such Clearwire stockholders will be entitled to
receive one share of New Clearwire Class A Common Stock in
exchange for each share of Clearwire Class A Common Stock
they hold as of the closing. On October 16, 2008, the last
reported sales price of Clearwire Class A Common Stock,
which trades on the NASDAQ Stock Market, which we refer to as
NASDAQ, under the symbol CLWR, was $7.50 per share.
We expect that shares of New Clearwire Class A Common Stock
will trade on NASDAQ under the symbol CLWR after
completion of the Transactions.
Clearwires board of directors has approved the Transaction
Agreement, including the issuance of shares of New Clearwire
Class A Common Stock and New Clearwire Class B common
stock, par value $0.0001 per share, which we refer to as New
Clearwire Class B Common Stock, and which we refer to
together with New Clearwire Class A Common Stock as New
Clearwire Common Stock, the restated certificate of
incorporation of New Clearwire and the New Clearwire Stock Plan,
and recommends that you vote FOR the proposal
to approve and adopt the Transaction Agreement, including the
issuance of New Clearwire Common Stock, that you vote
FOR the proposal to adopt the restated
certificate of incorporation of New Clearwire and that you vote
FOR the proposal to approve and adopt the New
Clearwire Stock Plan, all of which are described in detail in
the accompanying proxy statement/prospectus.
Your vote is important regardless of the number of shares you
own. We would like all Clearwire stockholders to attend the
special meeting in person. However, to ensure your
representation at the special meeting, you are urged to
complete, date, sign and return the enclosed proxy card as
promptly as possible in the enclosed postage prepaid envelope or
submit your voting instructions by Internet or by telephone if
those options are available to you.
Thank you for your continued support and we look forward to
seeing you on November 20, 2008.
Sincerely,
Benjamin G. Wolff
Chief Executive Officer
Clearwire Corporation
Neither the Securities and Exchange Commission nor any state
securities regulator has approved or disapproved the
transactions described in this proxy statement/prospectus or the
New Clearwire Common Stock to be issued pursuant to the
Transaction Agreement or determined if this proxy
statement/prospectus is accurate or adequate. Any representation
to the contrary is a criminal offense.
This proxy statement/prospectus is dated October 16, 2008,
and is expected to first be mailed to the stockholders of
Clearwire on or about October 21, 2008.
Clearwire Corporation
4400 Carillon Point
Kirkland, Washington 98033
PROXY
STATEMENT/PROSPECTUS
MERGER PROPOSED YOUR VOTE IS VERY IMPORTANT
NOTICE OF SPECIAL MEETING IS ENCLOSED
NOTICE IS HEREBY GIVEN that Clearwire Corporation, which we
refer to as Clearwire, will hold a special meeting of its
stockholders at the Woodmark Hotel, 1200 Carillon Point,
Kirkland, Washington 98033 on Thursday, November 20, 2008,
at 9:00 a.m., Pacific Standard Time. The purpose of this
special meeting is:
1. To consider and vote on a proposal to approve and adopt
the Transaction Agreement and Plan of Merger, which we refer to
as the Transaction Agreement, dated as of May 7, 2008, by
and among Clearwire, Sprint Nextel Corporation, Comcast
Corporation, Time Warner Cable Inc., Bright House Networks, LLC,
Google Inc. and Intel Corporation, a copy of which is attached
as Annex A to the proxy statement/prospectus accompanying
this notice, and the Transactions, including the issuance of the
common stock of a direct, wholly-owned subsidiary of Clearwire,
which we refer to as New Clearwire, which will become the
indirect parent of Clearwire under the Transaction Agreement.
2. To consider and vote on a proposal to adopt the restated
certificate of incorporation of New Clearwire (which would
be filed immediately before, and would be conditioned on the
completion of, the merger contemplated by the Transaction
Agreement), a copy of which is attached as Annex B to the
proxy statement/prospectus accompanying this notice.
3. To consider and vote on a proposal to approve and adopt
the New Clearwire Stock Plan, a copy of which is attached as
Annex H to the proxy statement/prospectus accompanying this
notice.
4. To approve the adjournment of the special meeting,
if necessary, to solicit additional proxies in favor of the
proposals above.
5. To transact any other matters as may properly come
before the special meeting and any adjournment or postponement
of the special meeting.
The record date for stockholders entitled to notice of, and to
vote at, the special meeting and any adjournment or postponement
of the special meeting is October 15, 2008. If you wish to
vote your shares of Clearwire common stock at the special
meeting, the inspector of elections will be available to record
your vote at the special meeting site beginning at
9:00 a.m., Pacific Standard Time, on the date of the
special meeting.
Clearwires board of directors recommends that you vote
FOR the proposal to approve and adopt the
Transaction Agreement, including the issuance of shares of New
Clearwire Common Stock, FOR the proposal to
adopt the restated certificate of incorporation of New Clearwire
(which would be filed immediately before, and would be
conditioned on the completion of, the merger contemplated by the
Transaction Agreement), FOR the proposal to
approve and adopt the New Clearwire Stock Plan and
FOR the adjournment proposal (if necessary),
each of which is described in detail in the accompanying proxy
statement/prospectus. Your attention is directed to the
accompanying proxy statement/prospectus, which you should read
carefully, for a discussion of the Transaction Agreement and the
transactions contemplated thereby.
Your vote is important. You are cordially invited to attend
the special meeting, but whether or not you expect to attend in
person, you are urged to complete, date and sign the enclosed
proxy card and return it in the enclosed postage prepaid
envelope or follow the alternative proxy submission procedures
described on the proxy card and in the accompanying proxy
statement/prospectus so that your shares can be voted. If you
attend, you may withdraw your proxy and vote in person.
By Order of the Board of Directors,
Broady Hodder
Corporate Secretary
Kirkland, Washington
October 16, 2008
SOURCES
OF ADDITIONAL INFORMATION
The registration statement of which this proxy
statement/prospectus forms a part, along with the exhibits filed
herewith, contains important business and financial information
about Clearwire that is not included in or delivered with this
proxy statement/prospectus. You can obtain documents filed with
the registration statement, without charge, by requesting them
in writing or by telephone from Clearwire at the following
address and telephone number:
Clearwire Corporation
4400 Carillon Point
Kirkland, Washington 98033
(425) 216-4735
Attention: Investor Relations
If you would like to request documents, please do so by
November 13, 2008, in order to receive them before the
special meeting.
You should only rely on the information contained in this proxy
statement/prospectus to vote at the special meeting. No person
is authorized to give any information or to make any
representation not contained in this proxy statement/prospectus
and, if given or made, that information or representation should
not be relied on as having been authorized.
See the discussion below under the section titled Where
You Can Find Additional Information beginning on
page 274 of this proxy statement/prospectus.
SUBMITTING
PROXIES BY MAIL, TELEPHONE OR INTERNET
As a Clearwire stockholder, you may submit your proxy:
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by mail, by signing and dating each proxy card you receive,
indicating your voting preference on each proposal and returning
each proxy card in the postage prepaid envelope which
accompanied that proxy card;
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by telephone, by calling the toll-free number
1-800-690-6903
in the United States, Canada or Puerto Rico on a touch-tone
phone and following the recorded instructions; or
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through the Internet, by going to the website www.proxyvote.com,
entering the information requested on your computer screen and
following the instructions.
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If you are a beneficial owner (but not the holder of record) of
shares of common stock of Clearwire, please refer to your proxy
card or the information forwarded by your bank, broker or other
holder of record to see which proxy submission options are
available to you.
Except as specifically noted, stock or stock-related numbers in
this proxy statement/prospectus related to any period before the
completion of the merger have not been adjusted to show the
effect of the proposed conversion of shares of Clearwire
Class B common stock, par value $0.0001 per share, which we
refer to as Clearwire Class B Common Stock, discussed in
this proxy statement/prospectus.
TABLE OF
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CF-1
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WF-1
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A-1
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H-1
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v
QUESTIONS
AND ANSWERS
The following are some questions that you, as a stockholder
of Clearwire, may have regarding the Transactions and the
answers to those questions. Clearwire urges you to read
carefully the remainder of this proxy statement/prospectus,
including the annexes, because the information in this section
does not provide all of the information that might be important
to you with respect to the Transactions and how to vote your
shares. In this proxy statement/prospectus, unless the context
requires otherwise, references to Clearwire refer to
Clearwire Corporation and its consolidated subsidiaries before
the completion of the Transactions, references to New
Clearwire refer to New Clearwire Corporation and its
consolidated subsidiaries following the completion of the
Transactions, and references to the Company,
we, our, or us refer to
Clearwire Corporation and its consolidated subsidiaries, before
completion of the Transactions, or New Clearwire Corporation and
its consolidated subsidiaries, after the completion of the
Transactions, as the context requires. Throughout this proxy
statement/prospectus we refer to the combined company as New
Clearwire; however, following the completion of all of the
Transactions described in this proxy statement/prospectus, the
newly combined company will be renamed Clearwire Corporation.
Questions
and Answers About the Transactions
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Q: |
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Why am I receiving this proxy statement/prospectus? |
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A: |
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We are delivering this proxy statement/prospectus to you because
you are a Clearwire stockholder and Clearwire and Sprint have
agreed to combine their respective WiMAX businesses, in
conjunction with a capital contribution from each of the
Investors, under the terms of the Transaction Agreement, which
are described more fully in this proxy statement/prospectus. A
copy of the Transaction Agreement, which we encourage you to
review, is attached as Annex A to this proxy
statement/prospectus. In order to complete the Transactions,
Clearwire stockholders must vote to approve certain matters.
This proxy statement/prospectus contains important information
about the Transactions. You should read it carefully. Your
vote is important. We encourage you to vote as soon as possible
after carefully reviewing this proxy statement/prospectus
and the Transaction Agreement. |
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Q: |
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Why are Clearwire, Sprint and the Investors proposing the
Transactions? |
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A: |
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Clearwire, Sprint and the Investors wish to combine the
Clearwire and Sprint WiMAX businesses, with the Investors
contributing an aggregate of $3.2 billion to the new
company, in an effort to expedite the development of a
nationwide wireless broadband network, expedite the commercial
availability of wireless broadband services over the wireless
broadband network, enable the offering of a greater depth and
breadth of wireless broadband services and promote wireless
broadband development. Clearwire and Sprint believe that the
combination of their WiMAX businesses, together with the capital
contributed by the Investors, under the terms of the Transaction
Agreement, will provide the potential for substantial strategic
and financial benefits to their stockholders and customers and
the communities they serve. |
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Q: |
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How much dilution will current stockholders of Clearwire
Class A Common Stock experience? |
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A: |
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Current stockholders of Clearwire Class A Common Stock will
experience dilution of approximately 72% to 75% as a result of
the Transactions. |
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Q: |
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What will Sprint stockholders be entitled to receive pursuant
to the Transactions? |
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A: |
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Sprint stockholders will not receive any consideration pursuant
to the Transactions. Sprint stockholders will only indirectly
share in the positions held by Sprint and its subsidiaries in
New Clearwire and Clearwire Communications LLC, which we refer
to as Clearwire Communications, following the completion of the
Transactions through their ownership of Sprint stock. |
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Are there risks associated with the Transactions? |
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Yes. We may not achieve the expected benefits of the
Transactions because of the risks and uncertainties discussed in
the section titled Risk Factors beginning on
page 30 of this proxy statement/prospectus, which you
should read carefully. Those risks include, among other things,
risks relating to the uncertainty |
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that we will be able to satisfy the closing conditions and
complete the Transactions and, if we do so, that we will be able
to successfully integrate the existing Clearwire business with
the spectrum and certain other assets associated with the
development and operations of Sprints WiMAX business,
which we refer to as the Sprint WiMAX Business, and
uncertainties relating to the performance of the combined
businesses following the completion of the Transactions. |
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How will my rights as a New Clearwire stockholder after the
Transactions differ from my current rights as a Clearwire
stockholder? |
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After the Transactions, your rights as a stockholder will be
governed by the restated certificate of incorporation of New
Clearwire, which we refer to as the New Clearwire Charter, a
copy of which is attached as Annex B to this proxy
statement/prospectus, rather than the current fourth amended and
restated certificate of incorporation of Clearwire, which we
refer to as the Clearwire Charter. A comparison of your rights
as a stockholder under these two governing documents is
discussed in the section titled Comparison of Stockholder
Rights and Corporate Governance Matters beginning on
page 150 of this proxy statement/prospectus. |
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How will my rights as a New Clearwire stockholder differ from
the rights of Sprint and the Investors, other than Google, as
holders of New Clearwire Class B Common Stock and Clearwire
Communications Class B Common Interests? |
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In accordance with the Transaction Agreement, at the closing of
the Transactions, which we refer to as the Closing, all shares
of Clearwire Class A Common Stock held by each of
Clearwires stockholders, including Eagle River Holdings,
LLC, which we refer to as Eagle River, Intel, Bell Canada, which
we refer to as Bell, and Motorola Inc., which we refer to as
Motorola, will be exchanged for New Clearwire Class A
Common Stock. After the Transactions, Sprint and the Investors,
other than Google, will own shares of New Clearwire Class B
Common Stock, which have equal voting rights to New Clearwire
Class A Common Stock, but have only nominal economic
rights. Unlike the holders of New Clearwire Class A Common
Stock, the holders of New Clearwire Class B Common Stock
have no right to dividends and no right to any proceeds on
liquidation other than the par value of the New Clearwire
Class B Common Stock. Sprint and the Investors, other than
Google, will hold their economic rights through ownership of
Class B non-voting common interests in Clearwire Communications,
which we refer to as Clearwire Communications Class B
Common Interests. After the Transactions, Google will own shares
of New Clearwire Class A Common Stock, as will you. |
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What will happen to Clearwires dividend policy as a
result of the Transactions? |
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Clearwires dividend policy has been, and it is expected
that New Clearwires dividend policy will be, to retain
earnings, if any, for use in the operation and expansion of our
business. We do not anticipate paying any cash dividends in the
foreseeable future. |
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What are the material tax consequences to Clearwire
stockholders resulting from the Transactions? |
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We believe that Clearwire stockholders will not recognize any
gain or loss for United States federal income tax purposes as a
result of the conversion of Clearwire Class B Common Stock into
Clearwire Class A Common Stock, which we refer to as the
Conversion, or the merger of Clearwire with and into Clearwire
Sub LLC, which we refer to as Clearwire Sub, with Clearwire Sub
surviving as a direct, wholly-owned subsidiary of Clearwire
Communications, which we refer to as the Merger, and we have
obtained an opinion from Davis Wright Tremaine LLP, tax counsel
to Clearwire and New Clearwire, to this effect. Receipt of a tax
opinion to the same effect at Closing is a condition to the
completion of the Conversion and the Merger. See the section
titled Material United States Federal Income Tax
Consequences of The Conversion and The Merger beginning on
page 89 of this proxy statement/prospectus. |
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How will the income and loss of Clearwire Communications be
taxed? |
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It is intended that Clearwire Communications will be classified
as a partnership for federal income tax purposes following the
Closing. As such, Clearwire Communications will not itself be
subject to federal |
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income tax. Clearwire Communications will file a federal
partnership information return that reports its items of income,
gain, loss and deduction for each year. New Clearwire will be
required to take into account for federal income tax purposes
its distributive share of the items of income, gain, loss and
deduction of Clearwire Communications (which will include the
items of income, gain, loss and deduction of Clearwire Sub, the
various Sprint entities contributed to Clearwire Communications
and, in general, any other partnership or limited liability
company in which Clearwire Communications holds an interest) for
the taxable year of Clearwire Communications that ends within or
with the taxable year of New Clearwire. New Clearwire will be
taxed on its distributive share of income and gain, whether or
not cash or other property is distributed to New Clearwire. As a
consequence, New Clearwires share of the taxable income of
Clearwire Communications may exceed the cash or other property
actually distributed to New Clearwire by Clearwire
Communications. |
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Clearwire Communications is required to make distributions to
New Clearwire in amounts necessary to pay all taxes reasonably
determined by New Clearwire to be payable with respect to its
distributive share of the taxable income of Clearwire
Communications, after taking into account the net operating loss
deductions and other tax benefits reasonably expected to be
available to New Clearwire. |
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How will the Transactions affect Clearwires net
operating losses? |
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At present, Clearwire has substantial net operating losses,
which we refer to as NOLs, for United States federal income tax
purposes. In particular, Clearwire believes that its cumulative
tax loss as of June 30, 2008, for United States
federal income tax purposes, was approximately
$1.2 billion. A portion of Clearwires NOLs is subject
to certain annual limitations imposed under Section 382 of
the Internal Revenue Code of 1986, as amended, which we refer to
as the Code. New Clearwire will succeed to these NOLs in the
Merger and, subject to the existing Section 382 limitation
and the possibility of further limitations under
Section 382 and Section 384 of the Code arising after
the Closing, these NOLs generally are expected to be available
to offset items of income and gain allocated to New Clearwire by
Clearwire Communications. See Risk Factors
Risks Related to New Clearwires Business after the
Transactions The ability of New Clearwire to use its
net operating losses to offset its income and gain will be
subject to limitation, and may be subject to further limitation
after the Transactions. |
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When will the Transactions be completed? |
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A: |
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We are working to complete the Transactions as quickly as
possible. If approved by the Clearwire stockholders, we expect
to complete the Transactions in the fourth quarter of 2008.
However, it is possible that other factors could require us to
complete the Transactions at a later time or not complete them
at all. For a discussion of the conditions to the Transactions,
see the section titled The Transaction
Agreement Conditions to Closing beginning on
page 103 of this proxy statement/prospectus. |
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What should Clearwire stockholders do now? |
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After carefully reading and considering the information
contained in this proxy statement/prospectus, including the
annexes, Clearwire stockholders should vote their shares as soon
as possible so that their shares will be represented and voted
at the special meeting. Please follow the instructions set forth
on the enclosed proxy card or on the voting instruction form
provided by the record holder if your shares are held in the
name of your broker or other nominee. |
Questions
and Answers About the Special Meeting
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What are Clearwire stockholders being asked to vote on at the
special meeting? |
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At the special meeting, Clearwires stockholders are being
asked to consider and vote on four proposals: |
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Proposal No. 1: To approve and adopt
the Transaction Agreement, including the issuance of shares of
New Clearwire Common Stock contemplated by the Transaction
Agreement. |
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Proposal No. 2: To adopt the New
Clearwire Charter (which would be filed immediately before, and
would be conditioned on the completion of, the Merger). |
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Proposal No. 3: To approve and adopt
the New Clearwire Stock Plan (which would be conditioned on
completion of the Transactions). |
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Proposal No. 4: To approve the
adjournment of the special meeting, if necessary, to solicit
additional proxies in favor of the proposals above. |
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You may also be asked to act on other business, if any, that may
properly come before the special meeting (or any adjournment or
postponement thereof). We currently do not anticipate that any
other business will be presented at the special meeting. |
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What vote is required to approve each proposal? |
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The affirmative vote of the holders of a majority of the voting
power of the outstanding shares of Clearwire Class A Common
Stock and Clearwire Class B Common Stock, which we refer to
together as the Clearwire Common Stock, entitled to vote at the
special meeting, voting together as a single class, is required
to approve Proposal No. 1 and
Proposal No. 2. The approval of
Proposal No. 3 requires the affirmative vote of the
majority of the total votes cast on the proposal. The
Transactions cannot be completed unless both the Transaction
Agreement is approved and adopted and the New Clearwire Charter
is adopted. The affirmative vote of the holders of a majority of
the voting power of the outstanding shares of Clearwire Common
Stock present in person or by proxy, voting together as a single
class, regardless of whether a quorum is present, is required to
approve Proposal No. 4. |
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What constitutes a quorum? |
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Stockholders holding a majority of the votes attributable to the
issued and outstanding shares of Clearwire capital stock
entitled to vote at the special meeting must be present in
person or represented by proxy in order to constitute a quorum
to conduct business. Abstentions and broker non-votes will be
included for purposes of determining whether a quorum is present
at the special meeting. |
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How does Clearwires board of directors recommend that I
vote on each of the proposals? |
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After careful consideration, Clearwires board of directors
recommends by a unanimous vote of all directors voting on the
matters, that you vote: |
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FOR
Proposal No. 1 the approval and
adoption of the Transaction Agreement, including the issuance of
shares of New Clearwire Common Stock; |
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FOR
Proposal No. 2 the adoption of the
New Clearwire Charter (which would be filed immediately before,
and would be conditioned on the completion of, the Merger); |
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FOR
Proposal No. 3 the approval and
adoption of the New Clearwire Stock Plan (which would be
conditioned on the completion of the Transactions); and |
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FOR
Proposal No. 4 adjournment of the
special meeting, if necessary. |
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For a more complete description of the recommendations of
Clearwires board of directors as well as the reasons
underlying the recommendations, see the sections titled
Information About the Special Meeting and
Voting Recommendations to Clearwire
Stockholders and The Transactions
Reasons for the Transactions; Recommendation of the Board of
Directors beginning on pages 60 and 74, respectively,
of this proxy statement/prospectus. |
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When and where is the special meeting of Clearwire
stockholders? |
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The special meeting of Clearwire stockholders will be held at
the Woodmark Hotel, 1200 Carillon Point, Kirkland, Washington
98033 on Thursday, November 20, 2008 at 9:00 a.m., Pacific
Standard Time. |
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Who can vote at the Clearwire special meeting? |
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Holders of Clearwire Common Stock can vote their shares at the
special meeting if they were holders of record of those shares
at the close of business on October 15, 2008, the record
date for the special meeting. Each share of Clearwire
Class A Common Stock outstanding on the record date will be
entitled to |
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one vote on each matter presented for action at the special
meeting. Each share of Clearwire Class B Common Stock
outstanding on the record date will be entitled to ten votes on
each matter presented for action at the special meeting. |
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How can Clearwire stockholders vote? |
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Clearwire stockholders of record may vote before the special
meeting in one of the following ways: |
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use the toll-free number shown on your proxy card;
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visit the website shown on your proxy card to submit
a proxy via the Internet; or
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complete, sign, date and return the enclosed proxy
card in the enclosed postage prepaid envelope.
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You may also cast your vote in person at the special meeting.
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If my shares of Clearwire Common Stock are held in
street name, will my broker, bank or nominee
automatically vote my shares for me? |
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No. Your broker will vote your shares only if you provide
instructions to your broker on how to vote. You should follow
the directions provided by your broker regarding how to instruct
your broker to vote your shares. |
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Under the rules applicable to broker-dealers, brokers, banks and
other nominee record holders holding shares in street
name have the authority to vote on routine proposals when
they have not received instructions from beneficial owners.
However, brokers, banks and other nominee record holders are
precluded from exercising their voting discretion with respect
to the approval of non-routine matters such as the approval and
adoption of the Transaction Agreement proposal and the New
Clearwire Charter proposal set forth in this proxy
statement/prospectus. As a result, absent specific instructions
from the beneficial owner, brokers, banks and other nominee
record holders are not empowered to vote those street
name shares. Because the vote required for approval and
adoption of the Transaction Agreement and the vote required for
adoption of the New Clearwire Charter are each based on a
percentage of the shares outstanding, broker non-votes will have
the same effect as a vote against the Transaction Agreement
proposal and the New Clearwire Charter proposal. However, broker
non-votes will have no effect on the outcome of the vote for the
New Clearwire Stock Plan proposal or the adjournment proposal
because the vote required for approval of these proposals is
based on the number of shares actually voted, whether in person
or by proxy. |
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If I am not going to attend the special meeting should I
return my proxy card(s)? |
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Yes. Returning your proxy card(s) ensures that your shares will
be represented at the special meeting, even if you are unable to
or do not attend. |
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Can Clearwire stockholders change their vote after they mail
their proxy card? |
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Yes. If you are a holder of record of Clearwire Common Stock and
have properly completed and submitted your proxy card, you can
change your vote in any of the following ways: |
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by sending a written notice to the corporate
secretary of Clearwire that is received before the special
meeting stating that you revoke your proxy;
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by properly completing a new proxy card bearing a
later date and properly submitting it so that it is received
before the special meeting;
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by logging onto the Internet website specified on
your proxy card in the same manner you would to submit your
proxy electronically, if you are eligible to do so, and
following the instructions on the proxy card;
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by calling the telephone number specified on your
proxy card before the special meeting, if you are eligible to do
so, and following the instructions on the proxy card; or
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by attending the special meeting and voting in
person.
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Simply attending the special meeting will not revoke a proxy. If
you are a Clearwire stockholder whose shares are held in
street name by your broker or nominee and you have
directed that person to vote your shares, you should instruct
your broker or nominee to change or revoke your vote. |
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What if a Clearwire stockholder does not vote on the
proposals or abstains from voting? |
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If you are a Clearwire stockholder and you fail to respond with
a vote or fail to instruct your broker or other nominee how to
vote on the proposal to approve and adopt the Transaction
Agreement or the proposal to adopt the New Clearwire Charter, it
will have the same effect as a vote against these proposals.
Both of the Transaction Agreement proposal and the New Clearwire
Charter proposal must be approved for the Transactions to occur. |
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If you are a Clearwire stockholder and you fail to respond with
a vote or fail to instruct your broker or other nominee how to
vote on the proposal to approve and adopt the New Clearwire
Stock Plan, assuming a quorum is present, or the adjournment
proposal, it will have no effect with respect to such proposals. |
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If you respond and abstain from voting, your proxy will have the
same effect as a vote against all of the proposals described in
this proxy statement/prospectus. |
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If you respond but do not indicate how you want to vote on any
proposal, your proxy will be counted as a vote in favor of such
proposals. |
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What should I do if I receive more than one set of voting
materials? |
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You may receive more than one set of voting materials, including
multiple copies of this proxy statement/prospectus and multiple
proxy cards or voting instruction cards. For example, if you
hold your shares in more than one brokerage account, you will
receive a separate voting instruction card for each brokerage
account in which you hold shares. If you are a holder of record
and your shares are registered in more than one name, you will
receive more than one proxy card. Please complete, sign, date
and return separately all of the proxy cards or voting
instruction cards that you receive (or submit your proxy via the
Internet or by telephone) to ensure that all of your shares are
voted. |
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Should I send in my stock certificates now? |
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No. After the Transactions are complete, Clearwire will
send holders of Clearwire Common Stock written instructions for
exchanging their stock certificates for shares of New Clearwire
Class A Common Stock in uncertificated book-entry form,
unless a physical certificate is requested by such holder. |
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Who can answer my questions? |
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A: |
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If you are a Clearwire stockholder and you have any questions
about the Transactions, the special meeting, or if you need
assistance in voting your shares, please contact: |
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D.F. King & Co., Inc.
48 Wall Street
New York, New York 10005
1-800-859-8509 |
You may also obtain additional information from documents filed
with the Securities and Exchange Commission, which we refer to
as the SEC, by following the instructions in the section titled
Where You Can Find Additional Information beginning
on page 274 of this proxy statement/prospectus.
6
TRADEMARKS
AND TRADE NAMES
We own, have rights or will own or acquire rights to trademarks,
service marks, copyrights and trade names that we use in
conjunction with the operation of our business including,
without limitation,
Clearwire®
and
XOHMtm.
This proxy statement/prospectus also includes trademarks,
service marks and trade names of other companies, including,
without limitation,
Sprint®,
iDEN®
and Boost
Mobile®.
Each trademark, service mark or trade name of any other company
appearing in this proxy statement/prospectus belongs to its
holder. Use or display by us of other parties trademarks,
service marks or trade names is not intended to and does not
imply a relationship with, or endorsement or sponsorship by us
of the trademark, service mark or trade name owner. See
Risk Factors Risks Related to New
Clearwires Business after the Transactions We
could be subject to claims that we have infringed on the
proprietary rights of others, which claims would likely be
costly to defend, could require us to pay damages and could
limit our ability to use necessary technologies in the
future.
7
SUMMARY
The following summary highlights information contained
elsewhere in this proxy statement/prospectus. It may not contain
all the information that may be important to you. You should
read this entire proxy
statement/prospectus
carefully, including the sections titled Risk
Factors, Clearwire Managements Discussion and
Analysis of Financial Condition and Results of Operations and
Managements Discussion and Analysis of Financial
Condition and Results of Operations of the Sprint WiMAX
Business, our historical consolidated financial statements
and related notes and the Sprint WiMAX Business financial
statements and related notes, all included elsewhere in this
proxy statement/prospectus.
The
Companies (see page 62)
Clearwire
Corporation
Clearwire, a Delaware corporation, builds and operates next
generation wireless broadband networks that enable fast, simple,
portable, reliable and affordable Internet communications.
Clearwires wireless broadband networks cover entire
communities and deliver a high-speed Internet connection that
creates a new communications path into the home or office, and
anywhere within its coverage area. Clearwires services
consist primarily of providing wireless broadband connectivity
to more than 16.8 million people in the United States and
Europe in 50 markets, ranging from major metropolitan areas to
small, rural communities. Clearwire conducts its operations
through its domestic and international subsidiaries. Clearwire
also offers Voice-over-Internet Protocol, which we refer to as
VoIP, telephony services in most of its domestic markets. As it
evolves its existing networks and services, Clearwire plans to
deploy the standards-based mobile WiMAX service in its new
markets. Clearwire holds approximately 15.8 billion
MHz-POPs (defined as the product of the number of megahertz,
which we refer to as MHz, associated with a spectrum license
multiplied by the estimated population of the licenses
service area, which we refer to as POPs) of owned or leased
spectrum, including spectrum subject to pending acquisition or
leases, in the United States, and is subject to regulation
by the Federal Communications Commission, which we refer to as
the FCC. Clearwire also holds 8.7 billion MHz-POPs in
Europe. Clearwires principal executive offices are located
at 4400 Carillon Point, Kirkland, Washington 98033,
telephone:
(425) 216-7600.
Clearwires website address is
http://www.clearwire.com.
Information on or accessed through Clearwires website
is not incorporated into this proxy statement/prospectus and is
not a part of this proxy statement/prospectus.
Shares of Clearwire Class A Common Stock are traded on
NASDAQ under the symbol CLWR.
New
Clearwire Corporation
New Clearwire, a Delaware corporation, was formed by Clearwire
for the purpose of engaging in the Transactions. New Clearwire
will also act as the managing member of Clearwire
Communications. Immediately after the completion of the
Transactions, New Clearwires equity capital will consist
solely of the New Clearwire Class A Common Stock and New
Clearwire Class B Common Stock issued pursuant to the
Transactions. The New Clearwire Class A Common Stock and
New Clearwire Class B Common Stock each will have one vote
per share and will vote together as a single class on all
matters. Subject to restrictions imposed by the amended and
restated operating agreement governing Clearwire Communications,
which we refer to as the Operating Agreement, holders of New
Clearwire Class B Common Stock will have the right to
exchange one share of New Clearwire Class B Common Stock
and one Clearwire Communications Class B Common Interest
for one share of New Clearwire Class A Common Stock. New
Clearwire Class B Common Stock will have only nominal
economic rights. Unlike the holders of New Clearwire
Class A Common Stock, the holders of New Clearwire
Class B Common Stock will have no right to dividends and no
right to any proceeds on liquidation other than the par value of
the New Clearwire Class B Common Stock. New
Clearwires corporate governance is outlined in the New
Clearwire Charter and the equityholders agreement to be
entered into at the Closing among Sprint, Eagle River and the
Investors, which we refer to as the Equityholders
Agreement. The New Clearwire Charter and the Equityholders
Agreement are attached as Annex B and Annex C,
respectively, to this proxy statement/prospectus. New
Clearwire will be renamed Clearwire Corporation following
completion of the Transactions.
8
Sprint
Nextel Corporation
Sprint, a Kansas corporation, offers a comprehensive range of
wireless and wireline communications products and services that
are designed to meet the needs of individual consumers,
businesses and government customers. Sprint is widely recognized
for developing, engineering and deploying innovative
technologies, including two wireless networks serving nearly
52 million customers at the end of the second quarter of
2008; industry-leading mobile data services; instant national
and international walkie-talkie capabilities; and a global Tier
1 Internet backbone. Sprint operates its WiMAX broadband assets
under the
XOHMtm
brand name. The Sprint WiMAX Business, including the
XOHMtm
name, will be contributed to New Clearwire as part of the
Transactions.
Sprint
Sub
Sprint Sub LLC, which we refer to as Sprint Sub, a Delaware
limited liability company, will be formed by Sprint as a direct,
wholly-owned subsidiary of Sprint HoldCo LLC, which we refer to
as Sprint HoldCo, for the purpose of engaging in the
Transactions. Before the Closing, its assets will consist of the
Sprint WiMAX Business, including XOHM, which is currently a
division of Sprint that is developing a nationwide advanced
wireless broadband network designed to mobilize the Internet,
bring wireless innovation to devices and deliver new mobile
multimedia applications to consumer, business and government
customers. The equity interests of Sprint Sub and its
subsidiaries, including the Sprint WiMAX Business and the
XOHMtm
name, will be contributed to New Clearwire as part
of the Transactions.
The
Investors
As part of the Transactions, Comcast, Time Warner Cable, Bright
House Networks, Intel and Google will invest an aggregate of
$3.2 billion in New Clearwire and its subsidiaries.
Comcast
Corporation
Comcast, a Pennsylvania corporation, is the nations
leading provider of entertainment, information and
communications products and services. With approximately
24.6 million cable customers, 14.4 million high-speed
Internet customers, and 5.6 million voice customers,
Comcast is principally involved in the development, management
and operation of broadband cable systems and in the delivery of
programming content.
Comcasts content networks and investments include E!
Entertainment Television, Style Network, The Golf Channel,
VERSUS, G4, PBS KIDS Sprout, TV One, ten Comcast SportsNet
networks and Comcast Interactive Media, which develops and
operates Comcasts Internet business. Comcast also has a
majority ownership in Comcast-Spectacor, whose major holdings
include the Philadelphia Flyers NHL hockey team, the
Philadelphia 76ers NBA basketball team and two large
multipurpose arenas in Philadelphia.
Time
Warner Cable Inc.
Time Warner Cable, a Delaware corporation, together with its
subsidiaries, is the second-largest cable operator in the United
States, with technologically advanced, well-clustered systems
located mainly in New York, the Carolinas, Ohio, southern
California and Texas. As of June 30, 2008, Time Warner
Cable served approximately 14.7 million customers who
subscribe to one or more of its video, high-speed data and voice
services.
Bright
House Networks, LLC
Bright House Networks, a Delaware limited liability company, is
the nations sixth largest multiple systems operator with
approximately 2.4 million customers in several large
markets, including Bakersfield, California, Birmingham, Alabama,
Detroit, Michigan, Indianapolis, Indiana, Orlando, Florida and
Tampa, Florida, along with several other smaller systems in
Alabama and the Florida Panhandle. Bright House Networks
provides cable programming, digital phone, high-speed data and
other similar cable, voice and data services.
9
Intel
Corporation
Intel, a Delaware corporation, is the worlds largest
semiconductor chip manufacturer, based on revenue, and a
developer of advanced integrated digital technology products,
primarily integrated circuits, for industries such as computing
and communications. Intel also develops platforms, defined as
integrated suites of digital computing technologies that are
designed and configured to work together to provide an optimized
user computing solution compared to ingredients that are used
separately. Intel offers products at various levels of
integration to allow customers flexibility to create advanced
computing and communications systems and products. Intel Capital
Corporation, Intels global investment organization, makes
equity investments in innovative technology
start-ups
and companies worldwide. Intel Capital Corporation invests in a
broad range of companies offering hardware, software, and
services targeting enterprise, home, mobility, health, consumer
Internet, semiconductor manufacturing and cleantech.
Google
Inc.
Google, a Delaware corporation, is a global technology leader
focused on improving the ways people connect with information.
Googles innovations in web search and advertising have
made its web site a top Internet destination and its brand one
of the most recognized in the world. Google maintains the
largest, most comprehensive index of web sites and other online
content, and it makes this information freely available to
anyone with an Internet connection. Googles automated
search technology helps people obtain nearly instant access to
relevant information from its vast online index.
The
Transactions (see page 62)
On May 7, 2008, Clearwire entered into the Transaction
Agreement with Sprint, Comcast, Time Warner Cable, Bright House
Networks, Google and Intel to combine Clearwires and
Sprints WiMAX wireless broadband businesses, with the
Investors contributing an aggregate of $3.2 billion in
capital to the new company. Clearwire and Sprint believe that
the combination of their WiMAX wireless broadband businesses, in
conjunction with the contribution of capital from the Investors,
will provide the potential for substantial strategic and
financial benefits to their stockholders, customers and the
communities they serve.
The Transactions will be governed by the terms of the
Transaction Agreement and the other agreements related to the
Transactions that are attached as annexes to this proxy
statement/prospectus or as exhibits to the registration
statement of which this proxy statement/prospectus is a part.
For more information on the Transaction Agreement, see the
section titled The Transaction Agreement and the
Transaction Agreement, a copy of which is attached as
Annex A to this proxy statement/prospectus. We encourage
you to read the Transaction Agreement, including the exhibits
thereto, carefully and in its entirety.
The voting agreement entered into on May 7, 2008 among
Eagle River, Clearwire, Sprint and the Investors, which we refer
to as the Eagle River Voting Agreement, and the voting agreement
entered into on May 7, 2008 among Intel, Intel Capital
Corporation, Intel Capital (Cayman) Corporation, Clearwire,
Sprint and the Strategic Investors, which we refer to as the
Intel Voting Agreement, provide, among other things, that each
outstanding share of Clearwire Class B Common Stock held by
Eagle River and Intel and certain of its affiliates,
respectively, will be converted into one share of Clearwire
Class A Common Stock before the Merger (but after the vote
of the Clearwire stockholders at the special meeting). The Eagle
River Voting Agreement and the Intel Voting Agreement are
attached as Annex D and Annex E, respectively, to this proxy
statement/prospectus.
The Transaction Agreement provides that, on the terms and
subject to the conditions set forth in the Transaction
Agreement, among other things:
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Formation of New Clearwire Entities. Clearwire
will form New Clearwire as its direct, wholly-owned
subsidiary. New Clearwire will then form Clearwire
Communications as its direct, wholly-owned subsidiary, which
will in turn form Clearwire Sub as its direct, wholly-owned
subsidiary.
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The Merger of Clearwire into Clearwire
Sub. Following the Conversion, Clearwire will
merge with and into Clearwire Sub, with Clearwire Sub surviving
as a direct, wholly-owned subsidiary of Clearwire
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10
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Communications. In the Merger, each share of Clearwire
Class A Common Stock will be converted into the right to
receive one share of New Clearwire Class A Common Stock,
and each option and warrant to purchase shares of Clearwire
Class A Common Stock will be converted into an option or
warrant, as applicable, to purchase the same number of shares of
New Clearwire Class A Common Stock.
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Formation of New Sprint Entities and the
Contribution. Sprint will form Sprint HoldCo
and in turn cause Sprint HoldCo to form Sprint Sub. Sprint
will cause the Sprint WiMAX Business to be held entirely by one
or more wholly-owned subsidiaries of Sprint Sub. Following the
Merger, Sprint HoldCo will contribute all of the equity
interests in Sprint Sub to Clearwire Communications in exchange
for Clearwire Communications Class B Common Interests. We
refer to the contribution of the equity interests of Sprint Sub
to Clearwire Communications in exchange for Clearwire
Communications Class B Common Interests as the Contribution.
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The Class B Purchase. Following the
Merger, Sprint will also cause Sprint HoldCo to purchase, for
$37,000 in cash, 370 million shares of New Clearwire
Class B Common Stock. These shares are entitled to one vote
each but have only nominal equity rights. We refer to this
purchase of New Clearwire Class B Common Stock by Sprint
HoldCo as the Class B Purchase. Immediately following the
Class B Purchase, New Clearwire will contribute the cash
that it receives from Sprint HoldCo in the Class B Purchase
to Clearwire Communications in exchange for voting equity
interests in Clearwire Communications, which we refer to as the
Clearwire Communications Voting Interests.
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Investor Contributions to New Clearwire and Clearwire
Communications.
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Investors (other than Google). Following the
Contribution and the Class B Purchase, the Investors, other
than Google, will invest in Clearwire Communications a total of
$2.7 billion in exchange for Clearwire Communications
Voting Interests and Clearwire Communications Class B
Common Interests. Immediately following the receipt by the
Investors, other than Google, of Clearwire Communications Voting
Interests and Clearwire Communications Class B Common
Interests, each of the Investors, other than Google, will
contribute to New Clearwire its Clearwire Communications
Voting Interests in exchange for an equal number of shares of
New Clearwire Class B Common Stock.
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Google. Also following the Contribution and
the Class B Purchase, Google will invest $500 million in
New Clearwire in exchange for New Clearwire Class A Common
Stock. New Clearwire will then contribute the $500 million
that it receives from Google to Clearwire Communications in
exchange for Clearwire Communications Voting Interests and
Class A non-voting common interests in Clearwire
Communications, which we refer to as the Clearwire
Communications Class A Common Interests. We refer to the
Clearwire Communications Class A Common Interests and the
Clearwire Communications Class B Common Interests together
as the Clearwire Communications Common Interests.
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The number of shares of New Clearwire Class A Common Stock
and Clearwire Communications Class B Common Interests, as
applicable, that the Investors receive pursuant to the
Transaction Agreement will initially be based on a purchase
price of $20.00 per share or interest, as applicable, but is
subject to a post-closing adjustment based on the trading prices
of New Clearwire Class A Common Stock on NASDAQ over 15
randomly-selected trading days during the 30-trading day period
ending on the 90th day after the Closing date. The final
price per share or interest, as applicable, will be based on the
volume weighted average price on those randomly selected days,
and is subject to a cap of $23.00 per share or interest, as
applicable, and a floor of $17.00 per share or interest, as
applicable. The aggregate number of shares or interests, as
applicable, that each Investor ultimately receives for its
investment in New Clearwire and Clearwire Communications, as
applicable, will be equal to its investment amount divided by
the volume weighted average price per share of New Clearwire
Class A Common Stock. The number of shares of New Clearwire
Class B Common Stock ultimately received by each Investor
other than Google will be equal to the number of the
Investors Clearwire Communications Class B Common
Interests, as so adjusted. The number of Clearwire
Communications Class B Common Interests and shares of New
Clearwire Class B Common Stock received by Sprint HoldCo in
connection with the Contribution and the Class B Purchase,
respectively, will not be adjusted.
11
As the New Clearwire Class B Common Stock has only nominal
economic rights, immediately after the Closing, Sprint and the
Investors, other than Google, will hold their economic rights in
the combined WiMAX business through the ownership of Clearwire
Communications Class B Common Interests. At Closing, the
initial members will hold in the aggregate 100% of the economic
rights in Clearwire Communications, which will be allocated as
follows: New Clearwire will hold 29% to 31%, Sprint will hold
49% to 52% and the Investors, other than Google, will hold 17%
to 21%.
12
New
Clearwire Structure
The following is a diagram illustrating the structure of New
Clearwire, its subsidiaries and its stockholders on completion
of the Transactions:
1 With
respect to the shares of New Clearwire Class B Common Stock
and the Clearwire Communications Interests purchased by Intel as
part of the Transactions.
2 Includes
Eagle River, Motorola, Bell and Intel (with respect to the
Clearwire Common Stock held by Intel before the Closing).
3 Sprint
will hold its equity interests in New Clearwire and Clearwire
Communications through Sprint HoldCo.
The following table shows the amount each Investor has agreed to
contribute to New Clearwire or Clearwire Communications as part
of the Transactions, along with its respective ownership
percentage of New Clearwire after the Closing (dollars in
millions):
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Investment
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% Ownership(1)
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Comcast
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$
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1,050
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7.2
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%
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Intel(2)
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1,000
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6.9
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Time Warner Cable
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550
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3.8
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Google(3)
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500
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3.4
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Bright House Networks
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100
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0.7
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Total cash investment
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$
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3,200
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22.0
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%
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13
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(1) |
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Ownership percentages represent voting rights and are on an
in-the-money, fully diluted basis assuming a final purchase
price of $20 per share or interest, as applicable, of New
Clearwire Class A Common Stock or Clearwire Communications
Class B Common Interests, as applicable. Actual ownership
percentages are subject to the post-closing adjustment, see the
section titled The Transaction Agreement
Post-Closing Adjustment beginning on page 98 of this
proxy statement/prospectus. |
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(2) |
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The percentage ownership listed for Intel does not include
shares of Clearwire Common Stock owned before the Closing. |
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(3) |
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Google will hold its investment in New Clearwire Class A
Common Stock. The other Investors will hold Clearwire
Communications Class B Common Interests and New Clearwire
Class B Common Stock. |
Under the terms of the Transaction Agreement, before the
Closing, Clearwire must operate its business in the ordinary
course and, among other things, must not engage in certain
actions related to its business and its assets unless it obtains
the consent of Sprint and a 75% majority in interest of the
Investors, based on the amount to be invested by the Investors
at the Closing. The Sprint WiMAX Business is subject to
substantially similar pre-Closing operational restrictions.
New
Clearwire Charter; New Clearwire Common Stock (see
page 175)
Following the completion of the Merger, the New Clearwire
Charter will govern the rights of the holders of New Clearwire
Common Stock. For a summary of the differences in the rights of
Clearwire stockholders compared to those of New Clearwire
stockholders, see the section titled Comparison of
Stockholder Rights and Corporate Governance Matters
beginning on page 149 of this proxy statement/prospectus.
In general, the New Clearwire Charter will provide that the
approval of the holders of at least a majority of all of the
votes cast by the stockholders present and entitled to vote at a
stockholder meeting at which a quorum is present will be
required for corporate action that requires a stockholder vote.
However, the New Clearwire Charter will provide that the
approval of the holders of at least 75% of all of the
outstanding shares of capital stock of New Clearwire entitled to
vote in the election of directors, voting together as a single
class, will be required to approve certain actions constituting
a change of control of New Clearwire or Clearwire Communications.
Under the New Clearwire Charter, holders of New Clearwire Common
Stock will be subject to certain transfer restrictions. In
addition, a holder of New Clearwire Class B Common Stock
will be able to exchange one share of New Clearwire Class B
Common Stock together with one Clearwire Communications
Class B Common Interest for one share of New Clearwire
Class A Common Stock. If any holder of New Clearwire
Class B Common Stock attempts to transfer a share of New
Clearwire Class B Common Stock without a corresponding
Clearwire Communications Class B Common Interest, that
share of New Clearwire Class B Common Stock will be
redeemed by New Clearwire for its par value.
Recommendations
to Clearwire Stockholders (see pages 60 and 74)
The Clearwire board of directors has approved the Transaction
Agreement, the New Clearwire Charter and the New Clearwire Stock
Plan, and has determined that the Transaction Agreement and the
Transactions, including the Merger and the issuance of shares of
New Clearwire Common Stock as contemplated by the Transaction
Agreement, the New Clearwire Charter and the New Clearwire Stock
Plan, are advisable, fair to, and in the best interests of
Clearwire and its stockholders, and recommends that Clearwire
stockholders vote FOR the approval and
adoption of the Transaction Agreement, including the issuance of
shares of New Clearwire Common Stock,
FOR the adoption of the New Clearwire Charter
and FOR the approval and adoption of the New
Clearwire Stock Plan.
Opinion
of Clearwires Financial Advisor (see
page 78)
Morgan Stanley & Co. Incorporated, which we refer to
as Morgan Stanley, on May 5, 2008, rendered its oral
opinion to the Clearwire board of directors (subsequently
confirmed in writing) that, as of that date and based on and
subject to the assumptions, qualifications and limitations
discussed in such opinion, the consideration to be
14
received by holders of shares of Clearwire Class A Common
Stock pursuant to the Merger was fair, from a financial point of
view, to such holders. The full text of the written opinion of
Morgan Stanley, dated May 7, 2008, which discusses, among
other things, the assumptions made, procedures followed, matters
considered and qualifications and limitations of the review
undertaken in connection with the opinion, is attached as
Annex G to this proxy statement/prospectus. Clearwire
stockholders are urged to read this opinion carefully in its
entirety.
The Morgan Stanley opinion is directed to the Clearwire board of
directors and addresses only the fairness, from a financial
point of view, of the consideration to be received by the
holders of Clearwire Class A Common Stock pursuant to the
Merger to such holders as of the date of the opinion. The Morgan
Stanley opinion does not constitute a recommendation to any
Clearwire stockholder as to how any such stockholder should vote
at the special meeting. The opinion also does not address the
prices at which shares of New Clearwire Class A Common
Stock will trade following the completion of the Merger or at
any other time.
As compensation for its services in connection with the
Transactions, Clearwire has agreed to pay Morgan Stanley a fee
of $30 million, of which $24 million is contingent
upon the consummation of the Transactions. Clearwire has also
agreed to reimburse Morgan Stanley for certain expenses incurred
by Morgan Stanley, including fees of outside legal counsel, and
to indemnify Morgan Stanley and related parties against certain
liabilities and expenses arising out of Morgan Stanleys
engagement.
Regulatory
Matters (see page 85)
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, which we refer to as the HSR Act, the Transactions
cannot be completed until we have made required notification
filings and provided certain information and materials to the
Federal Trade Commission, which we refer to as the FTC, and the
Antitrust Division of the United States Department of Justice
and until specified waiting periods have expired without the
imposition of a Burdensome Condition. In addition, the step of
the Transactions related to the transfer of the Sprint WiMAX
Business is subject to, and the parties obligations to
effect the transfer are conditioned on, approval by the FCC
without the imposition of a Burdensome Condition. The FCC
approval process includes a public comment period, which ended
on August 11, 2008, and, as of the date of this
proxy statement/prospectus, each of Clearwire and Sprint is
awaiting FCC approval. The waiting period required under the HSR
Act expired on July 11, 2008. As of the date of this proxy
statement/prospectus, each of Clearwire and Sprint is in the
process of seeking the remaining required approvals.
No
Appraisal Rights (see page 86)
Clearwire stockholders do not have any right to an appraisal of
the value of their shares in connection with the Transactions
under Section 262 of the Delaware General Corporation Law,
which we refer to as the DGCL.
Listing
of New Clearwire Common Stock (see page 87)
We will apply for listing of New Clearwire Class A Common
Stock on NASDAQ under the trading symbol CLWR. If
the Transactions are completed, (1) shares of New Clearwire
Class A Common Stock are expected to be traded on NASDAQ
immediately following the completion of the Transactions and
(2) Clearwire Class A Common Stock will cease to be
listed on NASDAQ and will be deregistered under the Securities
Exchange Act of 1934, as amended, which we refer to as the
Exchange Act.
Additional
Interests of Clearwires Directors and Officers in the
Transactions (see page 92)
When Clearwire stockholders consider Clearwires board of
directors recommendation that they vote in favor of the
Transaction Agreement proposal, the New Clearwire Charter
proposal and the New Clearwire Stock Plan proposal, Clearwire
stockholders should be aware that Clearwires executive
officers and directors may have interests in the Transactions
that may be different from, or in addition to, the interests of
Clearwires stockholders. Those interests include, among
other things, the accelerated vesting of equity-based awards,
specified severance benefits payable under certain
circumstances, grants of awards under the New Clearwire Stock
Plan and the appointment of directors and officers of Clearwire
to the New Clearwire board of directors and management team. As
a result, the directors and officers of Clearwire may be more
likely to recommend
15
the approval of the Transaction Agreement proposal, the New
Clearwire Charter proposal and the New Clearwire Stock Plan
proposal than if they did not have these interests.
Benjamin G. Wolff, Clearwires Chief Executive Officer,
John A. Butler, Clearwires Chief Financial Officer
and Executive Vice President, Craig O. McCaw,
Clearwires Chairman, Perry S. Satterlee,
Clearwires Chief Operating Officer, R. Gerard
Salemme, Clearwires Executive Vice President
Strategy, Policy and External Affairs, Scott Richardson,
Clearwires Chief Strategy Officer and Executive Vice
President, John Saw, Clearwires Chief Technology Officer
and Vice President, Hope F. Cochran, Clearwires Senior
Vice President, Finance and Treasurer, Broady R. Hodder,
Clearwires Vice President, General Counsel and Secretary,
and Robert M. DeLucia, Clearwires Chief Accounting
Officer, would be entitled upon a change in control and in the
event of a termination of their employment under certain
circumstances following a change of control, to the benefits set
forth below. Completion of the Transactions will be a change in
control for these purposes.
16
The following table sets forth estimates of the amounts to which
each executive officer would be entitled (1) on the Closing
and (2) on termination of the executives employment
following the Closing under certain circumstances set forth in
Clearwires Change in Control Severance Plan. See the
section titled Additional Interests of Clearwires
Directors and Officers in the Transactions beginning on
page 92 of this proxy statement/prospectus. These estimates
assume (1) that the Closing occurred on September 30,
2008, (2) that, for the second case, the executives
employment is terminated immediately following the Closing and
(3) a closing price as of September 30, 2008 of $11.88
with respect to each share underlying the executives
outstanding equity awards.
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Value of
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Cash
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Continued
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Accelerated
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Executive Officer
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Severance ($)
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Health Care ($)
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Equity(1) ($)
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Gross-Up ($)
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Benjamin G. Wolff
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Closing
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3,994,600
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Termination following
Closing
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4,500,000
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3,994,600
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2,333,201
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Perry S. Satterlee
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Closing
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772,200
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Termination following
Closing
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2,000,000
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22,354
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772,200
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John A. Butler
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Closing
|
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356,400
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Termination following
Closing
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1,020,000
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14,243
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356,400
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552,895
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|
Scott Richardson
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Closing
|
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608,850
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Termination following
Closing
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1,200,000
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22,354
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608,850
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John Saw, PhD
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Closing
|
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321,652
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Termination following
Closing
|
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1,050,000
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22,354
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321,652
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497,523
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Hope F. Cochran
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Closing
|
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89,100
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Termination following
Closing
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623,280
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22,354
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89,100
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261,563
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Broady R. Hodder
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Closing
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123,404
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Termination following
Closing
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825,000
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22,354
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123,404
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374,895
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|
R. Gerard Salemme
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Closing
|
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679,350
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Termination following
Closing
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1,080,000
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679,350
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578,194
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|
Robert M. DeLucia
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Closing
|
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Termination following
Closing
|
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343,444
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11,176
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89,100
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(1) |
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Amounts represent the intrinsic value of the equity. |
17
In addition, four of our directors will receive an acceleration
in the vesting of their equity ownership in Clearwire upon
Closing, with the following approximate values:
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Value of
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Accelerated
|
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Director
|
|
Equity(1) ($)
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Richard Emerson
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|
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4,287
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Nicolas Kauser
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|
|
490,004
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Craig O. McCaw
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|
|
2,450,002
|
|
Stuart Sloan
|
|
|
1,840
|
|
|
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|
(1) |
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Amounts represent the intrinsic value of the equity. |
Clearwires board of directors was aware of these interests
and considered them, among other matters, in approving the
Transaction Agreement and the Transactions contemplated thereby.
Clearwires stockholders should consider these and other
interests of Clearwires directors and executive officers
that are described in this proxy statement/prospectus. See the
section titled Additional Interests of Clearwires
Directors and Officers in the Transactions beginning on
page 92 of this proxy statement/prospectus.
Sprint
Pre-Closing Financing (see page 99)
Sprint has agreed to provide certain financing for the
operations of the Sprint WiMAX Business between April 1,
2008 and the Closing. Subject to certain exceptions, before the
Contribution, the liability for the total amount of this
financing, up to a limit specified in a budget shared by Sprint
with the Investors, will be assumed by Sprint Sub, which will be
a wholly-owned subsidiary of New Clearwire after the Closing.
Sprint Sub will repay, or cause to be repaid, this amount in
full on the first business day after the Closing, in part via a
cash payment to Sprint and in part by the issuance of a secured
promissory note to Sprint or its subsidiaries.
Conditions
to the Completion of the Transactions (see
page 103)
Completion of the Transactions is subject to various conditions,
including, among other customary closing conditions, the
approval and adoption of the Transaction Agreement by
Clearwires stockholders, the adoption of the New Clearwire
Charter by Clearwires stockholders, the effectiveness of a
registration statement relating to the registration of the New
Clearwire Class A Common Stock to be issued in the Merger,
the maintenance by Clearwire and Sprint of a minimum number of
MHz-POPs coverage from their respective and combined spectrum
holdings, the receipt of the consent of the FCC to certain of
the Transactions without the imposition of a Burdensome
Condition (please see the section titled The Transaction
Agreement Government Approvals beginning on
page 106 of this proxy statement/prospectus for an explanation
of the term Burdensome Condition) on any party to
the Transaction Agreement, the expiration or termination of
applicable waiting periods under the HSR Act (this condition has
been satisfied as of July 11, 2008), receipt by Clearwire
of the required tax opinion relating to the treatment of the
Conversion and the Merger as a tax-free reorganization for
federal income tax purposes, receipt by Clearwire Communications
of the required tax opinion relating to its classification
following the Closing as a partnership for federal income tax
purposes, the consent of the lenders under Clearwires
senior term loan facility to the Transactions or the refinancing
of the senior term loan facility, and contribution by the
Investors of at least $3.1 billion.
Clearwire
Non-Solicitation (see page 108)
Clearwire has agreed that it and its subsidiaries will not,
among other things, authorize or permit any of its or their
officers, directors or other representatives to, directly or
indirectly:
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solicit, initiate or take any action to knowingly facilitate or
encourage the submission of any Acquisition Proposal; or
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participate in any discussions or negotiations with, or
otherwise cooperate in any way with or participate in any effort
by, any person or group that is seeking to make or has made an
Acquisition Proposal.
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18
However, as more fully described under The Transaction
Agreement Clearwire Non-Solicitation below,
the Transaction Agreement does not prohibit Clearwire, prior to
the receipt of its stockholders approval of the
Transactions, from considering and engaging in negotiations or
discussions with any person or group that has made an
unsolicited bona fide Acquisition Proposal if Clearwires
board of directors determines in good faith, after consultation
with its outside advisors, that:
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the Acquisition Proposal is or is reasonably likely to lead to a
Superior Proposal; and
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failing to take such action would be inconsistent with its
fiduciary duties.
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Please see the section titled The Transaction
Agreement Clearwire Non-Solicitation beginning
on page 108 of this proxy statement/prospectus for an
explanation of the terms Acquisition Proposal and
Superior Proposal.
Sprint
Non-Solicitation (see page 110)
Sprint has agreed that it and its subsidiaries will not
authorize or permit any of its or their officers, directors or
other representatives to, directly or indirectly:
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solicit, initiate or take any action to knowingly facilitate or
encourage the submission of any proposal to acquire or invest in
all or any portion of the Sprint WiMAX Business; or
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participate in any discussions or negotiations with, or
otherwise cooperate in any way with or participate in any effort
by, any person or group that is seeking to make or has made a
proposal to acquire or invest in all or any portion of the
Sprint WiMAX Business.
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Termination
of the Transaction Agreement (see page 111)
The Transaction Agreement may be terminated at any time before
the Closing:
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by mutual written consent of the parties;
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by any party, if:
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the Closing has not occurred by May 29, 2009, which we
refer to as the Termination Date, for any reason other than the
delay or non-performance of the party seeking to terminate,
subject to certain conditions; or
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if the required approval of the Clearwire stockholders is not
obtained at the Clearwire special meeting;
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by Clearwire, Sprint or any Investor (other than Bright House
Networks) if:
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subject to a cure period, any other party to the Transaction
Agreement breaches its representations, warranties, covenants or
other agreements contained in the Transaction Agreement, which
breach would cause the failure of the closing conditions
relating to the breach of representations and warranties or
relating to the performance of obligations to be satisfied and
such condition is incapable of being satisfied by the
Termination Date; or
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before the receipt of required approval of the Clearwire
stockholders, the board of directors of Clearwire adversely
modifies its recommendation to its stockholders with respect to
the proposals related to the Transactions or recommends voting
for an alternative transaction, which we refer to collectively
as an Adverse Recommendation Change (in order to exercise this
termination right, Clearwire must, simultaneously with the
termination, enter into a definitive agreement with respect to
the alternative transaction and pay Sprint the termination fee
described below).
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19
Termination
Fee (see page 112)
Clearwire has agreed to pay Sprint a termination fee of
$60 million if:
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any party terminates the Transaction Agreement due to an Adverse
Recommendation Change;
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any party terminates the Transaction Agreement due to
Clearwires failure to perform (or cure within the
specified time periods) any of its covenants or other agreements
contained in the Transaction Agreement, which breach would cause
the failure of the closing condition relating to the performance
of Clearwires obligations to be satisfied and such
condition is incapable of being satisfied by the Termination
Date; or
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either the Termination Date is reached or Clearwire stockholder
approval of the Transactions is not received and each of the
following occurs:
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before the special meeting, an Acquisition Proposal has been
made to Clearwire or directly to Clearwires stockholders
or has otherwise become publicly known, or any person has
publicly announced an intention to make an Acquisition
Proposal; and
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within 12 months after the termination of the Transaction
Agreement, Clearwire or any of its subsidiaries enters into a
definitive contract to consummate, or otherwise close, or the
Clearwire board of directors recommends to its stockholders, any
transaction whereby a third party merges with or into Clearwire,
acquires Clearwire, acquires more than 50% of the assets of
Clearwire and its subsidiaries, or acquires more than 50% of the
outstanding shares of Clearwire capital stock.
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Equityholders
Agreement (see page 114)
In connection with the Transactions, Clearwire has agreed to
cause New Clearwire to enter into, at the Closing, the
Equityholders Agreement with Sprint, Eagle River and the
Investors. The Equityholders Agreement will provide that,
among other things:
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the board of directors of New Clearwire will initially consist
of 13 members, including:
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seven directors nominated by Sprint, at least one of whom will
be independent;
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two directors nominated by the Strategic Investors as a group;
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one director, who must be independent, nominated by the
unanimous agreement of Intel and the Strategic Investors as a
group;
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one director nominated by Intel;
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one director nominated by Eagle River; and
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one independent director to be nominated by New Clearwires
Nominating Committee, which we refer to as the Nominating
Committee;
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each of Intel, Eagle River, the Strategic Investors, as a group,
and Bright House Networks will have the right to have an
observer at meetings of the board of directors of New Clearwire,
subject to certain limitations;
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75% of the outstanding voting power of New Clearwire will be
required to approve (1) any merger, consolidation, share
exchange, recapitalization, business combination or other
similar transaction involving New Clearwire or Clearwire
Communications, (2) any issuance of capital stock of New
Clearwire or Clearwire Communications that constitutes a change
of control of New Clearwire or Clearwire Communications,
respectively, or (3) any sale or disposition of all or
substantially all the assets of New Clearwire or Clearwire
Communications;
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the approval of each of Sprint, Intel and the representative for
the Strategic Investors, as a group, so long as each of Sprint,
Intel and the Strategic Investors, as a group, respectively,
owns securities
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20
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representing at least 5% of the outstanding voting power of New
Clearwire, will be required to take certain fundamental actions
with respect to New Clearwire or Clearwire Communications;
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for so long as Eagle River owns at least 50% of the shares of
New Clearwire Common Stock received by it in the Merger and the
proposed action would disproportionately and adversely affect
Eagle River, the public stockholders of New Clearwire or New
Clearwire in its capacity as a member of Clearwire
Communications, the approval of Eagle River will be required to
amend the New Clearwire Charter, the bylaws of New Clearwire,
which we refer to as the New Clearwire Bylaws, a copy of
which is attached as Annex F to this proxy
statement/prospectus, or the Operating Agreement or to change
the size of the board of directors of New Clearwire; and
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subject to certain conditions, the approval of each of Sprint,
Intel and the Strategic Investors, as a group, will be required
to approve New Clearwires entry into a transaction
involving the sale of a certain percentage of the consolidated
assets of New Clearwire and its subsidiaries to, or the merger
of New Clearwire with, certain specified competitors of Sprint,
Intel and the Strategic Investors.
|
The Equityholders Agreement will also provide for certain
restrictions on transfers of shares of New Clearwire by Sprint,
Eagle River, the Investors and their permitted transferees and
designees under the Equityholders Agreement, which we
refer to collectively as the Equityholders, and each
individually as an Equityholder. In addition, the
Equityholders Agreement will provide a right of first
offer related to certain transfers of New Clearwire equity
securities, as well as preemptive rights and tag-along rights.
Under the Equityholders Agreement, the Equityholders will
not be able to purchase any New Clearwire Common Stock for at
least five years after the Closing, subject to certain
exceptions, including the acquisition by an Equityholder of 100%
of the outstanding New Clearwire Common Stock that has been
approved by a majority of the disinterested directors and a
majority of the disinterested stockholders of New Clearwire.
Voting
Agreements (see page 119)
In connection with the Transactions, Eagle River entered into
the Eagle River Voting Agreement with Clearwire, Sprint and the
Investors. Pursuant to the Eagle River Voting Agreement, Eagle
River has agreed, subject to certain conditions, to vote shares
of Clearwire Common Stock representing not less than 40% of the
total voting power of all capital stock of Clearwire outstanding
as of May 7, 2008 (on a non-fully diluted basis), as
follows:
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in favor of the approval and adoption of the Transaction
Agreement and the Merger at the special meeting (and any
adjournment or postponement thereof); and
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except with the written consent (which may be withheld by each
in its sole discretion) of Sprint and four of the five
Investors, against any Acquisition Proposal.
|
The Eagle River Voting Agreement also provides that Eagle River
will convert its shares of Clearwire Class B Common Stock
into shares of Clearwire Class A Common Stock immediately
before completion of the Merger.
In addition, Intel, Intel Capital Corporation and Intel Capital
(Cayman) Corporation entered into the Intel Voting Agreement
with Clearwire, Sprint and the Strategic Investors. Pursuant to
the Intel Voting Agreement, each Intel party has agreed that at
the special meeting (or any adjournment, postponement or
continuation thereof) it will vote its shares of Clearwire
Common Stock in the same proportion as the Clearwire
stockholders (excluding each Intel party and its affiliates,
Eagle River and its affiliates and any director or executive
officer of Clearwire); provided, that such vote in favor of
approval of the Transactions will only be required if a majority
of Clearwire stockholders (excluding each Intel party and its
affiliates, Eagle River and its affiliates and any director or
executive officer of Clearwire) has voted in favor of the
approval of the Transactions.
The Intel Voting Agreement also provides that each of Intel,
Intel Capital Corporation and Intel Capital (Cayman) Corporation
will convert its shares of Clearwire Class B Common Stock
into shares of Clearwire Class A Common Stock immediately
before completion of the Merger.
21
The Eagle River Voting Agreement and the Intel Voting Agreement
are attached as Annex D and Annex E, respectively, to
this proxy statement/prospectus.
Registration
Rights Agreement (see page 121)
In connection with the Transactions, Clearwire has agreed to
cause New Clearwire to enter into, at the Closing, a
registration rights agreement with Sprint, Eagle River and the
Investors, which we refer to as the Registration Rights
Agreement. A copy of the Registration Rights Agreement is filed
as an exhibit to the registration statement on
Form S-4
of which this proxy/statement prospectus is a part. The
Registration Rights Agreement will grant certain customary
registration rights, including demand registration rights and
piggyback registration rights, with respect to the shares of New
Clearwire Common Stock held by Sprint, Eagle River and the
Investors. The Registration Rights Agreement also governs how
registration expenses will be paid on exercise of the rights
granted.
Operating
Agreement (see page 123)
In connection with Clearwires entry into the Transaction
Agreement, Clearwire has also agreed to cause Clearwire
Communications to be governed by the Operating Agreement,
pursuant to which the business and operations of Clearwire
Communications will be managed by New Clearwire, as managing
member. Among other things, the Operating Agreement will contain
certain pre-emptive rights, rights of first offer and tag-along
rights with respect to, as well as certain restrictions on
transfer of, Clearwire Communications equity securities. In
general, under the Operating Agreement, Clearwire Communications
may make distributions to its members, including New Clearwire,
from time to time at the discretion of New Clearwire, in its
capacity as managing member of Clearwire Communications. Such
distributions generally will be made to the members, including
New Clearwire, on a pro rata basis in proportion to the number
of Clearwire Communications Common Interests held by each member
at the record date for the distribution. Clearwire
Communications generally may not make any distributions, other
than tax distributions, to its members unless a corresponding
distribution or dividend is paid by New Clearwire to its
stockholders contemporaneously with the distributions made to
the members of Clearwire Communications.
Commercial
Agreements among New Clearwire, Clearwire Communications,
Sprint, Intel and the Strategic Investors (see
page 126)
In connection with Clearwires entry into the Transaction
Agreement, Clearwire has also agreed to cause New Clearwire and
Clearwire Communications to enter into, at the Closing, several
commercial agreements with Sprint and certain of the Investors
relating to, among other things, access rights to towers that
Sprint owns or leases, resales by Clearwire Communications and
certain Investors of bundled second generation wireless
communications, which we refer to as 2G, and third generation
wireless communications, which we refer to as 3G, services from
Sprint, resales by Sprint and certain Investors of Clearwire
Communicationss fourth generation wireless communications,
which we refer to as 4G, services, most favored reseller status
with respect to economic and non-economic terms of certain
service agreements, collective development of new 4G services,
creation of desktop and mobile applications on the New Clearwire
network, the embedding of WiMAX chips into various
New Clearwire network devices and the development of
Internet services and protocols.
Share
Ownership of Clearwires Directors and Executive Officers
(see page 265)
On October 15, 2008, which is the record date for
determining those Clearwire stockholders who are entitled to
vote at the special meeting, the directors and executive
officers of Clearwire and their affiliates beneficially owned
shares of Clearwire Class A Common Stock, representing
approximately 17.4% of the shares of Clearwire Class A
Common Stock and 5.8% of the aggregate voting power of Clearwire
outstanding on the record date, and shares of Clearwire
Class B Common Stock, representing approximately 65.4% of
the shares of Clearwire Class B Common Stock and 43.7% of
the aggregate voting power of Clearwire outstanding on the
record date. Subject to the terms of the Intel Voting Agreement
and the Eagle River Voting Agreement, to Clearwires
knowledge, the directors and executive officers of Clearwire and
their affiliates intend to vote
22
their Clearwire Common Stock in favor of the Transaction
Agreement proposal, in favor of the New Clearwire Charter
proposal and in favor of the New Clearwire Stock Plan proposal.
Treatment
of Clearwire Stock Options, Warrants and Other Equity-Based
Awards (see page 97)
On completion of the Merger, all outstanding stock options or
warrants to purchase Clearwire Class A Common Stock, and
all other Clearwire equity-based awards, will be converted into
awards that relate to shares of New Clearwire Class A
Common Stock that will vest on, and otherwise be subject to, the
same terms and conditions as the corresponding Clearwire award.
The number of shares of New Clearwire Class A Common Stock
underlying the New Clearwire stock option, warrant or other
equity-based award, as applicable, will equal the number of
shares of Clearwire Class A Common Stock underlying the
corresponding Clearwire stock option, warrant or other
equity-based award, as applicable. The per share exercise price
of each New Clearwire stock option, warrant or other
equity-based award, as applicable, will equal the exercise price
of the corresponding Clearwire stock option, warrant or other
equity-based award, as applicable.
Market
Prices and Dividends and Other Distributions
Market
Prices
The table below presents the closing sales price per share of
Clearwire Class A Common Stock, which trades on NASDAQ
under the symbol CLWR. These prices are presented on
two dates:
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May 6, 2008, the last trading day before the public
announcement of the signing of the Transaction
Agreement; and
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October 16, 2008, the latest practicable date before the
date of this proxy statement/prospectus.
|
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Clearwire Class A
|
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Common Stock
|
|
May 6, 2008
|
|
$
|
16.46
|
|
October 16, 2008
|
|
$
|
7.50
|
|
We urge you to obtain current market quotations for Clearwire
Class A Common Stock. We cannot give any assurance as to
the future prices or markets for Clearwire Class A Common
Stock or New Clearwire Class A Common Stock.
Sprint Subs equity interests are not listed for trading on
any exchange or automated quotation service.
Dividends
and Other Distributions
Neither Clearwire nor New Clearwire has paid any dividends on
its respective shares of Class A Common Stock and New
Clearwire does not plan to pay dividends on the New Clearwire
Class A Common Stock for the foreseeable future. All
decisions regarding the declaration and payment of dividends
will be at the discretion of New Clearwires board of
directors and will be evaluated from time to time by New
Clearwires board of directors in light of New
Clearwires financial condition, earnings, cash flows,
growth prospects, funding requirements, applicable law and other
factors that New Clearwires board of directors deems
relevant.
Sprint Sub has not paid any dividends on its equity interests
and does not plan to pay dividends on its equity interests for
the foreseeable future.
23
SELECTED
HISTORICAL AND PRO FORMA CONDENSED COMBINED FINANCIAL
DATA
Selected
Historical Financial Data of Clearwire
The following table sets forth selected consolidated financial
data for Clearwire. The selected financial information set forth
below under the captions Statement of Operations
Data and Other Financial Data for the years
ended December 31, 2007, 2006 and 2005 and the
Balance Sheet Data as of December 31, 2007 and
2006 are derived from our audited consolidated financial
statements included elsewhere in this proxy
statement/prospectus. The selected financial information set
forth below under the captions Statement of Operations
Data and Other Financial Data for the six
months ended June 30, 2008 and 2007, and the Balance
Sheet Data as of June 30, 2008 are derived from our
unaudited condensed consolidated financial statements included
elsewhere in this proxy statement/prospectus. The
Statement of Operations Data and Other
Financial Data for the year ended December 31, 2004
and for the period from October 27, 2003 (inception) to
December 31, 2003 and the Balance Sheet Data as
of December 31, 2005, 2004 and 2003 are derived from our
audited consolidated financial statements not included in this
proxy statement/prospectus. In the opinion of management, the
consolidated financial statements reflect all adjustments,
consisting only of normal and recurring adjustments, necessary
to state fairly our results of operations as of and for the
periods presented. Historical results are not necessarily
indicative of results to be expected for future periods.
The selected historical consolidated financial data should be
read in conjunction with Clearwire Managements
Discussion and Analysis of Financial Condition and Results of
Operations and our consolidated financial statements and
related notes included elsewhere in this proxy
statement/prospectus.
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 27,
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
|
Six Months
|
|
|
|
|
|
(Inception) to
|
|
|
|
Ended June 30,
|
|
|
Year Ended December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2006(1)
|
|
|
2005(1)
|
|
|
2004(1)
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
|
$
|
110,091
|
|
|
$
|
64,759
|
|
|
$
|
151,440
|
|
|
$
|
67,598
|
|
|
$
|
8,451
|
|
|
$
|
243
|
|
|
$
|
25
|
|
Equipment and other revenues (including related party sales)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,583
|
|
|
|
25,003
|
|
|
|
15,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
110,091
|
|
|
|
64,759
|
|
|
|
151,440
|
|
|
|
100,181
|
|
|
|
33,454
|
|
|
|
15,278
|
|
|
|
25
|
|
Cost of goods and services (exclusive of items shown separately
below)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service
|
|
|
80,367
|
|
|
|
40,048
|
|
|
|
107,281
|
|
|
|
50,438
|
|
|
|
13,086
|
|
|
|
3,031
|
|
|
|
110
|
|
Cost of equipment (including related party costs)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,674
|
|
|
|
10,483
|
|
|
|
9,816
|
|
|
|
|
|
Selling, general, and administrative
|
|
|
193,878
|
|
|
|
156,032
|
|
|
|
360,666
|
|
|
|
214,669
|
|
|
|
106,211
|
|
|
|
24,201
|
|
|
|
1,074
|
|
Transaction related expenses
|
|
|
10,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
1,030
|
|
|
|
1,023
|
|
|
|
1,397
|
|
|
|
8,890
|
|
|
|
9,639
|
|
|
|
5,805
|
|
|
|
22
|
|
Depreciation and amortization
|
|
|
56,986
|
|
|
|
35,899
|
|
|
|
84,694
|
|
|
|
40,902
|
|
|
|
11,913
|
|
|
|
2,552
|
|
|
|
27
|
|
Spectrum lease expense
|
|
|
64,207
|
|
|
|
28,265
|
|
|
|
96,417
|
|
|
|
23,516
|
|
|
|
9,356
|
|
|
|
2,987
|
|
|
|
163
|
|
Gain on sale of NextNet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,793
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
406,692
|
|
|
|
261,267
|
|
|
|
650,455
|
|
|
|
338,296
|
|
|
|
160,688
|
|
|
|
48,392
|
|
|
|
1,396
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 27,
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
|
Six Months
|
|
|
|
|
|
(Inception) to
|
|
|
|
Ended June 30,
|
|
|
Year Ended December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2006(1)
|
|
|
2005(1)
|
|
|
2004(1)
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(296,601
|
)
|
|
$
|
(196,508
|
)
|
|
$
|
(499,015
|
)
|
|
$
|
(238,115
|
)
|
|
$
|
(127,234
|
)
|
|
$
|
(33,114
|
)
|
|
$
|
(1,371
|
)
|
Interest income (expense) net
|
|
|
(42,007
|
)
|
|
|
(12,319
|
)
|
|
|
(30,543
|
)
|
|
|
(41,851
|
)
|
|
|
(8,018
|
)
|
|
|
1,160
|
|
|
|
|
|
Foreign currency transaction gains (losses) net
|
|
|
691
|
|
|
|
(68
|
)
|
|
|
363
|
|
|
|
235
|
|
|
|
20
|
|
|
|
172
|
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
(159,193
|
)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary impairment loss and realized loss on
investments
|
|
|
(32,767
|
)
|
|
|
|
|
|
|
(35,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income net
|
|
|
(1,209
|
)
|
|
|
1,744
|
|
|
|
1,801
|
|
|
|
2,150
|
|
|
|
300
|
|
|
|
(292
|
)
|
|
|
|
|
Income tax provision
|
|
|
(3,584
|
)
|
|
|
(2,729
|
)
|
|
|
(5,427
|
)
|
|
|
(2,981
|
)
|
|
|
(1,459
|
)
|
|
|
|
|
|
|
|
|
Minority interest in net loss of consolidated subsidiaries
|
|
|
2,345
|
|
|
|
1,967
|
|
|
|
4,244
|
|
|
|
1,503
|
|
|
|
387
|
|
|
|
20
|
|
|
|
|
|
Losses from equity investees
|
|
|
(2,311
|
)
|
|
|
(2,807
|
)
|
|
|
(4,676
|
)
|
|
|
(5,144
|
)
|
|
|
(3,946
|
)
|
|
|
(988
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(375,443
|
)
|
|
$
|
(210,720
|
)
|
|
$
|
(727,466
|
)
|
|
$
|
(284,203
|
)
|
|
$
|
(139,950
|
)
|
|
$
|
(33,042
|
)
|
|
$
|
(1,371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share
|
|
$
|
(2.29
|
)
|
|
$
|
(1.37
|
)
|
|
$
|
(4.58
|
)
|
|
$
|
(2.93
|
)
|
|
$
|
(1.97
|
)
|
|
$
|
(0.90
|
)
|
|
$
|
(0.88
|
)
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
115,390
|
|
|
$
|
164,604
|
|
|
$
|
361,861
|
|
|
$
|
191,747
|
|
|
$
|
132,724
|
|
|
$
|
12,815
|
|
|
$
|
64
|
|
|
|
|
(1) |
|
A significant portion of our historical revenues were generated
from equipment sales through our former subsidiary, NextNet
Wireless, Inc., which we refer to as NextNet, including 32.5%,
74.7% and 98.4% of our total revenues for the years ended
December 31, 2006, 2005 and 2004, respectively. All of our
cost of equipment for the years ended December 31, 2006,
2005 and 2004 were attributable to these revenues generated by
NextNet. The net loss for the year ended December 31, 2006
includes $7.9 million in direct selling, general and
administrative expense, $7.2 million in direct research and
development expense, and $1.4 million in direct
depreciation and amortization that we expect to be non-recurring
following the NextNet sale. Our net loss for the year ended
December 31, 2006 also includes the recognition of a
$19.8 million gain on the sale of NextNet. |
|
|
|
(2) |
|
In connection with the retirement of the $620.7 million
senior secured notes due 2010 and the repayment of the
$125.0 million term loan, we recorded a $159.2 million
loss on extinguishment of debt, which was primarily due to the
write-off of the unamortized portion of the proceeds allocated
to the warrants originally issued in connection with the senior
secured notes and the related deferred financing costs. |
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
As of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands)
|
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network covered population:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States(1)
|
|
|
13,861
|
|
|
|
10,005
|
|
|
|
13,550
|
|
|
|
8,551
|
|
|
|
3,788
|
|
|
|
480
|
|
|
|
|
|
International(2)
|
|
|
2,934
|
|
|
|
1,553
|
|
|
|
2,726
|
|
|
|
995
|
|
|
|
765
|
|
|
|
|
|
|
|
|
|
Network covered households:(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
5,544
|
|
|
|
4,002
|
|
|
|
5,420
|
|
|
|
3,447
|
|
|
|
1,515
|
|
|
|
192
|
|
|
|
|
|
International
|
|
|
1,135
|
|
|
|
649
|
|
|
|
1,095
|
|
|
|
409
|
|
|
|
326
|
|
|
|
|
|
|
|
|
|
Subscribers:(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
410
|
|
|
|
270
|
|
|
|
350
|
|
|
|
184
|
|
|
|
56
|
|
|
|
4
|
|
|
|
|
|
International
|
|
|
51
|
|
|
|
29
|
|
|
|
44
|
|
|
|
22
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents our estimate of the number of natural persons
resident in the geographic areas in which our wireless broadband
service is commercially available. Our calculation of covered
population in the United States is based on our estimate of
covered households multiplied by 2.5 persons per household. |
|
(2) |
|
Represents our estimate of the number of natural persons
resident in the geographic areas in which our wireless broadband
service is commercially available for our consolidated
subsidiaries only, and excludes data regarding our equity
investees. Our calculation of covered population is based on
estimates from the Economist Intelligence Unit database covered
households multiplied by 2.3, 3.0 and 2.9 persons per
household, for Ghent and Brussels, Belgium; Dublin, Ireland; and
Seville, Spain, respectively. |
|
(3) |
|
Represents our estimate of the number of single residence homes,
apartments and condominium units in the geographic areas in
which our wireless broadband service is commercially available.
Our estimate is based on information extrapolated from 2000
United States census data and other market information. |
|
(4) |
|
Represents the number of individuals and business or
governmental entities receiving wireless broadband connectivity
through our network. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
|
June 30,
|
|
|
As of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
$
|
528,087
|
|
|
$
|
943,764
|
|
|
$
|
1,101,674
|
|
|
$
|
125,648
|
|
|
$
|
91,438
|
|
|
$
|
2,721
|
|
Property, plant and equipment net
|
|
$
|
632,766
|
|
|
$
|
572,329
|
|
|
$
|
302,798
|
|
|
$
|
145,584
|
|
|
$
|
13,126
|
|
|
$
|
892
|
|
Total assets
|
|
$
|
2,378,689
|
|
|
$
|
2,685,969
|
|
|
$
|
2,068,373
|
|
|
$
|
627,918
|
|
|
$
|
263,305
|
|
|
$
|
29,229
|
|
Total debt (net of discount of $0, $0, $110,007, $50,385, $0 and
$0)
|
|
$
|
1,250,625
|
|
|
$
|
1,256,875
|
|
|
$
|
645,688
|
|
|
$
|
209,961
|
|
|
$
|
|
|
|
$
|
|
|
Total stockholders equity
|
|
$
|
832,118
|
|
|
$
|
1,163,832
|
|
|
$
|
1,257,609
|
|
|
$
|
318,692
|
|
|
$
|
241,370
|
|
|
$
|
27,841
|
|
26
Selected
Historical Financial Data of the Sprint WiMAX Business
The following table sets forth selected financial data for the
Sprint WiMAX Business, a development stage enterprise. The
selected financial data for the Sprint WiMAX Business represent
the collective assets, related liabilities and activities of the
Sprint WiMAX Business, including any allocations from Sprint and
other non-WiMAX Sprint entities that have acted on behalf of the
Sprint WiMAX Business. The acquisition of the Sprint WiMAX
Business assets was funded by Sprint and includes
significant amounts of FCC licenses. Principal operations did
not commence until January 1, 2007, at which time the
Sprint WiMAX Business qualified as a business.
The selected financial information set forth below under the
caption Statement of Operations Data for the year
ended December 31, 2007 and the Balance Sheet
Data as of December 31, 2007 are derived from the
Sprint WiMAX Business audited financial statements
included elsewhere in this proxy statement/prospectus. The
selected financial information set forth below under the caption
Statement of Operations Data for the six months
ended June 30, 2008 and 2007 and the Balance Sheet
Data as of June 30, 2008 are derived from the Sprint
WiMAX Business unaudited financial statements included
elsewhere in this proxy statement/prospectus. In the opinion of
management of the Sprint WiMAX Business, the financial
statements reflect all adjustments, consisting only of normal
and recurring adjustments, necessary to state fairly our results
of operations as of and for the periods presented. Historical
results are not necessarily indicative of results to be expected
for future periods.
The selected historical financial data should be read in
conjunction with Managements Discussion and Analysis
of Financial Condition and Results of Operations of the Sprint
WiMAX Business and the Sprint WiMAX Business
financial statements and related notes included elsewhere in
this proxy statement/ prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Direct and allocated costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Spectrum expense
|
|
|
33,093
|
|
|
|
26,004
|
|
|
|
60,051
|
|
Network costs
|
|
|
52,438
|
|
|
|
8,360
|
|
|
|
48,865
|
|
General and administrative
|
|
|
66,946
|
|
|
|
34,336
|
|
|
|
99,490
|
|
Depreciation and amortization
|
|
|
16,302
|
|
|
|
162
|
|
|
|
3,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168,779
|
|
|
|
68,862
|
|
|
|
212,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(168,779
|
)
|
|
|
(68,862
|
)
|
|
|
(212,385
|
)
|
Other income
|
|
|
2,854
|
|
|
|
1,754
|
|
|
|
4,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations before income taxes
|
|
|
(165,925
|
)
|
|
|
(67,108
|
)
|
|
|
(208,363
|
)
|
Income tax expense
|
|
|
(11,078
|
)
|
|
|
(7,265
|
)
|
|
|
(16,362
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(177,003
|
)
|
|
$
|
(74,373
|
)
|
|
$
|
(224,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
Total current assets
|
|
$
|
7,645
|
|
|
$
|
8,399
|
|
Total assets
|
|
|
3,619,717
|
|
|
|
3,144,158
|
|
Deferred tax liability, net
|
|
|
692,058
|
|
|
|
679,222
|
|
Business equity
|
|
|
2,927,659
|
|
|
|
2,464,936
|
|
Total liabilities and business equity
|
|
|
3,619,717
|
|
|
|
3,144,158
|
|
27
Selected
Unaudited Pro Forma Condensed Combined Financial
Information
The unaudited pro forma condensed combined statements of
operations for the six months ended June 30, 2008 and for
the year ended December 31, 2007 give effect to the
Transactions as if they were consummated on January 1, 2007
and includes all adjustments that give effect to events that are
directly attributable to the Transactions, expected to have a
continuing impact, and that are factually supportable. The
unaudited pro forma condensed combined balance sheet as of
June 30, 2008 gives effect to the Transactions as if they
had been consummated on June 30, 2008 and includes all
adjustments which give effect to events that are directly
attributable to the Transactions and that are factually
supportable. The pro forma adjustments are based on the
information available at the time of the preparation of this
proxy statement/prospectus. See the section titled
Unaudited Pro Forma Condensed Combined Financial
Information on page 134.
The unaudited pro forma condensed combined financial information
that follows is presented for informational purposes only and is
not intended to represent or be indicative of the combined
results of operations or financial position that would have been
reported had the Transactions been completed as of
January 1, 2007 or June 30, 2008, and should not be
taken as representative of the future consolidated results of
operations or financial position of New Clearwire.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
110,091
|
|
|
$
|
151,440
|
|
Operating loss
|
|
$
|
(503,577
|
)
|
|
$
|
(877,595
|
)
|
Loss before income taxes, non-controlling interests and losses
from equity investees
|
|
$
|
(574,226
|
)
|
|
$
|
(1,096,102
|
)
|
Net loss
|
|
$
|
(155,133
|
)
|
|
$
|
(296,427
|
)
|
Net loss per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.82
|
)
|
|
$
|
(1.56
|
)
|
Diluted
|
|
$
|
(0.85
|
)
|
|
$
|
(1.62
|
)
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
189,773
|
|
|
|
189,773
|
|
Diluted
|
|
|
694,773
|
|
|
|
694,773
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
$
|
3,437,409
|
|
Total assets
|
|
$
|
11,909,532
|
|
Total debt
|
|
$
|
1,250,625
|
|
Total liabilities
|
|
$
|
1,735,704
|
|
Non-controlling interests
|
|
$
|
7,398,046
|
|
Total stockholders equity
|
|
$
|
2,775,782
|
|
28
COMPARATIVE
PER SHARE INFORMATION (UNAUDITED)
The following table shows per share data regarding losses from
continuing operations and book value per share for Clearwire and
New Clearwire on a historical and pro forma combined basis,
respectively. The pro forma book value per share information was
computed as if the Transactions had been completed on
June 30, 2008. The pro forma loss from continuing
operations information was computed as if the Transactions had
been completed on January 1, 2007. These amounts do not
necessarily reflect future per share amounts of earnings
(losses) from continuing operations and book value per share of
New Clearwire.
The following unaudited comparative per share data is derived
from the historical consolidated financial statements of
Clearwire and the unaudited pro forma condensed combined
financial information of New Clearwire. The information below
should be read in conjunction with the financial statements and
accompanying notes of Clearwire, which are included in this
proxy statement/prospectus. We urge you also to read the section
titled Selected Unaudited Pro Forma Condensed Combined
Financial Information beginning on page 28 of this proxy
statement/prospectus. Per share data for the Sprint WiMAX
Business has not been presented as the entity does not have a
historical equity structure.
|
|
|
|
|
|
|
|
|
|
|
As of or for the
|
|
|
As of or for the
|
|
|
|
Six Months Ended
|
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Clearwire Historical:
|
|
|
|
|
|
|
|
|
Book value per share
|
|
$
|
5.07
|
|
|
$
|
7.09
|
|
Cash dividends per share
|
|
$
|
|
|
|
$
|
|
|
Diluted and basic net loss per share from continuing operations
|
|
$
|
(2.29
|
)
|
|
$
|
(4.58
|
)
|
New Clearwire Pro Forma Combined:
|
|
|
|
|
|
|
|
|
Book value per share
|
|
$
|
14.63
|
|
|
|
n/a
|
|
Cash dividends declared per share
|
|
|
n/a
|
|
|
|
n/a
|
|
Net loss per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.82
|
)
|
|
$
|
(1.56
|
)
|
Diluted
|
|
$
|
(0.85
|
)
|
|
$
|
(1.62
|
)
|
29
RISK
FACTORS
Clearwire stockholders should carefully consider the
following factors, in addition to those factors discussed
elsewhere in this proxy statement/prospectus, before voting at
the special meeting.
Risks
Related to the Transactions
Failure
to complete the Transactions may result in material adverse
consequences to Clearwires business and
operations.
The Transactions are subject to several closing conditions,
including the approval and adoption of the Transaction Agreement
and the adoption of the New Clearwire Charter by
Clearwires stockholders, the effectiveness of a
registration statement relating to the registration of the New
Clearwire Class A Common Stock to be issued in the Merger,
maintenance by Clearwire and contribution by Sprint of a minimum
number of MHz-POPs from their individual and combined spectrum
holdings, the absence of any action taken or any applicable law
proposed or enacted by any governmental authority that would
reasonably be expected to result in the imposition of a
Burdensome Condition on New Clearwire, the receipt of FCC
consent without the imposition of a Burdensome Condition on any
party to the Transaction Agreement, the receipt by Clearwire and
Clearwire Communications of required tax opinions, contribution
by the Investors of at least $3.1 billion, the consent of
the lenders under our senior term loan facility to the
Transactions or the refinancing of the senior term loan facility
and other customary closing conditions. In addition, the parties
must obtain certain other approvals and consents from the FCC,
and must wait for the expiration or termination of applicable
waiting periods under the HSR Act before consummating the
Transactions (the condition relating to the expiration of the
HSR waiting period has been satisfied as of July 11, 2008).
If any one of these conditions is not satisfied or waived, the
Transactions may not be completed. The closing conditions that
Clearwires stockholders approve and adopt the Transaction
Agreement and adopt the New Clearwire Charter, that a
registration statement relating to the registration of the New
Clearwire Class A Common Stock to be issued in the Merger
be effective, that FCC consent has been obtained and that the
expiration or termination of applicable waiting periods under
the HSR Act has occurred may not be waived by the parties to the
Transaction Agreement and each must be satisfied for the
Transactions to be completed. See the section titled The
Transaction Agreement Conditions to Closing
beginning on page 103 of this proxy statement/prospectus
for a more detailed discussion.
The parties have not yet obtained all regulatory clearances,
consents and approvals required to complete the Transactions.
Governmental or regulatory agencies could still seek to block or
challenge the Transactions or could impose restrictions they
deem necessary or desirable in the public interest as a
condition to approving the Transactions. If these approvals are
not received, then none of Clearwire, Sprint or the Investors
will be obligated to complete the Transactions. If the approvals
are received, but the applicable regulatory agency imposes any
condition that would restrict a partys freedom of action
with respect to its assets or business, require a party to
dispose of a material portion of its assets, require a party to
pay any significant amounts in order to receive required
consents or waivers, or adversely affect its rights under the
Transaction Agreement, alter the Transaction Agreement, the
Equityholders Agreement, the Registration Rights Agreement
or the commercial agreements entered into in connection with the
Transactions, or would have certain other effects, then the
party subject to such conditions would not be required to
complete the Transactions.
If Clearwires stockholders do not approve and adopt the
Transaction Agreement and adopt the New Clearwire Charter
or if the Transactions are not completed for any other reason,
Clearwire would be subject to a number of risks, including the
following:
|
|
|
|
|
Clearwire would not realize the anticipated benefits of the
proposed Transactions, including any anticipated synergies from
combining Clearwire and the Sprint WiMAX Business;
|
|
|
|
Clearwire may be required to pay a termination fee of
$60 million if the Transaction Agreement is terminated due
to an adverse change in our board of directors
recommendation to our stockholders to approve the Transactions
in order to allow us to proceed with an alternative acquisition,
as a result of our failure to close the Transactions within 12
months of the date of the Transaction Agreement if an
alternative acquisition proposal is made before our
stockholders meeting to vote on the Transactions
|
30
|
|
|
|
|
and we enter into an alternative acquisition within
12 months following the termination, or solely due to our
material breach of a covenant in the Transaction Agreement;
|
|
|
|
|
|
the trading price of Clearwire Common Stock may experience
increased volatility to the extent that the current market
prices reflect a market assumption that the Transactions will be
completed;
|
|
|
|
Clearwire would continue to be exposed to the general
competitive pressures and risks discussed elsewhere in this
proxy statement/prospectus, which pressures and risks may be
increased if the Transactions are not completed;
|
|
|
|
matters relating to the Transactions (including integration
planning) have required and will continue to require substantial
commitments of time and resources by our management, which could
otherwise have been devoted to other opportunities that may have
been beneficial to us; and
|
|
|
|
Clearwire could be unable to obtain necessary funding on
acceptable terms or at all, which could significantly impact our
ability to build out our network or launch new markets and may
jeopardize our ability to continue to operate.
|
The occurrence of any of these events individually or in
combination could have a material adverse effect on the results
of operations or the trading price of Clearwire Common Stock.
Each
of Clearwires business and the Sprint WiMAX Business will
be subject to business uncertainties and contractual
restrictions while the Transactions are pending that could
adversely affect it.
Uncertainty about the effect of the Transactions on employees
and customers may have an adverse effect on each of
Clearwires and Sprints WiMAX businesses, regardless
of whether the Transactions are eventually completed, and,
consequently, on the newly formed New Clearwire. Although
Clearwire and Sprint have taken steps designed to reduce any
adverse effects, these uncertainties may impair Clearwires
and Sprints ability to attract, retain and motivate key
personnel until the Transactions are completed, or the
Transaction Agreement is terminated, and for a period of time
thereafter, and could cause customers, suppliers and others that
deal with Clearwire or Sprint to seek to change existing
business relationships with Clearwire or Sprint.
Employee retention and recruitment may be particularly
challenging during the pendency of the Transactions, as
employees and prospective employees may experience uncertainty
about their future roles with New Clearwire. The departure of
existing key employees or the failure of potential key employees
to accept employment with New Clearwire, despite
Clearwires and Sprints retention and recruiting
efforts, could have a material adverse impact on
Clearwires and New Clearwires business, financial
condition and operating results, regardless of whether the
Transactions are eventually completed.
The pursuit of the Transactions and the preparation for the
integration of Clearwire and the Sprint WiMAX Business have
placed and will continue to place a significant burden on
management and internal resources. There is a significant degree
of difficulty and management distraction inherent in the process
of closing the Transactions and integrating Clearwires
business and the Sprint WiMAX Business, which could cause an
interruption of, or loss of momentum in, the activities of our
existing businesses, regardless of whether the Transactions are
eventually completed. Before and immediately following the
Closing, our management team will be required to devote
considerable amounts of time to this integration process, which
will decrease the time they will have to manage our existing
business, service existing customers, attract new customers and
develop new services or strategies. One potential consequence of
such distractions could be the failure of management to realize
other opportunities that could be beneficial to Clearwire. If
our senior management is not able to effectively manage the
process leading up to and immediately following the
Transactions, or if any significant business activities are
interrupted as a result of the integration process, our business
could suffer.
In addition, the Transaction Agreement restricts Clearwire and
Sprint, without the consent of the other and 75% in interest of
the Investors (based on the amount to be invested by the
Investors at the Closing), from making certain acquisitions and
taking other specified actions until the Transactions occur or
the Transaction Agreement is terminated. These restrictions may
prevent Clearwire and Sprint from pursuing otherwise
31
attractive business opportunities and making other changes to
their businesses before completion of the Transactions or
termination of the Transaction Agreement. For a description of
the restrictive covenants applicable to Clearwire and the Sprint
WiMAX Business, see the section titled The Transaction
Agreement Operations of Clearwire and Sprint
Pre-Closing beginning on page 106 of this proxy
statement/prospectus.
The
integration of Clearwire and the Sprint WiMAX Business following
the Closing will present significant challenges that may result
in a decline in the anticipated benefits of the
Transactions.
The Transactions involve the integration of two companies
WiMAX wireless broadband businesses that previously operated
independently. The difficulties of combining the companies
WiMAX wireless broadband operations include:
|
|
|
|
|
integrating successfully each companys operations,
technologies, products and services;
|
|
|
|
coordinating marketing efforts to effectively promote the
products of New Clearwire and its subsidiaries;
|
|
|
|
the necessity of coordinating geographically separated
organizations, systems and facilities;
|
|
|
|
hiring the right persons from each companys WiMAX
businesses to manage New Clearwire and its subsidiaries after
the Closing and preserving the morale of other employees;
|
|
|
|
integrating personnel with diverse business backgrounds and
business cultures;
|
|
|
|
reducing the costs associated with each companys
operations;
|
|
|
|
consolidating and rationalizing information technology platforms
and administrative infrastructures as well as accounting systems
and related financial reporting activities; and
|
|
|
|
preserving important relationships of both Clearwire and Sprint
and resolving potential conflicts that may arise.
|
Furthermore, it is possible that the integration process could
result in the loss of key employees, the disruption of
Clearwires ongoing businesses or the Sprint WiMAX
Business, inconsistencies in standards, controls, procedures and
policies that adversely affect our ability to maintain
relationships with clients, customers and employees or to
achieve the anticipated benefits of the Transactions. The loss
of key employees could adversely affect Clearwires ability
to successfully conduct its business, which could have an
adverse effect on Clearwires financial results and the
value of its common stock. In addition, the diversion of
managements attention and any delays or difficulties
encountered in connection the integration of Clearwire and the
Sprint WiMAX Business could have an adverse effect on the
business, results of operations, financial condition or
prospects of the combined businesses under New Clearwire after
the Transactions are completed.
The process of integrating operations could cause an
interruption of, or loss of momentum in, the activities of one
or more of Clearwires businesses, as well as the Sprint
WiMAX Business. If Clearwire or New Clearwire experience
difficulties with the integration process, the anticipated
benefits of the Transactions may not be realized fully or at
all, or may take longer to realize than expected. These
integration matters could have an adverse effect on each of
Clearwire, the Sprint WiMAX Business and New Clearwire during
this transition period and for an undetermined period after
completion of the Transactions.
Clearwire
stockholders may experience dilution in the percentage of common
stock held by them in the event that the price paid by the
Investors is adjusted downward pursuant to the Transaction
Agreement.
The number of shares of New Clearwire Class A Common Stock
and Clearwire Communications Class B Common Interests, as
applicable, that the Investors receive pursuant to the
Transaction Agreement will initially be based on a purchase
price of $20.00 per share or interest, as applicable, but is
subject to a post-closing adjustment based on the trading prices
of New Clearwire Class A Common Stock on NASDAQ over 15
randomly-selected trading days during the 30-trading day period
ending on the 90th day after the Closing date. The final
price per share or interest, as applicable, paid by the
Investors will be based on the volume weighted
32
average price on such randomly selected days, and is subject to
a cap of $23.00 per share or interest, as applicable, and a
floor of $17.00 per share or interest, as applicable. The number
of shares of New Clearwire Class B Common Stock ultimately
received by each Investor other than Google will be equal to the
number of the Investors Clearwire Communications
Class B Common Interests, as so adjusted. The number of
Clearwire Communications Class B Common Interests and
shares of New Clearwire Class B Common Stock received by
Sprint HoldCo in connection with the Contribution and the
Class B Purchase, respectively, will not be adjusted.
The aggregate number of shares or interests, as applicable, that
each Investor ultimately receives will be equal to its
investment amount divided by the volume weighted average price
per share of New Clearwire Class A Common Stock over the
measurement period. As a result, if the volume weighted average
price of New Clearwire Class A Common Stock on such days is
lower than $20.00, the number of shares or interests, as
applicable, received by the Investors will be increased pursuant
to the purchase price adjustment. If this occurs, the percentage
of the fully diluted shares of New Clearwire Common Stock held
by Clearwire stockholders will decrease as a result of the
purchase price adjustment. The number of fully diluted shares of
New Clearwire Common Stock held by Clearwire stockholders
immediately following the Transactions will represent 25% to 28%
of the voting power of New Clearwire if the price at which the
shares are sold is $17.00 to $23.00, based on the number of
shares of Clearwire Common Stock, options and warrants
outstanding as of August 4, 2008. See the section titled
The Transaction Agreement Post-Closing
Adjustment beginning on page 98 of this proxy
statement/prospectus.
Clearwire
and New Clearwire will incur significant transaction-related and
restructuring costs in connection with the
Transactions.
Clearwire expects to incur costs associated with combining the
operations of Clearwire and the Sprint WiMAX Business, as well
as transaction fees and other costs related to the Transactions.
New Clearwire also will incur restructuring and integration
costs in connection with the Transactions. Clearwire is in the
early stages of assessing the magnitude of these costs and,
therefore, is not able to provide estimates of these costs. The
costs related to restructuring will be included as a liability
in the purchase price allocation or expensed as incurred,
depending on the nature of the restructuring activity. Although
Clearwire expects that the elimination of duplicative costs, as
well as the realization of other efficiencies related to the
integration of the businesses, may offset incremental
transaction, transaction-related and restructuring costs over
time, any net benefit may not be achieved in the near term, or
at all.
The
Transaction Agreement contains provisions that may discourage
other companies from trying to acquire Clearwire.
The Transaction Agreement contains provisions that may
discourage a third party from submitting a business combination
proposal to Clearwire that might result in greater value to
Clearwire stockholders than the Transactions. The Transaction
Agreement generally prohibits Clearwire from soliciting any
Acquisition Proposal. In addition, if the Transaction Agreement
is terminated by Clearwire or Sprint in circumstances that
obligate Clearwire to pay a termination fee and to reimburse
transaction expenses to Sprint, Clearwires financial
condition may be adversely affected as a result of the payment
of the termination fee and transaction expenses, which might
deter third parties from proposing alternative business
combination proposals.
The
corporate opportunity provisions in the New Clearwire Charter
could enable certain of our stockholders to benefit from
corporate opportunities that might otherwise be available to
us.
The New Clearwire Charter will contain provisions related to
corporate opportunities that may be of interest to both New
Clearwire and certain of our stockholders, including Sprint,
Eagle River and the Investors, who are referred to in the New
Clearwire Charter as the Founding Stockholders. These provisions
will provide that unless a director is an employee of New
Clearwire, such person will not have a duty to present to
New Clearwire a corporate opportunity of which he or she
becomes aware, except where the corporate opportunity is
expressly offered to such person in his or her capacity as a
director of New Clearwire.
33
In addition, the New Clearwire Charter will expressly provide
that our Founding Stockholders may, and will have no duty not
to, engage in any businesses that are similar to or competitive
with that of New Clearwire, do business with our
competitors, customers and suppliers, and employ New
Clearwires employees or officers. The Founding
Stockholders or their affiliates may deploy competing wireless
broadband networks or purchase broadband services from other
providers. Further, we may also compete with the Founding
Stockholders or their affiliates in the area of employee
recruiting and retention. These potential conflicts of interest
could have a material adverse effect on our business, financial
condition, results of operations or prospects if attractive
corporate opportunities are allocated by the Founding
Stockholders to themselves or their other affiliates or we lose
key personnel to them. For a more complete description of the
terms of the New Clearwire Charter, see the section titled
Description of New Clearwire Capital Stock beginning
on page 175 of this proxy statement/prospectus.
Members
of our management and board of directors have interests in the
Transactions that are different from, or in addition to, those
of other stockholders and that could have influenced their
decision to support or approve the Transactions.
In considering whether to approve the Transaction Agreement,
Clearwire stockholders should recognize that some of the members
of management and the board of directors of Clearwire have
interests in the Transactions that differ from, or are in
addition to, their interests as stockholders of Clearwire. For
example, as of September 30, 2008, Eagle River was the
holder of approximately 65% of Clearwire Class B Common
Stock and approximately 13% of Clearwire Class A Common
Stock. Eagle River, Inc., which we refer to as ERI, is the
manager of Eagle River. ERI and Eagle River are both controlled
by Craig McCaw. In addition, Benjamin G. Wolff and R. Gerard
Salemme receive a salary from Clearwire as executives of
Clearwire and are also compensated by ERI. In addition, they,
along with Nicolas Kauser, a director of Clearwire, hold
membership interests in Eagle River. Under the terms of the
Equityholders Agreement, Eagle River will have certain
rights, including the right to nominate one member of the board
of directors of New Clearwire. In addition, under the
Registration Rights Agreement, Eagle River has the right to
cause New Clearwire to register its shares of New Clearwire
Class A Common Stock in certain circumstances. For a more
complete description of the interests and benefits of
Clearwires management and directors, see the section
titled Additional Interests of Clearwires Directors
and Officers in the Transactions beginning on page 92
of this proxy statement/prospectus.
Under
the New Clearwire Charter, New Clearwire will be able to issue
more shares of common stock than currently authorized under the
Clearwire Charter. Any future issuances of common stock could
have a dilutive effect on the earnings per share and voting
power of New Clearwire stockholders.
If the Transaction Agreement is approved and adopted by the
Clearwire stockholders, and the New Clearwire Charter is adopted
by the Clearwire stockholders, New Clearwire will be able to
issue more shares of common stock than currently authorized
under the Clearwire Charter. If the board of directors of New
Clearwire elects to issue additional shares of common stock in
the future, whether in public offerings, in connection with
mergers and acquisitions, or otherwise, such additional
issuances could dilute the earnings per share and voting power
of New Clearwire stockholders.
Sprint
is subject to exclusivity provisions and other restrictions
under its arrangements with the remaining independent Sprint PCS
Affiliates that may require changes to the terms of the
Transactions as contemplated by the Transaction
Agreement.
Sprints arrangements with its three remaining independent
third-party personal communication services, which we refer to
as PCS, affiliates, which we refer to as Sprint PCS Affiliates,
restrict the ability of Sprint to own, operate, build or manage
specified wireless communication networks or to sell certain
wireless services within specified geographic areas. Sprint has
pending litigation in multiple jurisdictions against the Sprint
PCS Affiliates regarding actions that Sprint may take in the
future in connection with the Transactions. The Sprint PCS
Affiliates assert that Sprints completion of the
Transactions may be inconsistent with Sprints obligations
under Sprint PCSs agreements with them, particularly with
respect to the restrictions noted above. Sprint
34
believes the restrictions in the Sprint PCS Affiliate agreements
should not impede the completion of the Transactions. However, a
court may ultimately require Sprint to modify its plans for
consummating the Transactions in the Sprint PCS Affiliate
territories.
Risks
Related to New Clearwires Business after the
Transactions
We are
an early stage company, we have a history of operating losses
and we expect to continue to realize significant net losses for
the foreseeable future.
We are at an early stage of implementing our business strategy.
We have recorded a net loss in each reporting period since our
inception and we cannot anticipate with certainty what our
earnings, if any, will be in any future period. However, we
expect to continue to incur significant net losses as we develop
and deploy our network in new and existing markets, expand our
services and pursue our business strategy. We intend to invest
significantly in our business before we expect cash flow from
operations will be adequate to cover our anticipated expenses.
In addition, at this stage of our development we are subject to
the following risks:
|
|
|
|
|
our results of operations may fluctuate significantly, which may
adversely affect the value of an investment in New Clearwire
Class A Common Stock;
|
|
|
|
we may be unable to develop and deploy our next generation
wireless broadband network, expand our services, meet the
objectives we have established for our business strategy or grow
our business profitably, if at all;
|
|
|
|
because of our limited operating history, it may be difficult to
predict accurately our key operating and performance metrics
utilized in budgeting and operational decisions;
|
|
|
|
our next generation wireless broadband network will rely on
mobile WiMAX technology that is new and has not been widely
deployed; and
|
|
|
|
our network and related technologies may fail or the quality and
number of services we are able to provide may decline if our
network operates at maximum capacity for an extended period of
time or fails to perform to our expectations.
|
If we are unable to execute our business strategy and grow our
business, either as a result of the risks identified in this
section or for any other reason, our business, prospects,
financial condition and results of operations will be materially
and adversely affected.
Our
substantial indebtedness and restrictive debt covenants could
limit our financing options and liquidity position and may limit
our ability to grow our business.
In 2007, we borrowed $1.25 billion under a senior term loan
facility. We used a portion of the proceeds to repay and retire
existing loans and secured notes. The remainder of the proceeds
will be used for expansion plans, spectrum acquisition, and
general working capital purposes. Our senior term loan facility
provides for quarterly principal payments, with the remaining
balance due on the final maturity date. In general, borrowings
under the facility bear interest based, at our option, at either
the Euro dollar rate or on an alternate base rate, in each case
plus a margin. It is a condition to closing under the
Transaction Agreement that we either obtain the consent of
lenders under our senior term loan facility to the Transactions
or that we refinance the senior term loan facility, in each case
in compliance with the Transaction Agreement. If we obtain the
consent of the lenders under the credit agreement or refinance
the senior term loan facility prior to the Closing, such action
is likely to result in significant additional fees being paid to
the lenders or in changes to the terms of the credit agreement,
including potential increases in the interest rate payable on
the loans. A refinancing of the senior term loan facility would
require us to prepay the existing loans, which the credit
agreement permits at a price equal to 101% of face value.
In addition, under the Transaction Agreement, subject to certain
exceptions, Sprint Sub, which will be a wholly-owned subsidiary
of New Clearwire after the Closing, will assume the liability
for the total amount of the financing incurred by Sprint to
finance the operations of the Sprint WiMAX Business between
April 1, 2008 and the Closing, up to a specified limit.
Sprint Sub will repay, or cause to be repaid, this amount in
full on the first business day after the Closing via a cash
payment to Sprint and, depending on the amount
35
financed, in part by the issuance of a secured promissory note
to Sprint or its subsidiaries. As a result, the total
indebtedness of New Clearwire and its subsidiaries could
substantially increase following completion of the Transactions.
Our substantial indebtedness could have important consequences
to the holders of New Clearwire Common Stock, such as:
|
|
|
|
|
we may not be able to obtain additional financing to fund
working capital, operating losses, capital expenditures or
acquisitions, including spectrum acquisitions, on terms
acceptable to us, or at all;
|
|
|
|
we may be unable to refinance our indebtedness on terms
acceptable to us, or at all;
|
|
|
|
our substantial indebtedness may make us more vulnerable to
economic downturns and limit our ability to withstand
competitive pressure; and
|
|
|
|
cash flows from operations and investing activities have been
negative since inception and will continue to be so for some
time, and our remaining cash, if any, may be insufficient to
operate our business.
|
Additionally, covenants in the credit agreement governing our
term loan facility impose operating and financial restrictions
on us. These restrictions prohibit or limit our ability, and the
ability of our subsidiaries, to, among other things:
|
|
|
|
|
pay dividends to our stockholders;
|
|
|
|
incur, or cause certain of our subsidiaries to incur, additional
indebtedness;
|
|
|
|
permit liens on or conduct sales of any assets pledged as
collateral;
|
|
|
|
sell all or substantially all of our assets or consolidate or
merge with or into other companies;
|
|
|
|
repay existing indebtedness; and
|
|
|
|
engage in transactions with affiliates.
|
A breach of any of these covenants could result in a default
under our senior term loan facility. If a default causes our
debt repayment obligations to be accelerated, our assets may be
insufficient to repay the amount due in full. If we are unable
to repay or refinance those amounts, the collateral agent for
our senior term loan facility could proceed against the assets
pledged to secure these obligations, which include substantially
all of our assets.
These restrictions may limit our ability to obtain additional
financing, withstand downturns in our business and take
advantage of business opportunities. Moreover, we may seek
additional debt financing on terms that include more restrictive
covenants, may require repayment on an accelerated schedule or
may impose other obligations that limit our ability to grow our
business, acquire needed assets, or take other actions we might
otherwise consider appropriate or desirable.
If we
do not obtain additional financing, our business prospects,
financial condition and results of operations will be adversely
affected.
We believe our cash, cash equivalents and marketable securities,
together with the proceeds of the investment in New Clearwire
and Clearwire Communications by the Investors, afford us
adequate liquidity for at least the next 12 months to fund
operating losses, capital expenditures, working capital and
current spectrum acquisition commitments, although we may raise
additional capital during this period if acceptable terms are
available. We also expect to require substantial additional
capital in the long-term to fund our business, including further
operating losses, network expansion plans and spectrum
acquisitions, and our success and viability will depend on our
ability to raise such additional capital on reasonable terms.
The amount and timing of our long-term capital needs will depend
in part on the extent of our network deployment, which we may
adjust based on available capital and, to a lesser degree, based
on the schedule on which mobile WiMAX products become available,
both of which are difficult to estimate at this time. If we
cannot secure sufficient additional funding we may forego
strategic opportunities or delay, scale back and eliminate
network
36
deployments, operations, spectrum acquisitions and investments.
Additionally, as our operations grow and expand, it may become
more difficult to modulate our business plans and strategies
based on the availability of funding.
We may not be able to secure adequate additional financing when
needed on acceptable terms or at all. To raise additional
capital, we may issue additional equity securities in public or
private offerings, potentially at a price lower than the market
price of our common stock at the time of such issuance. We will
likely seek significant additional debt financing, in the
short-term and the long-term, and, as a result, will likely
incur significant interest expense. Our existing level of debt
may make it more difficult for us to obtain this debt financing,
may reduce the amount of money available to finance our
operations and other business activities, may expose us to the
risk of increasing interest rates, may make us more vulnerable
to general economic downturns and adverse industry conditions,
and may reduce our flexibility in planning for, or responding
to, changing business and economic conditions. We also may
decide to sell additional debt or equity securities in our
domestic or international subsidiaries, which may dilute our
ownership interest in or reduce or eliminate our income, if any,
from those entities. The recent turmoil in the economy, and the
worldwide financial markets in particular, may make it more
difficult for us to obtain necessary additional capital or
financing on acceptable terms.
We
have committed to deploy a wireless broadband network using
mobile WiMAX technologies and would incur significant costs to
deploy alternative technologies, even if there are alternative
technologies available in the future that would be
technologically superior or more cost effective.
Under the Intel Market Development Agreement, described
elsewhere in this proxy statement/prospectus, we have committed
to undertake certain marketing efforts with respect to our
mobile WiMAX service and are subject to certain restrictions on
our ability to commercially deploy alternative wireless
broadband or data technology in our services for a period of
three years after the Closing as long as certain requirements
are satisfied. We have expended significant resources and made
substantial investments to deploy a wireless broadband network
using mobile WiMAX technologies. We depend on original equipment
manufacturers to develop and produce mobile WiMAX equipment that
will operate on our network. While we have initiated field
trials of mobile WiMAX jointly conducted with Intel and
Motorola, we cannot assure you that commercial quantities of
mobile WiMAX equipment that meets our requirements will become
available on the schedule we expect, or at all, or that vendors
will continue to develop and produce mobile WiMAX equipment in
the long term, which may require us to deploy alternative
technologies. Other competing technologies, such as Long Term
Evolution, which we refer to as LTE, and Ultra Mobile Broadband,
may be developed that have advantages over mobile WiMAX, and
operators of other networks based on those competing
technologies may be able to deploy these alternative
technologies at a lower cost and more quickly than the cost and
speed with which we deploy our networks, which may allow those
operators to compete more effectively, assuming they have
adequate spectrum resources, or may require us to deploy such
technologies when we are permitted to do so.
Additionally, mobile WiMAX may not perform as we expect, once
deployed on a commercial basis, and therefore we may not be able
to deliver the quality or types of service we expect. The
process of upgrading our current markets from Expedience
technology to mobile WiMAX may cost more or be more difficult to
undertake than we expect. We also may discover unanticipated
costs associated with deploying and maintaining our network or
delivering services we must offer in order to remain
competitive. These risks could reduce our subscriber growth,
increase our costs of providing services or increase our churn.
Churn is an industry term we use to measure the rate at which
subscribers terminate service. We calculate this metric by
dividing the number of subscribers who terminate their service
in a given month by the average number of subscribers during
that month, in each case excluding those who subscribe for and
terminate our service within 30 days for any reason or in
the first 90 days of service under certain circumstances.
37
If
third parties fail to develop and deliver the equipment that we
need for both our existing and future networks, we may be unable
to execute our business strategy or operate our
business.
We currently depend on third parties to develop and deliver
complex systems, software and hardware products and components
for our network in a timely manner, and at a high level of
quality. Motorola is our sole supplier of equipment and software
for the Expedience system currently deployed in our operating
markets. The Expedience system consists of network components
used by us and subscriber equipment used by our subscribers. To
successfully continue to operate in most of our existing
markets, Motorola must continue to support the Expedience
system, including continued production of the software and
hardware components. Any failure by Motorola to meet these needs
may impair our ability to operate in our current markets. If
Motorola failed to meet our needs we may not be able to find
another supplier on terms acceptable to us, or at all.
For our planned mobile WiMAX deployment in new markets and the
transition of our existing markets to mobile WiMAX, we are
relying on third parties to continue to develop the network
components and subscriber equipment necessary for us to build
and operate our mobile WiMAX networks. As mobile WiMAX is a new
and highly sophisticated technology, we cannot be certain that
these third parties will be successful in their development
efforts. The development process for new mobile WiMAX network
components and subscriber equipment may be lengthy, has been
subject to some short term delays and may still encounter more
significant delays. If these third parties are unable or
unwilling to develop new mobile WiMAX network components and
subscriber equipment on a timely basis that perform according to
our expectations, we may be unable to deploy a mobile WiMAX
network in our new markets or to transition our existing markets
to mobile WiMAX when we expect, or at all. If we are unable to
deploy mobile WiMAX in a timely manner, we may be unable to
execute our business strategy and our prospects and results of
operations would be harmed.
Many
of our competitors are better established and have significantly
greater resources than we have, which may make it difficult to
attract and retain subscribers.
The market for broadband, voice and related services is highly
competitive, and we compete with several other companies within
each of our markets. Many of our competitors are well
established with larger and better developed networks and
support systems, longer-standing relationships with customers
and suppliers, greater name recognition and greater financial,
technical and marketing resources than we have. Our competitors
may subsidize competing services with revenue from other sources
and, thus, may offer their products and services at prices lower
than ours. Our competitors may also reduce the prices of their
services significantly or may offer broadband connectivity
packaged with other products or services. For example, a number
of broadband providers recently offered significant price
reductions on their services. We may not be able to reduce our
prices or otherwise combine our services with other products or
services to remain competitive with these offerings, which may
make it more difficult to attract and retain subscribers.
Our current competitors include:
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3G, cellular, PCS and other wireless providers offering wireless
broadband services and capabilities, including developments in
existing cellular and PCS technology that may increase network
speeds or have other advantages over our services, and the
introduction of future technologies such as LTE, which may
enable these providers to offer services that are comparable or
superior to ours;
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incumbent and competitive local exchange carriers providing
digital subscriber line, which we refer to as DSL, services over
their existing wide, metropolitan and local area networks;
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wireline operators offering high-speed Internet connectivity
services and voice communications over cable or fiber optic
networks;
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satellite and fixed wireless service providers offering or
developing broadband Internet connectivity and VoIP and other
telephony services;
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municipalities and other entities operating wireless fidelity,
which we refer to as Wi-Fi, networks, some of which are free or
subsidized;
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Internet service providers offering
dial-up
Internet connectivity;
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electric utilities and other providers offering or planning to
offer broadband Internet connectivity over power lines; and
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resellers, mobile virtual network operators, which we refer to
as MVNOs, or wholesalers providing wireless Internet or other
wireless services using infrastructure developed and operated by
others.
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Our planned mobile VoIP services will also face significant
competition. Primarily, our mobile VoIP service offering will
compete with many of our current competitors that also provide
voice communications services. Additionally, we may face
competition from companies that offer VoIP telephony services
over networks operated by third parties.
We expect other existing and prospective competitors to adopt
technologies or business plans similar to ours, or seek other
means to develop services competitive with ours, particularly if
our services prove to be attractive in our target markets. There
can be no assurances that there will be sufficient customer
demand for services offered over our network in the same markets
to allow multiple operators, if any, to succeed. Additionally,
AT&T Inc., which we refer to as AT&T, and Verizon
Wireless Inc., which we refer to as Verizon Wireless, among
others, have announced plans to deploy LTE technology. This
service may provide significant competition when it becomes
available in the future.
As of
December 31, 2007, we have remediated our previous material
weaknesses and other significant deficiencies. If we fail to
maintain an effective system of internal control, we may not be
able to report our financial results accurately, safeguard our
assets or prevent fraud. Any inability to report and file our
financial results in an accurate and timely manner could harm
our business and adversely impact the trading price of New
Clearwire Class A Common Stock.
We produce our consolidated financial statements in accordance
with the requirements of accounting principles generally
accepted in the United States, which we refer to as
U.S. GAAP, and maintain effective internal controls under
the rules as promulgated by the SEC. Effective internal controls
are necessary to provide reliable financial reports, safeguard
our assets and prevent fraud. If we cannot provide reliable
financial reports, safeguard our assets or prevent fraud, we may
not be able to manage our business as effectively as we would if
an effective control environment existed, and our business,
brand and reputation with investors may be harmed. Additionally,
if we do not continue to maintain the controls and procedures we
have established, we could have additional weaknesses or
deficiencies in the future and the reliability of our Quarterly
Reports on
Form 10-Q
and Annual Reports on
Form 10-K
may be compromised.
We and our independent public accountants identified material
weaknesses in our internal controls during 2005 and 2006. A
material weakness is a deficiency or combination of deficiencies
in internal control over financial reporting such that there is
a reasonable possibility that a material misstatement of the
companys annual or interim financial statements will not
be prevented or detected on a timely basis. In 2007, we
remediated our material weaknesses and significant deficiencies
identified during 2005 and 2006. In addition, based on the work
we performed during 2007 and 2008 on our internal control over
financial reporting, we have not identified any new material
weaknesses or significant deficiencies during 2007 or 2008.
However, we cannot provide assurance that material weaknesses in
our internal control over financial reporting will not be
discovered in the future. Any failure to implement controls in
order to remediate material weaknesses or significant
deficiencies that may be identified, or any difficulties
encountered in their timely implementation, could cause us to
fail to meet our reporting obligations or result in material
misstatements in our financial statements.
We may
experience difficulties in constructing, upgrading and
maintaining our network, which could adversely affect customer
satisfaction, increase subscriber churn and costs incurred, and
decrease our revenues.
Our success depends on developing and providing services that
give subscribers a high quality experience. We expect to expend
significant resources in constructing, maintaining and improving
our network.
39
Additionally, as the number of subscribers using our network
increases, as the usage habits of our subscribers change and as
we increase our service offerings, we may need to upgrade our
network to maintain or improve the quality of our services. If
we do not successfully maintain or implement upgrades to our
network, the quality of our services may decline and the rate of
our subscriber churn may increase.
We may experience quality deficiencies, cost overruns and delays
with our construction, maintenance and upgrade projects,
including the portions of those projects not within our control.
The construction of our network requires permits and approvals
from numerous governmental bodies, including municipalities and
zoning boards. Such entities often limit the expansion of
transmission towers and other construction necessary for our
network. Failure to receive approvals in a timely fashion can
delay new market deployments and upgrades in existing markets
and raise the cost of completing construction projects. In
addition, we typically are required to obtain rights from land,
building and tower owners to install the antennas and other
equipment that provide our service to our subscribers. We may
not be able to obtain, on terms acceptable to us or at all, the
rights necessary to construct our network and expand our
services.
We also may face challenges in managing and operating our
network. These challenges could include ensuring the
availability of subscriber equipment that is compatible with our
network and managing sales, advertising, customer support, and
billing and collection functions of our business while providing
reliable network service that meets our subscribers
expectations. Our failure in any of these areas could adversely
affect customer satisfaction, increase subscriber churn,
increase our costs, decrease our revenues and otherwise have a
material adverse effect on our business, prospects, financial
condition and results of operations.
If we
do not obtain and maintain rights to use licensed spectrum in
one or more markets, we may be unable to operate in these
markets, which could adversely affect our ability to execute our
business strategy.
To offer our services using licensed spectrum both in the United
States and internationally, we depend on our ability to acquire
and maintain sufficient rights to use spectrum through ownership
or long-term leases in each of the markets in which we operate
or intend to operate. Obtaining the necessary amount of licensed
spectrum in these markets can be a long and difficult process
that can be costly and require a disproportionate amount of our
resources. We may not be able to acquire, lease or maintain the
spectrum necessary to execute our business strategy. In
addition, we have in the past and may continue to spend
significant resources to acquire spectrum in additional or
existing markets, even if the amount of spectrum actually
acquired in certain markets is not adequate to deploy our
network on a commercial basis in all such markets.
Using licensed spectrum, whether owned or leased, poses
additional risks to us, including:
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inability to satisfy build-out or service deployment
requirements on which some of our spectrum licenses or leases
are, or may be, conditioned;
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adverse changes to regulations governing our spectrum rights;
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inability to use a portion of the spectrum we have acquired or
leased due to interference from licensed or unlicensed operators
in our band or in adjacent bands;
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refusal by the FCC or one or more foreign licensing authorities
to recognize our acquisition or lease of spectrum licenses from
others or our investments in other license holders;
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inability to offer new services or to expand existing services
to take advantage of new capabilities of our network resulting
from advancements in technology due to regulations governing our
spectrum rights;
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inability to control leased spectrum due to contractual disputes
with, or the bankruptcy or other reorganization of, the license
holders, or third parties;
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failure of the FCC or other regulators to renew our spectrum
licenses as they expire;
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failure to obtain extensions or renewals of spectrum leases, or
an inability to renegotiate such leases, on terms acceptable to
us before they expire;
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potentially significant increases in spectrum prices, because of
increased competition for the limited supply of licensed
spectrum both in the United States and internationally; and
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invalidation of our authorization to use all or a significant
portion of our spectrum, resulting in, among other things,
impairment charges related to assets recorded for such spectrum.
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We expect the FCC to make additional spectrum available from
time to time. Additionally, other companies hold spectrum rights
that could be made available for lease or sale. The availability
of additional spectrum in the marketplace could change the
market value of spectrum rights generally and, as a result, may
adversely affect the value of our spectrum assets.
Interruption
or failure of our information technology and communications
systems could impair our ability to provide our services, which
could damage our reputation and harm our operating
results.
We have experienced service interruptions in some markets in the
past and may experience service interruptions or system failures
in the future. Any service interruption adversely affects our
ability to operate our business and could result in an immediate
loss of revenues. If we experience frequent or persistent system
or network failures, our reputation and brand could be
permanently harmed. We may make significant capital expenditures
in an effort to increase the reliability of our systems, but
these capital expenditures may not achieve the results we expect.
Our services depend on the development and continuing operation
of various information technology and communications systems,
some of which are not within our control. Neither the Sprint
WiMAX Business nor Clearwire currently has in place information
technology and communication systems that will meet all of our
future business requirements. Thus, we must be able to develop
these information technology and communication systems, and any
failure to do so may limit our ability to offer the services we
intend to offer and may adversely affect our operating results.
Any damage to or failure of our current or future information
technology and communications systems could result in
interruptions in our service. Interruptions in our service could
reduce our revenues and profits, and our brand could be damaged
if people believe our network is unreliable. Our systems are
vulnerable to damage or interruption from earthquakes and other
natural disasters, terrorist attacks, floods, fires, power loss,
telecommunications failures, computer viruses, computer denial
of service attacks or other attempts to harm our systems, and
similar events. Some of our systems are not fully redundant, and
our disaster recovery planning may not be adequate. The
occurrence of a natural disaster or unanticipated problems at
our network centers could result in lengthy interruptions in our
service and adversely affect our operating results.
Acquisitions,
investments and other strategic transactions could result in
operating difficulties, dilution and distractions from our core
business.
We have entered, and may in the future enter, into strategic
transactions, including strategic supply and service agreements
and acquisitions of other assets and businesses. Any such
transactions can be risky, may require a disproportionate amount
of our management and financial resources and may create
unforeseen operating difficulties or expenditures, including:
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difficulties in integrating acquired technologies and operations
into our business while maintaining uniform standards, controls,
policies and procedures;
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obligations imposed on us by counterparties in such transactions
that limit our ability to obtain additional financing, our
ability to compete in geographic areas or specific lines of
business, or other aspects of our operational flexibility;
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increasing cost and complexity of assuring the implementation
and maintenance of adequate internal control and disclosure
controls and procedures, and of obtaining the reports and
attestations required under the Exchange Act;
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increasing cost and complexity in the proper application of
U.S. GAAP;
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difficulties in consolidating and preparing our financial
statements due to poor accounting records, weak financial
controls and, in some cases, procedures at acquired entities not
based on U.S. GAAP particularly those entities in which we
lack control; and
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inability to predict or anticipate market developments and
capital commitments relating to the acquired company, business
or technology.
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In the past, some of our business acquisitions have given rise
to significant deficiencies in financial reporting controls in
certain areas such as cash, inventory, fixed assets, prepaid
site rentals, value-added tax receivables and depreciation
expense, as well as inconsistent preparation of monthly routine
elimination entries that resulted in intercompany transactions
not properly eliminated in consolidation at year end.
In addition, acquisitions of, and investments in, businesses
organized outside the United States often can involve additional
risks, including:
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difficulties, as a result of distance, language, legal or
culture differences, in developing, staffing and managing
foreign operations;
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lack of control over our equity investees and other business
relationships;
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currency exchange rate fluctuations;
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longer payment cycles;
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credit risk and higher levels of payment fraud;
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foreign exchange controls that might limit our control over, or
prevent us from repatriating, cash generated outside the United
States;
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potentially adverse tax consequences;
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expropriation or nationalization of assets;
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differences in regulatory requirements that may make it
difficult to offer all of our services;
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unexpected changes in regulatory requirements;
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difficulties in foreign corporate law that have and may create
additional administrative burdens and legal risks;
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increased management time and resources to manage overseas
operations;
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trade barriers and import and export restrictions; and
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political or social unrest and economic instability.
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Further, the Equityholders Agreement will impose certain
restrictions on acquisitions of, and investments in, businesses
organized outside the United States by requiring the prior
approval of at least ten of the 13 directors of New
Clearwire (except that if there are ten or fewer directors on
the board of directors at any time, these actions will require
the unanimous approval of the board of directors) to fund
(1) the expansion of the business purpose of New Clearwire,
(2) activities outside of the United States, other than the
maintenance of New Clearwires current operations and
assets located outside of the United States, or (3) the
acquisition of spectrum outside of the United States.
The anticipated benefit of any of our strategic transactions may
never materialize. Future investments, acquisitions or
dispositions, or similar arrangements could result in dilutive
issuances of our equity securities, the incurrence of debt,
contingent liabilities or amortization expenses, or write-offs
of goodwill, any of which could harm our financial condition.
Any such transactions may require us to obtain additional equity
or debt financing, which may not be available on favorable
terms, or at all. We have experienced certain of these risks in
connection with our acquisitions and investments in the past,
and the occurrence of any of these risks in the future may have
a material adverse effect on our business. Additionally, the
uncertainty in the credit markets may adversely affect the value
and liquidity of some of our short-term investments. For a more
detailed
42
discussion of this issue, see Note 5, Short-Term
Investments, in the notes to our consolidated financial
statements.
A
number of our significant business arrangements are between us
and parties that have an investment in or a fiduciary duty to
us, and the terms of those arrangements may not be beneficial to
us.
We are party to a number of services, development, supply and
licensing agreements with parties that have an ownership or
fiduciary relationship with us, including current agreements
between us and Intel and Motorola and, following the Closing, we
will become a party to various commercial agreements with Sprint
and the Investors. These relationships may create actual or
potential conflicts of interest, and may cause the parties to
these arrangements to make decisions or take actions that do not
reflect our best interests.
Our current commercial agreements with Intel and Motorola were
entered into concurrently with purchases of our shares of
capital stock by each of these entities or their affiliates. Our
current commercial agreement with Intel will terminate
concurrently with the Closing and will be superseded by the
Intel Market Development Agreement, which we are entering into
concurrently with the Closing. Following the Transactions, none
of Intel, Motorola or any of our other debt or equity security
holders, including, after completion of the Transactions, Sprint
and the Investors, or any of their respective affiliates, is
obligated to purchase equity from, or contribute or lend funds
to, us or any of our subsidiaries or equity investees.
In addition, in connection with the Transactions, we have
authorized New Clearwire to enter into commercial agreements
with service providers that will have an ownership or fiduciary
relationship with New Clearwire that provide for, among
other things, access rights to towers that Sprint owns or
leases, resales by Clearwire Communications and certain
Investors of bundled 2G and 3G services from Sprint, resales by
Sprint and certain Investors of Clearwire Communicationss
4G services, most favored reseller status with respect to
economic and non-economic terms of certain service agreements,
collective development of new 4G services, creation of desktop
and mobile applications on the New Clearwire network, the
embedding of mobile WiMAX chips into various New Clearwire
network devices and the development of Internet services and
protocols. Except for the agreements with Google and Intel, none
of these agreements restricts these parties from entering into
similar arrangements with other parties. See the section titled
Certain Agreements Related to the Transactions
Commercial Agreements among New Clearwire, Clearwire
Communications, Sprint, Intel and the Strategic Investors
beginning on page 126 of this proxy statement/prospectus.
The
industries in which we operate are continually evolving, which
makes it difficult to evaluate our future prospects and
increases the risk of your investment. Our products and services
may become obsolete, and we may not be able to develop
competitive products or services on a timely basis or at
all.
The broadband services industry is characterized by rapid
technological change, competitive pricing, frequent new service
introductions, evolving industry standards and changing
regulatory requirements. Additionally, our planned deployment of
mobile WiMAX depends on the continued development of new network
equipment and subscriber devices based on the mobile WiMAX
standard. Although we have begun mobile WiMAX field trials which
have yielded positive initial results, each of these development
efforts faces a number of continuing technological and
operational challenges. We believe that our success depends on
our ability to anticipate and adapt to these and other
challenges and to offer competitive services on a timely basis.
We face a number of difficulties and uncertainties associated
with our reliance on future technological development, such as:
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existing service providers may use more traditional and
commercially proven means to deliver similar or alternative
services;
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new service providers may use more efficient, less expensive
technologies, including products not yet invented or developed;
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consumers may not subscribe to our services or may not be
willing to pay the amount we expect to receive for our services;
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we may not be able to realize economies of scale;
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our subscribers may elect to cancel our services at rates that
are greater than we expect;
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we may be unable to respond successfully to advances in
competing technologies in a timely and cost-effective manner;
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we may lack the financial and operational resources necessary to
enable the development and deployment of network components and
software that do not currently exist and that may require
substantial upgrades to or replacements of existing
infrastructure; and
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existing, proposed or undeveloped technologies may render our
existing or planned services less profitable or obsolete.
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As our services and those offered by our competitors develop,
businesses and consumers, including our current subscribers, may
not accept our services as an attractive alternative to other
means of receiving wireless broadband services.
We
rely on highly skilled executives and other personnel. If we
cannot retain and motivate key personnel, we may be unable to
implement our business strategy.
Our future success depends largely on the expertise and
reputation of the anticipated members of our senior management
team, including Benjamin G. Wolff, who will serve as New
Clearwires Chief Executive Officer, Barry West, who will
serve as New Clearwires President, and Perry Satterlee,
who will serve as New Clearwires Chief Operating
Officer. In addition, we intend to hire additional highly
skilled individuals to staff our operations. Loss of any of our
key personnel or the inability to recruit and retain qualified
individuals for our domestic and international operations could
adversely affect our ability to implement our business strategy
and operate our business.
In addition, to successfully introduce our services in new
markets and grow our business in existing domestic and
international markets, we rely on the skills of our general
managers in these markets. If we cannot hire, train and retain
motivated and well-qualified individuals to serve as general
managers in our markets, we may face difficulties in attracting,
recruiting and retaining various sales and support personnel in
those markets, which may lead to difficulties in growing our
subscriber base.
On
completion of the Transactions, New Clearwire and its
subsidiaries may be considered subsidiaries of Sprint under
certain of Sprints agreements relating to its
indebtedness.
On completion of the Transactions, Sprint is expected to own
approximately 49% to 52% of the voting power of New Clearwire on
a fully-diluted basis. As a result, New Clearwire and its
subsidiaries may be considered subsidiaries of Sprint under
certain of Sprints agreements relating to its
indebtedness. Those agreements govern the incurrence of
indebtedness and certain other activities of Sprints
subsidiaries. Thus, our actions may result in a violation of
covenants in Sprints debt obligations, which may cause
Sprints lenders to declare due and payable all of
Sprints outstanding loan obligations, thereby severely
harming Sprints financial condition, operations and
prospects for growth. The determination of whether or not we
would be considered a subsidiary under Sprints debt
agreements is complex and subject to interpretation. Under the
Equityholders Agreement, if we intend to take any action
that may be prohibited under the terms of certain Sprint debt
agreements, then Sprint will be obligated to deliver to us an
officers certificate, which we refer to as a Compliance
Certificate, and legal opinion from a nationally recognized law
firm stating that our proposed actions do not violate those debt
agreements. If Sprint notifies us that it cannot deliver the
Compliance Certificate and legal opinion, Sprint will be
obligated to take certain actions to ensure that we are no
longer considered a subsidiary under its debt agreements. These
actions may include surrendering board seats and voting stock.
The unusual nature of this arrangement may make it more
difficult for us to obtain financing on favorable terms or at
all. Moreover, regardless of whether we receive a Compliance
Certificate and legal opinion as described above, we cannot be
sure our actions will not violate Sprints debt covenants,
and, if there is a violation, that Sprints lenders will
waive such non-compliance and forbear from enforcing their
rights, which could include accelerated collection of
Sprints obligations. For a more complete description
44
of the Equityholders Agreement, see the section titled
Certain Agreements Related to the Transactions
Equityholders Agreement beginning on page 114
of this proxy statement/prospectus.
Certain
aspects of our VoIP residential telephony services differ from
traditional telephone service, which may limit the
attractiveness of our services.
We intend to continue to offer residential VoIP telephony as a
value added service with our wireless broadband Internet
service. Our residential VoIP telephony services differ from
traditional phone service in several respects, including:
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our subscribers may experience lower call quality than they
experience with traditional wireline telephone companies,
including static, echoes and transmission delays;
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our subscribers may experience higher dropped-call rates than
they experience with traditional wireline telephone
companies; and
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a power loss or Internet access interruption may cause our
service to be interrupted.
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If our subscribers do not accept the differences between our
residential VoIP telephony services and traditional telephone
service, they may not adopt or keep our residential VoIP
telephony services or our other services, or may choose to
retain or return to service provided by traditional telephone
companies.
Although we are compliant with the FCCs November 28,
2005 mandate that all interconnected VoIP providers transmit all
911 calls to the appropriate public safety answering point, our
VoIP emergency calling service is significantly more limited
than the emergency calling services offered by traditional
telephone companies. Our VoIP emergency calling service can
transmit to a dispatcher at a public safety answering point only
the location information that the subscriber has registered with
us, which may at times be different from the actual location at
the time of the call due to the portability of our services. As
a result, if our subscribers fail to properly register or update
their registered locations, our emergency calling systems may
not assure that the appropriate public safety answering point is
reached and may cause significant delays, or even failures, in
callers receipt of emergency assistance. Our failure to
develop or operate an adequate emergency calling service could
subject us to substantial liabilities and may result in delays
in subscriber adoption of our VoIP services or our other
services, abandonment of our services by subscribers, and
litigation costs, damage awards and negative publicity, any of
which could harm our business, prospects, financial condition or
results of operations.
Finally, potential changes by the FCC to current intercarrier
compensation mechanisms could result in significant changes to
our costs of providing VoIP telephony, thereby eliminating
pricing benefits between VoIP telephony services and traditional
telephone services and our potential profitability.
We may
be unable to protect our intellectual property, which could
reduce the value of our services and our brand.
Our ability to compete effectively depends on our ability to
protect our proprietary network and system designs. We may not
be able to safeguard and maintain our proprietary rights. We
rely on patents, trademarks and policies and procedures related
to confidentiality to protect our intellectual property. Some of
our intellectual property, however, is not covered by any of
these protections.
Our pending patent applications may not be granted or, in the
case of patents issued or to be issued, the claims allowed may
not be sufficiently broad to protect our intellectual property.
Even if all of our patent applications were issued and were
sufficiently broad, our patents may be challenged or
invalidated. In addition, the United States Patent and Trademark
Office may not grant federal registrations based on our pending
trademark applications. Even if federal registrations are
granted, these trademark rights may be challenged. Moreover,
patent and trademark applications filed in foreign countries may
be subject to laws, rules and procedures that are substantially
different from those of the United States, and any foreign
patents may be difficult and expensive to obtain and enforce. We
could, therefore, incur substantial costs in prosecuting patent
and trademark infringement suits or otherwise protecting our
intellectual property rights.
45
Following
the Transactions, Sprint, Eagle River and the Investors will be
our largest stockholders, and as a result they together
effectively will have control over us and may have actual or
potential interests that may diverge from yours.
As discussed above, Sprint, Eagle River and the Investors are
expected to own a majority of the voting power of New
Clearwires Common Stock on completion of the Transactions.
Sprint, Eagle River and the Investors may have interests that
diverge from those of other holders of our capital stock. Each
of Sprint, Eagle River and the Investors will be a party to the
Equityholders Agreement, which will provide that the board
of directors of New Clearwire will consist of 13 directors,
of which seven directors will be nominated by Sprint, two
directors will be nominated by the Strategic Investors as a
group, one independent director will be nominated by the
Investors as a group, one director will be nominated by Intel,
one director will be nominated by Eagle River, and one
independent director will be nominated by the Nominating
Committee. One of Sprints nominated directors and the
director nominated by the Investors as a group, each must be
independent. Mr. McCaw, who controls Eagle River, is
expected to be designated to serve as Chairman of New Clearwire.
In addition, the Equityholders Agreement will require,
among other things, the approval of:
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75% of the voting power of all outstanding stock of New
Clearwire for certain actions, including any merger,
consolidation, share exchange or similar transaction and any
issuance of capital stock that would constitute a change of
control of New Clearwire or any of its subsidiaries;
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each of Sprint, Intel and the representative for the Strategic
Investors, as a group, so long as each of Sprint, Intel and the
Strategic Investors, as a group, respectively, owns securities
representing at least 5% of the outstanding voting power of New
Clearwire, in order to:
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amend the New Clearwire Charter, the New Clearwire Bylaws or the
Operating Agreement;
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change the size of the board of directors of New Clearwire;
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liquidate New Clearwire or Clearwire Communications or declare
bankruptcy of New Clearwire or its subsidiaries;
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effect any material capital reorganization of New Clearwire or
any of its material subsidiaries, other than a financial
transaction (including securities issuances) in the ordinary
course of business;
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take any action that could cause Clearwire Communications or any
of its material subsidiaries to be taxed as a corporation for
federal income tax purposes; and
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subject to certain exceptions, issue any New Clearwire
Class B Common Stock or any equity interests of Clearwire
Communications;
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Eagle River, for so long as Eagle River owns at least 50% of the
shares of New Clearwire Common Stock received by it in the
Merger and the proposed action would disproportionately and
adversely affect Eagle River, the public stockholders of New
Clearwire or New Clearwire in its capacity as a member of
Clearwire Communications, in order to amend the New Clearwire
Charter, the New Clearwire Bylaws or the Operating Agreement or
to change the size of the board of directors of
New Clearwire; and
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each of Sprint, Intel and the Strategic Investors, as a group,
so long as each of Sprint, Intel and the Strategic Investors, as
a group, respectively, owns both (1) at least 50% of the
number of shares of New Clearwire Common Stock received by
it in the Transactions and (2) securities representing at
least 5% of the outstanding voting power of New Clearwire, in
order for New Clearwire to enter into a transaction involving
the sale of a certain percentage of the consolidated assets of
New Clearwire and its subsidiaries to, or the merger of New
Clearwire with, certain specified competitors of Sprint, Intel
and the Strategic Investors.
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The Equityholders Agreement will also contain provisions
related to restrictions on transfer of New Clearwire Common
Stock, rights of first offer and preemptive rights.
46
As a result, Sprint, Eagle River and the Investors may be able
to cause us to take, or prevent the taking of, actions that may
conflict with your best interests as a stockholder, which could
adversely affect our results of operations and the trading price
of New Clearwire Class A Common Stock.
We
could be subject to claims that we have infringed on the
proprietary rights of others, which claims would likely be
costly to defend, could require us to pay damages and could
limit our ability to use necessary technologies in the
future.
Competitors or other persons may have independently developed or
patented technologies or processes that are substantially
equivalent or superior to ours or that are necessary to permit
us to deploy and operate our network, whether based on
Expedience or mobile WiMAX technology, or to offer additional
services, such as VoIP, or competitors may develop or patent
such technologies or processes in the future. These persons may
claim that our services and products infringe on these patents
or other proprietary rights. For instance, certain third parties
claim that they hold patents relating to certain aspects of
mobile WiMAX and VoIP technology. These third parties may seek
to enforce these patent rights against the operators of mobile
WiMAX networks and VoIP telephony service providers, such as us.
Defending against infringement claims, even meritless ones,
would be time consuming, distracting and costly. If we are found
to be infringing the proprietary rights of a third party, we
could be enjoined from using such third partys rights, may
be required to pay substantial royalties and damages, and may no
longer be able to use the intellectual property subject to such
rights on acceptable terms or at all. Failure to obtain licenses
to intellectual property held by third parties on reasonable
terms, or at all, could delay or prevent the development or
deployment of our services and could cause us to expend
significant resources to develop or acquire non-infringing
intellectual property.
If our
data security measures are breached, subscribers may perceive
our network and services as not secure.
Our network security and the authentication of our subscriber
credentials are designed to protect unauthorized access to data
on our network. Because techniques used to obtain unauthorized
access to or to sabotage networks change frequently and may not
be recognized until launched against us, we may be unable to
anticipate or implement adequate preventive measures against
unauthorized access or sabotage. Consequently, unauthorized
parties may overcome our network security and obtain access to
data on our network, including on a device connected to our
network. In addition, because we operate and control our network
and our subscribers Internet connectivity, unauthorized
access or sabotage of our network could result in damage to our
network and to the computers or other devices used by our
subscribers. An actual or perceived breach of network security,
regardless of our responsibility, could harm public perception
of the effectiveness of our security measures, adversely affect
our ability to attract and retain subscribers, expose us to
significant liability and adversely affect our business
prospects.
Our
business will depend on a strong brand, and if we do not
develop, maintain and enhance our brands, our ability to attract
and retain subscribers may be impaired and our business and
operating results adversely affected.
We believe that our brands will be a critical part of our
business. Developing, maintaining and enhancing our brands may
require us to make substantial investments with no assurance
that these investments will be successful. If we fail to
develop, promote and maintain strong brands, or if we incur
significant expenses to promote the brands and are still
unsuccessful in maintaining a strong brand, our business,
prospects, operating results and financial condition may be
adversely affected. We anticipate that developing, maintaining
and enhancing our brands will become increasingly important,
difficult and expensive, most notably after the Transactions,
when we will be focused on integrating the brands of the Sprint
WiMAX Business with those of Clearwire.
47
We are
subject to extensive regulation that could limit or restrict our
activities and adversely affect our ability to achieve our
business objectives. If we fail to comply with these
regulations, we may be subject to penalties, including fines and
suspensions, which may adversely affect our financial condition
and results of operations.
Our acquisition, lease, maintenance and use of spectrum licenses
are extensively regulated by federal, state, local and foreign
governmental entities. These regulations are subject to change
over time. In addition, a number of other federal, state, local
and foreign privacy, security and consumer laws also apply to
our business, including our interconnected VoIP telephony
service. These regulations and their application are subject to
continual change as new legislation, regulations or amendments
to existing regulations are adopted from time to time by
governmental or regulatory authorities, including as a result of
judicial interpretations of such laws and regulations. For
example, it is also possible that the FCC could subject our
capital stock to foreign ownership limitations. If our capital
stock were to become subject to such limitations, owners of our
capital stock may become subject to obligatory redemption
provisions, such as those in the New Clearwire Charter. Such
restrictions may also decrease the value of our stock by
reducing the pool of potential investors in our company and
making the acquisition of control of us by potential foreign
investors more difficult. Current regulations directly affect
the breadth of services we are able to offer and may impact the
rates, terms and conditions of our services. FCC
spectrum licensing, service and other current or future rules,
or interpretations of current or future rules, could affect the
breadth of the IP-based broadband services we are able to offer,
including IP telephony, video and certain other services.
Regulation of companies that offer competing services, such as
cable and DSL providers and incumbent telecommunications
carriers, also affects our business indirectly.
In order to provide interconnected VoIP service, we
need to obtain, on behalf of our customers, North American
Numbering Plan telephone numbers, the availability of which may
be limited in certain geographic areas of the United States and
subject to other regulatory restrictions. As an
interconnected VoIP and facilities-based wireless
broadband provider, we were required under FCC rules, by May
2007, to comply with the Communications Assistance for Law
Enforcement Act, which we refer to as CALEA, which requires
service providers to build certain capabilities into their
networks and to accommodate wiretap requests from law
enforcement agencies.
In addition, the FCC or other regulatory authorities may in the
future restrict our ability to manage subscribers use of
our network, thereby limiting our ability to prevent or manage
subscribers excessive bandwidth demands. To maintain the
quality of our network and user experience, we manage our
network by limiting the bandwidth used by our subscribers
applications, in part by restricting the types of applications
that may be used over our network. These practices are set forth
in our Acceptable Use Policy. Some providers and users of these
applications have objected to this practice. If the FCC or other
regulatory authorities were to adopt regulations that constrain
our ability to employ bandwidth management practices, excessive
use of bandwidth-intensive applications would likely reduce the
quality of our services for all subscribers. A decline in the
quality of our services could harm our business, or even result
in litigation from dissatisfied subscribers.
In certain of our international markets, we may be required to
obtain a license for the use of regulated radio frequencies from
national, provincial or local regulatory authorities before
providing our services. Where required, regulatory authorities
may have significant discretion in granting the licenses and in
determining the conditions for use of the frequencies covered by
the licenses, and are often under no obligation to renew the
licenses when they expire. Additionally, even where we currently
hold a license or successfully obtain a license in the future,
we may be required to seek modifications to the license or the
regulations applicable to the license to implement our business
strategy. For example, in certain international markets, the
licenses we hold, and the applicable rules and regulations,
currently do not specifically permit us to provide mobile
services. Thus, before offering mobile services to our
subscribers in those markets, absent action by the regulatory
authorities to modify the licenses and applicable rules, we may
need to obtain the approval of the proper regulatory authorities.
The breach of a license or applicable law, even if inadvertent,
can result in the revocation, suspension, cancellation or
reduction in the term of a license or the imposition of fines.
In addition, regulatory authorities
48
may grant new licenses to third parties, resulting in greater
competition in territories where we already have rights to
licensed spectrum. In order to promote competition, licenses may
also require that third parties be granted access to our
bandwidth, frequency capacity, facilities or services. We may
not be able to obtain or retain any required license, and we may
not be able to renew our licenses on favorable terms, or at all.
Our wireless broadband and VoIP telephony services may become
subject to greater or different state or federal regulation in
the future. The scope of any additional regulations or changes
in the existing regulations that may apply to 2.5 gigahertz,
which we refer to as GHz, wireless broadband and VoIP telephony
services providers and the impact of such regulations on
providers competitive position are presently unknown.
New
Clearwire will be a controlled company within the
meaning of the NASDAQ Marketplace Rules and will rely on
exemptions from certain corporate governance
requirements.
On completion of the Transactions, Sprint is expected to
beneficially own approximately 49% to 52% of the outstanding
voting power of New Clearwire. In addition, the Investors are
expected to collectively own approximately 25% to 30% and Eagle
River is expected to own approximately 5% of the outstanding
voting power of New Clearwire. The Equityholders Agreement
will govern the voting of shares of the New Clearwire
Common Stock held by each of the parties thereto in certain
circumstances, including with respect to the election of the
individuals nominated to the board of directors of New Clearwire
by Sprint, Eagle River and the Investors.
As a result of the combined voting power of Sprint, Eagle River
and the Investors and the Equityholders Agreement, we
expect to rely on exemptions from certain NASDAQ corporate
governance standards. Under the NASDAQ Marketplace Rules, a
company of which more than 50% of the voting power is held by a
single person or a group of people is a controlled
company and may elect not to comply with certain NASDAQ
Global Select Market corporate governance requirements,
including the requirements that:
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a majority of the board of directors consist of independent
directors;
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the compensation of officers be determined, or recommended to
the board of directors for determination, by a majority of the
independent directors or a compensation committee comprised
solely of independent directors; and
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director nominees be selected, or recommended for the board of
directors selection, by a majority of the independent
directors or a nominating committee comprised solely of
independent directors with a written charter or board resolution
addressing the nomination process.
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Unless we choose to no longer rely on these exemptions in the
future, you will not have the same protections afforded to
stockholders of companies that are subject to all of the NASDAQ
Global Select Market corporate governance requirements.
Since
our initial public offering in March 2007, the market price of
our common stock has been and may continue to be
volatile.
The trading price of Clearwire Class A Common Stock
following our initial offering has been volatile and could be
subject to further fluctuations in price in response to various
factors, some of which are beyond our control. These factors
include:
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quarterly variations in our results of operations or those of
our competitors, either alone or in comparison to analysts
expectations;
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announcements by us or our competitors of acquisitions, new
products, significant contracts, commercial relationships or
capital commitments;
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announcements by us regarding the entering into, or termination
of, material transactions;
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disruption to our operations or those of other companies
critical to our network operations;
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the emergence of new competitors or new technologies;
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market perceptions relating to the deployment of mobile WiMAX
networks by other operators;
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49
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our ability to develop and market new and enhanced products on a
timely basis;
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seasonal or other variations in our subscriber base;
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commencement of, or our involvement in, litigation;
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availability of additional spectrum;
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dilutive issuances of our stock or the stock of our
subsidiaries, or the incurrence of additional debt including on
the exercise of outstanding warrants and options;
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changes in our board or management;
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adoption of new or different accounting standards;
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after the consummation of the Transactions, Sprints
performance may have an effect on the market price of the New
Clearwire Class A Common Stock even though New Clearwire is
a separate, stand-alone company;
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changes in governmental regulations or the status of our
regulatory approvals;
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changes in earnings estimates or recommendations by securities
analysts;
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announcements regarding mobile WiMAX and other technical
standards;
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the availability or perceived availability of additional capital
and market perceptions relating to our access to such
capital; and
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general economic conditions and slow or negative growth of
related markets.
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In addition, the stock market in general, and the market for
shares of technology companies in particular, have experienced
price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of those
companies. We expect the price of Clearwire Class A Common
Stock and New Clearwire Class A Common Stock will be
subject to continued volatility. In addition, in the past,
following periods of volatility in the trading price of a
companys securities, securities class action litigation or
stockholder derivative suits have often been instituted against
those companies. Such litigation, if instituted against us,
could result in substantial costs and divert our
managements attention and resources.
New
Clearwire may sustain financial losses if Sprint fails to
fulfill its indemnification obligations to
New Clearwire.
Under the Transaction Agreement, Sprint must indemnify New
Clearwire and its subsidiaries against certain losses relating
to, among other things, any breach of certain of Sprints
representations as to the Sprint WiMAX Business, any pre-Closing
taxes incurred by any of Sprints subsidiaries and any
liabilities unrelated to the Sprint WiMAX Business. These
indemnification obligations generally continue until the statute
of limitations for the applicable claim has expired. The
indemnification obligations regarding Sprints
representations as to the Sprint WiMAX Business and for
liabilities unrelated to the Sprint WiMAX Business, however,
each survive for three years from Closing. Sprints
indemnification obligations are generally unlimited, with the
exception of a $25 million deductible for claims based on a
breach of representation that Sprints subsidiaries that
hold the Sprint WiMAX Business have, subject to certain limited
exceptions, a specific, limited set of liabilities at Closing.
We cannot provide any assurances that Sprint will fulfill its
indemnification obligations in accordance with the Transaction
Agreement. If it turns out that the representations made by
Sprint as to the Sprint WiMAX Business, for which Sprint is
obligated to indemnify New Clearwire under the Transaction
Agreement, are inaccurate, New Clearwire may sustain significant
financial losses. If Sprint fails to fulfill its indemnification
obligations under the Transaction Agreement to indemnify and
defend New Clearwire for any such financial loss or claim, as
the case may be, it could adversely affect New Clearwires
financial condition, cash flows and results of operations. In
addition, if the time period for any indemnification claims has
expired
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by way of the statue of limitations or by operation of the three
year period in the Transaction Agreement, New Clearwires
business, prospects, operating results and financial condition
may be adversely affected.
Our
businesses outside the United States operate in a competitive
environment different than the environment within the United
States. Any difficulties in managing these businesses could
occupy a disproportionate amount of our managements
attention and disrupt our operations.
Clearwire operates or holds spectrum outside of the United
States through its subsidiaries in Belgium, Ireland, Germany,
Poland, Romania and Spain and has an investment in Mexico.
Subject to the limitations imposed by the Equityholders
Agreement, New Clearwire may elect to pursue additional
opportunities in certain international markets through
acquisitions and strategic alliances; however, its focus will be
on markets within the United States. Our activities outside the
United States operate in different environments than we face in
the United States, particularly with respect to regulation of
competition and spectrum. Due to these differences, our
activities outside the United States may require a
disproportionate amount of our management and financial
resources, which could disrupt our operations and adversely
affect our business elsewhere.
In a number of international markets, we face substantial
competition from local service providers that offer or may offer
their own wireless broadband or VoIP telephony services and from
other companies that provide Internet connectivity services. We
may face heightened challenges in gaining market share,
particularly in certain European countries, where a large
portion of the population already has broadband Internet
connectivity and incumbent companies already have a dominant
market share in their service areas. Furthermore, foreign
providers of competing services may have a substantial advantage
over us in attracting subscribers due to a more established
brand, greater knowledge of local subscribers preferences
and access to significant financial or strategic resources.
In addition, in some international markets, foreign governmental
authorities may own or control the incumbent telecommunications
companies operating under their jurisdiction. Established
relationships between government-owned or government-controlled
telecommunications companies and their traditional local
telecommunications providers often limit access of third parties
to these markets. The successful expansion of our international
operations in some markets may depend on our ability to locate,
form and maintain strong relationships with established local
communication services and equipment providers. Failure to
establish these relationships or to market or sell our products
and services successfully could limit our ability to attract
subscribers to our services.
The
tax allocation methods to be adopted by Clearwire Communications
are likely to result in disproportionate allocations of taxable
income.
New Clearwire (through the merger of Clearwire with and into
Clearwire Sub) and Sprint will contribute to Clearwire
Communications assets that have a material amount of built-in
gain for income tax purposes meaning that the fair
market value ascribed to those assets at the time of
contribution, as reflected in the initial capital account
balances and percentage interests in Clearwire Communications
received by New Clearwire and Sprint, is greater than the
current basis of those assets for tax purposes. We refer to
contributed assets that have a fair market value that exceeds
the tax basis of those assets on the date of contribution as
built-in gain assets. Under Section 704(c) of the Code,
items of income, gain, loss or deduction of Clearwire
Communications must be allocated among its members for tax
purposes in a manner that takes account of the difference
between the tax basis and the fair market value of the built-in
gain assets. The built-in gain assets of Clearwire
Communications with the largest amounts of built-in gain will be
spectrum and other intangible property.
After Closing, Clearwire Communications will maintain a capital
account for each member, which will reflect the fair market
value of the property contributed by that member to Clearwire
Communications and the amount of which generally will correspond
to the members percentage interest in Clearwire
Communications. For capital account purposes, Clearwire
Communications will amortize the value of the contributed
built-in gain assets, generally on a straight-line basis over a
period of up to 15 years, and each member will be allocated
amortization deductions, generally on a pro rata basis in
proportion to the number of Clearwire Communications Common
Interests held by the member as compared to the total number of
Clearwire
51
Communications Common Interests. Tax amortization on a built-in
gain asset, which will be based on the tax basis of that asset,
will be allocated first to the non-contributing members (meaning
members other than New Clearwire, in the case of former
Clearwire assets, and members other than Sprint, in the case of
former Sprint assets), in an amount up to the capital account
amortization allocated to that member with respect to that
asset. Thus, the consequence of the built-in gain will be that
New Clearwire, in the case of former Clearwire assets, will be
allocated amortization deductions for tax purposes that are less
than its share of the capital account amortization with respect
to those assets. In this circumstance, New Clearwire will
recognize over time, in the form of lower tax amortization
deductions, the built-in gain for which it was given economic
credit at the time of formation of Clearwire Communications.
If there is not enough tax basis in a built-in gain asset to
make tax allocations of amortization deductions to the
non-contributing members in an aggregate amount equal to their
capital account amortization with respect to that asset, then
the regulations under Section 704(c) of the Code permit the
members to choose one of several methods to account for this
difference. Under the Operating Agreement, all of the built-in
gain assets contributed by New Clearwire and 50% of the built-in
gain in the assets contributed by Sprint will be accounted for
under the so-called remedial method. Under that
method, the non-contributing members will be allocated
phantom tax amortization deductions in the amount
necessary to cause their tax amortization deductions to be equal
to their capital account amortization on the built-in gain
asset, and the contributing member (New Clearwire, in the case
of former Clearwire assets) will be allocated a matching item of
phantom ordinary income. The remedial method is intended to
ensure that the entire tax burden with respect to the built-in
gain on a built-in gain asset is borne by the contributing
member. Under the Operating Agreement, the remaining 50% of the
built-in gain in the assets contributed by Sprint will be
accounted for under the so-called traditional
method. Under that method, the tax amortization deductions
allocated to the non-contributing members with respect to a
built-in gain asset are limited to the actual tax amortization
arising from the built-in gain asset. The effect of the
traditional method is that some of the tax burden with respect
to the built-in gain on a built-in gain asset is shifted to the
non-contributing members, in the form of reduced tax
amortization deductions.
The use of the remedial method for all of the former Clearwire
assets, but for only a portion of the former Sprint assets,
means that New Clearwire will bear the entire tax burden with
respect to the built-in gain on the former Clearwire assets, and
will have shifted to it a portion of the tax burden with respect
to the
built-in
gain on the former Sprint assets. Accordingly, New Clearwire is
likely to be allocated a share of the taxable income of
Clearwire Communications that exceeds its proportionate economic
interest in Clearwire Communications, and New Clearwire may
incur a material liability for taxes. However, subject to the
existing and possible future limitations on the use of New
Clearwires NOLs under Section 382 and
Section 384 of the Code, New Clearwires NOLs are
generally expected to be available to offset, to the extent of
these NOLs, items of income and gain allocated to New Clearwire
by Clearwire Communications. See Risk Factors
Risks Related to New Clearwires Business after the
Transactions The ability of New Clearwire to use its
net operating losses to offset its income and gain will be
subject to limitation, and may be subject to further limitation
after the Transactions. Clearwire Communications is
required to make distributions to New Clearwire in amounts
necessary to pay all taxes reasonably determined by New
Clearwire to be payable with respect to its distributive share
of the taxable income of Clearwire Communications, after taking
into account the net operating loss deductions and other tax
benefits reasonably expected to be available to New Clearwire.
See Certain Agreements Related to the
Transactions Operating Agreement and
Risk Factors Risks Related to New
Clearwires Business after the Transactions
Mandatory tax distributions may deprive Clearwire Communications
of funds that are required in its business.
Sales
of certain former Clearwire assets by Clearwire Communications
may trigger taxable gain to New Clearwire.
If Clearwire Communications sells in a taxable transaction a
former Clearwire asset that had built-in gain at the time of its
contribution to Clearwire Communications, then, under
Section 704(c) of the Code, the tax gain on the sale of the
asset generally will be allocated first to New Clearwire in an
amount up to the remaining (unamortized) portion of the built-in
gain on the former Clearwire asset. Under the Operating
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Agreement, unless Clearwire Communications has a bona fide
non-tax business need (as defined in the Operating Agreement),
Clearwire Communications will not enter into a taxable sale of
former Clearwire assets that are intangible property and that
would cause New Clearwire to be allocated under
Section 704(c) more than $10 million of built-in gains
during any
36-month
period. For this purpose, Clearwire Communications will have a
bona fide non-tax business need with respect to the sale of
former Clearwire assets, if (1) the taxable sale of the
former Clearwire assets will serve a bona fide business need of
Clearwire Communicationss wireless broadband business and
(2) neither the taxable sale nor the reinvestment or other
use of the proceeds is significantly motivated by the desire to
obtain increased income tax benefits for the members or to
impose income tax costs on New Clearwire. Accordingly, New
Clearwire may recognize built-in gain on the sale of former
Clearwire assets (1) in an amount up to $10 million,
in any
36-month
period, and (2) in greater amounts, if the standard of bona
fide non-tax business need is satisfied. If Clearwire
Communications sells former Clearwire assets with unamortized
built-in gain, then New Clearwire is likely to be allocated a
share of the taxable income of Clearwire Communications that
exceeds its proportionate economic interest in Clearwire
Communications, and may incur a material liability for taxes.
However, subject to the existing and possible future limitations
on the use of New Clearwires NOLs under Section 382
and Section 384 of the Code, New Clearwires NOLs are
generally expected to be available to offset, to the extent of
these NOLs, items of income and gain allocated to New Clearwire
by Clearwire Communications. See Risk Factors
Risks Related to New Clearwires Business after the
Transactions The ability of New Clearwire to use its
net operating losses to offset its income and gain will be
subject to limitation, and may be subject to further limitation
after the Transactions. Clearwire Communications is
required to make distributions to New Clearwire in amounts
necessary to pay all taxes reasonably determined by New
Clearwire to be payable with respect to its distributive share
of the taxable income of Clearwire Communications, after taking
into account the net operating loss deductions and other tax
benefits reasonably expected to be available to New Clearwire.
See Certain Agreements Related to the
Transactions Operating Agreement and
Risk Factors Risks Related to New
Clearwires Business after the Transactions
Mandatory tax distributions may deprive Clearwire Communications
of funds that are required in its business.
Sprint
and the Investors may shift to New Clearwire the tax burden of
additional built-in gain through a holding company
exchange.
Under the Operating Agreement, Sprint or an Investor may effect
an exchange of Clearwire Communications Class B Common
Interests and New Clearwire Class B Common Stock for New
Clearwire Class A Common Stock by transferring to New
Clearwire a holding company that owns the Clearwire
Communications Class B Common Interests and New Clearwire
Class B Common Stock in a transaction intended to be
tax-free for United States federal income tax purposes (which
the Operating Agreement refers to as a holding company
exchange). In particular, if New Clearwire, as the managing
member of Clearwire Communications has approved a taxable sale
by Clearwire Communications of former Sprint assets that are
intangible property and that would cause Sprint to be allocated
under Section 704(c) of the Code more than $10 million
of built-in gain during any
36-month
period, then, during a specified 15-business-day period,
Clearwire Communications will be precluded from entering into
any binding contract for the taxable sale of the former Sprint
assets, and Sprint will have the right to transfer Clearwire
Communications Class B Common Interests and New Clearwire
Class B Common Stock to one or more holding companies, and
to transfer those holding companies to New Clearwire in holding
company exchanges. In any holding company exchange, New
Clearwire will succeed to all of the built-in gain and other tax
characteristics associated with the transferred Clearwire
Communications Class B Common Interests, including
(1) in the case of a transfer by Sprint, any remaining
portion of the built-in gain existing at the formation of
Clearwire Communications and associated with the transferred
Clearwire Communications Class B Common Interests, and any
Section 704(c) consequences associated with that built-in
gain, and (2) in the case of any transfer, any built-in
gain arising after the formation of Clearwire Communications and
associated with the transferred Clearwire Communications
Class B Common Interests. Section 384 of the Code may
limit the ability of New Clearwire to use its NOLs arising
before the holding company exchange to offset any built-in gain
of Sprint or an Investor to which New Clearwire succeeds in
such an exchange. Accordingly, New Clearwire may incur a
material liability for taxes as a result of a holding company
exchange, even if it has substantial NOLs. Clearwire
Communications is required to make
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distributions to New Clearwire in amounts necessary to pay all
taxes reasonably determined by New Clearwire to be payable with
respect to its distributive share of the taxable income of
Clearwire Communications, after taking into account the net
operating loss deductions and other tax benefits reasonably
expected to be available to New Clearwire. See Certain
Agreements Related to the Transactions Operating
Agreement and Risk Factors Risks Related
to New Clearwires Business after the
Transactions Mandatory tax distributions may deprive
Clearwire Communications of funds that are required in its
business.
Mandatory
tax distributions may deprive Clearwire Communications of funds
that are required in its business.
Under the Operating Agreement, Clearwire Communications will
make distributions to its members, generally on a pro rata basis
in proportion to the number of Clearwire Communications Common
Interests held by each member, in amounts so that the aggregate
portion distributed to New Clearwire in each instance will be
the amount necessary to pay all taxes then reasonably determined
by New Clearwire to be payable with respect to its distributive
share of the taxable income of Clearwire Communications
(including any items of income, gain, loss or deduction
allocated to New Clearwire under the principles of
Section 704(c) of the Code), after taking into account all
net operating loss deductions and other tax benefits reasonably
expected to be available to New Clearwire. These mandatory
tax distributions, which must be made on a pro rata basis to all
members even if those members are allocated less income,
proportionately, than is New Clearwire, may deprive Clearwire
Communications of funds that are required in its business.
Tax
loans Clearwire Communications may be required to make to Sprint
in connection with the sale of certain former Sprint built-in
gain assets may deprive Clearwire Communications of funds that
are required in its business.
Under the Operating Agreement, if Clearwire Communications or
any of its subsidiaries enters into a transaction that results
in the recognition of any portion of the built-in gain with
respect to a former Sprint asset (other than in connection with
the dissolution of Clearwire Communications or the disposition
of certain specified Sprint assets), Clearwire Communications
will be required, upon delivery by Sprint of a timely request
therefor, to make a tax loan to Sprint on the terms set forth in
the Operating Agreement. The principal amount of any tax loan to
Sprint will be the amount by which the built-in gain recognized
by Sprint on the sale of former Sprint assets exceeds any tax
losses allocated by Clearwire Communications to Sprint in the
taxable year in which the sale of such built in gain assets
occurs, multiplied by then-highest marginal federal and state
income tax rates applicable to corporations resident in the
state in which Sprints principal corporate offices are
located (taking into account the deductibility of state taxes
for federal income tax purposes). Interest on any tax loan will
be payable by Sprint to Clearwire Communications semiannually at
a floating rate equal to the higher of (a) the interest
rate for Clearwire Communicationss unsecured floating rate
indebtedness and (b) the interest rate for Sprints
unsecured floating rate indebtedness plus 200 basis points.
Principal on any tax loan to Sprint is payable in equal annual
installments from the loan date to the later of (x) the
15th anniversary of the Closing of the Transactions or
(y) the first anniversary of the loan date. Any tax loan
that Clearwire Communications is required to make to Sprint may
deprive Clearwire Communications of funds that are required in
its business.
The
ability of New Clearwire to use its net operating losses to
offset its income and gain will be subject to limitation, and
may be subject to further limitation after the
Transactions.
At present, Clearwire has substantial NOLs for United States
federal income tax purposes. In particular, Clearwire believes
that its cumulative tax loss as of June 30, 2008, for
United States federal income tax purposes, was approximately
$1.2 billion. A portion of Clearwires NOLs is subject
to certain annual limitations imposed under Section 382 of
the Code. New Clearwire will succeed to these NOLs in the
Merger, and subject to the existing Section 382 limitation,
and the possibility of further limitations under
Sections 382 and 384 arising after the closing of the
Transactions, these NOLs generally will be available to offset
items of income and gain allocated to New Clearwire by Clearwire
Communications.
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The use by New Clearwire of its NOLs may be further limited if
New Clearwire is affected by an ownership change,
within the meaning of Section 382 of the Code. Broadly, New
Clearwire will have an ownership change if, over a three-year
period, the portion of the stock of New Clearwire, by value,
owned by one or more five-percent stockholders
increases by more than 50 percentage points. An exchange by
Sprint or an Investor of Clearwire Communications Class B
Common Interests and New Clearwire Class B Common Stock for
New Clearwire Class A Common Stock may cause or contribute
to an ownership change of New Clearwire. New Clearwire has
no control over the timing of any such exchange. If New
Clearwire undergoes an ownership change, then the amount of the
pre-ownership change NOLs of New Clearwire that may be used to
offset income of New Clearwire arising in each taxable year
after the ownership change generally will be limited to the
product of the fair market value of the stock of New Clearwire
at the time of the ownership change and a specified rate based
on long-term tax-exempt bond yields.
Separately, under Section 384 of the Code, New Clearwire
may not be permitted to offset built-in gain in assets acquired
by it in certain tax-free transactions, if the gain is
recognized within five years of the acquisition of the built-in
gain assets, with NOLs arising before the acquisition of the
built-in gain assets. Section 384 may apply to built-in
gain to which New Clearwire succeeds in the case of a holding
company exchange by Sprint or an Investor.
Any limitation on the ability of New Clearwire to use its NOLs
to offset income allocable to New Clearwire increases the
likelihood that Clearwire Communications will be required to
make a tax distribution to New Clearwire. If Clearwire
Communications does not have sufficient liquidity to make those
distributions, it may be forced to borrow funds, issue equity or
sell assets on terms that are unfavorable to Clearwire
Communications. Sales of assets in order to enable Clearwire
Communications to make the necessary distributions could further
increase the tax liability of New Clearwire, resulting in the
need to make additional distributions and, as discussed above,
possible additional tax loans to Sprint.
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CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus contains forward-looking
statements within the meaning of the securities laws. The
statements in this proxy statement/prospectus regarding
agreements between Sprint, Clearwire and the Investors and the
benefits to Sprint and Clearwire of the arrangements
contemplated by the agreements; plans for the development and
deployment of a next generation wireless broadband network based
on mobile WiMAX technology; the timing, availability,
capabilities, coverage, and costs of our network; products and
services to be offered on our network; and other statements that
are not historical facts are forward-looking statements. The
words will, would, may,
should, estimate, project,
forecast, intend, expect,
believe, target, designed
and similar expressions are intended to identify forward-looking
statements. Forward-looking statements are projections
reflecting managements judgment and assumptions based on
currently available information and involve a number of risks
and uncertainties that could cause actual results to differ
materially from those suggested by the forward-looking
statements.
Future performance cannot be assured. Actual results may differ
materially from those in the forward-looking statements due to a
variety of factors, including, but not limited to:
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the ability of the parties to complete the Transactions and
satisfy the conditions thereunder, including obtaining the
required stockholder, FCC and Department of Justice approvals;
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the uncertainties related to the implementation of each
companys respective WiMAX business strategies;
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the costs and business risks associated with deploying our
network and offering products and services utilizing mobile
WiMAX technology;
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the ability of third-party suppliers, software developers and
other vendors to perform requirements and satisfy obligations
necessary to create products and software designed to support
desired features and functionality, under agreements with one or
both of Clearwire and Sprint;
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the impact of adverse network performance; and
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other risks referenced in the section of this proxy
statement/prospectus titled Risk Factors.
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Clearwire believes the forward-looking statements in this proxy
statement/prospectus are reasonable; however, you should not
place undue reliance on forward-looking statements, which are
based on current expectations and speak only as of the date of
this proxy statement/prospectus. Clearwire is not obligated to
publicly release any revisions to forward-looking statements to
reflect events after the date of this
proxy statement/prospectus.
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INFORMATION
ABOUT THE SPECIAL MEETING AND VOTING
This proxy statement/prospectus is being furnished to Clearwire
stockholders as part of the solicitation of proxies by the
Clearwire board of directors for use at the special meeting.
This proxy statement/prospectus and the enclosed form of proxy
are first being mailed to our stockholders on or about
October 21, 2008.
Date,
Time and Place of Special Meeting
The special meeting will be held on Thursday, November 20,
2008 at 9:00 a.m., Pacific Standard Time, at the Woodmark
Hotel, 1200 Carillon Point, Kirkland, Washington 98033.
Purpose
of the Special Meeting
The purpose of the special meeting is to take action on the
following:
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to approve and adopt the Transaction Agreement, including the
issuance of New Clearwire Common Stock contemplated by the
Transaction Agreement;
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to adopt the New Clearwire Charter (which would be filed
immediately before, and would be conditioned on the completion
of, the Merger);
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to approve and adopt the New Clearwire Stock Plan (which would
be conditioned on the completion of the Transactions); and
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to approve the adjournment of the special meeting, if necessary,
to solicit additional proxies in favor of the above proposals.
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You may also be asked to act on other business, if any, that may
properly come before the special meeting (or any adjournment or
postponement thereof). We currently do not anticipate that any
other business will be presented at the special meeting.
Record
Date for the Special Meeting
The Clearwire board of directors has fixed the close of business
on October 15, 2008 as the record date for determination of
stockholders entitled to notice of and to vote at the special
meeting.
Shares
Entitled to Vote
Shares entitled to vote at the special meeting are shares of
Clearwire Class A Common Stock and Clearwire Class B
Common Stock held as of the close of business on the record
date, October 15, 2008. On the record date for the special
meeting, there were approximately 135,807,774 shares of
Clearwire Class A Common Stock outstanding and
28,596,685 shares of Clearwire Class B Common Stock
outstanding, which were held by approximately 207 holders
of record. At the special meeting, each stockholder is entitled
to one vote for each share of Clearwire Class A Common
Stock and ten votes for each share of Clearwire Class B
Common Stock held by that stockholder at the close of business
on the record date. Shares of Clearwire Class A Common
Stock and Clearwire Class B Common Stock will vote together
as a single class. Shares of Clearwire Common Stock held by
Clearwire in its treasury will not be voted.
Quorum,
Abstentions and Broker Non-Votes
A quorum of our stockholders is necessary to hold a valid
meeting. The presence in person or by proxy at the special
meeting of holders of a majority of the votes attributable to
the issued and outstanding shares of Clearwire capital stock
entitled to vote at the special meeting constitutes a quorum.
Shares held by us in our treasury do not count towards a quorum.
If a quorum is not present at the special meeting, it is
expected that the meeting will be adjourned to solicit
additional proxies. If a new record date is set for an adjourned
meeting, then a new quorum will have to be established.
SEC rules require that specifically designated blank spaces be
provided on the proxy card for stockholders to mark if they wish
to abstain on one or more of the proposals. Votes withheld in
connection with the
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approval and adoption of the Transaction Agreement will count as
a vote against the approval and adoption of the Transaction
Agreement. Votes withheld in connection with the adoption of the
New Clearwire Charter will count as a vote against adoption of
the New Clearwire Charter. Abstentions and broker non-votes
count as present for establishing a quorum.
A broker non-vote occurs on an item when the broker is not
permitted to vote on that item without instruction from the
beneficial owner of the shares of Clearwire capital stock and
the beneficial owner gives no instruction as to voting of the
shares. Under these circumstances, a stockholders broker
may be authorized to vote for it on some routine items, but is
prohibited from voting on other items. Under NASDAQ rules, your
broker or bank does not have discretionary authority to vote
your shares on the proposal to approve and adopt the Transaction
Agreement, the proposal to adopt the New Clearwire Charter or
the proposal to approve and adopt the New Clearwire Stock Plan.
Without your voting instructions, a broker non-vote will occur
with respect to your shares on those items for which a
stockholders broker cannot vote.
Vote
Required
The approval and adoption of the Transaction Agreement and the
adoption of the New Clearwire Charter each require the
affirmative vote of the holders of a majority of the voting
power of the Clearwire Common Stock outstanding and entitled to
vote at the special meeting, voting together as a single class,
with each share of Clearwire Class A Common Stock entitled
to one vote and each share of Clearwire Class B Common
Stock entitled to ten votes. Abstentions and broker non-votes
have the same effect as votes against these proposals. The
approval and adoption of the New Clearwire Stock Plan requires
the affirmative vote of the majority of the total votes cast on
the proposal. The adjournment proposal requires the affirmative
vote of the holders of a majority of voting power of the
Clearwire Common Stock outstanding and present at the special
meeting in person or by proxy, voting together as a single
class, regardless of whether a quorum is present. Abstentions
will have the effect of a vote against the New Clearwire Stock
Plan proposal or on the adjournment proposal, but broker
non-votes are not counted as votes cast on these two proposals.
Shares
Beneficially Owned by Our Directors and Officers
On October 15, 2008, which is the record date for
determining those Clearwire stockholders who are entitled to
vote at the special meeting, directors and executive officers of
Clearwire and their affiliates beneficially owned shares of
Clearwire Class A Common Stock, representing approximately
17.4% of the shares of Clearwire Class A Common Stock and
5.8% of the aggregate voting power of Clearwire outstanding on
the record date, and shares of Clearwire Class B
Common Stock, representing approximately 65.4% of the shares of
Clearwire Class B Common Stock and 43.7% of the aggregate
voting power of Clearwire outstanding on the record date.
Although none of the members of the board of directors of
Clearwire or its executive officers has individually executed a
voting agreement, subject to the terms of the Intel Voting
Agreement and the Eagle River Voting Agreement and to
Clearwires knowledge, the directors and executive officers
of Clearwire and their affiliates intend to vote their Clearwire
Common Stock in favor of the Transaction Agreement proposal, the
New Clearwire Charter proposal and the New Clearwire Stock Plan
proposal.
Voting at
the Special Meeting
If you are a stockholder of record, you may vote in person by
ballot at the special meeting or by submitting a proxy. We
recommend you submit your proxy even if you plan to attend the
special meeting. If you attend the special meeting, you may vote
by ballot, thereby canceling any proxy previously submitted.
Voting instructions are included on your proxy card. If you
properly give your proxy and submit it to us in time to vote,
one of the individuals named as your proxy will vote your shares
as you have directed. You may vote for or against the proposals
or abstain from voting.
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How to
Vote by Proxy
By
Telephone or Internet
If you are a stockholder of record, you can submit your proxy by
telephone by calling the toll-free telephone number on your
proxy card or by Internet by accessing the website identified on
your proxy card. Telephone and Internet voting are available
24 hours a day and will be accessible beginning on
October 22, 2008 at 9:00 a.m., Eastern Standard
Time, until 11:59 p.m., Eastern Standard Time, on
November 19, 2008. If you hold your shares indirectly
in the name of a bank, broker or other nominee, as a
street-name stockholder, you will receive
instructions from your bank, broker or other nominee describing
how to vote your shares. If you submit your proxy by telephone
or Internet, please do not mail your proxy card.
By
Mail
If you are a stockholder of record and choose to submit your
proxy by mail, please complete each proxy card you receive,
date and sign it, and return it in the postage prepaid envelope
which accompanied that proxy card. If you hold your shares
indirectly in the name of a bank, broker or other nominee, as a
street-name
stockholder, you will receive instructions from your bank,
broker or other nominee describing how to vote your shares.
Proxies
Without Instruction
If you are a stockholder of record and submit your proxy but do
not make specific choices, your proxy will follow
Clearwires board of directors recommendations and
your shares will be voted:
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FOR the proposal to approve and adopt the
Transaction Agreement, including the issuance of shares of New
Clearwire Common Stock contemplated by the Transaction Agreement;
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FOR the proposal to adopt the New Clearwire
Charter;
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FOR the proposal to approve and adopt the New
Clearwire Stock Plan;
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FOR the proposal to adjourn the special
meeting, if necessary, to solicit additional proxies in favor
the above proposals; and
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in accordance with the recommendation of Clearwires board
of directors on any matter that may properly come before the
special meeting and any adjournment or postponement of the
special meeting.
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Revocation
of Proxies
You may revoke your proxy at any time before the time your
shares are voted. If you are a stockholder of record, your proxy
can be revoked in several ways:
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by entering a new vote by telephone or the Internet before
11:59 p.m., Eastern Standard Time, on November 19,
2008;
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by delivering a written revocation to our corporate secretary
that is received before the special meeting;
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by submitting another valid proxy bearing a later date that is
received before the special meeting; or
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by attending the special meeting and voting your shares in
person.
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If your shares are held in street name through a
bank, broker, custodian or other record holder, you must check
with your bank, broker, custodian or other record holder to
determine how to revoke your proxy.
Solicitation
of Proxies
This solicitation is being made on behalf of Clearwire and its
board of directors. Clearwire will pay the costs of soliciting
proxies from its stockholders. In addition to this mailing,
proxies may be solicited by our directors, officers or employees
in person or by telephone, through the Internet or by electronic
transmission. None of the directors, officers or employees will
be directly compensated for these services. Clearwire will
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reimburse brokers, bank nominees and other institutional holders
for their reasonable out-of-pocket expenses in forwarding proxy
materials to the beneficial owners of Clearwire Common Stock and
for obtaining voting instructions. Clearwire has engaged the
firm of D.F. King & Co. to assist in the solicitation
of proxies and will pay D.F. King & Co. an estimated
fee of $4,500 plus out-of-pocket expenses for its services.
The extent to which these proxy soliciting efforts will be
necessary depends entirely on how promptly proxies are
submitted. You should submit your proxy without delay by
telephone, by the Internet or by mail.
Other
Business; Adjournments
We are not currently aware of any other business to be acted on
at the special meeting. If, however, other matters are properly
brought before the special meeting, or any adjourned meeting,
your proxies include discretionary authority on the part of the
individuals appointed to vote your shares or act on those
matters according to their best judgment.
If a quorum is not present, adjournments may be made in
accordance with Clearwires amended and restated bylaws,
which we refer to as the Clearwire Bylaws, by the vote of a
majority of the voting power of the outstanding shares of
Clearwire Common Stock present in person or by proxy, without
further notice other than by an announcement made at the meeting
(as long as a new record date for the adjourned meeting is not
fixed by Clearwires board of directors).
Clearwire
Stockholder Account Maintenance
All communications concerning accounts of Clearwires
stockholders of record, including address changes, name changes,
inquiries as to requirements to transfer shares of Clearwire
Common Stock and similar issues can be handled by calling
Clearwires transfer agent, American Stock
Transfer & Trust Company,
toll-free,
at
(800) 937-5449.
Stockholder
Communications With Board of Directors
Any matter intended for the Clearwire board of directors, or for
any individual member or members of the Clearwire board of
directors, should be delivered to Clearwires Secretary at
4400 Carillon Point, Kirkland, Washington 98033, with a request
to forward the same to the intended recipient. In general, all
stockholder communications delivered to Clearwires
Secretary for forwarding to the Clearwire board of directors or
specified members will be forwarded in accordance with the
stockholders instructions. However, Clearwires
Secretary reserves the right not to forward to members any
abusive, threatening or otherwise inappropriate materials.
Recommendations
to Clearwire Stockholders
Proposal No. 1
Approval and Adoption of the Transaction Agreement
It is a condition to completion of the Transactions, as well as
a requirement under Delaware law, that Clearwire stockholders
approve and adopt the Transaction Agreement. Accordingly,
Clearwire is asking its stockholders to approve and adopt the
Transaction Agreement. Pursuant to the Transaction Agreement,
Clearwire will be merged with and into Clearwire Sub and each
outstanding share of Clearwire Class A Common Stock will be
converted into the right to receive one share of New Clearwire
Class A Common Stock.
It also is a condition to completion of the Transactions that
the shares of New Clearwire Class A Common Stock issued in
the Transactions be authorized for listing on NASDAQ or the New
York Stock Exchange, which we refer to as the NYSE, subject only
to official notice of issuance. Pursuant to the NASDAQ
Marketplace Rules, as a prerequisite to listing approval, a
company is required to obtain stockholder approval before
issuing common stock if the common stock to be issued has voting
power in the aggregate equal to or in excess of 20% of the
aggregate voting power outstanding before such issuance of
common stock. Assuming a purchase price of $20 per share, if the
Transactions are completed, not including shares issued to
Clearwire stockholders as of the effective time of the Merger,
New Clearwire will issue to Sprint and
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the Investors, in the aggregate, approximately 530 million
shares of New Clearwire Common Stock in the Transactions, or
approximately 76% of the voting power outstanding on the date of
this proxy statement/prospectus assuming no post-closing
adjustment pursuant to the Transaction Agreement. Therefore,
under the NASDAQ Marketplace Rules, New Clearwire must obtain
the approval of its stockholders, who were stockholders of
Clearwire immediately before the Closing, for the issuance of
shares of New Clearwire Common Stock in the Transactions.
Clearwire is asking its stockholders to approve the proposal to
approve and adopt the Transaction Agreement, including the
issuance of shares of New Clearwire Common Stock contemplated
thereby. This proposal is conditioned on the approval of the New
Clearwire Charter proposal, and the approval of both this
proposal and the New Clearwire Charter proposal is required to
effect the Merger and complete the Transactions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS
PROPOSAL.
THE TRANSACTIONS WILL NOT BE COMPLETED UNLESS, AMONG OTHER
THINGS, THE CLEARWIRE STOCKHOLDERS APPROVE THE TRANSACTION
AGREEMENT PROPOSAL. UNDER THE TRANSACTION AGREEMENT, COMPLETION
OF THE TRANSACTIONS IS SUBJECT TO THE SATISFACTION (OR, IF
LEGALLY PERMITTED, WAIVER) OF SPECIFIED CLOSING CONDITIONS.
APPROVAL AND ADOPTION BY THE CLEARWIRE STOCKHOLDERS OF THE
TRANSACTION AGREEMENT IS ONE OF THOSE CONDITIONS. CLEARWIRE,
SPRINT AND THE INVESTORS MAY NOT WAIVE THE REQUIREMENT FOR
CLEARWIRE STOCKHOLDERS TO APPROVE AND ADOPT THE TRANSACTION
AGREEMENT.
Proposal No. 2
Adoption of the New Clearwire Charter
Clearwire is asking its stockholders to adopt the New Clearwire
Charter, which will govern the rights of the holders of New
Clearwire Common Stock. For a summary of the differences in the
rights of Clearwire stockholders compared to those of New
Clearwire stockholders, see the section titled Comparison
of Stockholder Rights and Corporate Governance Matters
beginning on page 150 of this proxy
statement/prospectus.
This proposal is conditioned upon the approval of the
Transaction Agreement proposal, and the approval of both this
proposal and the Transaction Agreement proposal is required to
effect the Merger and complete the Transactions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS
PROPOSAL.
THE TRANSACTIONS WILL NOT BE COMPLETED UNLESS, AMONG OTHER
THINGS, THE CLEARWIRE STOCKHOLDERS APPROVE THE NEW CLEARWIRE
CHARTER PROPOSAL. CLEARWIRE, SPRINT AND THE INVESTORS MAY NOT
WAIVE THE REQUIREMENT FOR CLEARWIRE STOCKHOLDERS TO ADOPT THE
NEW CLEARWIRE CHARTER.
Proposal No. 3
Approval and Adoption of the New Clearwire Stock
Plan
Clearwire is asking its stockholders to approve and adopt the
New Clearwire Stock Plan, pursuant to which Clearwire will issue
certain equity-based incentives to its employees, directors and
other persons. For a summary of the New Clearwire Stock Plan,
see the section titled New Clearwire Stock Plan
beginning on page 166 of this proxy statement/prospectus.
This proposal is conditioned on the approval of the Transaction
Agreement proposal and approval of the New Clearwire Charter
proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS
PROPOSAL.
Proposal No. 4
Adjournment of the Special Meeting
If Clearwire fails to receive a sufficient number of votes to
approve Proposal No. 1, Proposal No. 2 or
Proposal No. 3, Clearwire may propose to adjourn the
meeting for the purpose of soliciting additional proxies in
favor of any of the above proposals. Clearwire does not intend
to propose to adjourn the special meeting if there are
sufficient votes in favor of each of Proposal No. 1,
Proposal No. 2 and Proposal No. 3.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS
PROPOSAL.
61
THE
TRANSACTIONS
The
Companies
Clearwire
Corporation
Clearwire Corporation
4400 Carillon Point
Kirkland, Washington 98033
(425) 216-7600
Clearwire, a Delaware corporation, builds and operates next
generation wireless broadband networks that enable fast, simple,
portable, reliable and affordable Internet communications.
Clearwires wireless broadband networks cover entire
communities and deliver a high-speed Internet connection that
creates a new communications path into the home or office, and
anywhere within its coverage area. Clearwires services
consist primarily of providing wireless broadband connectivity
to more than 16.8 million people in the United States
and Europe in 50 markets, ranging from major metropolitan areas
to small, rural communities. Clearwire conducts its operations
through its domestic and international subsidiaries. Clearwire
also offers VoIP telephone services in most of its domestic
markets. As it evolves its existing networks and services,
Clearwire plans to deploy the standards-based mobile WiMAX
service in its new markets. Clearwire holds approximately
15.8 billion MHz-POPs of owned or leased spectrum,
including spectrum subject to pending acquisition or leases, in
the United States, and is subject to regulation by the FCC.
Clearwire also holds 8.7 billion
MHz-POPs in
Europe.
Shares of Clearwire Class A Common Stock are traded on
NASDAQ under the symbol CLWR.
For additional information about Clearwire and its business, see
the section titled Where You Can Find Additional
Information beginning on page 274 of this proxy
statement/prospectus.
New
Clearwire Corporation
New Clearwire
4400 Carillon Point
Kirkland, Washington 98033
(425) 216-7600
New Clearwire, a Delaware corporation, will act as the managing
member of Clearwire Communications. New Clearwire was
formed solely for the purpose of entering into the Transaction
Agreement and completing the Transactions. It has not conducted,
and prior to the Closing will not conduct, any business
operations. After the Closing, New Clearwire will be the
managing member of Clearwire Communications, which will own all
of the assets of Clearwire and the Sprint WiMAX Business.
Immediately after the completion of the Transactions, New
Clearwires equity capital will consist solely of the New
Clearwire Class A Common Stock and New Clearwire
Class B Common Stock issued pursuant to the Transactions.
The New Clearwire Class A Common Stock and New Clearwire
Class B Common Stock each will have one vote per share and
will vote together as a single class on all matters. Subject to
restrictions imposed by the New Clearwire Charter, the
Equityholders Agreement and the Operating Agreement,
holders of New Clearwire Class B Common Stock will have the
right to exchange one share of New Clearwire Class B Common
Stock and one Clearwire Communications Class B Common
Interest for one share of New Clearwire Class A Common
Stock. New Clearwire Class B Common Stock will have only
nominal economic rights. Unlike the holders of New Clearwire
Class A Common Stock, the holders of New Clearwire
Class B Common Stock will have no right to dividends and no
right to any proceeds on liquidation other than the par value of
the New Clearwire Class B Common Stock. New
Clearwires corporate governance is outlined in the New
Clearwire Charter and the Equityholders Agreement, which
are attached as Annex B and Annex C, respectively, to
this proxy statement/prospectus.
For additional information about New Clearwire and its business,
see the section titled Where You Can Find Additional
Information beginning on page 274 of this proxy
statement/prospectus.
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Sprint
Nextel Corporation
Sprint Nextel Corporation
6200 Sprint Parkway
Overland Park, Kansas 66251
(800) 829-0965
Sprint Nextel Corporation was incorporated in 1938 under the
laws of Kansas and is mainly a holding company, with its
operations primarily conducted by its subsidiaries. Sprint is a
global communications company offering a comprehensive range of
wireless and wireline communications products and services that
are designed to meet the needs of individual consumers,
businesses and government customers.
Sprint has organized its operations to meet the needs of its
targeted customer groups through focused communications
solutions that incorporate the capabilities of its wireless and
wireline services to meet their specific needs. Sprint is one of
the three largest wireless companies in the United States based
on the number of wireless subscribers. Sprint owns extensive
wireless networks and a global long distance, Tier 1
Internet backbone.
Sprint is widely recognized for developing, engineering and
deploying innovative technologies, including two wireless
networks serving nearly 52 million customers at the end of
the second quarter of 2008; industry-leading mobile data
services; instant national and international walkie-talkie
capabilities; and a global Tier 1 Internet backbone.
Sprint operates its WiMAX broadband assets under the
XOHMtm
brand name. The Sprint WiMAX Business, including the
XOHMtm
name, will be contributed to New Clearwire as part of the
Transactions.
For additional information about Sprint and its business, see
the section titled Where You Can Find Additional
Information beginning on page 274 of this proxy
statement/prospectus.
Sprint
Sub
Sprint Sub
6200 Sprint Parkway
Overland Park, Kansas 66251
(800) 829-0965
Sprint Sub was formed for the purpose of engaging in the
Transactions. Before the Closing, its assets will consist of the
Sprint WiMAX Business, including XOHM, which is currently a
division of Sprint that is developing a nationwide advanced
wireless broadband network designed to mobilize the Internet,
bring wireless innovation to devices and deliver new mobile
multimedia applications to consumer, business and government
customers. XOHM is working with ecosystem partners and others to
incorporate WiMAX technology in a range of computing, portable
multi-media, interactive and other consumer electronic devices,
including the availability of XOHM WiMAX service in vehicles for
navigation information, news and entertainment. The equity
interests of Sprint Sub and its subsidiaries, the Sprint WiMAX
Business and the
XOHMtm
name will be contributed to New Clearwire as part of the
Transactions.
The
Investors
As part of the Transactions, Comcast, Time Warner Cable, Bright
House Networks, Intel and Google will invest an aggregate of
$3.2 billion in New Clearwire and its subsidiaries.
Comcast
Corporation
Comcast Corporation
One Comcast Center
1701 John F. Kennedy Boulevard
Philadelphia, Pennsylvania 19103
(215) 286-1700
63
Comcast, a Pennsylvania corporation, is the nations
leading provider of entertainment, information and
communications products and services. With approximately
24.6 million cable customers, 14.4 million high-speed
Internet customers, and 5.6 million voice customers,
Comcast is principally involved in the development, management
and operation of broadband cable systems and in the delivery of
programming content.
Comcasts content networks and investments include E!
Entertainment Television, Style Network, The Golf Channel,
VERSUS, G4, PBS KIDS Sprout, TV One, ten Comcast SportsNet
networks and Comcast Interactive Media, which develops and
operates Comcasts Internet business. Comcast also has a
majority ownership in Comcast-Spectacor, whose major holdings
include the Philadelphia Flyers NHL hockey team, the
Philadelphia 76ers NBA basketball team and two large
multipurpose arenas in Philadelphia.
Time
Warner Cable Inc.
Time Warner Cable Inc.
One Time Warner Center
North Tower
New York, New York 10019
(203) 328-0600
Time Warner Cable, a Delaware corporation, together with its
subsidiaries, is the second-largest cable operator in the United
States, with technologically advanced, well-clustered systems
located mainly in New York, the Carolinas, Ohio, southern
California and Texas. As of June 30, 2008, Time Warner
Cable served approximately 14.7 million customers who
subscribe to one or more of its video, high-speed data and voice
services.
Bright
House Networks, LLC
Bright House Networks, LLC
c/o Advance/Newhouse
Partnership
5000 Campuswood Drive
East Syracuse, New York 13057
(315) 438-4100
Bright House Networks, a Delaware limited liability company, is
the nations sixth largest multiple systems operator with
approximately 2.4 million customers in several large
markets, including Bakersfield, California, Birmingham, Alabama,
Detroit, Michigan, Indianapolis, Indiana, Orlando, Florida and
Tampa, Florida, along with several other smaller systems in
Alabama and the Florida Panhandle. Bright House Networks
provides cable programming, digital phone, high-speed data and
other similar cable, voice and data services.
Intel
Corporation
Intel Corporation
2200 Mission College Boulevard
Santa Clara, California
95054-1549
(408) 765-8080
Intel, a Delaware corporation, is the worlds largest
semiconductor chip manufacturer, based on revenue, and a
developer of advanced integrated digital technology products,
primarily integrated circuits, for industries such as computing
and communications. Intel also develops platforms, defined as
integrated suites of digital computing technologies that are
designed and configured to work together to provide an optimized
user computing solution compared to ingredients that are used
separately. Intel offers products at various levels of
integration to allow customers flexibility to create advanced
computing and communications systems and products. Intel Capital
Corporation, Intels global investment organization, makes
equity investments in innovative technology
start-ups
and companies worldwide. Intel Capital Corporation invests in a
broad range
64
of companies offering hardware, software, and services targeting
enterprise, home, mobility, health, consumer Internet,
semiconductor manufacturing and cleantech.
Google
Inc.
Google Inc.
1600 Amphitheatre Parkway
Mountain View, California 94043
(650) 253-0000
Google, a Delaware corporation, is a global technology leader
focused on improving the ways people connect with information.
Googles innovations in web search and advertising have
made its web site a top Internet destination and its brand one
of the most recognized in the world. Google maintains the
largest, most comprehensive index of web sites and other online
content, and it makes this information freely available to
anyone with an Internet connection. Googles automated
search technology helps people obtain nearly instant access to
relevant information from its vast online index.
General
The Transaction Agreement and related documents provide that, on
the terms and subject to the conditions set forth in the
Transaction Agreement, among other things:
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The Conversion: The Eagle River Voting
Agreement and the Intel Voting Agreement provide, among other
things, that each outstanding share of Clearwire Class B
Common Stock held by Eagle River and Intel and certain of its
affiliates, respectively, will be converted into one share of
Clearwire Class A Common Stock before the Merger (but after
the vote of the Clearwire stockholders at the special meeting).
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Formation of New Clearwire Entities: Clearwire
will form New Clearwire as its direct, wholly-owned
subsidiary. New Clearwire will then form Clearwire
Communications as its direct, wholly-owned subsidiary, which
will in turn form Clearwire Sub as its direct, wholly-owned
subsidiary.
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Formation of New Sprint Entities: Sprint will
form Sprint HoldCo, and in turn cause Sprint HoldCo to
form Sprint Sub. Sprint will cause the Sprint WiMAX
Business to be held in its entirety by one or more wholly-owned
subsidiaries of Sprint Sub.
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The Merger: Following the Conversion,
Clearwire will merge with and into Clearwire Sub, with Clearwire
Sub surviving as a direct, wholly-owned subsidiary of Clearwire
Communications. In the Merger, each share of Clearwire
Class A Common Stock will be converted into the right to
receive one share of New Clearwire Class A Common Stock,
and each option and warrant to purchase shares of Clearwire
Class A Common Stock will be converted into an option or
warrant, as applicable, to purchase the same number of shares of
New Clearwire Class A Common Stock.
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The Contribution: Following the Merger, Sprint
HoldCo will contribute all of the equity interests in Sprint Sub
to Clearwire Communications in exchange for Clearwire
Communications Class B Common Interests.
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The Class B Purchase: Following the
Merger, Sprint will cause Sprint HoldCo to purchase, for $37,000
in cash, 370 million shares of New Clearwire Class B
Common Stock. These shares are entitled to one vote each but
have only nominal equity rights. Unlike the holders of New
Clearwire Class A Common Stock, the holders of New
Clearwire Class B Common Stock have no right to dividends
and no right to any proceeds on liquidation other than the par
value of the New Clearwire Class B Common Stock.
Immediately following the Class B Purchase, New Clearwire
will contribute the $37,000 that it receives from Sprint HoldCo
in the Class B Purchase to Clearwire Communications in
exchange for Clearwire Communications Voting Interests.
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Investor Contributions to New Clearwire and Clearwire
Communications: Following the Contribution and
the Class B Purchase:
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the Investors, other than Google, will invest in Clearwire
Communications a total of $2.7 billion in exchange for
Clearwire Communications Voting Interests and Clearwire
Communications Class B Common Interests. Immediately
following the receipt by the Investors, other than Google, of
Clearwire Communications Voting Interests and Clearwire
Communications Class B Common Interests, each of the
Investors, other than Google, will contribute to New Clearwire
its Clearwire Communications Voting Interests in exchange for an
equal number of shares of New Clearwire Class B Common
Stock; and
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Google will invest $500 million in New Clearwire in
exchange for New Clearwire Class A Common Stock. New
Clearwire will then contribute the $500 million that it
receives from Google to Clearwire Communications in exchange for
Clearwire Communications Voting Interests and Clearwire
Communications Class A Common Interests.
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The Clearwire board of directors is using this proxy
statement/prospectus to solicit proxies from the holders of
Clearwire Common Stock for use at the Clearwire special meeting
at which the Transaction Agreement proposal, the New Clearwire
Charter proposal and the New Clearwire Stock Plan proposal will
be considered and voted on. This proxy statement/prospectus is
also being used by New Clearwire as a prospectus related to the
offering of shares of its Class A Common Stock in exchange
for shares of Clearwire Class A Common Stock in connection
with the Transactions.
Background
of the Transactions
In pursuing strategies to enhance stockholder value, Clearwire
regularly considered opportunities for investments and strategic
transactions. The arrival at the final terms of the proposed
Transactions followed a lengthy process, lasting approximately
two years, and involved the consideration by senior management
and the board of directors of Clearwire of several specific
alternative transactions, as described in more detail below.
From June 2006 through early April 2007, senior management of
Clearwire, Sprint and Intel had a number of discussions, both in
person and by telephone, regarding the terms of their possible
collaboration in the construction of a nationwide WiMAX network.
They discussed various high-level issues relating to the
companies businesses and possible ways in which the
parties could work together to facilitate the aggressive
deployment of WiMAX on a nationwide basis. No agreements were
reached, but each expressed interest in continuing these
discussions. During the time of these discussions, Clearwire
went public on March 8, 2007 through an initial public
offering.
From mid-April 2007 to July 16, 2007, senior management of
Clearwire and Sprint participated in several discussions
regarding the terms of a proposed arrangement in which each
party would assume responsibility for building and operating a
WiMAX network in certain territories throughout the United
States. As a result of these discussions, the parties reached
agreement on the general terms of a proposed joint-build
arrangement in which Sprint would be responsible for building
its network in geographic areas covering approximately
185 million people, while Clearwire would focus on areas
covering approximately 115 million people. The joint build
contemplated that the parties would work jointly on product and
service evolution, shared infrastructure, branding, marketing
and distribution, and that each partys customers would be
entitled to roam in the other partys deployed areas. The
parties would also exchange
and/or lease
certain spectrum licenses and leases to enable each company to
build out its portion of the network, to enhance service
opportunities and value added products in each partys
build-out territory and to exchange other assets associated with
this spectrum. The non-binding letter of intent provided, among
other things, that the joint-build arrangement between the
parties was subject to the execution of mutually acceptable
definitive agreements, a review of the transaction by the
Department of Justice, and approval of spectrum license and
lease assignments and transfers to be effected between the
parties by the FCC. Throughout the discussions between Clearwire
and Sprint regarding the joint-build arrangement,
Clearwires senior management regularly discussed the
opportunities
66
with the Clearwire board members, including providing a detailed
update on the discussions with Sprint at a meeting of the board
on June 27, 2007.
On July 16, 2007, at a scheduled meeting of
Clearwires board of directors, Clearwires board of
directors approved the terms of the letter of intent. The letter
of intent was signed by Clearwire and Sprint on July 18,
2007, and the joint-build arrangement was publicly announced by
the parties on July 19, 2007.
After announcing the execution of the letter of intent on
July 19, 2007, senior management of Clearwire and Sprint
and their respective legal counsel began working on completion
of the definitive agreements for the joint-build arrangement.
Over the succeeding three months, the representatives of the
parties held several meetings in person and via telephone to
negotiate the terms of those agreements. Also during this
period, the parties conducted further due diligence review of
the spectrum licenses, leases and other network assets to be
exchanged or subleased as part of the joint-build arrangement.
In late September and early October 2007, while negotiations of
the definitive agreements for the joint-build arrangement were
continuing, Mr. Wolff held discussions with Gary Forsee,
Sprints then Chief Executive Officer, and Keith Cowan,
Sprints President of Strategic Planning. They discussed
unresolved issues regarding the definitive agreements relating
to the joint-build arrangement, and each expressed interest in
exploring alternative transaction structures that might simplify
the arrangement so that Clearwire and Sprint would be better
positioned to achieve their respective business objectives.
Throughout October 2007 and early November 2007, the parties
continued to work diligently on the definitive agreements
related to the joint-build arrangement, but they also held
several discussions related to possible alternative transaction
structures for the joint-build arrangement, including a modified
form of the joint-build arrangement that would involve an
exchange of spectrum assets and a roaming agreement between the
parties. The parties also began to discuss a potential
alternative transaction in which Sprint would contribute all of
its assets related to its WiMAX business to Clearwire in
exchange for a majority equity interest in Clearwire, and the
new entity would seek to raise additional capital. On October
30, 2007, Mr. Cowan delivered a discussion framework
for an alternative transaction, which was named Project Grand
Slam.
On November 7, 2007, Clearwire and Sprint determined that
it would be impossible to complete final definitive agreements
related to the joint-build arrangement primarily due to the
parties inability to reach agreement on (1) the
inclusion of certain markets in their respective build-out
territories, (2) defining common products and services, and
backoffice systems, (3) a plan for marketing the
parties WiMAX services under a common brand on a
nationwide basis and (4) a resolution for potential sales
channel conflicts. As a result, the parties mutually agreed to
terminate the letter of intent for the joint-build arrangement.
The parties further agreed to continue discussing ways in which
the parties would be able to work together to achieve the
parties respective business objectives, including the
possibility of roaming, frequency interference coordination,
spectrum exchanges, technology evolution and development and
network standards.
On November 9, 2007, Clearwire and Sprint each issued press
releases announcing the termination of their letter of intent
related to the joint-build arrangement, and indicated their
continuing discussions regarding potential alternative
relationships.
On November 14 and 15, 2007, Messrs. Wolff, Scott
Richardson, Clearwires Chief Strategy Officer and
Executive Vice President, John Saw, Clearwires Chief
Technology Officer and Vice President, and Robert Mechaley, Vice
Chairman of Clearwire, met at Comcasts corporate
headquarters in Philadelphia, Pennsylvania with Michael
Angelakis, Comcasts Chief Financial Officer, Robert Pick,
Comcasts Senior Vice President and Arvind Sodhani, Intel
Capital Corporations President and Intels Executive
Vice President, and representatives of Google, to provide
information about Clearwires business and future business
plans and to discuss the possibility of a strategic partnership
among the companies in a transaction excluding Sprint.
After the meetings in Philadelphia, Clearwire and Comcast
continued to exchange and discuss high-level information about a
potential strategic partnership between the companies and other
possible strategic investors, including Time Warner Cable and
Bright House Networks, which the parties referred to as Project
67
Rain. The discussions centered on an investment from Comcast and
the other potential strategic partners in Clearwire and possible
commercial agreements between the parties.
While the Project Rain discussions were ongoing, senior
management of Clearwire and Sprint continued to discuss
possibilities for working together in deploying WiMAX networks.
At various times, these discussions included representatives of
Intel and other possible strategic partners, but through
December did not involve Comcast or the other parties to the
Project Rain discussions.
In early December 2007, Messrs. Wolff and Cowan continued
discussions regarding a possible combination of Sprints
WiMAX business with Clearwire and a strategic investment in the
combined business from Intel and additional third party
investors.
On December 10, 2007, Mr. Wolff met in Reston,
Virginia with Paul Saleh, Sprints then-acting Chief
Executive Officer, to discuss the possible combination of
Sprints WiMAX business with Clearwire.
On December 11, 2007, Messrs. Wolff and Cowan further
discussed the general terms of a possible combination of the
WiMAX businesses of Sprint and Clearwire, including a general
framework for the possible business combination, corporate
governance issues, the relative valuations of their respective
WiMAX businesses, commercial agreements that would be put in
place between Sprint and the combined business and the need for
additional funding for the combined businesses from third
parties.
On December 12, 2007, Mr. Cowan delivered to
Mr. Wolff a draft term sheet for the proposed Project Grand
Slam transaction.
On December 13, 2007, Messrs. Wolff and Cowan
discussed the Project Grand Slam term sheet prepared by Sprint,
including the relative valuation of the parties WiMAX
businesses, corporate governance issues, equity transfer
restrictions to be imposed on Sprint, minority rights and the
commercial agreements to be entered into between the parties.
Following these discussions, Mr. Wolff delivered a revised
draft term sheet to Mr. Cowan. Messrs. Wolff and Cowan
discussed the revised term sheet in multiple conversations
throughout the day.
Later on December 13, 2007, Mr. Wolff delivered the
draft term sheet being discussed between Clearwire and Sprint to
Sriram Viswanathan, Vice President of Intel Capital Corporation,
for review by Intel.
Over the next few days, from December 14 until December 16,
2007, Messrs. Wolff, Cowan and Viswanathan continued to
discuss the proposed terms of Project Grand Slam, including the
size of the proposed investment by Intel and other possible
third-party investors, corporate governance and
stockholders rights issues, and to exchange draft term
sheets.
On December 17 and 18, 2007, senior management of Clearwire,
Sprint, Intel and, on December 17, a potential strategic
investor, met to discuss and negotiate general terms of Project
Grand Slam. They discussed issues relating to the strategic
goals and interests of each of the parties and the relationship
of each of Clearwire and Sprint in the proposed transaction, as
well as the valuation for a proposed equity investment by Intel
and the other potential strategic investors, the equity
ownership structure, and the corporate governance and structure
of Project Grand Slam. Legal counsel for each of the parties
also attended these meetings. The parties also had general
discussions about the terms of possible commercial agreements
among the parties following the completion of the transactions.
Mr. Sodhani resigned from the Clearwire board of directors
effective December 23, 2007.
In late December 2007 and early January 2008, while extensive
daily discussions on Project Grand Slam continued between
Clearwire, Sprint and Intel, Messrs. Wolff and Cowan
discussed the possibility of exploring whether additional
strategic and financial investors would be interested in
providing funds for the proposed combination of Clearwires
and Sprints WiMAX businesses, including the proposed
strategic investors that were involved in the Project Rain
discussions with Clearwire.
On January 7, 2008, Messrs. Wolff, Angelakis and Pick
met in Las Vegas, Nevada to discuss Comcasts potential
involvement as a strategic investor in Project Rain.
68
On January 9 through January 11, 2008, Messrs. Wolff,
Cowan, Sodhani and Viswanathan, along with other members of
senior management of the companies and their outside legal
advisors, met at the offices of Gibson, Dunn &
Crutcher LLP in Palo Alto, California to discuss the proposed
terms for Project Grand Slam, including the potential investment
by Intel and the potential strategic investor, corporate
governance issues and the commercial agreements to be entered
into by the parties.
On January 11, 2008, at a special meeting of the Clearwire
board of directors, the senior management of Clearwire provided
the directors with a high-level overview of the proposed terms
of Project Grand Slam and Project Rain and the progress of
negotiations with the other parties over the past several weeks.
The board of directors discussed with senior management the
strategic rationale for each of the proposed transactions and
the relative advantages and disadvantages of each. The Clearwire
board of directors determined that it was in the best interests
of Clearwire and its stockholders to pursue each of the
strategic transactions for a period of time, until the terms of
each were more fully developed, and it instructed management to
proceed with the negotiations relating to both alternative
transactions.
From January 15 through January 18, 2008, senior management
from Clearwire and Sprint met in New York City with
representatives of Intel and another potential strategic
investor to discuss the Project Grand Slam commercial
arrangements, corporate governance issues and the business model.
Also on January 18, 2008, Messrs. Wolff and Cowan met
with Messrs. Angelakis and Pick in Philadelphia,
Pennsylvania to discuss expanding Project Rain to include a
combination of Clearwires and Sprints WiMAX
businesses with a concurrent strategic investment by Comcast,
other cable companies including Time Warner Cable, Bright House
Networks and Google. The parties also discussed Comcasts
and the other companies interest in obtaining the ability
to resell wireless services to be offered by the combined
business.
On January 21, 2008, Mr. Cowan delivered a draft term
sheet prepared by Clearwire and Sprint to Messrs. Angelakis
and Pick for Project Rain, which included the initial proposed
terms for the proposed strategic investment.
On January 25, 2008, Mr. Wolff and Nicolas Kauser, a
Clearwire director, met in Oakland, California with Mr. Cowan
and Dan Hesse, Sprints newly appointed chief executive
officer, to discuss the proposed transactions involving
Clearwire and Sprint, including the status of each of Project
Grand Slam and Project Rain.
In early February 2008, each of Clearwire and Sprint established
an electronic data room to be used for legal, financial and
operational due diligence, and both Clearwire and Sprint posted
extensive and detailed information about their respective WiMAX
businesses in their respective data rooms.
During February, March and April 2008, senior management of each
of Clearwire and Sprint met regularly with their respective
outside legal, financial and other professional advisors to
discuss the structure of the proposed transactions, as well as
regulatory considerations and approvals, potential synergies and
other matters that would arise in the course of a potential
combination of Clearwires and Sprints WiMAX
businesses. At the same time, each of Clearwire and Sprint
conducted its due diligence review of the others financial
results, operations, assets, legal documentation and other
matters and exchanged drafts of definitive agreements. The
parties also discussed and negotiated the terms of the
commercial agreements to be entered into by the new company and
Sprint, including a number of network services and tower
agreements.
In February 2008, while the negotiations regarding Project Grand
Slam and Project Rain continued on parallel paths, the financial
advisors to Clearwire and Sprint also approached five other
potential strategic investors and 12 other potential financial
investors about making an investment in a combined WiMAX
business, and the parties held preliminary discussions about
such an investment with some of these potential investors.
From February 4, 2008, through February 7, 2008,
Messrs. Richardson and Cowen and Scott Hopper,
Clearwires Vice President, Corporate Development, met in
Palo Alto, California with other members of senior management
and representatives of Clearwire, Sprint and Intel to discuss
the proposed commercial terms and
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equity ownership structure of Project Grand Slam. Among other
things, the parties discussed the obligations that Intel was
willing to undertake as part of the commercial relationship
between Intel and the new company and the consideration that
Intel was seeking as compensation for such undertakings. The
parties discussed and exchanged draft term sheets for both the
strategic investment and commercial agreement.
On February 18, 2008, senior executives of Clearwire,
including Craig McCaw, its Chairman, Comcast, including Brian
Roberts, its Chief Executive Officer, and Google met in
Hillsboro, Oregon to experience the technological capabilities
of the mobile WiMAX wireless network that Clearwire has built,
including a 20 mile drive segment demonstrating the use of
WiMAX communications in automobiles. The parties further
discussed the proposed terms of Project Rain, including the
proposed investment and commercial agreements.
On February 21, 2008 and February 22, 2008,
Messrs. Wolff, Cowan and Viswanathan met in
San Francisco, California, to discuss Project Grand Slam.
They discussed unresolved issues related to each of the equity
and commercial term sheets, including valuation, corporate
governance, commercial commitments and payments, and build-out
and coverage timelines.
On February 28 and 29, 2008, senior management from each of
Clearwire, Sprint, Comcast, Google, Time Warner Cable and Bright
House Networks met in the New York offices of
Kirkland & Ellis LLP, outside legal counsel to
Clearwire, to negotiate the term sheets outlining the investment
and commercial agreements with respect to Project Rain and to
discuss the business plan for the combined company. The
discussions included negotiations regarding the structure of the
combined company, board representation and governance rights of
the respective companies, majority and supermajority voting
issues, standstill obligations, business plan and budget issues,
share transfer restrictions and the form of investment and
investment price. The parties also discussed the terms pursuant
to which Sprint and the potential strategic investors would be
able to resell WiMAX services to be offered by the combined
company, including pricing, bundling obligations, the term of
the agreement, marketing obligations, a most favored nations
provision and the scope of services subject to the agreement.
Representatives of Morgan Stanley, Citigroup Inc., Lehman
Brothers Holdings Inc., Merrill Lynch & Co., Inc.,
Davis Wright Tremaine LLP, Kirkland & Ellis LLP,
King & Spalding LLP, Davis Polk & Wardwell
and Wilson Sonsini Goodrich & Rosati, Professional
Corporation also attended the meetings. These term sheet
negotiations resumed on March 6, 2008 and continued through
March 7, 2008. During the negotiations, the parties
discussed and came to initial agreement on some of the general
terms related to the structure of the company, corporate
governance, the form of the investment, equityholder rights and
the commercial arrangements to be entered into by the parties,
including general terms of agreements that would allow Sprint
and the strategic investors to resell mobile WiMAX services to
be offered by the new company and a services agreement
with Google. However, many issues remained unresolved,
including, among others, the investment price, issues requiring
supermajority board or stockholder approval and the financial
terms of the commercial agreements.
In late February and early March 2008, Clearwire and Sprint
delivered initial drafts of the definitive investment agreements
for Project Rain to each of the potential investors, including
the Transaction Agreement, Equityholders Agreement and
other documents.
On March 11, 2008, members of the senior management of
Clearwire, Sprint and Intel and their respective legal counsel
met in Palo Alto, California to discuss the terms of the
commercial relationship to be entered into between Intel and the
combined business in connection with Project Grand Slam. As a
result of the conversations, the parties reached general
agreement on certain of the remaining open terms for the Intel
commercial agreement.
From March 7 through March 14, 2008, senior executives of
Clearwire, Sprint and the potential investors in Project Rain
discussed and negotiated the amount and price of the
investors possible equity investment in the combined
business. The financial advisors of each of the parties
participated in these discussions. The parties to Project Rain
reached agreement on a preliminary valuation methodology,
subject to resolution of all other issues, on March 14,
2008.
On March 14, 2008, at a special meeting of the Clearwire
board of directors, the senior management team of Clearwire
updated the board of directors on the Project Rain and Project
Grand Slam negotiations.
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Mr. Wolff described the status of discussions and other
members of senior management made presentations regarding
certain business and financial matters relating to Clearwire,
Sprint and the potential transactions, and provided an update
regarding due diligence. Representatives of Kirkland &
Ellis LLP reviewed with the Clearwire board of directors their
fiduciary obligations in the context of considering the several
proposed transactions. Clearwires legal advisors and
senior management then responded to questions from members of
the Clearwire board of directors.
On March 15 and 16, 2008, Messrs. Wolff and Cowan discussed
the addition of Intel to Project Rain with the potential
strategic investors, and the parties agreed to approach Intel.
Following the discussions with the investors, Messrs. Wolff
and Cowan held separate discussions with Intel about joining as
a party to Project Rain. Over the course of the next few days,
Clearwire, Sprint, Intel and the strategic investors discussed
the terms of Intels participation in Project Rain. Among
the terms discussed by the parties were changes to the corporate
governance terms that would be necessary to accommodate the
inclusion of Intel in Project Rain. Following these discussions,
the parties agreed to add Intel as a party to the transaction.
As a result, Clearwires management shifted its focus
toward Project Rain and discontinued the separate discussions
with Intel regarding Project Grand Slam.
On March 17 and March 18, 2008, representatives of
Clearwire, Sprint and each of Comcast, Time Warner Cable and
Bright House Networks met in Kirkland, Washington to discuss the
companies WiMAX businesses and a number of preliminary due
diligence matters. The parties also discussed business and
technical issues related to the proposed reseller agreement that
would be entered into by the companies in connection with the
transaction.
In mid-March 2008, Clearwire and Sprint provided access to the
electronic data room to each of the potential investors in
Project Rain. Commencing in mid-March 2008 and continuing
through April and
early May
2008, representatives of the companies and each of the potential
investors in Project Rain, along with their outside legal,
financial and accounting advisors, exchanged requests for
information and responses to those requests, exchanged
additional information and reviewed and discussed all such
information.
On March 21, 2008, Mr. Wolff provided the Clearwire
board of directors with an update on the status of the Project
Rain discussions and an expected timeline for the board to be
presented with a final proposal for its consideration. During
these discussions, the Clearwire board of directors expressed
its agreement with managements decision to shift its focus
away from Project Grand Slam to Project Rain, and directed
management to continue to pursue Project Rain.
From March 25, 2008 through March 28, 2008 and from
April 1, 2008 through April 3, 2008, senior executives
of Clearwire, Sprint and the Investors, along with their
respective outside legal counsel and financial advisors, met in
New York City to negotiate the terms of the Transaction
Agreement, the Equityholders Agreement and the other
merger and investment agreements. The negotiations focused on
the remaining open issues under each of the agreements, which
included, among other items, business plans and budgets for the
combined company, the voting requirements of Eagle River and
Intel under each partys voting agreement, permitted use of
the investment proceeds, the Sprint pre-closing financing terms
and amount, minimum spectrum coverage requirements, interim
operating covenants (including Clearwires ability to raise
additional debt or equity capital prior to the closing),
termination rights and fees, Sprints indemnification
obligations, actions requiring supermajority board or
stockholder approval, Sprint and Investor standstill obligations
and exceptions, tax issues, conditions to closing the
Transactions, transferability of interests in the combined
company and Sprints credit agreement and potential impact
on the combined company. The parties resolved various open
issues involving the interim operating covenants, conditions to
closing, non-solicitation covenants, termination fees and other
provisions relating to a possible competing takeover proposal.
They also agreed on various governance matters. The number of
Clearwire Communications Class B Common Interests and
shares of New Clearwire Class B Common Stock to be issued
to Sprint in the Transactions was determined. During this
period, Clearwires, Sprints and the potential
investors respective outside legal counsel exchanged and
discussed several revised drafts of the Transaction Agreement
and the other merger and investment agreements.
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The parties also held multiple separate discussions about each
of the commercial agreements, including the 4G MVNO Agreement,
the 3G MVNO Agreement, the Intel Market Development Agreement
and the Google Products and Services Agreement, each as
described in the section titled Certain Agreements Related
to the Transactions Commercial Agreements among New
Clearwire, Clearwire Communications, Sprint, Intel and the
Strategic Investors beginning on page 126 of this
proxy statement/prospectus. During these discussions, the
parties resolved a number of issues related to the scope of the
parties rights under the agreements and the obligations of
each of the parties. Legal counsel for the parties exchanged
multiple drafts of the proposed commercial agreements throughout
the course of the discussions. Clearwire and Sprint also
distributed to each other revised drafts of their respective
disclosure letters.
From April 9, 2008 through April 11, 2008, senior
executives of Clearwire, Sprint and the Investors, along with
their respective outside legal counsel and financial advisors,
met at the New York offices of Davis Polk & Wardwell
to negotiate the terms of the Transaction Agreement, the
Equityholders Agreement and the other merger and
investment agreements. The negotiations again focused on the
remaining open issues under each of the agreements. The parties
agreed to limitations on the amount of the Sprint pre-closing
financing that would be subject to reimbursement under the
Transaction Agreement, including a cap on the reimbursement for
the period ending December 31, 2008, and the parties agreed
to the closing conditions related to minimum spectrum holdings
in large markets. The parties resolved various other open issues
involving tax allocations, the interim operating covenants and
conditions to closing. They also agreed on various governance
matters. During this period, Clearwires, Sprints and
the Investors respective outside legal counsel exchanged
and discussed several revised drafts of the Transaction
Agreement and the other merger and investment agreements.
Concurrently, the parties continued discussions on each of the
commercial agreements and exchanged revised drafts of the
commercial agreements. Various issues under each of the
commercial agreements were resolved by the parties. Clearwire
and Sprint also distributed to the other revised drafts of their
respective disclosure letters.
From April 11, 2008 through April 21, 2008, legal
counsel for the parties exchanged multiple drafts of the
commercial agreements. As a result of these discussions, Google
and Clearwire reached agreement on the scope of an agreement to
be entered into by the parties at the Closing of the
Transactions relating to innovative uses of excess spectrum.
From April 22, 2008 through April 25, 2008, senior
executives of Clearwire, Sprint and the Investors, along with
their respective outside legal counsel and financial advisors,
met at the New York offices of Davis Polk & Wardwell
to continue negotiating the terms of the Transaction Agreement,
the Equityholders Agreement and the other merger and
investment agreements. The negotiations focused on the remaining
open issues. The parties agreed on the scope of Sprints
indemnification obligations for undisclosed liabilities, the
form of repayment for Sprints pre-closing financing, the
Sprint ownership threshold at which proportional adjustments to
the parties board representation would begin and the
amount of equity that Clearwire would be permitted to issue
pre-closing. Google informed the other parties of its election
to invest in New Clearwire Class A Common Stock rather than
in Clearwire Communications as had been previously discussed and
notified the parties of the amount of its investment. During
this period, Clearwires, Sprints and the
Investors respective outside legal counsel exchanged and
discussed several revised drafts of the Transaction Agreement
and the Ancillary Agreements. Clearwire and Sprint also
distributed to each other and to the Investors revised drafts of
their respective disclosure letters. During these meetings, the
parties held multiple separate discussions about each of the
commercial agreements. In connection with the Intel Market
Development Agreement, the parties finally resolved issues
related to the subscribers covered, the attach rate targets, the
scope of Intels indemnification obligations and the
co-branding and exclusivity provisions. The parties also held
discussions on the Google Products and Services Agreement during
which they finally resolved the scope of the services to be
purchased, the related exclusivity provisions and the revenue
split between Google and Clearwire Communications from
advertising.
On April 27, 2008, at a special meeting of the Clearwire
board of directors, the senior management of Clearwire provided
the directors with an update on Project Rain and the progress of
negotiations with the other parties over the past several weeks.
The board of directors discussed with management changes in the
proposed terms of Project Rain since the board had last
discussed these terms. The Clearwire board of
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directors determined that it was in the best interests of
Clearwire and its stockholders to continue to pursue the
negotiations relating to Project Rain.
After the conclusion of the meetings in New York and continuing
through early May 2008, the parties held numerous telephone
conferences to discuss the remaining open issues under the
Transaction Agreement, Equityholders Agreement and the
other Ancillary Agreements. The parties focused on resolving
open issues under the commercial agreements, including primarily
issues that remained open under the 4G MVNO Agreement and 3G
MVNO Agreement. These issues included the pricing at which
Sprint and certain of the Investors would have the right to
resell 4G services offered by Clearwire Communications, and the
pricing at which Clearwire Communications and certain of the
Investors would have the right to resell 2G and 3G services
offered by Sprint. In addition, in connection with the Intel
Market Development Agreement, the parties agreed on the final
length of the term of the agreement, the coverage target for the
mobile WiMAX network and the co-branding and trademark license
terms. Sprint, Clearwire and the Investors also reached
agreement on the final terms of certain commercial agreements
between Sprint and Clearwire Communications, including an
agreement covering Sprints and Clearwires
intellectual property rights, an agreement related to use of
cell towers and a number of network services agreements. As a
result of these discussions, the parties were successfully able
to resolve each of the open issues. During these discussions,
legal counsel for the parties exchanged revised drafts of each
of these agreements and completed due diligence.
On May 5, 2008, at a special meeting of Clearwires
board of directors, representatives of Morgan Stanley made a
presentation to the Clearwire board of directors regarding
Project Rain. Representatives of Morgan Stanley reviewed the
financial terms of the Transactions and delivered an oral
opinion, subsequently confirmed in writing on May 7, 2008,
to the Clearwire board of directors that, as of May 7,
2008, and based on and subject to the assumptions,
qualifications and limitations set forth in its opinion, the
consideration to be received by holders of Clearwire
Class A Common Stock in the proposed Merger was fair, from
a financial point of view, to such holders. Representatives of
Kirkland & Ellis LLP and Clearwires in-house
counsel updated the board of directors on the current terms of
the Transaction Agreement, the Equityholders Agreement,
the commercial agreements and the other merger and investment
agreements relating to the Transactions, the potential risks of
the proposed Transactions and other legal issues associated with
the Transactions. Kirkland & Ellis LLP again reviewed
with the Clearwire board of directors their fiduciary duties in
their consideration of the Transactions and the process that had
been followed in connection with the Transactions.
Kirkland & Ellis LLP also reviewed the various aspects
of the Transactions in which Clearwire officers or directors
might be said to have interests that were separate from or in
addition to the interests of Clearwire stockholders generally,
including, without limitation, the interests of
Messrs. McCaw, Wolff, Kauser and Salemme in Eagle River and
the benefits to Eagle River of the Transactions, which matters
are described under the section titled Additional
Interests of Clearwires Directors and Officers in the
Transactions, beginning on page 92 of this proxy
statement/prospectus. Clearwires legal and financial
advisors then responded to questions from the members of the
Clearwire board of directors. The Clearwire board of directors
reviewed and discussed the principal issues in the Transactions,
and the proposed corporate structure, the consideration, closing
conditions, termination rights, termination fees, regulatory
conditions and limitations on Clearwire to consider alternative
proposals. Following the presentations, and after further
discussion, the Clearwire board of directors approved and
adopted, by a unanimous vote of all directors participating, the
Transaction Agreement and the Transactions, declared the
Transaction Agreement and the Transactions advisable, fair to,
and in the best interests of, Clearwire and its stockholders and
recommended that Clearwires stockholders vote their shares
in favor of approval and adoption of the Transaction Agreement,
including the issuance of shares of New Clearwire Common
Stock and the adoption of the New Clearwire Charter. David
Perlmutter, a member of the Clearwire board of directors, is an
Executive Vice President of Intel. Given his position at Intel
and Intels participation in the Transactions,
Mr. Perlmutter did not participate in any board discussions
regarding the Transactions and was not present for, and
abstained from, all board votes and other actions relating to
the Transactions.
On May 5, 2008 and May 6, 2008, Clearwire, Sprint, the
Investors and their respective legal counsel agreed upon all
final revisions to all of the definitive documents. The parties
also completed their review of
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the final open due diligence issues for each of Clearwire and
Sprint. None of the revisions altered the material terms of the
agreements.
On the morning of May 7, 2008, the parties executed the
Transaction Agreement, the Eagle River Voting Agreement, the
Intel Voting Agreement and the 3G MVNO Agreement and the
Transactions were announced the same day by press release.
Reasons
for the Transactions; Recommendation of the Board of
Directors
The Clearwire board of directors, acting with the advice of our
management and financial and legal advisors, evaluated the
Transaction Agreement and the Transactions. The board of
directors determined that the Transaction Agreement and the
Transactions, including the issuance of New Clearwire Common
Stock and the adoption of the New Clearwire Charter, are
advisable, fair to and in the best interests of Clearwire and
its stockholders. In reaching these determinations, the
Clearwire board of directors carefully considered a variety of
factors, including the following:
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the strategic nature of the business combination, the
complementary nature of Clearwires and Sprints
coverage areas and WiMAX spectrum, and the Clearwire board of
directors belief that the combined company will be a
stronger company than Clearwire on its own, with an increased
strategic position and presence in major markets, greater
opportunity for growth and an improved ability to develop
technology;
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its analysis of the business, operations, financial performance
and condition, earnings and prospects of Clearwire as a separate
entity and Clearwire and the Sprint WiMAX Business on a combined
basis;
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the other strategic alternatives reasonably available to
Clearwire to enhance stockholder value, including remaining as a
separate entity and pursuing a strategic business combination
with other third parties, and whether any of those strategic
alternatives were more likely to enhance stockholder value, in
each case taking into consideration the potential rewards, risks
and uncertainties associated with those options;
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the opportunity for Clearwire stockholders to have an interest
in a larger company with a broader and more diverse asset base
and, as stockholders of New Clearwire, to benefit from future
growth of the combined company;
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the capital contributions to be made by the Investors;
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the fact that other public companies have pursued a similar tax
structure;
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the current industry, economic and market conditions and trends,
including the likelihood of increasing competition in the
wireless industry and other industry trends;
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the size and scope of the combined WiMAX business, which are
expected to allow New Clearwire to compete more effectively in
the increasingly competitive wireless industry;
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the fact that the combined company is expected to be financially
stronger, with larger market capitalization, than Clearwire as a
separate entity, and have the ability to attract a broader group
of investors and to participate in larger scale transactions;
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the greater visibility of New Clearwire to analysts and
investors, as compared to Clearwire as a separate entity;
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the results of Clearwires financial, legal and operational
due diligence of the Sprint WiMAX Business;
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the opinion of Morgan Stanley, Clearwires financial
advisor, rendered orally on May 5, 2008, and subsequently
confirmed in writing on May 7, 2008, to the effect that, as
of the date of the opinion and based on and subject to the
assumptions, qualifications and limitations set forth in the
opinion, the consideration to be received by the holders of
shares of Clearwire Class A Common Stock pursuant to the
Merger was fair from a financial point of view to such holders;
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the presentations by and discussions with Clearwires
senior management and representatives of Kirkland &
Ellis LLP regarding the terms and conditions of the Transaction
Agreement and the other agreements to be entered into by
Clearwire, New Clearwire and Clearwire Communications as part of
the Transactions, and the fiduciary duties of the board of
directors in considering the Merger and reasonably available
alternatives to it;
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that Clearwires stockholders will own approximately 25% to
28% of the voting stock of New Clearwire on a fully diluted
basis and, through New Clearwires ownership of Clearwire
Communications Common Interests, will own approximately 25% to
28% of the economic rights in Clearwire Communications, after
the completion of the Transactions;
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the proposed corporate governance structure of New Clearwire,
including the fact that New Clearwire will be a separate company;
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that New Clearwires board of directors will consist of
industry leaders;
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that New Clearwires senior management will include senior
officers of each of Clearwire and Sprint;
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the likelihood that the Conversion and the Merger each would be
a tax-free reorganization for United States federal income
tax purposes to Clearwire and its stockholders;
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the ability of the parties to consummate the Transactions,
including the conditions to the obligations of each of the
parties to consummate the Transactions and the likelihood that
the Transactions would receive the necessary regulatory
approvals;
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the terms and conditions of the other agreements to be entered
into by Clearwire, New Clearwire and Clearwire Communications in
connection with the Transactions, including the various
commercial agreements with Sprint and certain Investors;
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the representations and warranties of Sprint and the Investors
pursuant to the Transaction Agreement;
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the other terms and conditions of the Transaction Agreement,
including the customary restrictions imposed on the conduct of
business of the Sprint WiMAX Business in the period before
Closing; and
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the fact that the Transactions are subject to the approval of
Clearwires stockholders and have the support of
Clearwires two largest stockholders.
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The Clearwire board of directors also identified and considered
a number of potentially adverse factors concerning the
Transactions, including the following:
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the risk that the Transactions might not be completed in a
timely manner or at all, the possible negative effect of public
announcement and the pendency of the Transactions on
Clearwires sales, operating results, customers and
stockholders and the potential harm to Clearwire as a result if
the Transactions are not completed;
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the risk that provisions in the Transaction Agreement may have
the effect of discouraging others potentially interested in a
business combination with Clearwire from pursuing that business
combination, even if it were more favorable to the stockholders
of Clearwire than the Transactions, including the restrictions
on the ability of Clearwire to solicit offers for alternative
business transactions and the requirement that Clearwire pay a
termination fee of $60 million to Sprint in certain
circumstances;
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that following the completion of the Transactions, Sprint is
expected to own approximately 49% to 52% of the voting power of
New Clearwire and, together with the Investors, who are expected
to collectively own approximately 25% to 30% of the voting power
of New Clearwire, will control New Clearwire;
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that under the Transaction Agreement, Clearwire is subject to a
variety of restrictions on the conduct of its business in the
period before Closing, which may delay or prevent Clearwire from
pursuing business opportunities that may arise or preclude
actions that would be advisable if Clearwire were to remain a
separate company;
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the transaction costs associated with pursuit of the
Transactions;
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the fact that the value of the New Clearwire Common Stock that
the Investors will receive in the Transactions is uncertain
because the Transaction Agreement provides for an adjustment to
the number of shares of New Clearwire Common Stock and Clearwire
Communications Common Interests to be issued to the Investors
based on the market price of New Clearwire Class A Common
Stock, which will fluctuate;
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the fact that the transaction would or would likely trigger
certain payment obligations under change of control agreements
entered into between Clearwire and certain of its officers;
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the challenges of combining Clearwires business with the
Sprint WiMAX Business and the risk of diverting management
resources for an extended period of time to accomplish this
combination;
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the risk that the anticipated synergies to New Clearwire might
not be fully realized, if at all;
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the potential for the loss of key employees of Clearwire and
Sprint who may be important to the ongoing success of New
Clearwire and the integration of Clearwire and the Sprint WiMAX
Business; and
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the other risks described under the section titled Risk
Factors beginning on page 30 of this
proxy statement/prospectus.
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After taking into consideration all of the factors set forth
above, all members of the Clearwire board of directors who
participated in discussions regarding the Transactions
unanimously agreed that the expected benefits of the
Transactions outweighed the risks and that the Transactions are
advisable, fair to and in the best interests of Clearwire and
its stockholders. David Perlmutter, a member of the Clearwire
board of directors, is an Executive Vice President of Intel.
Given his position at Intel and Intels participation in
the Transactions, Mr. Perlmutter did not participate in any
discussions of the Clearwire board of directors regarding the
Transactions and was not present for, and abstained from, all
votes and other actions of the Clearwire board of directors
relating to the Transactions.
The foregoing discussion of information and factors considered
by the Clearwire board of directors is not intended to be
exhaustive but is believed to include the material factors
considered by the Clearwire board of directors. In view
of the wide variety of factors considered by it, the Clearwire
board of directors did not find it practical to quantify or
otherwise assign relative weight to the specific factors
considered. In addition, the Clearwire board of directors did
not reach any specific conclusion on each factor considered but
conducted an overall analysis of these factors. Individual
members of the Clearwire board of directors may have given
different weight to different factors.
THE CLEARWIRE BOARD OF DIRECTORS RECOMMENDS BY A UNANIMOUS
VOTE OF ALL DIRECTORS VOTING ON THE MATTERS, THAT CLEARWIRE
STOCKHOLDERS VOTE FOR THE APPROVAL AND ADOPTION OF
THE TRANSACTION AGREEMENT, INCLUDING THE ISSUANCE OF SHARES OF
NEW CLEARWIRE COMMON STOCK, AND FOR THE ADOPTION OF
THE NEW CLEARWIRE CHARTER, AS DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS.
Projected
Financial Data
Clearwire does not, as a matter of course, publicly disclose
projections as to its future financial performance for periods
beyond one year. During our consideration of opportunities for
strategic transactions relating to the joint development of a
nationwide WiMAX network, as described in the section titled
The Transactions Background of the
Transactions beginning on page 66 of this proxy
statement/prospectus, we provided our financial advisor, Morgan
Stanley, with the following financial projections of
Clearwires operating performance:
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consolidated financial projections for Clearwire on a
stand-alone basis compiled by the management of Clearwire for
the period from January 1, 2008 through December 31,
2016 assuming 125 million
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covered POPs by the end of such period, which are referred to
below as the 125 million Covered POPs Case; and
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consolidated financial projections for Clearwire on a
stand-alone basis compiled by the management of Clearwire for
the period from January 1, 2008 through December 31,
2016 assuming 175 million covered POPs by the end of such
period (based on management projections prepared in January
2008), which are referred to below as the 175 million
Covered POPs Case; and
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consolidated financial projections for New Clearwire jointly
compiled by the managements of Clearwire and Sprint for the
period from January 1, 2008 through December 31, 2016,
which are referred to below as the New Clearwire Case.
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We refer to the 125 million Covered POPs Case, collectively
with the 175 million Covered POPs Case and the New
Clearwire Case, as the Projections. The Projections provided to
Morgan Stanley were utilized by Morgan Stanley, at the direction
of Clearwires board of directors, for purposes of its
analyses in connection with its opinion and were provided to
Clearwires board of directors in connection with its
consideration of the Transactions. The Projections are set forth
in the following tables (in millions):
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Clearwire Stand-alone
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Fiscal Year Ended December 31,
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2008
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2009
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2010
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2011
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2012
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2013
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2014
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2015
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2016
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125 million Covered POPs Case
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
206
|
|
|
$
|
358
|
|
|
$
|
700
|
|
|
$
|
1,341
|
|
|
$
|
2,089
|
|
|
$
|
2,959
|
|
|
$
|
3,897
|
|
|
$
|
4,829
|
|
|
$
|
5,622
|
|
EBITDA
|
|
$
|
(214
|
)
|
|
$
|
(159
|
)
|
|
$
|
(135
|
)
|
|
$
|
26
|
|
|
$
|
231
|
|
|
$
|
530
|
|
|
$
|
930
|
|
|
$
|
1,456
|
|
|
$
|
1,979
|
|
Capital Expenditures & Spectrum Expense
|
|
$
|
320
|
|
|
$
|
296
|
|
|
$
|
632
|
|
|
$
|
710
|
|
|
$
|
521
|
|
|
$
|
510
|
|
|
$
|
460
|
|
|
$
|
270
|
|
|
$
|
195
|
|
Unlevered Free Cash Flow
|
|
$
|
(609
|
)
|
|
$
|
(450
|
)
|
|
$
|
(767
|
)
|
|
$
|
(686
|
)
|
|
$
|
(287
|
)
|
|
$
|
24
|
|
|
$
|
398
|
|
|
$
|
799
|
|
|
$
|
1,156
|
|
175 million Covered POPs Case
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
206
|
|
|
$
|
358
|
|
|
$
|
706
|
|
|
$
|
1,372
|
|
|
$
|
2,169
|
|
|
$
|
3,112
|
|
|
$
|
4,152
|
|
|
$
|
5,266
|
|
|
$
|
6,395
|
|
EBITDA
|
|
$
|
(214
|
)
|
|
$
|
(161
|
)
|
|
$
|
(153
|
)
|
|
$
|
6
|
|
|
$
|
212
|
|
|
$
|
516
|
|
|
$
|
900
|
|
|
$
|
1,348
|
|
|
$
|
1,932
|
|
Capital Expenditures & Spectrum Expense
|
|
$
|
321
|
|
|
$
|
309
|
|
|
$
|
667
|
|
|
$
|
753
|
|
|
$
|
577
|
|
|
$
|
586
|
|
|
$
|
637
|
|
|
$
|
601
|
|
|
$
|
423
|
|
Unlevered Free Cash Flow
|
|
$
|
(609
|
)
|
|
$
|
(465
|
)
|
|
$
|
(820
|
)
|
|
$
|
(749
|
)
|
|
$
|
(361
|
)
|
|
$
|
(66
|
)
|
|
$
|
270
|
|
|
$
|
563
|
|
|
$
|
1,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Clearwire
|
|
|
|
Fiscal Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
New Clearwire Case
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
0
|
|
|
$
|
400
|
|
|
$
|
1,730
|
|
|
$
|
3,690
|
|
|
$
|
5,454
|
|
|
$
|
7,210
|
|
|
$
|
8,980
|
|
|
$
|
10,938
|
|
|
$
|
12,836
|
|
EBITDA
|
|
$
|
(588
|
)
|
|
$
|
(744
|
)
|
|
$
|
(610
|
)
|
|
$
|
662
|
|
|
$
|
1,780
|
|
|
$
|
2,813
|
|
|
$
|
3,605
|
|
|
$
|
4,820
|
|
|
$
|
5,959
|
|
Capital Expenditures & Spectrum Expense
|
|
$
|
1,089
|
|
|
$
|
1,325
|
|
|
$
|
1,362
|
|
|
$
|
421
|
|
|
$
|
492
|
|
|
$
|
716
|
|
|
$
|
940
|
|
|
$
|
982
|
|
|
$
|
1,152
|
|
Unlevered Free Cash Flow
|
|
$
|
(1,677
|
)
|
|
$
|
(1,915
|
)
|
|
$
|
(2,029
|
)
|
|
$
|
164
|
|
|
$
|
863
|
|
|
$
|
1,298
|
|
|
$
|
1,628
|
|
|
$
|
2,313
|
|
|
$
|
2,898
|
|
The Projections were not prepared with a view to public
disclosure and are included in this
proxy statement/prospectus only because such information
was made available, in whole or in part, to Clearwire, Sprint
and the Investors in connection with their review of the
Transactions. The Projections were not prepared with a view to
compliance with published guidelines of the SEC regarding
projections or the guidelines established by the American
Institute of Certified Public Accountants for preparation and
presentation of prospective financial information. Neither
Clearwires nor Sprints independent registered public
accounting firm, nor any other independent registered public
accounting firm, has compiled, examined, or performed any
procedures with respect to the Projections, nor have they
expressed any opinion or any other
77
form of assurance on such information or its achievability, and
assume no responsibility for, and disclaim any association with,
the Projections.
The development of the Projections entailed numerous assumptions
about Clearwires industry, markets, products and services,
and Clearwires ability to execute on its planned mobile
WiMAX deployment. Although the Projections are presented with
numerical specificity, the Projections reflect numerous
assumptions, estimates and judgments as to future events made by
the management of Clearwire and Sprint that each believed were
reasonable at the time the Projections were prepared. These
Projections do not take into account any revenues or expenses
expected to be generated by our mobile VoIP service, which we
have subsequently included in our business model. The updated
business model was disclosed publicly in Clearwires
webcast presentation on June 12, 2008. In addition, these
Projections do not take into account any circumstances or events
occurring after the date that they were prepared and,
accordingly, do not give effect to the Transactions or any
changes to our operations or strategy that may be implemented
after completion of the Transactions. For the foregoing reasons,
the inclusion of Projections in this proxy statement/prospectus
should not be regarded as an indication that the Projections
will be necessarily predictive of actual future events, and they
should not be relied on as such.
No one has made or makes any representation to any stockholder
regarding the information included in these Projections. The
inclusion of this information should not be regarded as an
indication that Clearwire, Clearwires board of directors,
New Clearwire, Sprint, the Investors, Morgan Stanley or any
other recipient of this information considered, or now
considers, the Projections to be necessarily predictive of
actual future results. Except to the extent required by
applicable federal securities laws, neither Clearwire nor
New Clearwire intends, and expressly disclaims any
responsibility, to update or otherwise revise the Projections to
reflect circumstances existing after the date when prepared or
to reflect the occurrence of future events even in the event
that any of the assumptions underlying the Projections are shown
to be in error.
Opinion
of Clearwires Financial Advisor
Clearwire retained Morgan Stanley to act as its financial
advisor in connection with the Transactions. Morgan Stanley is
an internationally recognized investment banking firm that is
regularly engaged in the valuation of businesses and securities
in connection with mergers and acquisitions, negotiated
underwritings, and private placements and for corporate and
other purposes. Clearwire selected Morgan Stanley on the basis
of its substantial experience in comparable transactions, its
expertise and reputation and its familiarity with Clearwire. On
May 5, 2008, Morgan Stanley rendered its oral opinion,
which opinion was subsequently confirmed in a written opinion
dated May 7, 2008, to Clearwires board of directors,
to the effect that as of such date and based on and subject to
the assumptions, qualifications and limitations set forth in the
written opinion, the consideration to be received by holders of
shares of Clearwire Class A Common Stock pursuant to the
Merger was fair, from a financial point of view, to such holders.
THE FULL TEXT OF MORGAN STANLEYS WRITTEN FAIRNESS OPINION
DATED MAY 7, 2008, IS ATTACHED AS ANNEX G TO THIS PROXY
STATEMENT/PROSPECTUS. YOU SHOULD READ THE OPINION IN ITS
ENTIRETY FOR A DISCUSSION OF THE ASSUMPTIONS MADE, PROCEDURES
FOLLOWED, FACTORS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN BY MORGAN STANLEY IN RENDERING ITS OPINION. THIS
SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION. MORGAN STANLEYS OPINION IS DIRECTED
TO CLEARWIRES BOARD OF DIRECTORS AND ADDRESSES ONLY THE
FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE CONSIDERATION TO
BE RECEIVED BY THE HOLDERS OF CLEARWIRE CLASS A COMMON
STOCK PURSUANT TO THE MERGER TO SUCH HOLDERS AS OF THE DATE OF
THE OPINION. MORGAN STANLEYS OPINION DID NOT IN ANY MANNER
ADDRESS THE PRICES AT WHICH THE NEW CLEARWIRE CLASS A
COMMON STOCK WILL TRADE FOLLOWING COMPLETION OF THE
TRANSACTIONS, AND MORGAN STANLEY EXPRESSED NO OPINION OR
RECOMMENDATION TO THE STOCKHOLDERS OF CLEARWIRE AS TO HOW TO
VOTE AT THE SPECIAL MEETING TO BE HELD IN CONNECTION WITH THE
TRANSACTIONS.
78
In arriving at its opinion, Morgan Stanley, among other things:
|
|
|
|
|
reviewed certain publicly available financial statements and
other business and financial information of Clearwire;
|
|
|
|
reviewed certain internal financial statements and other
financial and operating data concerning Clearwire and the Sprint
WiMAX Business, respectively;
|
|
|
|
reviewed certain financial projections for Clearwire prepared by
the management of Clearwire on a stand-alone basis and certain
financial projections for New Clearwire jointly prepared by the
managements of Clearwire and Sprint;
|
|
|
|
reviewed information relating to certain strategic, financial
and operational benefits anticipated from the Transactions
prepared by the management of Clearwire and Sprint, respectively;
|
|
|
|
discussed the past and current operations, financial condition
and prospects of Clearwire, including information relating to
certain strategic, financial and operational benefits
anticipated from the Transactions, with senior executives of
Clearwire;
|
|
|
|
discussed the past and current operations, financial condition
and prospects of the Sprint WiMAX Business, including
information relating to certain strategic, financial and
operational benefits anticipated from the Transactions, with
senior executives of Sprint;
|
|
|
|
reviewed the pro forma impact of the Transactions on New
Clearwires cash flow, consolidated capitalization and
financial ratios;
|
|
|
|
reviewed the reported prices and trading activity for the
Clearwire Class A Common Stock;
|
|
|
|
compared the financial performance of Clearwire and the prices
and trading activity of Clearwire Class A Common Stock with
that of certain other publicly-traded companies comparable to
Clearwire and its securities;
|
|
|
|
reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions and the results
of certain recent auctions of wireless spectrum by the FCC;
|
|
|
|
participated in certain discussions and negotiations among
representatives of Clearwire, Sprint and the Investors and their
respective financial and legal advisors;
|
|
|
|
reviewed the Transaction Agreement and certain related
documents; and
|
|
|
|
performed such other analyses and considered such other factors
as Morgan Stanley deemed appropriate.
|
In arriving at its opinion, Morgan Stanley assumed and relied
on, without independent verification, the accuracy and
completeness of the information that was publicly available or
supplied or otherwise made available to Morgan Stanley by
Clearwire and Sprint and which formed a substantial basis for
the opinion. With respect to the financial projections,
including information relating to certain strategic, financial
and operational benefits anticipated from the Transactions,
Morgan Stanley assumed that they had been reasonably prepared on
bases reflecting the best currently available estimates and
judgments of the respective managements of Clearwire and Sprint
of the future financial performance of Clearwire, the Sprint
WiMAX Business and New Clearwire. In addition, Morgan Stanley
assumed that the Transactions will be consummated in accordance
with the terms set forth in the Transaction Agreement and the
related documents without any waiver, amendment or delay of any
terms or conditions, including, among other things, that the
Transactions will have the tax treatment as described in the
Transaction Agreement. Morgan Stanley assumed that in connection
with the receipt of all the necessary governmental, regulatory
or other approvals and consents required for the proposed
Transactions, no delays, limitations, conditions or restrictions
will be imposed that would have a material adverse effect on the
contemplated benefits expected to be derived in the proposed
79
Transactions. Morgan Stanley relied on, without independent
verification, the assessment by the respective managements of
Clearwire and Sprint of:
|
|
|
|
|
the strategic, financial and other benefits expected to result
from the Transactions;
|
|
|
|
the timing and risks associated with the integration of
Clearwire and the Sprint WiMAX Business;
|
|
|
|
New Clearwires ability to retain key employees of
Clearwire and the Sprint WiMAX Business, respectively; and
|
|
|
|
the validity of, and risks associated with, Clearwires and
Sprint WiMAX Business existing and future technologies,
intellectual property, products, services and business models.
|
Morgan Stanley is not a legal, tax or regulatory advisor. Morgan
Stanley is a financial advisor and has relied on, without
independent verification, the assessment of Clearwire and its
legal, tax or regulatory advisors with respect to legal, tax or
regulatory matters. Morgan Stanley expressed no opinion with
respect to the fairness of the amount or nature of the
compensation to any of Clearwires officers, directors or
employees, or any class of such persons, relative to the
consideration to be received by the holders of Clearwire
Class A Common Stock pursuant to the Merger. Morgan Stanley
did not make any independent valuation or appraisal of the
assets or liabilities of Clearwire or the Sprint WiMAX Business,
nor was Morgan Stanley furnished with any such appraisals.
Morgan Stanleys opinion was necessarily based on
financial, economic, market and other conditions as in effect
on, and the information made available to Morgan Stanley as of,
the date of the opinion. Events occurring after the date of the
opinion may affect the opinion and the assumptions used in
preparing it, and Morgan Stanley did not assume any obligation
to update, revise or reaffirm the opinion.
In arriving at its opinion, Morgan Stanley was not authorized to
solicit, and did not solicit, interest from any party other than
Sprint with respect to the acquisition, business combination or
other extraordinary transaction involving Clearwire.
Morgan Stanleys opinion was approved by a committee of
Morgan Stanley investment banking and other professionals in
accordance with its customary practice. For purposes of its
analysis, Morgan Stanley took into account the terms of the
Contribution and the investment by the Investors. However,
Morgan Stanleys opinion only addressed the fairness, from
a financial point of view, of the consideration to be received
by the holders of shares of Clearwire Class A Common Stock
pursuant to the Merger, and Morgan Stanleys opinion did
not address the fairness or any aspect of the Contribution, the
investment by the Investors or any related or unrelated
transaction or agreement. In particular, Morgan Stanley
expressed no opinion as to the relative fairness of any portion
of the consideration to be received by the holders of any
existing class of common stock of Clearwire.
The following is a summary of the material financial analyses
used by Morgan Stanley in connection with providing its opinion
to Clearwires board of directors. The financial analyses
summarized below include information presented in tabular
format. In order to fully understand the financial analyses used
by Morgan Stanley, the tables must be read together with the
text of each summary. The tables alone do not constitute a
complete description of the financial analyses. Rather, the
analyses listed in the tables and described below must be
considered as a whole; considering any portion of such analyses
and of the factors considered, without considering all analyses
and factors, could create a misleading or incomplete view of the
process underlying Morgan Stanleys fairness opinion.
Equity
Research Price Target Analysis
Morgan Stanley reviewed the price targets estimated by selected
equity research analysts of the Clearwire Class A Common
Stock published during the period from January 31, 2008
through March 26, 2008.
80
This review indicated the following:
|
|
|
|
|
|
|
|
|
|
|
Target Price Per Share of
|
|
|
|
|
Clearwire
|
Equity Research Analyst
|
|
Date
|
|
Class A Common Stock
|
|
Jefferies
|
|
January 31, 2008
|
|
$
|
18.00
|
|
Merrill Lynch
|
|
March 5, 2008
|
|
$
|
20.00
|
|
Pacific Crest
|
|
March 5, 2008
|
|
$
|
18.00
|
|
Soleil
|
|
March 5, 2008
|
|
$
|
21.00
|
|
ThinkEquity
|
|
March 5, 2008
|
|
$
|
29.00
|
|
Wachovia
|
|
March 5, 2008
|
|
$
|
13.50
|
|
Citigroup
|
|
March 10, 2008
|
|
$
|
17.00
|
|
Stanford
|
|
March 26, 2008
|
|
$
|
20.00
|
|
Morgan Stanley also noted that the range of price targets for
the Clearwire Class A Common Stock was $13.50 to
$29.00 per share, compared to the minimum price in the
investment of $17.00 per share and the maximum price in the
investment of $23.00 per share. Morgan Stanley further noted
that certain of the price targets fell at or below the minimum
price in the investment of $17.00 per share and certain of the
price targets were above the maximum price in the investment of
$23.00 per share.
Historical
Trading Analysis
Morgan Stanley reviewed the historical trading ranges of the
Clearwire Class A Common Stock for various periods ending
on March 25, 2008 (the last trading day before published
reports regarding a potential transaction) to provide it with
background and perspective for how the Clearwire Class A
Common Stock has historically traded on a stand-alone basis.
This review indicated the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Time Period Ended March 25, 2008
|
|
High
|
|
|
Low
|
|
|
Average
|
|
|
30 days
|
|
$
|
17.24
|
|
|
$
|
10.41
|
|
|
$
|
13.23
|
|
90 days
|
|
$
|
17.64
|
|
|
$
|
10.41
|
|
|
$
|
13.94
|
|
Since Clearwires initial public offering (March 7,
2007)
|
|
$
|
33.30
|
|
|
$
|
10.41
|
|
|
$
|
19.26
|
|
Using the average historical trading ranges of the Clearwire
Class A Common Stock for the
30-day and
90-day
periods summarized above and for the period since
Clearwires initial public offering, Morgan Stanley also
calculated the premiums and discounts to those average prices
implied by the minimum price in the investment of $17.00 per
share and the maximum price in the investment of $23.00 per
share. This analysis showed the following:
|
|
|
|
|
|
|
|
|
|
|
Premium Implied by
|
|
Premium Implied by
|
|
|
$17.00 Per Share
|
|
$23.00 Per Share
|
|
|
Price of Clearwire
|
|
Price of Clearwire
|
Time Period Ended March 25, 2008
|
|
Class A Common Stock
|
|
Class A Common Stock
|
|
30 day average price of $13.23 per share
|
|
|
28.5
|
%
|
|
|
73.9
|
%
|
90 day average price of $13.94 per share
|
|
|
22.0
|
%
|
|
|
65.0
|
%
|
Since Clearwires initial public offering
average price of $19.26 per share
|
|
|
(11.7
|
)%
|
|
|
19.4
|
%
|
Morgan Stanley also noted that the average closing prices of the
Clearwire Class A Common Stock during the
30-day and
90-day periods ended March 25, 2008 were $13.23 and $13.94,
respectively, compared to the minimum price in the investment of
$17.00 per share and the maximum price in the investment of
$23.00 per share.
Discounted
Cash Flow Analysis
As part of its analysis, and in order to estimate the present
value of the Clearwire Class A Common Stock and the New
Clearwire Class A Common Stock, respectively, Morgan
Stanley performed a discounted cash flow analysis for Clearwire
and New Clearwire. A discounted cash flow analysis is designed
to provide insight
81
into the value of a company as a function of its future cash
flows and terminal value. Morgan Stanleys discounted cash
flow analysis was based on the following four sets of financial
projections:
|
|
|
|
|
the 125 million Covered POPs Case;
|
|
|
|
|
|
the 175 million Covered POPs Case;
|
|
|
|
consolidated financial projections for Clearwire on a
stand-alone basis compiled from public research reports covering
the period from January 1, 2008 through December 31,
2011 and extrapolations therefrom for the period from
January 1, 2012 through December 31, 2016, which are
referred to below as the Research Case; and
|
|
|
|
the New Clearwire Case.
|
In each case other than the Research Case, Clearwires
international assets were valued at $0.03 per MHz-POP,
or $300 million in the aggregate.
Morgan Stanley performed a discounted cash flow analysis for
Clearwire on a stand-alone basis using the 125 million
Covered POPs Case, the 175 million Covered POPs Case and
the Research Case, with the following assumptions and
considerations:
|
|
|
|
|
Morgan Stanley calculated a range of terminal values at the end
of the projection period by applying a multiple to projected
2016 earnings before interest, taxes, depreciation and
amortization, which we refer to as EBITDA, for Clearwire. The
EBITDA multiple range used was 7.0x to 9.0x and the discount
rate range was 12.0% to 14.0%.
|
Morgan Stanley performed a discounted cash flow analysis for New
Clearwire using the New Clearwire Case, with the following
assumptions and considerations:
|
|
|
|
|
Morgan Stanley calculated a range of terminal values at the end
of the projection period by applying a multiple to projected
2016 EBITDA for New Clearwire. The EBITDA multiple range used
was 7.0x to 9.0x and the discount rate range was 12.0% to 14.0%.
For purposes of this analysis, the New Clearwire Case assumed
that Clearwire raises an aggregate of $3.2 billion pursuant
to the investment at $17.00 per share, which is the
minimum price per share at which the investment by the Investors
will be made.
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Morgan Stanley calculated a range of equity value per share of
Clearwire Class A Common Stock and New Clearwire
Class A Common Stock as set forth below, compared to the
minimum price in the investment of $17.00 per share and the
maximum price in the investment of $23.00 per share:
|
|
|
|
|
|
|
Estimated per Share Range of
|
Clearwire Stand-Alone
|
|
Clearwire Class A Common Stock
|
|
125 million Covered POPs Case
|
|
$
|
19.88 to $31.28
|
|
175 million Covered POPs Case
|
|
$
|
17.50 to $28.55
|
|
Research Case
|
|
$
|
16.23 to $26.98
|
|
|
|
|
|
|
|
|
Estimated per Share Range of
|
|
|
New Clearwire
|
New Clearwire
|
|
Class A Common Stock
|
|
New Clearwire Case
|
|
$
|
22.99 to $32.39
|
|
To take into account the potential dilution that might occur for
Clearwire on a stand-alone basis as a result of raising a
portion of the additional funding requirements to build the
network contemplated by the 125 million Covered POPs Case,
the 175 million Covered POPs Case and the Research Case,
Morgan Stanley also calculated a range of equity values per
share of Clearwire Class A Common Stock using those three
cases assuming that Clearwire raises an initial
$1.5 billion in equity at $13.23 per share, which
represented the average trading price of the Clearwire
Class A Common Stock for the
30-day
period ended March 25, 2008,
82
as set forth below, compared to the minimum price in the
investment of $17.00 per share and the maximum price in the
investment of $23.00 per share:
|
|
|
|
|
|
|
Estimated per Share Range of
|
Clearwire Stand-Alone
|
|
Clearwire Class A Common Stock
|
|
125 million Covered POPs Case
|
|
$
|
17.43 to $24.75
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|
175 million Covered POPs Case
|
|
$
|
15.92 to $23.01
|
|
Research Case
|
|
$
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15.10 to $22.01
|
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Morgan Stanley noted that the low end and the high end of the
estimated range of equity values per share for the New Clearwire
Case was greater than the low end and the high end,
respectively, of the range of equity values per share for
Clearwire on a stand-alone basis for each of the
125 million Covered POPs Case, the 175 million Covered
POPs Case and the Research Case, including those cases taking
into account the potential dilution that might occur as a result
of raising a portion of the additional funding requirements to
build the network as illustrated above.
Discounted
Equity Value Analysis
Morgan Stanley performed a discounted equity value analysis of
the implied present value per share of Clearwire Class A
Common Stock on a stand-alone basis and New Clearwire
Class A Common Stock based on projected future equity
values using the 125 million Covered POPs Case, the
175 million Covered POPs Case and the New Clearwire Case,
by applying a multiple range of 7.0x to 9.0x to projected 2016
EBITDA and a cost of equity range of 13.0% to 15.0% for purposes
of discounting such future equity values to an implied present
value per share. For purposes of this analysis, the New
Clearwire Case assumes that Clearwire raises an aggregate of
$3.2 billion pursuant to the investment by the Investors at
$17.00 per share, which is the minimum price per share at which
the investment by the Investors will be made.
Morgan Stanley calculated a range of equity value per share of
Clearwire Class A Common Stock and New Clearwire
Class A Common Stock as set forth below, compared to the
minimum price in the investment of $17.00 per share and the
maximum price in the investment of $23.00 per share:
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|
|
|
|
|
|
Estimated per Share Range of
|
Clearwire Stand-Alone
|
|
Clearwire Class A Common Stock
|
|
125 million Covered POPs Case
|
|
$
|
19.20 to $28.51
|
|
175 million Covered POPs Case
|
|
$
|
16.40 to $25.20
|
|
|
|
|
|
|
|
|
Estimated per Share Range of
|
|
|
New Clearwire
|
New Clearwire
|
|
Class A Common Stock
|
|
New Clearwire Case
|
|
$
|
20.54 to $28.98
|
|
To take into account the potential dilution that might occur for
Clearwire on a stand-alone basis as a result of raising a
portion of the additional funding requirements to build the
network contemplated by the 125 million Covered POPs Case
and the 175 million Covered POPs Case, Morgan Stanley also
calculated a range of equity values per share of Clearwire
Class A Common Stock using those two cases assuming that
Clearwire raises an initial $1.5 billion in equity at
$13.23 per share, which represented the average trading
price of the Clearwire Class A Common Stock for the
30-day
period ended March 25, 2008, as set forth below, compared
to the minimum price in the investment of $17.00 per share and
the maximum price in the investment of $23.00 per share:
|
|
|
|
|
|
|
Estimated per Share Range of
|
Clearwire Stand-Alone
|
|
Clearwire Class A Common Stock
|
|
125 million Covered POPs Case
|
|
$
|
15.28 to $21.74
|
|
175 million Covered POPs Case
|
|
$
|
13.47 to $19.67
|
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Morgan Stanley noted that the low end and the high end of the
estimated range of equity values per share for the New Clearwire
Case was greater than the low end and the high end,
respectively, of the range of equity values per share for
Clearwire on a stand-alone basis for each of the
125 million Covered POPs Case and the
83
175 million Covered POPs Case, including those cases
taking into account the potential dilution that might occur as a
result of raising a portion of the additional funding
requirements to build the network as illustrated above.
Miscellaneous
In connection with the review of the Transactions by
Clearwires board of directors, Morgan Stanley performed a
variety of financial and comparative analyses for purposes of
rendering its opinion. The preparation of a financial opinion is
a complex process and is not necessarily susceptible to a
partial analysis or summary description. In arriving at its
opinion, Morgan Stanley considered the results of all of its
analyses as a whole and did not attribute any particular weight
to any analysis or factor it considered. Morgan Stanley believes
that selecting any portion of its analyses, without considering
all analyses as a whole, would create an incomplete view of the
process underlying its analyses and opinion. In addition, Morgan
Stanley may have given various analyses and factors more or less
weight than other analyses and factors, and may have deemed
various assumptions more or less probable than other
assumptions. As a result, the ranges of valuations resulting
from any particular analysis described above should not be taken
to be Morgan Stanleys view of the actual value of
Clearwire or New Clearwire. In performing its analyses, Morgan
Stanley made numerous assumptions with respect to industry
performance, general business and economic conditions and other
matters. Many of these assumptions are beyond the control of
Clearwire. Any estimates contained in Morgan Stanleys
analyses are not necessarily indicative of future results or
actual values, which may be significantly more or less favorable
than those suggested by such estimates.
Morgan Stanley conducted the analyses described above solely as
part of its analysis of the fairness of the consideration to be
received by holders of shares of Clearwire Class A Common
Stock pursuant to the Merger from a financial point of view to
such stockholders and in connection with the delivery of its
opinion to Clearwires board of directors. These analyses
do not purport to be appraisals or to reflect the prices at
which shares of Clearwire Class A Common Stock or New
Clearwire Class A Common Stock might actually trade.
The consideration to be paid pursuant to the Merger as well as
the consideration to be paid pursuant to the Contribution and
the Class B Purchase were each determined through
arms-length negotiations between Clearwire and Sprint and
were each approved by each companys board of directors.
Morgan Stanley provided advice to Clearwire during these
negotiations. Morgan Stanley did not, however, recommend any
specific merger consideration to Clearwire or that any specific
merger consideration constituted the only appropriate merger
consideration for the Merger.
Morgan Stanleys opinion and its presentation to
Clearwires board of directors was one of many factors
taken into consideration by Clearwires board of directors
in deciding to approve, adopt and authorize the Transaction
Agreement. Consequently, the analyses as described above should
not be viewed as determinative of the opinion of
Clearwires board of directors with respect to the
consideration to be received by Clearwires stockholders
pursuant to the Transaction Agreement or of whether
Clearwires board of directors would have been willing to
agree to a different merger consideration.
Morgan Stanley is a global financial services firm engaged in
the securities, investment management and individual wealth
management businesses. Morgan Stanleys securities business
is engaged in securities underwriting, trading and brokerage
activities, foreign exchange, commodities and derivatives
trading, prime brokerage, as well as providing investment
banking, financing and financial advisory services. Morgan
Stanley, its affiliates, directors and officers may at any time
invest on a principal basis or manage funds that invest, hold
long or short positions, finance positions, and may trade or
otherwise structure and effect transactions, for their own
account or the accounts of its customers, in debt or equity
securities or loans of Clearwire, Sprint, the Investors or any
other company, or any currency or commodity, that may be
involved in the Transactions, or any related derivative
instrument. In the two years before the date hereof, Morgan
Stanley has provided financial advisory and financing services
for Clearwire and certain of the Investors and has received fees
in connection with such services. Morgan Stanley may also seek
to provide such services to Clearwire, Sprint or the Investors
in the future and expects to receive fees for the rendering of
these services.
84
As compensation for its services in connection with the
Transactions, Clearwire has agreed to pay Morgan Stanley a fee
of $30 million, of which $24 million is contingent
upon the consummation of the Transactions. Clearwire has also
agreed to reimburse Morgan Stanley for certain expenses incurred
by Morgan Stanley, including fees of outside legal counsel, and
to indemnify Morgan Stanley and related parties against certain
liabilities and expenses arising out of Morgan Stanleys
engagement.
Accounting
Treatment
The Merger and the Contribution will be accounted for as a
reverse acquisition under the purchase method of accounting in
accordance with U.S. GAAP. As a result, the Sprint WiMAX
Business will be treated as the acquirer and Clearwire will be
treated as the acquired company for financial
reporting purposes, and the assets and liabilities of Clearwire
will be recorded, as of the completion of the Merger and the
Contribution, at their respective fair values and consolidated
with the historical carryover value of the assets of the Sprint
WiMAX Business. The reported financial condition and results of
operations of the combined company issued after completion of
the Merger will reflect New Clearwires balances and
results after completion of the Merger but will not be restated
retroactively to reflect the historical financial position or
results of operations of Clearwire. Following the completion of
the Merger, the earnings of New Clearwire will reflect purchase
accounting adjustments, including increased amortization and
depreciation expense for acquired assets and assumed liabilities.
Regulatory
Matters Relating to the Transactions
General
To complete the Transactions, Clearwire and Sprint need to
obtain approvals or consents from, or make filings with, a
number of United States federal antitrust and other regulatory
authorities. The material United States federal approvals,
consents and filings are described below. The approvals are
collectively referred to in this proxy statement/prospectus as
the required statutory approvals.
Each party to the Transaction Agreement has agreed to use its
Reasonable Best Efforts (for an explanation of the term
Reasonable Best Efforts, please see the section
titled The Transaction Agreement Government
Approvals beginning on page 107 of this proxy
statement/prospectus) to take, or cause to be taken, all
appropriate action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable law to
consummate and effect the Merger and the Transactions, including
using its Reasonable Best Efforts to obtain all governmental
approvals necessary for the consummation of the Merger and the
Transactions, including FCC consent and termination of the
waiting period under the HSR Act (the condition relating to the
expiration of the HSR waiting period has been satisfied as of
July 11, 2008). However, it is a condition to completion of
the Transactions that the required statutory approvals do not
impose terms or conditions that would constitute a Burdensome
Condition on any of Clearwire, Sprint or the Investors, see the
section titled The Transaction Agreement
Government Approvals beginning on page 107 of this
proxy statement/prospectus.
Clearwire currently intends to submit the Transaction Agreement
proposal, the New Clearwire Charter proposal and the New
Clearwire Stock Plan proposal to its stockholders at the special
meeting. It is possible that a governmental agency will not have
approved the Transactions by the date of the special meeting,
which could delay completion of the Transactions for a
significant period of time after Clearwire stockholders have
voted on the Transaction Agreement proposal, the New Clearwire
Charter proposal and the New Clearwire Stock Plan proposal. Any
delay in the completion of the Transactions could diminish the
anticipated benefits
85
of the Transactions or result in additional transaction costs,
loss of revenue or other effects associated with uncertainty
about the Transactions. In addition, it is possible that, among
other things, a governmental agency could condition its approval
of the Transactions on Clearwire and Sprint entering into an
agreement to divest a portion of their combined businesses or
assets or to restrict the operations of the combined businesses
in accordance with specified business conduct rules. No
additional stockholder approval is expected to be required for
any decision by Clearwire after the special meeting to agree to
any terms and conditions necessary to resolve any regulatory
objections to the Transactions.
As more fully described in the section titled The
Transaction Agreement Termination beginning on
page 111 of this proxy statement/prospectus, the Transaction
Agreement may be terminated by any party if the Closing has not
occurred by May 29, 2009 for any reason other than the
delay or non-performance of the party seeking to terminate,
except that, if the conditions to Closing relating to FCC
consent or the termination of the waiting period under the HSR
Act are the only unsatisfied conditions, the Termination Date
will automatically be extended to the last business day of
August 2009.
Antitrust
Matters
The Merger is subject to review by the Antitrust Division of the
United States Department of Justice under the HSR Act. Clearwire
and Sprint filed the required notification and report forms with
the FTC and the Antitrust Division on June 10, 2008. The
waiting period required under the HSR Act expired on
July 11, 2008. The parties are free to move forward with
the Closing once the other closing conditions are satisfied. The
Department of Justice is continuing to review certain issues
relating to the disclosure of competitive information, the
coordination of business decisions following the Closing and the
rights of the parties to nominate directors to the New Clearwire
board of directors, to ensure ongoing compliance with antitrust
laws.
Federal
Communications Commission
Each of Clearwire and Sprint holds certain licenses and lease
grants, each of which is authorized by the FCC. FCC approval is
required before the transfer of control of any entity holding
such FCC licenses or leases. The FCC will review whether the
transfer of control of such entities and authorizations thereof
is in the public interest. The parties filed their applications
with the FCC on June 6, 2008 and amended them pursuant to
the FCCs request on June 24, 2008. All comments and
petitions with respect to the Transactions were required to be
filed with the FCC by July 24, 2008. All replies to these
petitions, including Clearwires reply, were filed by
August 4, 2008. Final responses to these replies were filed
by August 11, 2008. The formal public comment period with
respect to the FCC approval process ended on August 11,
2008, and, as of the date of this
proxy statement/prospectus, both Clearwire and Sprint are
awaiting FCC approval.
There can be no assurance that the reviewing authorities will
permit the applicable statutory waiting periods to expire or
that the reviewing authorities will terminate the applicable
statutory waiting periods at all or otherwise approve the
Transactions without restrictions or conditions that would have
a material adverse effect on New Clearwire if the Transactions
were completed. These restrictions and conditions could include
mandatory licenses, sales or other dispositions of assets,
divestitures, or the holding separate of assets or businesses or
implementation of adverse rate or operating conditions. If any
such restrictions or conditions constituted a Burdensome
Condition, some of the parties to the Transaction Agreement
would be permitted to terminate the Transaction Agreement,
subject to certain conditions.
No
Appraisal Rights
Holders of Clearwire Common Stock do not have appraisal rights
under Section 262 of the DGCL in connection with the
Transactions.
Federal
Securities Laws Consequences; Stock Transfer
Restrictions
The registration statement of which this proxy
statement/prospectus is a part does not cover any resales of the
New Clearwire Common Stock to be received by the stockholders of
Clearwire upon completion of the
86
Merger, and no person is authorized to make any use of this
proxy statement/prospectus in connection with any such resale.
All shares of New Clearwire Class A Common Stock received
by Clearwire stockholders pursuant to the Merger will be freely
transferable, except that shares of New Clearwire Class A
Common Stock received by persons who are deemed to be
affiliates of New Clearwire under the Securities Act
of 1933, or the Securities Act, at the time of the Clearwire
special meeting may be resold by them only in transactions
permitted by Rule 145 under the Securities Act or as
otherwise permitted under the Securities Act. Persons who may be
deemed to be affiliates of New Clearwire for such purposes
generally include individuals or entities that control, are
controlled by or are under common control with, New Clearwire,
as the case may be, and include directors and certain executive
officers of New Clearwire.
Stock
Exchange Listing
It is a condition to the Transactions that the shares of New
Clearwire Class A Common Stock issuable pursuant to the
Transactions be approved for listing on NASDAQ or the NYSE,
subject only to official notice of issuance. Shares of New
Clearwire Class A Common Stock are expected to be traded on
NASDAQ under the symbol CLWR immediately following
the completion of the Transactions. If the Transactions are
completed, Clearwire Class A Common Stock will cease to be
listed on NASDAQ and its shares will be deregistered under the
Exchange Act.
Business
Relationships between Sprint and Clearwire
In the ordinary course of business during the three years ended
December 31, 2007 and the six months ended June 30,
2008, Sprint and Clearwire, directly or through their respective
subsidiaries, have entered into the following agreements and
arrangements:
Market Operations Agreement. On
October 18, 2004, subsequently amended on
September 30, 2005, certain Clearwire and Sprint
subsidiaries entered into a market operation, spectrum lease and
sublicense agreement, or the Market Operations Agreement,
pursuant to which Clearwire leases and subleases certain
Broadband Radio Service, which we refer to as BRS, and
Educational Broadband Service, which we refer to as EBS,
licenses for use in its wireless network. Since that time, the
parties have negotiated both together and separately certain
amendments, and new leases with EBS license holders as well as
performed in accordance with the Market Operations Agreement.
This agreement included certain ancillary agreements relating to
the transition of services and assets and certain operations of
the channels being leased to Clearwire.
Nextel Corporate Account Term Service
Agreement. On June 8, 2005, a subsidiary of
Nextel Communications, Inc. (which is a subsidiary of Sprint)
and a subsidiary of Clearwire entered into a corporate account
term service agreement, pursuant to which Clearwire purchases
cell phone service at corporate rates.
Detroit Agreements. On September 24,
2005, SpeedChoice of Detroit, LLC, a subsidiary of Sprint,
Clearwire and Speednet, LLC, entered into a joint bidding
arrangement relating to the acquisition and lease of certain
spectrum in Detroit, Michigan. Under the arrangement, Sprint
serves as the primary lessee of the channels and then subleases
certain channels to Speednet, LLC and Clearwire. The agreements
are currently the subject of litigation between Clearwire and
Sprint.
Seattle Agreement. On October 3, 2005,
Sprint and Clearwire entered into a letter agreement with
respect to the coordination of the operations of the F and G
channel groups owned by Clearwire and the E channel group
and H3 channel operated by Sprint in the Seattle, Washington
market area to reduce interference between the channels prior to
the transition of the BRS and EBS channels as required by the
FCC.
Nextel Agreement. On October 24, 2005,
certain subsidiaries of Clearwire entered into three purchase
and sale agreements with Nextel Acquisitions, Inc., a subsidiary
of Nextel Communications, Inc., which is a subsidiary of Sprint.
Under each of these agreements, each party sold certain licenses
and assigned certain leases to the other party. Most of the
transactions contemplated under these agreements have been
consummated. However, the remaining agreement has been amended
to extend through August 31, 2008 with
87
respect to the few lease agreements that have not yet been
assigned to Clearwire Spectrum Holdings LLC, and we expect that
this agreement will be further extended.
Master Settlement Agreement. On
October 13, 2006, Clearwire, Nextel Spectrum Acquisition
Corp., TDI Acquisition Corp., and American Telecasting of
Seattle, Inc. entered into a master settlement agreement to
settle certain litigation between the parties. This agreement
was subsequently amended on March 9, 2007 and May 30,
2007.
Las Vegas Agreements. On February 15,
2007, Clearwire and Sprint entered into a joint bidding
arrangement for the submission of a response to a request for
proposal with the Clark County School District for the lease of
certain EBS channels in Las Vegas, Nevada. Sprint and
Clearwires bid was selected. Sprint serves as the primary
lessee in the lease agreement with the Clark County School
District. Sprint and Clearwire entered into a sublease agreement
on April 18, 2008, pursuant to which Sprint subleases to
Clearwire certain of the channels leased to Sprint by Clark
County School District.
Joint Build Letter of Intent. Clearwire and
Sprint discussed alternative transactions before arriving at the
final form of the Transactions. In 2007, Clearwire and Sprint
entered into a non-binding term sheet which was publicly
announced with respect to a joint build of their respective
WiMAX networks. Clearwire and Sprint diligently pursued
negotiations of definitive documents with respect to such
arrangement, but terminated that letter of intent on
November 9, 2007. In addition, Clearwire and Sprint are
parties to certain non-disclosure and confidentiality agreements
with respect to certain confidential information disclosed
throughout the negotiation process and related to each
partys respective WiMAX networks. See the section titled
The Transactions Background of the
Transactions for a more detailed discussion.
Short Term Leases. On July 17, 2008,
certain subsidiaries of Clearwire and Sprint entered into a
series of short term spectrum leases. Under these short term
spectrum leases, a subsidiary of Sprint will sublease to a
subsidiary of Clearwire certain spectrum in the Portland, Oregon
market until the closing of the Transactions. If the Transaction
Agreement is terminated without consummating the Transactions,
then the short term lease will terminate on the later of such
termination or December 18, 2009. In consideration for the
Portland short term lease, certain subsidiaries of Clearwire
will lease to a subsidiary of Sprint certain spectrum in
Atlanta, Georgia; Miami, Florida; Richmond, Virginia; and
Bristol, Tennessee for Sprints use during
NASCARtm
races in those cities through the term of the Portland short
term lease. In addition, on July 23, 2008 a subsidiary of
Clearwire and a subsidiary of Sprint entered into a short term
lease to sublease Clearwire certain spectrum in the Seattle,
Washington market for the purpose of testing equipment. As
consideration for the lease, Sprint will be able to access and
participate in the testing. The term of the Seattle sublease
ends on January 1, 2009, but may be terminated by Sprint if
Clearwire ceases the testing.
Site Leases. Clearwire has from time to time
leased certain tower sites and other related space from Sprint
or its subsidiaries.
88
MATERIAL
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF
THE CONVERSION AND THE MERGER
The following summarizes the material United States federal
income tax consequences of the Conversion and the Merger. This
summary is based on the Code, the Treasury regulations
promulgated under the Code, and interpretations of the Code and
the Treasury regulations by the courts and the Internal Revenue
Service, which we refer to as the IRS, all as they exist as of
the date hereof and all of which are subject to change, possibly
with retroactive effect. This summary is limited to stockholders
of Clearwire and New Clearwire that are United States holders,
as defined immediately below. A United States holder is a
beneficial owner of common stock of Clearwire or New Clearwire
that is, for United States federal income tax purposes:
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an individual who is a citizen or a resident of the United
States;
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a corporation, or other entity taxable as a corporation for
United States federal income tax purposes, created or organized
under the laws of the United States or any state thereof or the
District of Columbia;
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an estate, the income of which is subject to United States
federal income taxation regardless of its source; or
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a trust, if (1) a court within the United States is able to
exercise primary jurisdiction over its administration and one or
more United States persons have the authority to control all of
its substantial decisions, or (2) in the case of a trust
that was treated as a domestic trust under the law in effect
before 1997, a valid election is in place under applicable
Treasury regulations.
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Further, this summary does not discuss all of the tax
considerations that may be relevant to a stockholder of
Clearwire or New Clearwire in light of its particular
circumstances, nor does it address the consequences to
stockholders subject to special treatment under the United
States federal income tax laws, such as:
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insurance companies;
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dealers or traders in securities or currencies;
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tax-exempt organizations;
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financial institutions;
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broker-dealers;
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mutual funds;
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S corporations;
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entities classified as partnerships for United States federal
income tax purposes and investors in such entities;
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holders that hold their shares as part of a hedge, straddle,
conversion, synthetic security, integrated investment or other
risk-reduction transaction;
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certain former citizens or residents of the United States
subject to Section 877 of the Code;
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holders that are subject to the alternative minimum tax; or
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holders who acquired their shares on the exercise of employee
stock options or otherwise as compensation.
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In addition, this summary is limited to stockholders that hold
Clearwire Common Stock and New Clearwire Common Stock as a
capital asset. Finally, this summary does not address any
estate, gift or other non-income tax consequences or any state,
local or
non-United
States tax consequences.
89
CLEARWIRE STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE UNITED STATES FEDERAL, STATE AND LOCAL AND
NON-UNITED
STATES TAX CONSEQUENCES OF THE TRANSACTIONS TO THEM IN LIGHT OF
THEIR PARTICULAR CIRCUMSTANCES.
The
Conversion and the Merger
Clearwire has received the opinion of Davis Wright Tremaine LLP,
tax counsel to Clearwire and New Clearwire, to the effect
that, on the basis of the facts and assumptions set forth in
such opinion and the representations and covenants set forth in
certificates obtained from officers of Clearwire and New
Clearwire, each of the Conversion and the Merger will be treated
as a tax-free reorganization within the meaning of
Section 368(a) of the Code. Receipt of a tax opinion to the
same effect at Closing is a condition to the completion of the
Conversion and the Merger. Any change in currently applicable
law, which may or may not apply retroactively, or the failure of
any factual representation, covenant or assumption to be true,
correct and complete in all material respects, could affect the
validity of such opinion. An opinion of counsel represents
counsels best legal judgment and is not binding on the IRS
or on any court. If the IRS were to successfully challenge the
tax-free reorganization status of the Conversion or the Merger,
the tax consequences would be very different than those set
forth below.
As set forth in the tax opinion of Davis Wright Tremaine LLP, a
copy of which is filed as an exhibit to the registration
statement on
Form S-4
of which this proxy statement/prospectus is a part, the United
States federal income tax consequences of the Conversion and the
Merger will be as follows:
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holders of shares of Clearwire Class B Common Stock will
not recognize gain or loss on the exchange of such shares for
shares of Clearwire Class A Common Stock in the Conversion;
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a Clearwire stockholders aggregate tax basis in the
Clearwire Class A Common Stock received in the Conversion
will equal the stockholders aggregate tax basis in the
Clearwire Class B Common Stock surrendered in exchange
therefor;
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a Clearwire stockholders holding period for the Clearwire
Class A Common Stock received in the Conversion will
include the holding period of the shares of Clearwire
Class B Common Stock surrendered in exchange therefor;
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holders of shares of Clearwire Class A Common Stock will
not recognize gain or loss on the exchange of such shares for
shares of New Clearwire Class A Common Stock in the Merger;
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a Clearwire stockholders aggregate tax basis in the New
Clearwire Class A Common Stock received in the Merger will
equal the stockholders aggregate tax basis in the
Clearwire Class A Common Stock surrendered in exchange
therefor;
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a Clearwire stockholders holding period for the New
Clearwire Class A Common Stock received in the Merger will
include the holding period of the shares of Clearwire
Class A Common Stock surrendered in exchange
therefor; and
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neither Clearwire nor New Clearwire will recognize gain or loss
in the Conversion or the Merger.
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Certain holders of Clearwire Common Stock, which we refer to as
significant holders, will have tax reporting obligations in
connection with the Conversion and the Merger. For these
purposes, a significant holder is a person that, immediately
before the Conversion or the Merger, as applicable,
(1) owns at least 5%, by vote or value, of the total
outstanding Clearwire Common Stock if the shares owned by that
holder are publicly traded, (2) owns at least 1%, by vote
or value, of the total outstanding Clearwire Common Stock if the
shares owned by that holder are not publicly traded, or
(3) holds securities of Clearwire with a tax basis of
$1 million or more.
Each significant holder that receives shares of Clearwire
Class A Common Stock in exchange for its Clearwire
Class B Common Stock in the Conversion will be required to
file certain statements with such holders United States
federal income tax return as set forth in Treasury Regulations
Section 1.368-3(b),
90
including statements describing the basis of the shares
surrendered and the fair market value of the shares received in
the Conversion. Each holder, whether or not a significant
holder, will be required to retain permanent records necessary
to determine gain or loss from a subsequent disposition of such
shares in accordance with the requirements of Treasury
Regulations
Section 1.368-3(d).
Each significant holder that receives shares of New Clearwire
Class A Common Stock in the Merger will be required to file
certain statements with the holders United States federal
income tax returns as set forth in Treasury Regulations
Section 1.368-3(b),
including statements describing the basis of the shares
surrendered and the fair market value of the shares received in
the Merger. Each holder, whether or not a significant holder,
will be required to retain permanent records necessary to
determine gain or loss from a subsequent disposition of such
shares in accordance with the requirements of Treasury
Regulations
Section 1.368-3(d).
91
ADDITIONAL
INTERESTS OF CLEARWIRES DIRECTORS AND OFFICERS IN THE
TRANSACTIONS
In considering the recommendations of the board of directors of
Clearwire to vote in favor of the approval and adoption of the
Transaction Agreement, including the issuance of shares of New
Clearwire Common Stock contemplated by the Transaction
Agreement, and in favor of the adoption of the New Clearwire
Charter, stockholders of Clearwire should be aware that members
of the board of directors and certain of Clearwires
executive officers have agreements or arrangements that provide
them with interests in the Transactions that may be different
from, or in addition to, the interests of Clearwires
stockholders. During its deliberations in determining to
recommend to the stockholders of Clearwire that they vote in
favor of the approval and adoption of the Transaction Agreement
and in favor of the adoption of the New Clearwire Charter, the
Clearwire board of directors was aware of and considered these
agreements and arrangements, among other matters.
Clearwires executive officers are entitled to specified
payments and benefits (1) immediately on the Closing and
(2) on terminations of their employment under certain
circumstances during specified periods following the Closing.
Full
Vesting and Gross-Up on the Closing
Pursuant to resolutions adopted by Clearwires Compensation
Committee in 2006, on the Closing, the stock options and
restricted stock units held by Messrs. Wolff, Satterlee,
John Butler, Richardson, Saw, Broady Hodder and Salemme and
Ms. Hope Cochran, and the restricted shares held by
Messrs. Wolff, Satterlee, Butler, Richardson and Salemme,
will fully vest. Pursuant to Clearwires change in control
severance plan effective March 25, 2008, as amended, which
we refer to as the Change in Control Severance Plan, on the
Closing, each of these executives would also be entitled to a
gross-up of any golden parachute excise taxes
imposed under Section 4999 of the Code on the payments and
benefits that the executive receives in connection with the
Transactions.
Termination
of Employment without Cause or for Good Reason following the
Closing
Pursuant to the Change in Control Severance Plan, on a
termination of an executive officers employment by
Clearwire without cause or, subject to certain limitations, by
the executive for good reason that occurs (1) within
24 months following the Closing or (2) during the
period between the date on which Clearwires board of
directors approved the Transactions (i.e., May 5,
2008) and the Closing, if the termination occurs at the
request or instruction of a third party attempting to effectuate
the Transactions, the executive will be entitled to the
following payments and benefits:
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a lump-sum cash severance payment in an amount equal to a
multiple of the executives target annual compensation
(generally, the sum of the executives annual base salary,
commissions and target bonus). This multiple is 300% for
Mr. Wolff, 200% for Messrs. Satterlee, Butler,
Richardson, Saw, Hodder and Salemme and Ms. Cochran and
100% for Robert DeLucia;
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continuation of the executives health care coverage, at no
increased cost to the executive, for up to 24 months for
Messrs. Wolff, Satterlee, Butler, Richardson, Saw, Hodder
and Salemme and Ms. Cochran, and for up to 12 months
for Mr. DeLucia;
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full vesting of all equity awards held by the executive;
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for Messrs. Wolff, Satterlee, Butler, Richardson, Saw,
Hodder and Salemme and Ms. Cochran, extension of the
post-termination period during which the executives equity
awards remain exercisable until the earlier of (1) the end
of their original term and (2) one year after termination
of the executives employment; and
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a
gross-up
of any golden parachute excise taxes imposed under
Section 4999 of the Code on the payments and benefits that
the executive receives in connection with the Transactions.
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92
With respect to Messrs. Richardson, Satterlee and DeLucia,
the Change in Control Severance Plan defines cause
in reference to the definitions in the executives
employment agreements. With respect to the other executive
officers, cause generally means the executives:
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indictment for, or conviction of, a felony, a crime involving
fraud or a crime that would negatively affect Clearwires
reputation if the executive remained in his or her position;
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material violation of a key Clearwire policy;
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continued insubordination or gross dereliction of duty after
written warning;
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willful or grossly negligent conduct that is demonstrably and
significantly injurious to Clearwire and its
subsidiaries; or
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willful and material breach of Clearwires Employee
Confidentiality and Intellectual Property Agreement.
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For Messrs. Wolff, Satterlee, Butler, Richardson, Saw,
Hodder and Salemme and Ms. Cochran, the existence of
cause must be affirmed by a resolution adopted by at
least two-thirds of Clearwires board of directors.
With respect to Messrs. Richardson and Satterlee, the
Change in Control Severance Plan defines good reason
in reference to the definitions in the executives
employment agreements. With respect to the other executive
officers, good reason generally means:
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the occurrence of a significant, adverse change in the
executives duties, responsibilities or authority as
compared to those immediately before the Closing;
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a relocation of the executives principal office to a
location more than 30 miles from the executives
then-current office;
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a reduction of the executives base salary or bonus
potential, or any other significant adverse financial
consequence associated with ongoing employment following the
Closing; or
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Clearwires breach of its obligations to the executive
(subject to Clearwires 20-business day cure right).
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93
The following table sets forth estimates of the amounts to which
each executive officer would be entitled (1) on the Closing
and (2) on termination of the executives employment
following the Closing under the circumstances set forth in
Clearwires Change in Control Severance Plan as described
above. These estimates assume (1) that the Closing occurred
on September 30, 2008, (2) that, for the second case,
the executives employment is terminated immediately
following the Closing and (3) a closing price as of
September 30, 2008 of $11.88 with respect to each share
underlying the executives outstanding equity awards.
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Value of
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Cash
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Continued
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Accelerated
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Executive Officer
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Severance ($)
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Health Care ($)
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Equity(1) ($)
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Gross-Up ($)
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Benjamin G. Wolff
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Closing
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3,994,600
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Termination following
Closing
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4,500,000
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3,994,600
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2,333,201
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Perry S. Satterlee
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Closing
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772,200
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Termination following
Closing
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2,000,000
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22,354
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772,200
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John A. Butler
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Closing
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356,400
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Termination following
Closing
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1,020,000
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14,243
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356,400
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552,895
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Scott Richardson
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Closing
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608,850
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Termination following
Closing
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1,200,000
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22,354
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608,850
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John Saw, PhD
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Closing
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321,652
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Termination following
Closing
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1,050,000
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22,354
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321,652
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497,523
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Hope F. Cochran
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Closing
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89,100
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Termination following
Closing
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623,280
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22,354
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89,100
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261,563
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Broady R. Hodder
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Closing
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123,404
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Termination following
Closing
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825,000
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22,354
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123,404
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374,895
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R. Gerard Salemme
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Closing
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679,350
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Termination following
Closing
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1,080,000
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679,350
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578,194
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Robert M. DeLucia
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Closing
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Termination following
Closing
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343,444
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11,176
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89,100
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(1) |
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Amounts represent the intrinsic value of the equity. |
94
In addition, four of our directors will receive an acceleration
in the vesting of their equity ownership in Clearwire upon
Closing, with the following approximate values:
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Value of
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Director
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Accelerated Equity(1)($)
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Richard Emerson
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4,287
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Nicolas Kauser
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490,004
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Craig O. McCaw
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2,450,002
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Stuart Sloan
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1,840
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(1) |
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Amounts represent the intrinsic value of the equity. |
As of September 30, 2008, Eagle River was the holder of
approximately 65% of Clearwire Class B Common Stock and
approximately 13% of Clearwire Class A Common Stock, and
following the completion of the Transactions, Eagle River will
own approximately 5% of New Clearwire Class A Common Stock.
ERI and Eagle River are both controlled by Craig McCaw, who is
our Chairman and is expected to be New Clearwires
Chairman. Although Messrs. Wolff and Salemme receive a
salary from us, they are also compensated by ERI, and, along
with Mr. Kauser, hold membership interests in Eagle River.
Clearwire believes that the compensation paid by ERI to these
executives relates to such executives services to ERI and
not to those executives services to Clearwire or to the
advisory services ERI previously provided to Clearwire. Under
the terms of the Equityholders Agreement, Eagle River will
have certain rights, including the right to nominate one member
of the board of directors of New Clearwire. In addition, under
the Registration Rights Agreement, Eagle River has the right to
cause New Clearwire to register its shares of New Clearwire
Common Stock in certain circumstances.
David Perlmutter, a member of the Clearwire board of directors,
is an Executive Vice President of Intel. Given his position at
Intel and Intels participation in the Transactions,
Mr. Perlmutter did not participate in any discussions of
the Clearwire board of directors regarding the Transactions and
was not present for, and abstained from, all votes and other
actions of the Clearwire board of directors relating to the
Transactions.
For a further description of the ownership of Clearwire capital
stock and options and other equity-based awards by its directors
and executive officers, see the sections titled Security
Ownership of Certain Beneficial Owners and Management of
Clearwire and Executive Officers and Executive
Compensation beginning on pages 265 and 242, respectively,
of this proxy statement/prospectus.
We also have entered into indemnification agreements that
require us to indemnify each of Messrs. Richard Emerson,
Stuart Sloan, Wolff, Salemme, Kauser, Perlmutter, Michael Sabia,
Peter Currie and Michelangelo Volpi, to the fullest extent
permitted by law for any claims made against each of these
persons because he or she is, was or may be deemed to be a
stockholder, director, officer, employee, controlling person,
agent or fiduciary of Clearwire or any of our subsidiaries. We
are obligated to pay the expenses of these persons in connection
with any claims that are subject to the agreement. We have also
agreed to indemnify our officers and directors pursuant to the
terms of the Clearwire Charter, which provides for
indemnification of our directors and executive officers who have
not otherwise entered into an indemnification agreement with us
as described above.
We have also entered into an indemnification agreement, dated
November 13, 2003, with Flux Fixed Wireless, LLC, which we
refer to as FFW, a limited liability company wholly-owned by
Mr. McCaw and Eagle River, which we refer to as the FFW
Indemnification Agreement. Eagle River retains some of our
directors and officers, including Mr. McCaw as chairman and
chief executive officer, Mr. Wolff as president, and
Mr. Kauser and Mr. Salemme as principals. Pursuant to
the FFW Indemnification Agreement, Clearwire agreed to
indemnify, defend and hold harmless FFW and any of its
directors, officers, partners, employees, agents and spouses and
each of its and their affiliates, each, an Indemnitee, to the
fullest extent permitted by law for any claims made against an
Indemnitee by reason of the fact that the Indemnitee is, was or
may be deemed a stockholder, director, officer, employee,
controlling person, agent or fiduciary of Clearwire or any
subsidiary of Clearwire. Clearwire is obligated to pay the
expenses of any Indemnitee in connection with any claims which
are subject to the agreement.
95
With respect to indemnifications involving New Clearwire, the
New Clearwire Charter will allow New Clearwire to indemnify
its officers and directors to the fullest extent permitted by
the DGCL or other applicable law. It also will contain
provisions that provide for the indemnification of directors of
New Clearwire for third party actions and actions by or in the
right of New Clearwire that mirror Section 145 of the DGCL.
New Clearwire also has and intends to maintain director and
officer liability insurance, subject to the terms of the
Equityholders Agreement. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted
with respect to directors, officers or persons controlling us
under the foregoing provisions, New Clearwire has been informed
that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is
therefore unenforceable.
96
THE
TRANSACTION AGREEMENT
This section of this proxy statement/prospectus describes the
material provisions of the Transaction Agreement. The following
description is subject to, and is qualified in its entirety by
reference to, the Transaction Agreement, which is attached as
Annex A to this proxy statement/prospectus and is
incorporated into this proxy statement/prospectus by reference.
We encourage you to read the full text of the Transaction
Agreement because it is the legal document that governs the
Transactions. This section is not in any way intended to provide
you with factual information about Clearwire or New Clearwire.
Such information can be found elsewhere in this proxy
statement/prospectus (including the attached annexes) and in the
other public filings that Clearwire makes with the SEC, which
are available without charge at www.sec.gov. See the section
titled Where You Can Find Additional Information
beginning on page 274 of this proxy statement/prospectus.
Structure
of the Transactions
The Transaction Agreement and related documents provide that the
following transactions will occur:
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The Conversion: Pursuant to the terms of the
Eagle River Voting Agreement and the Intel Voting Agreement,
each share of outstanding Clearwire Class B Common Stock
will be converted into one share of Clearwire Class A
Common Stock before the Merger (but after the vote of the
Clearwire stockholders at the special meeting).
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Formation of New Clearwire Entities: Before
the Closing, Clearwire will form New Clearwire as its
direct, wholly-owned subsidiary. New Clearwire will then
form Clearwire Communications as its direct, wholly-owned
subsidiary. Clearwire Communications will in turn
form Clearwire Sub as its direct, wholly-owned subsidiary.
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Formation of New Sprint Entities: In addition,
before the Closing Sprint will form or cause to be formed Sprint
HoldCo, and in turn cause Sprint HoldCo to form Sprint Sub,
and will cause the Sprint WiMAX Business to be held in its
entirety by one or more wholly-owned subsidiaries of Sprint Sub.
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The Merger: Following the Conversion,
Clearwire will merge with and into Clearwire Sub, with Clearwire
Sub surviving as a direct, wholly-owned subsidiary of Clearwire
Communications.
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Merger Consideration; Treatment of Options and Stock-Based
Awards: In the Merger, each share of Clearwire
Class A Common Stock will be converted into the right to
receive one share of New Clearwire Class A Common
Stock. In the Merger, each outstanding option under any
agreement, plan or arrangement to purchase shares of Clearwire
Class A Common Stock, whether or not exercisable or vested,
will be converted into an option to acquire, on the same terms
and conditions as were applicable to the original option, the
same number of whole shares of New Clearwire Class A Common
Stock (rounded down to the nearest whole share) as the holder of
the option would have been entitled to receive under the Merger
had the holder exercised the option in full immediately before
the Closing. The exercise price for each option will be
adjusted, if necessary, to equal (rounded up to the nearest
whole cent):
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the aggregate exercise price of Clearwire Class A Common
Stock purchasable under the option; divided by
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the aggregate number of whole shares of New Clearwire
Class A Common Stock deemed purchasable under the option,
as adjusted.
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In the Merger, each outstanding warrant to purchase shares of
Clearwire Class A Common Stock, whether or not exercisable
or vested, will be deemed to constitute a warrant to acquire, on
the same terms and conditions as were applicable to the original
warrant, the same number of whole shares of New Clearwire
Class A Common Stock as the holder of the warrant would
have been entitled to receive under the Merger had the holder
exercised the warrant in full immediately before the Closing, at
a price per share equal to the price set forth in the original
warrant.
97
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The Contribution: Following the Merger, Sprint
will cause all of the capital stock of Sprint Sub to be
transferred to Clearwire Communications, free and clear of any
encumbrance, in exchange for the issuance of 370 million
Clearwire Communications Class B Common Interests to Sprint
HoldCo.
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The Class B Purchase: Following the
Merger, Sprint will also cause Sprint HoldCo to purchase, for
$37,000 in cash, 370 million shares of New Clearwire
Class B Common Stock. Immediately following the
Class B Purchase, New Clearwire will contribute the $37,000
it received from Sprint HoldCo to Clearwire Communications in
exchange for 370 million Clearwire Communications Voting
Interests.
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Investor (Other than Google) Contributions to Clearwire
Communications: Following the Contribution and
the Class B Purchase:
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Comcast will contribute $1.05 billion to Clearwire
Communications in exchange for 52.5 million Clearwire
Communications Class B Common Interests and
52.5 million Clearwire Communications Voting Interests;
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Time Warner Cable will contribute $550 million to Clearwire
Communications in exchange for 27.5 million Clearwire
Communications Class B Common Interests and
27.5 million Clearwire Communications Voting Interests;
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Bright House Networks will contribute $100 million to
Clearwire Communications in exchange for 5 million
Clearwire Communications Class B Common Interests and
5 million Clearwire Communications Voting
Interests; and
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Intel will contribute $1.0 billion to Clearwire
Communications in exchange for 50 million Clearwire
Communications Class B Common Interests and 50 million
Clearwire Communications Voting Interests.
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Immediately following the issuance of interests in Clearwire
Communications, described above, each of Comcast, Time Warner
Cable, Bright House Networks and Intel will transfer all of its
Clearwire Communications Voting Interests to New Clearwire in
exchange for New Clearwires issuance to such Investor of
an equal number of shares of New Clearwire Class B Common
Stock.
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Google Contribution to New
Clearwire: Following the Contribution and the
Class B Purchase, and simultaneously with the investments
by the other Investors described above, Google will purchase
from New Clearwire, and New Clearwire will issue to Google,
25 million shares of New Clearwire Class A Common
Stock for an aggregate amount of $500 million. New
Clearwire will then contribute the $500 million it received
from Google to Clearwire Communications in exchange for
25 million Clearwire Communications Class A Common
Interests and 25 million Clearwire Communications Voting
Interests.
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Post-Closing
Adjustment
The number of shares of New Clearwire Class A Common Stock
and Clearwire Communications Class B Common Interests, as
applicable, that the Investors receive pursuant to the
Transaction Agreement will initially be based on a purchase
price of $20.00 per share or interest, as applicable, but is
subject to a post-closing adjustment based on the trading prices
of New Clearwire Class A Common Stock on NASDAQ over 15
randomly-selected trading days during the 30-trading day period
ending on the 90th day after the Closing date. The final
price per share or interest, as applicable, will be based on the
volume weighted average price on those randomly selected days,
and is subject to a cap of $23.00 per share or interest, as
applicable, and a floor of $17.00 per share or
interest, as applicable. The aggregate number of shares or
interests, as applicable, that each Investor ultimately receives
for its investment in New Clearwire and Clearwire
Communications, as applicable, will be equal to its investment
amount divided by such volume weighted average price per share
of New Clearwire Class A Common Stock. The number of shares
of New Clearwire Class B Common Stock ultimately received
by each Investor other than Google will be equal to the number
of the Investors Clearwire Communications Class B
Common Interests, as so adjusted. The number of Clearwire
Communications Class B
98
Common Interests and shares of New Clearwire Class B
Common Stock received by Sprint HoldCo in connection with the
Contribution and the Class B Purchase, respectively, will
not be adjusted.
Surrender
and Payment; Lost Certificates
Clearwire has designated its transfer agent, American Stock
Transfer, as the exchange agent for purposes of exchanging the
merger consideration, as described above. Promptly after the
Closing, New Clearwire will cause American Stock Transfer to
send you a letter of transmittal and instructions advising you
how to surrender your shares of Clearwire Common Stock in
exchange for shares of New Clearwire Common Stock. American
Stock Transfer will send you the shares of New Clearwire Common
Stock that you are entitled to as a result of the Merger after:
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you have surrendered to it any certificates you have
representing your shares of Clearwire Common Stock, together
with a properly completed letter of transmittal; or
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if your shares are not in certificated form, it has received an
agents message confirming the book-entry
transfer of your shares.
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You should not forward your stock certificates to American
Stock Transfer without a letter of transmittal, and you should
not return your stock certificates with the enclosed proxy.
If any portion of the merger consideration that is made
available to American Stock Transfer is not claimed within
twelve months after the Closing, it will be returned to New
Clearwire on demand.
The transmittal letter instructions will tell you what to do if
you have lost your stock certificate, or if it has been stolen
or destroyed. You will have to provide an affidavit to that
effect and, if required by New Clearwire, post a bond in an
amount that New Clearwire reasonably deems necessary as an
indemnity against any claim that may be made against it with
respect to such certificate.
Sprint
Pre-Closing Financing
Sprint has agreed to finance the operations of the Sprint WiMAX
Business between April 1, 2008 and the Closing, subject to
certain limitations. Before the Contribution, Sprint Sub will
assume the obligation to repay Sprint and its subsidiaries for
the full amount that Sprint finances for Sprint Sub during this
period, which we refer to as the Sprint Financing Amount, except
that Sprint Sub will not assume (1) any portion of the
Sprint Financing Amount that was not incurred to fund the Sprint
WiMAX Business, (2) the principal amount of the Sprint
Financing Amount in excess of Sprints budget for the
Sprint WiMAX Business, which has been shared with the Investors
and which is subject to change based on the Closing date or with
the consent of Clearwire and the Investors, and (3) any
portion of the Sprint Financing Amount to the extent not
incurred in substantial compliance in the aggregate with
Sprints budget for the Sprint WiMAX Business for this
period (provided that, for purposes of clause (3), spending a
lesser amount on the Sprint WiMAX Business will not constitute
substantial non-compliance). Assuming the Closing occurs on
December 31, 2008, the operating budget for the Sprint
WiMAX Business for this period will not exceed
$426 million. If the Sprint Financing Amount is less than
or equal to $213 million, Sprint Sub will be required to
pay the Sprint Financing Amount in cash to Sprint on the first
business day after the Closing. If the Sprint Financing Amount
is greater than $213 million, but less than or equal to
$426 million, Sprint Sub will be required to pay
$213 million in cash to Sprint on the first business day
after the Closing, and the remainder of the Sprint Financing
Amount will be repaid in the form of a secured promissory note
issued by Sprint Sub to Sprint (or its subsidiaries). Finally,
if the Sprint Financing Amount is greater than
$426 million, with the approval of Clearwire and the
Investors, Sprint Sub will be required to repay 50% of the
Sprint Financing Amount in cash to Sprint on the first business
day after the Closing, and 50% of the Sprint Financing Amount
will be repaid in the form of a secured promissory note issued
by Sprint Sub to Sprint (or its subsidiaries). New Clearwire
will have the ability to access the books and records of Sprint
after the Closing to verify the Sprint Financing Amount.
99
Representations
and Warranties
The Transaction Agreement contains representations and
warranties made by each of Clearwire, Sprint and the Investors
to the other parties as of specific dates. The assertions
embodied in those representations and warranties were made
solely for purposes of the Transaction Agreement and may be
subject to important qualifications and limitations agreed to by
Clearwire, Sprint and the Investors in connection with
negotiating its terms. Moreover, some of those representations
and warranties may not be accurate or complete as of any
specified date, may be subject to a contractual standard of
materiality different from those generally applicable to
stockholders or may have been used for the purpose of allocating
risk between Clearwire, Sprint and the Investors rather than
establishing matters of fact. For the foregoing reasons, you
should not rely on the representations and warranties contained
in the Transaction Agreement as statements of factual
information.
The representations and warranties made by Clearwire and Sprint
relate to, among other things:
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corporate organization and existence, qualification to conduct
business and corporate standing and power;
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corporate authority to enter into, and carry out the obligations
under, the Transaction Agreement and enforceability of the
Transaction Agreement;
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absence of a breach of such partys certificate of
incorporation, bylaws, law or certain spectrum licenses and
other material agreements as a result of the Transactions;
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legal proceedings;
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validity of pending or present FCC spectrum licenses and their
compliance with FCC rules;
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validity of leases of spectrum rights and their material
compliance with applicable laws;
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good and marketable title to, and good operating condition of,
network assets used in connection with the leases of spectrum
rights and their material compliance with applicable
environmental laws;
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tax matters;
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the existence of certain types of agreements of such party, and
the validity and enforceability thereof;
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compliance with laws;
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required approvals and consents as a result of the Transactions;
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certain non-FCC licenses;
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absence of certain changes or events;
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employee benefit plans;
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labor and employment matters;
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the payment of fees to finders or brokers in connection with the
Transactions;
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information supplied for use in this proxy
statement/prospectus; and
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certain ancillary agreements related to the Transactions.
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Clearwire also made representations and warranties relating to,
among other things:
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receipt by the board of directors of a fairness opinion from our
financial advisor;
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required stockholder votes;
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our capital structure;
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filings with the SEC;
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our financial statements and the absence of undisclosed
liabilities;
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our internal control over financial reporting and disclosure
controls and procedures; and
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applicability of anti-takeover statutes.
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Sprint also made representations and warranties relating to,
among other things:
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absence of liabilities of Sprint Sub and its
subsidiaries; and
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ownership of Clearwire capital stock.
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The representations and warranties made by each Investor relate
to, among other things:
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corporate organization and existence, qualification to conduct
business and corporate standing and power;
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corporate authority to enter into, and carry out the obligations
under, the Transaction Agreement and enforceability of the
Transaction Agreement;
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absence of a breach of such partys certificate of
incorporation, bylaws, law or certain spectrum licenses and
other material agreements as a result of the Transactions;
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such partys intent with respect to its investment under
the Transaction Agreement, its knowledge and access to
information with respect to Clearwire and the Sprint WiMAX
Business and other securities law matters;
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availability of sufficient funding to consummate the
Transactions;
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required approvals and consents as a result of the Transactions;
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the payment of fees to finders or brokers in connection with the
Transactions;
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information supplied for use in this proxy statement/prospectus;
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ownership of Clearwire capital stock; and
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certain ancillary agreements related to the Transactions.
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Many of Clearwires representations and warranties are
qualified by a material adverse effect standard. For purposes of
the Transaction Agreement, the term Clearwire Material
Adverse Effect is defined to mean any state of facts,
change, event, effect or occurrence that, when taken together
with all other states of facts, changes, events, effects or
occurrences, is or would be reasonably likely to be materially
adverse to:
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the ability of Clearwire and New Clearwire to consummate any of
the Transactions; or
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the condition (financial or otherwise), business, assets or
liabilities of Clearwire and its subsidiaries taken as a whole,
other than those which arise out of or result from any of the
following, either alone or in combination:
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any change in the market price of Clearwire capital stock after
the date of the Transaction Agreement (but not excluding any
underlying circumstance, change, event, fact, development or
effect that may have caused that change in market price);
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changes, circumstances or conditions generally affecting any
industry in which Clearwire or any of its subsidiaries
participate and not having a materially disproportionate effect
on Clearwire and its subsidiaries as compared to other companies
in its industry;
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changes generally affecting United States or global economic
conditions or financial, banking or securities markets;
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the suspension of trading in or the delisting of
Clearwires securities on NASDAQ or any other national
securities exchange or other trading market (but not excluding
any underlying circumstance, change, event, fact, development or
effect that may have caused the suspension or delisting);
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changes resulting from a change in any applicable law, rule,
regulation or U.S. GAAP or official interpretation thereof
or other accounting requirement or principle and not having a
materially disproportionate effect on Clearwire and its
subsidiaries as compared to other companies in its industry;
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changes resulting from any act of God;
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changes resulting from any act of war or terrorism (or any
escalation thereof) or any national or international political
or social event or condition and not uniquely targeting or
having a unique or materially disproportionate effect on
Clearwire and its subsidiaries; or
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changes, facts, circumstances or conditions attributable solely
to the announcement or existence of the Transaction Agreement or
any of the Transactions.
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Many of Sprints representations and warranties are
qualified by a material adverse effect standard. For purposes of
the Transaction Agreement, the term Sprint Material
Adverse Effect is defined to mean any state of facts,
change, event, effect or occurrence that, when taken together
with all other states of facts, changes, events, effects or
occurrences, is or would be reasonably likely to be materially
adverse to:
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the ability of Sprint, Sprint HoldCo, Sprint Sub and the
wholly-owned subsidiaries of Sprint Sub that do or will hold the
Sprint WiMAX Business to consummate any of the
Transactions; or
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the condition (financial or otherwise), business, assets or
liabilities of the Sprint WiMAX Business taken as a whole, other
than those which arise out of or result from any of the
following, either alone or in combination:
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any change in the market price of Sprint capital stock after the
date of the Transaction Agreement (but not excluding any
underlying circumstance, change, event, fact, development or
effect that may have caused that change in market price);
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changes, circumstances or conditions generally affecting any
industry in which Sprint or any of its subsidiaries participate
and not having a materially disproportionate effect on Sprint
and its subsidiaries;
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changes generally affecting United States or global economic
conditions or financial, banking or securities markets;
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changes resulting from a change in any applicable law, rule,
regulation or U.S. GAAP or official interpretation thereof
or other accounting requirement or principle and not having a
materially disproportionate effect on Sprint and its
subsidiaries as compares to other companies in its industry;
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changes resulting from any act of God;
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changes result from any act of war or terrorism (or escalation
thereof) or any national or international political or social
event or condition, and not uniquely targeting or having a
unique or materially disproportionate effect on Sprint and its
subsidiaries; or
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changes, facts, circumstances or conditions attributable solely
to the announcement or existence of the Transaction Agreement or
any of the Transactions.
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Many of the Investors representations and warranties are
qualified by a material adverse effect standard. For purposes of
the Transaction Agreement, the term Investor Material
Adverse Effect is defined to mean with respect to any
Investor, any state of facts, change, event, effect or
occurrence that, when taken together with all other states of
facts, changes, events, effects or occurrences, is or would be
reasonably likely to be materially adverse to the ability of
such Investor to consummate the Transactions.
The representations and warranties of the parties generally do
not survive the completion of the Transactions, except that
certain of Sprints representations and warranties relating
to the Sprint WiMAX Business survive for three years from
Closing and certain tax representations and warranties made by
Sprint will survive until the statute of limitations for the
applicable claim has expired.
102
Conditions
to Closing
Conditions
to the Obligations of Each Party
Each partys obligation to complete the Transactions is
subject to the satisfaction or waiver of the following
conditions, among others:
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the approval and adoption of the Transaction Agreement and the
Transactions contemplated thereby by the affirmative vote of the
holders of a majority of the voting power of the outstanding
shares of Clearwire Common Stock entitled to vote at the special
meeting, voting together as a single class (the satisfaction of
this condition may not be waived);
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the adoption of the New Clearwire Charter by the affirmative
vote of the holders of a majority of the voting power of the
outstanding shares of Clearwire Common Stock entitled to vote at
the special meeting, voting together as a single class (the
satisfaction of this condition may not be waived);
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the effectiveness of the registration statement, of which this
proxy statement/prospectus forms a part, for the registration of
the New Clearwire Class A Common Stock to be issued
pursuant to the Merger, and the absence of any stop order
suspending the effectiveness of the registration statement and
any proceeding, or threat of a proceeding, for that purpose by
the SEC (the satisfaction of this condition may not be waived);
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the expiration or termination of the applicable waiting periods
under the HSR Act and any applicable foreign antitrust laws, in
each case without the imposition of a Burdensome Condition on
any party to the Transaction Agreement, which condition has been
satisfied as of July 11, 2008;
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the receipt of the consent to certain of the Transactions of the
FCC and any applicable foreign governmental authority governing
telecommunications services, in each case without imposition of
a Burdensome Condition;
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the approval for listing by NASDAQ or the NYSE of the New
Clearwire Class A Common Stock to be issued pursuant to the
Transactions and on conversion of any shares of New Clearwire
Class B Common Stock, subject only to official notice of
issuance (the satisfaction of this condition may not be waived);
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Clearwires receipt of an opinion of Tax Counsel, defined
as Davis Wright Tremaine LLP, Kirkland & Ellis LLP or
other legal counsel nationally recognized in federal income tax
matters and reasonably acceptable to Sprint and the Investors,
to the effect that each of the Conversion and the Merger will
qualify as a tax-free reorganization within the meaning of
Section 368(a) of the Code;
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Clearwire Communicationss receipt of an opinion of Tax
Counsel to the effect that Clearwire Communications should be
treated as a partnership following the Closing for United States
federal income tax purposes;
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the receipt of the required consent of lenders under
Clearwires credit agreement to the execution of the
Transaction Agreement and the consummation of the Transactions,
or the refinancing of that credit agreement; and
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the absence of any law or any injunction, writ, restraining
order or other order by any governmental authority prohibiting
or preventing completion of the Transactions (the satisfaction
of this condition may not be waived).
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Conditions
to the Obligation of Sprint
Sprints obligation to complete the Transactions is also
subject to the satisfaction or waiver of the following
conditions, among others:
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the representations and warranties made by Clearwire and each of
the Investors must be true and correct as of the date of the
Transaction Agreement and as of the date of the Closing as
though made on and as of that date (except that representations
and warranties made as of a particular date need only
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be true and correct as of that date) without giving effect to
any exception in such representation relating to materiality or
material adverse effect, except where the failure of any of the
representations or warranties (other than those pertaining to
Clearwires capitalization and the absence of certain
events at Clearwire) to be so true and correct would not have a
Clearwire Material Adverse Effect or an Investor Material
Adverse Effect, respectively;
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each of Clearwire and the Investors must have performed in all
material respects all of their respective obligations under the
Transaction Agreement;
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as of the Closing, the number of MHz-POPs that are covered by
Clearwires licenses and spectrum rights and subject to
Clearwires In-Leases (as defined in the Transaction
Agreement), less the number of MHz-POPs covered by the spectrum
rights that are subject to Clearwires Out-Leases (as
defined in the Transaction Agreement), must exceed a specified
minimum amount;
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contributions by the Investors at Closing of an aggregate amount
of at least $3.1 billion; and
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the absence of any action taken, or any applicable law or
interpretation thereof proposed, enacted or enforced by any
governmental authority after the date of the Transaction
Agreement as a result of or arising out of the Transactions that
would reasonably be expected to result in the imposition of any
Burdensome Condition on New Clearwire or any of its
subsidiaries, provided that Sprint will only be entitled to
assert a breach of this condition if Clearwire is invoking its
corresponding closing condition, and the events giving rise to
such Burdensome Condition must arise out of or relate to one or
more Investors being a party to the Transaction Agreement or the
Transactions (the satisfaction of this condition may not be
waived if such action, law or interpretation make the
Transactions not legally permissible).
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Conditions
to the Obligation of Clearwire
Clearwires obligation to complete the Transactions is also
subject to the satisfaction or waiver of the following
conditions, among others:
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the representations and warranties made by Sprint and each of
the Investors must be true and correct as of the date of the
Transaction Agreement and as of the date of the Closing as
though made on and as of that date (except that representations
and warranties made as of a particular date need only be true
and correct as of that date) without giving effect to any
exception in such representation relating to materiality or
material adverse effect, except where the failure of any of the
representations or warranties (other than those pertaining to
the ownership and sufficiency of the Sprint WiMAX Business as of
the Closing and the solvency of Sprint) to be so true and
correct would not have a Sprint Material Adverse Effect or an
Investor Material Adverse Effect, respectively;
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each of Sprint and the Investors must have performed in all
material respects all of their respective obligations under the
Transaction Agreement;
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as of the Closing, the number of MHz-POPs that are covered by
Sprints licenses and spectrum rights and subject to
Sprints In-Leases (as defined in the Transaction
Agreement), less the number of MHz-POPs covered by the spectrum
rights that are subject to Sprints Out-Leases (as defined
in the Transaction Agreement), must exceed a specified minimum
amount;
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contributions by the Investors at Closing of an aggregate amount
of at least $3.1 billion; and
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the absence of any action taken, or any applicable law or
interpretation thereof proposed, enacted or enforced by any
governmental authority after the date of the Transaction
Agreement as a result of or arising out of the Transactions that
would reasonably be expected to result in the imposition of any
Burdensome Condition on New Clearwire or any of its
subsidiaries, provided that Clearwire will only be entitled to
assert a breach of this condition if Sprint is invoking its
corresponding closing condition, and the events giving rise to
such Burdensome Condition must arise out of or relate to one or
more Investors being a party to the Transaction Agreement or the
Transactions (the satisfaction of this
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condition may not be waived if such action, law or
interpretation make the Transactions not legally permissible).
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Conditions
to the Obligations of the Investors
Each Investors obligation to complete the Transactions is
also subject to the satisfaction or waiver of the following
conditions:
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the representations and warranties made by Sprint and Clearwire
must be true and correct as of the date the Transaction
Agreement and as of the date of the Closing as though made on
and as of that date (except that representations and warranties
made as of a particular date need only be true and correct as of
that date) without giving effect to any exception in such
representation relating to materiality or material adverse
effect, except where the failure of any of the representations
or warranties (other than those pertaining to the ownership and
sufficiency of the Sprint WiMAX Business as of the Closing, the
solvency of Sprint, Clearwires capitalization and the
solvency of Clearwire) to be so true and correct would not have
a Sprint Material Adverse Effect or a Clearwire Material Adverse
Effect, respectively;
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each of Sprint and Clearwire must have performed in all material
respects all of their respective obligations under the
Transaction Agreement;
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as of the Closing:
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the aggregate of Clearwires and Sprints MHz-POPs
must exceed a specified minimum amount; and
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with respect to the top 100 Basic Trading Areas, which we refer
to as BTAs, (by population) referenced in the Transaction
Agreement, Clearwire and Sprint combined must hold certain
specified minimum amounts of spectrum bandwidth in the
2.5 GHz spectrum band in each BTA and hold above a
specified average spectrum bandwidth across all of the BTAs, in
each case, with the exception of certain specified BTAs;
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with respect to each Investor, the contemporaneous contribution
by each other Investor (other than Bright House Networks) of its
investment;
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the absence of any action taken, or any applicable law or
interpretation thereof proposed, enacted or enforced by any
governmental authority after the date of the Transaction
Agreement as a result of or arising out of the Transactions that
would reasonably be expected to result in the imposition of any
Burdensome Condition on any Investor or materially reduce or
materially interfere with the benefits to be recognized by that
Investor in the Transactions and the transactions contemplated
by any of the commercial agreements to be entered into in
connection therewith, certain other specified related
agreements, the Equityholders Agreement or the
Registration Rights Agreement, which we refer to collectively as
the Ancillary Agreements (the satisfaction of this condition may
not be waived if such action, law or interpretation make the
Transactions not legally permissible);
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the absence of any action taken, or any applicable law or
interpretation thereof proposed, enacted or enforced by the FCC
after the date of the Transaction Agreement that would
reasonably be expected to:
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result in the imposition of any Burdensome Condition on any
Investor, New Clearwire or any of their respective subsidiaries
where such Burdensome Condition relates, in whole or part, to a
segment of the wireless business of a type within the scope of
the Transaction Agreement or any Ancillary Agreement; or
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materially reduce or materially interfere with the benefits to
be recognized by that Investor in the Transactions and the
transactions contemplated by the Ancillary Agreements;
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provided that this condition shall be deemed satisfied if such
action, law or interpretation results from any act of such
Investor that is unrelated to such Investor being a party to the
Transaction Agreement (the satisfaction of this condition may
not be waived if such action, law or interpretation make the
Transactions not legally permissible); and
105
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the notice of termination of the master supply agreement among
Clearwire, Clearwire LLC, Bell and BCE Nexxia Corporation shall
not have been withdrawn by Clearwire.
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In the event that any party determines to waive a material
condition to the Transactions and such change in the terms of
the Transactions renders the disclosure that Clearwire
previously provided to its stockholders materially misleading,
Clearwire intends to re-solicit stockholder approval.
Operations
of Clearwire and Sprint Pre-Closing
In the Transaction Agreement, each of Clearwire and Sprint has
undertaken separate covenants that place restrictions on it and
its subsidiaries until the earlier of the Closing and the
termination of the Transaction Agreement. In general, Clearwire
and its subsidiaries and Sprint and its subsidiaries, with
respect to the Sprint WiMAX Business, are required to conduct
their respective businesses in the ordinary course and to use
their Reasonable Best Efforts to preserve intact their
respective business organizations and relationships with third
parties. Clearwire and Sprint have also agreed to certain
specific obligations which (subject to exceptions described in
the Transaction Agreement) are substantially, but not entirely,
comparable. Among the most significant obligations that
Clearwire and Sprint (with respect to the Sprint WiMAX Business)
and their respective subsidiaries have agreed to are the
following:
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maintain each license or lease of spectrum in full force and
effect under all applicable laws in the ordinary course of
business consistent with past practice and use Reasonable Best
Efforts to preserve the scope of each lease of spectrum and the
scope of the underlying licenses;
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subject to certain exceptions, not take any action or fail to
take any action, which action or failure to act would reasonably
be expected to cause the impairment of any material spectrum
license (including those leased);
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not create, assume or incur any indebtedness for borrowed money
or guarantee the indebtedness of any other person, other than as
permitted by the Transaction Agreement;
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not merge or consolidate with any other entity, other than as
permitted by the Transaction Agreement;
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subject to certain exceptions, including with respect to certain
spectrum acquisitions and swaps in the ordinary course of
business, not sell or acquire any business or assets (other than
those of Clearwire International LLC) where the
consideration is in excess of $25 million in the aggregate
for all such sales or acquisitions;
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not issue, deliver, grant or sell any of its capital stock or
any securities convertible into any shares of capital stock, or
any rights, warrants or options to acquire any shares of its
capital stock or convertible securities or any stock
appreciation rights, phantom stock plans or stock equivalents,
subject to certain exceptions including, in the case of
Clearwire, the issuance of Clearwire Class A Common Stock,
or warrants exercisable for shares of Clearwire Class A
Common Stock, or non-voting preferred stock or debt convertible
into Clearwire Class A Common Stock, in third-party
financings (1) up to a maximum of $500 million at a
purchase, exercise or conversion price of no less than $20.00
per share,
and/or
(2) at a purchase, exercise or conversion price of no less
than $20.00 per share to repay its obligations under its credit
agreement;
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in the case of Clearwire, not alter, amend or create any
obligations with respect to employment terms or agreements,
compensation, bonus, severance, benefits, change of control
payments, equity awards, tax
gross-ups or
any other payments, to its directors, executives, officers,
employees or consultants, other than ordinary course annual
compensation increases, ordinary course merit-based compensation
increases or ordinary course hiring, terminations and promotions;
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not sell, lease or transfer any spectrum license or lease, other
than certain spectrum swaps in the ordinary course of business;
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in the case of Clearwire, not offer to market the products and
services of any mobile voice carrier other than Sprint and its
affiliates;
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not enter or permit its subsidiaries to enter into any
wholesale/resale, MVNO, co-branding or service bundling
agreement with any third party (in the case of Clearwire, solely
with respect to certain domestic Clearwire
subsidiaries); and
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in the case of Clearwire, not enter into a new line of business.
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Government
Approvals
Each party to the Transaction Agreement has agreed to use its
Reasonable Best Efforts to take, or cause to be taken, all
appropriate action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable law to
consummate and make effective the Merger and the Transactions,
including using its Reasonable Best Efforts to obtain all
governmental approvals necessary for the consummation of the
Merger and the Transactions, including FCC consent and
termination of the waiting period under the HSR Act (the
condition relating to the expiration of the HSR waiting period
has been satisfied as of July 11, 2008). However, nothing
in the Transaction Agreement will require a party to:
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accept the imposition of a Burdensome Condition; or
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litigate or participate in the litigation of any proceeding,
whether judicial or administrative, brought by any governmental
authority, the FCC or other person or appeal any order
(A) challenging or seeking to make illegal, delay
materially or otherwise directly or indirectly restrain or
prohibit the consummation of the Transactions or that questions
the validity or legality of the Transactions or seeks damages in
connection therewith or (B) seeking to impose any
Burdensome Condition on or with respect to such party or over
which such Party has an approval right pursuant to the
Transaction Agreement, except to the extent such party
determines in its reasonable good faith judgment that there is a
reasonable prospect of success in relation to such litigation
and that the participation by such party in such litigation
would not pose a material risk of the imposition of a Burdensome
Condition on or with respect to such party or over which such
Party has an approval right pursuant to the Transaction
Agreement.
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For purposes of the Transaction Agreement, Reasonable Best
Efforts means efforts that a prudent person desirous of
achieving a result would use in similar circumstances to achieve
that result as expeditiously and as reasonably as possible,
except that such person will not be required to take actions
that would result in a material adverse change in the benefits
to that person of the Transaction Agreement or dispose of a
material asset (unless otherwise provided in the Transaction
Agreement).
For purposes of the Transaction Agreement, each of the following
is a Burdensome Condition:
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any obligation of Clearwire or Sprint to license, dispose of or
hold separate a material portion of its or its affiliates
assets, or to commit or agree to such action;
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any obligation of any party or any of its affiliates to
(provided that neither Clearwire nor Sprint may invoke any of
the following as a Burdensome Condition unless both Clearwire
and Sprint do so and the condition arises out of or relates to
one or more Investors being a party to the Transaction Agreement
or the Transactions):
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license, dispose or hold separate any portion of that
partys or any of its affiliates assets;
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accept any condition, limitation, obligation, commitment, or
requirement or take any other action imposed or proposed by a
governmental authority that:
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restricts or limits that partys or any of its
affiliates freedom of action, or requires any party or its
affiliates to take any action, with respect to its assets or
businesses, either presently or in the future;
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alters the rights or obligations of New Clearwire or that party
under the Transaction Agreement or any of the Ancillary
Agreements;
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limits that partys or any of its affiliates ability
to exercise full rights of ownership of the Clearwire
Communications Class B Common Interests, New Clearwire
Class A Common Stock or New Clearwire Class B
Common Stock;
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limits that partys or any of its affiliates ability
to exercise fully its rights under, or would require any
amendment to, any Ancillary Agreement; or
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reduces or negatively interferes with the benefits to be
recognized that partys or any of its affiliates in the
Transactions or any of the transactions contemplated by the
Ancillary Agreements;
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pay any significant amounts in connection with seeking the
consents, waivers or actions required by these Transactions
(excluding any mandatory filing fees and other customary costs
and expenses); or
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commit or agree to any of the foregoing;
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any obligation of Sprint or any of its affiliates to:
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accept any material condition, limitation, obligation,
commitment or requirement or action imposed or proposed by a
governmental authority that:
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materially restricts or materially limits Sprints or any
of its affiliates freedom of action, or requires Sprint or
any of its affiliates to take any material action, with respect
to any of Sprints or any of its affiliates material
assets or any material portion of Sprints or any of its
affiliates businesses, in either case, present or future
which condition, restriction or limitation has a materially
negative impact on Sprint and its affiliates;
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materially and negatively alters the material rights or
obligations of Sprint or any of its affiliates under any of the
provisions or arrangements contemplated by the Transaction
Agreement or any of the Ancillary Agreements to which Sprint or
any of its affiliates is a party;
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materially limits Sprints or any of its affiliates
ability to exercise full rights of ownership of any shares of
New Clearwire Class B Common Stock or any Clearwire
Communications Class B Common Units or any shares of New
Clearwire Class A Common Stock;
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materially limits Sprints or any of its affiliates
ability to exercise fully its rights (including its governance
rights) under, or would require any material amendment or
modification to, any Ancillary Agreement to which Sprint or its
affiliates is a party which amendment or modification materially
and negatively impacts Sprint, its affiliates or the benefits
Sprint or its affiliates would have received if such amendment
or modification had not been required; or
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materially reduces or materially and negatively interferes with
the benefits to be recognized by Sprint and its affiliates in
the Transactions and the transactions contemplated by the
Ancillary Agreements to which Sprint or its affiliates are a
party;
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pay any material amounts in connection with seeking the
consents, waivers or actions required by these Transactions
(excluding any mandatory filing fees and other customary costs
and expenses); or
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commit or agree to any of the foregoing; and
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anything that will require any party to, or without the consent
of such party, permits Clearwire, Sprint, New Clearwire or their
respective affiliates to accept the imposition of any condition,
limitation, obligation, commitment or requirement on New
Clearwire or any of its subsidiaries that materially reduces or
interferes, or would be reasonably likely to materially reduce
or interfere, with the benefits to be recognized by such party
pursuant to the Transactions and the transactions contemplated
by the Ancillary Agreements.
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Clearwire
Non-Solicitation
Under the Transaction Agreement, Clearwire has agreed to, and
has agreed to cause its subsidiaries and its and their
respective officers, directors, employees and other
representatives to, terminate any and all
108
existing activities, discussions and negotiations, if any, with
any person, entity or group conducted prior to May 7, 2008,
related to any Acquisition Proposal.
The Transaction Agreement provides that, in general, Clearwire
and its subsidiaries will not authorize or permit any of its or
their officers, directors or other representatives to, directly
or indirectly:
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solicit, initiate or take any action to knowingly facilitate or
encourage the submission of any Acquisition Proposal;
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participate in any discussions or negotiations with, or
otherwise cooperate in any way with or participate in any effort
by, any person or group that is seeking to make or has made an
Acquisition Proposal;
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make an Adverse Recommendation Change;
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grant any waiver or release under any standstill or similar
agreement with respect to any equity securities of Clearwire or
any of its subsidiaries;
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enter into any agreement relating to an Acquisition Proposal
(other than a confidentiality agreement entered into in
accordance with the terms of the Transaction Agreement); or
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propose publicly or agree to do any of the foregoing related to
any Acquisition Proposal.
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Notwithstanding the foregoing restrictions, Clearwires
board of directors, either directly or through advisors, agents
or other intermediaries, may, before the approval of the
Transaction Agreement by Clearwires stockholders:
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engage in negotiations or discussions with any person that has
made an unsolicited bona fide written Acquisition Proposal that
the board of directors determines in good faith, after
consultation with its outside legal and financial advisors, is
or is reasonably likely to lead to a Superior Proposal; and
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furnish non-public information to the person that has made such
an Acquisition Proposal pursuant to a confidentiality agreement
with terms no less favorable to Clearwire than those contained
in the confidentiality agreement entered into with Sprint,
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if, in each case, the board of directors determines in good
faith by a majority vote, after considering advice from its
outside legal counsel, that failing to take such action would be
inconsistent with its fiduciary duties under applicable law. In
addition, the board of directors may only take the foregoing
actions if Clearwire has first delivered a written notice to the
other parties that it intends to take any such action.
After the date of the Transaction Agreement, Clearwire is
obligated to promptly (within 48 hours) notify the other
parties of its receipt of any Acquisition Proposal, of any
direct notification (regardless of form) that a person is
considering making an Acquisition Proposal or of any request for
information by any person that has made, or may be considering
making, an Acquisition Proposal.
An Acquisition Proposal means, in respect of
Clearwire, any offer, proposal or inquiry relating to
(1) any acquisition or purchase of 20% or more of the
consolidated assets of Clearwire and its subsidiaries or over
20% of any class of equity or voting securities of Clearwire or
any of its subsidiaries whose assets, individually or in the
aggregate, represent more than 20% of the consolidated assets of
Clearwire, (2) any tender or exchange offer that, if
completed, would result in a person beneficially owning 20% or
more of any class of equity or voting securities of Clearwire or
any of its subsidiaries whose assets, individually or in the
aggregate, represent more than 20% of the consolidated assets of
Clearwire or (3) any merger, consolidation, share exchange,
business combination, sale of substantially all the assets,
reorganization, recapitalization, liquidation, dissolution or
other similar transaction involving Clearwire or any of its
subsidiaries whose assets, individually or in the aggregate,
represent more than 20% of the consolidated assets of Clearwire.
A Superior Proposal means a bona fide, unsolicited
written Acquisition Proposal for at least a majority of the
outstanding shares of Clearwire capital stock on terms that
Clearwires board of directors determines in good faith by
a majority vote, after consultation with its legal and financial
advisors and taking into account those matters deemed relevant
in good faith by the board of directors, including among other
things, all the
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terms and conditions of the Acquisition Proposal, including any
termination fees, expense reimbursement provisions, conditions
to completion and long-term strategic considerations, are more
favorable from a financial point of view to the stockholders of
Clearwire than the Transactions and for which financing, if a
cash transaction (whether in whole or in part), is then fully
committed or reasonably determined to be available by the
Clearwire board of directors.
Clearwires
Ability to Change Recommendation
Notwithstanding the non-solicitation restrictions imposed on
Clearwire by the Transaction Agreement, Clearwire and its board
of directors may effect an Adverse Recommendation Change if:
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Clearwire has not received the approval of the Transaction
Agreement by its stockholders;
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Clearwire has received an unsolicited bona fide written
Acquisition Proposal;
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Clearwires board of directors determines in good faith,
after consulting its financial and legal advisors, that the
Acquisition Proposal constitutes a Superior Proposal; and
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Clearwires board of directors determines in good faith,
after consulting its legal counsel, that failing to take such
action would be inconsistent with its fiduciary duties under
applicable law.
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However, Clearwires board of directors may not make an
Adverse Recommendation Change unless:
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Clearwire gives at least five business days prior written
notice to each of the other parties of its intention to make an
Adverse Recommendation Change, which notice must include the
current version of any proposed agreement or a detailed summary
of all material terms of any proposal and the identity of the
offeror; and
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the other parties do not propose, within five business
days after their receipt of Clearwires notice,
adjustment to the terms of the Transaction Agreement that would
enable Clearwires board of directors to proceed with its
recommendation of the Transaction Agreement to its stockholders
without an Adverse Recommendation Change.
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Under the Transaction Agreement, any material amendment to the
Acquisition Proposal is deemed to be a new Acquisition Proposal,
which requires notice and restarts the five business day period
described above.
Sprint
Non-Solicitation
Under the Transaction Agreement, Sprint has agreed to, and has
agreed to cause its subsidiaries and its and their respective
officers, directors, employees and other representatives to,
terminate any and all existing activities, discussions or
negotiations, if any, with any person, entity or group conducted
before May 7, 2008, related to any potential sale or other
disposition of all, substantially all or a material portion of
the Sprint WiMAX Business.
The Transaction Agreement provides that, in general, Sprint and
its subsidiaries will not authorize or permit any of its or
their officers, directors or other representatives to, directly
or indirectly:
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solicit, initiate or take any action to knowingly facilitate or
encourage the submission of any proposal to acquire or invest in
all or any portion of the Sprint WiMAX Business;
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participate in any discussions or negotiations with, or
otherwise cooperate in any way with or participate in any effort
by, any person or group that is seeking to make or has made a
proposal to acquire or invest in all or any portion of the
Sprint WiMAX Business;
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grant any waiver or release under any standstill or similar
agreement with respect to any assets of the Sprint WiMAX
Business;
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enter into any agreement relating to a proposal to acquire or
invest in all or any portion of the Sprint WiMAX
Business; or
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propose publicly or agree to do any of the foregoing related to
any proposal to acquire or invest in all or any portion of the
Sprint WiMAX Business.
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Stockholder
Litigation
Clearwire will give Sprint and the Investors the opportunity to
participate in the defense or settlement of any stockholder
litigation against Clearwire or its directors relating to the
Transactions. Clearwire has agreed that it will not settle any
such litigation without the prior consent (not to be
unreasonably withheld) of Sprint and the Investors.
Director
and Officer Indemnification
The Transaction Agreement provides that all rights to
indemnification, expense advancement and exculpation existing in
favor of any current or former director, officer or employee of
Clearwire or any of its subsidiaries and contained in the
organizational documents of such entities, in each case as in
effect on May 7, 2008, will survive the Closing and remain
in full force and effect for a period of at least six years
thereafter.
For a period of six years after the Closing, Clearwire Sub will
maintain in effect the current directors and
officers liability insurance policies applicable to
Clearwire and its subsidiaries, or provide replacement policies
providing at least the same coverage on terms and conditions
that are no less favorable to the covered parties.
Clearwire
Stockholder Meeting
Clearwire has agreed to use its reasonable best efforts to
convene and hold a stockholders meeting as soon as
reasonably practicable for purposes of voting on the Transaction
Agreement and related matters. Clearwire has also agreed to use
its reasonable best efforts to obtain stockholder approval of
the Transaction Agreement.
Termination
The Transaction Agreement may be terminated at any time before
the Closing:
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by mutual written consent of the parties; or
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by any party, if:
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the Closing has not occurred by the Termination Date for any
reason other than the delay or non-performance of the party
seeking to terminate, provided that:
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if the receipt of FCC consent or the termination of the waiting
period under the HSR Act are the only unsatisfied conditions,
the Termination Date will automatically be extended to the last
business day of August 2009; and
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if the failure of the Investors to contribute a total of at
least $3.1 billion is the only unsatisfied condition,
either Clearwire or Sprint may extend the Termination Date by
two months to allow the other parties to cause the breaching
Investor to contribute its share of funds; or
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the required approval of the Clearwire stockholders is not
obtained at the Clearwire special meeting; or
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subject to a cure period, any other party breaches its
representations, warranties, covenants or other agreements
contained in the Transaction Agreement, which breach would cause
the failure of the closing conditions relating to the breach of
representations and warranties or relating to the performance of
obligations to be satisfied and such condition is incapable of
being satisfied by the Termination Date; or
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before the receipt of required approval of the Clearwire
stockholders, the board of directors of Clearwire makes an
Adverse Recommendation Change (in order to exercise this
termination right, Clearwire must simultaneously with the
termination, enter into a definitive agreement with respect to
the alternative transaction and pay Sprint the termination fee
described below); or
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subject to a cure period, any other party breaches its
representations, warranties, covenants or other agreements
contained in the Transaction Agreement, which breach would cause
the failure of the closing conditions relating to the breach of
representations and warranties or relating to the performance of
obligations to be satisfied and such condition is incapable of
being satisfied by the Termination Date; or
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Clearwires board of directors makes an Adverse
Recommendation Change; or
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by any Investor (other than Bright House Networks), if:
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subject to a cure period, any other party breaches its
representations, warranties, covenants or other agreements
contained in the Transaction Agreement, which breach would cause
the failure of the closing conditions relating to the breach of
representations and warranties or relating to the performance of
obligations to be satisfied and such condition is incapable of
being satisfied by the Termination Date; or
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Clearwires board of directors makes an Adverse
Recommendation Change.
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Termination
Fee
Clearwire has agreed to pay Sprint a termination fee of
$60 million if:
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any party terminates the Transaction Agreement due to an Adverse
Recommendation Change made by Clearwires board of
directors;
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any party terminates the Transaction Agreement due to
Clearwires failure to perform (or cure within the
specified time periods) any of its covenants or other agreements
contained in the Transaction Agreement, which breach would cause
the failure of the closing condition relating to the performance
of Clearwires obligations to be satisfied and such
condition is incapable of being satisfied by the Termination
Date; or
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either the Termination Date is reached or Clearwire stockholder
approval of the Transactions is not received and each of the
following occurs:
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before the special meeting, an Acquisition Proposal has been
made to Clearwire or directly to Clearwires stockholders
or has otherwise become publicly known, or any person has
publicly announced an intention to make an Acquisition
Proposal; and
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within 12 months after the termination of the Transaction
Agreement, Clearwire or any of its subsidiaries enters into a
definitive contract to consummate, or otherwise close, or the
Clearwire board of directors recommends to its stockholders, any
transaction whereby a third party merges with or into Clearwire,
acquires Clearwire, acquires more than 50% of the assets of
Clearwire and its subsidiaries, or acquires more than 50% of the
outstanding shares of Clearwire capital stock.
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Indemnification
Under the Transaction Agreement, Sprint must indemnify New
Clearwire and its subsidiaries against losses relating to any
breach of certain of Sprints representations as to the
Sprint WiMAX Business, for any pre-Closing taxes of its
subsidiaries holding the Sprint WiMAX Business, and for any
liabilities of such subsidiaries and liabilities not related to
the Sprint WiMAX Business.
Sprints indemnification obligations generally continue
until the expiration of the statute of limitations for the
applicable claim; however, indemnification obligations for
breach of the representations as to the Sprint
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WiMAX Business and the lack of any liabilities of any
subsidiaries holding the Sprint WiMAX Business, each survive for
three years from the Closing. Sprints indemnification
obligations are generally unlimited, with the exception of a
$25 million deductible for claims based on a breach of the
representation that, subject to certain limited exceptions,
Sprints subsidiaries that hold the Sprint WiMAX Business
have a specific, limited set of liabilities as of the Closing.
Amendment
and Waiver
The parties may amend the Transaction Agreement at any time
before the Closing. However, after Clearwires stockholders
have adopted the Transaction Agreement, stockholder approval
must be obtained for any amendment that by law or in accordance
with the rules of any relevant stock exchange requires
stockholder approval. All amendments must be in writing signed
by all of the parties. Any provision of the Transaction
Agreement may be waived, but only if the waiver is in writing
and is signed by the party against whom it is to be effective.
Specific
Performance
If any party violates, fails or refuses to perform any covenant
or agreement made by it in the Transaction Agreement, the other
parties may, subject to the terms of the Transaction Agreement
and in addition to any remedy at law for damages or other
relief, seek to enforce specific performance of the covenant or
agreement or seek any other equitable relief.
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CERTAIN
AGREEMENTS RELATED TO THE TRANSACTIONS
The following summary describes the material provisions of
certain agreements that have been or will be entered into in
connection with the completion of the Transactions. Certain of
these agreements are attached as annexes or exhibits to this
proxy statement/prospectus and are incorporated into this proxy
statement/prospectus. The rights and obligations of the parties
to these agreements are governed by the express terms and
conditions of the agreements, and not by this summary. This
summary may not contain all of the information about the
agreements that may be important to you and is qualified in its
entirety by reference to the complete text of the incorporated
agreements. We encourage you to read the incorporated agreements
carefully and in their entirety for a more complete
understanding of these agreements.
Equityholders
Agreement
As part of the Transactions, New Clearwire, Sprint, Eagle River
and the Investors have agreed to enter into the
Equityholders Agreement, which will set forth certain
rights and obligations of the Equityholders with respect to the
governance of New Clearwire, transfer restrictions on New
Clearwire Common Stock, rights of first refusal and pre-emptive
rights, among other things. As the holders of approximately 75%
to 84% of the total voting power of New Clearwire, Sprint, Eagle
River and the Investors will together effectively have control
of New Clearwire.
Corporate
Governance
The Equityholders Agreement will provide that the board of
directors of New Clearwire will consist of 13 directors, of
which, initially:
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seven directors will be nominated by Sprint (one of whom must
qualify (for so long as there are not more than two independent
designees) as an independent director and for service on New
Clearwires Audit Committee, which we refer to as the Audit
Committee, under NASDAQ rules and federal securities laws and be
willing to serve on the Audit Committee);
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one director will be nominated by Eagle River;
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one director will be nominated by Intel;
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two directors will be nominated by the Strategic Investors as a
group;
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one independent director (who must qualify for service on the
Audit Committee under NASDAQ rules and federal securities laws
and be willing to serve on the Audit Committee) will be
nominated by Intel and the Strategic Investors as a
group; and
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one independent director (who must qualify for service as
chairman of the Audit Committee under NASDAQ rules and federal
securities laws and be willing to serve as chairman of the Audit
Committee) will be nominated by the Nominating Committee.
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The number of nominees that an Equityholder has the right to
nominate will be subject to adjustment if the number of shares
of New Clearwire Common Stock held by such Equityholder is
reduced below a certain level, generally 50% of the number of
shares it held at the Closing of the Transactions, as adjusted
pursuant to the Transaction Agreement. In addition, subject to
certain exceptions, if Sprint transfers 25% of the number of
shares of New Clearwire Common Stock or equity interests of
Clearwire Communications received by it in the Transactions to
any other Equityholder, the number of nominees that each of
Sprint and such transferee Equityholder will be entitled to
nominate will be adjusted to be a number equal to the percentage
of its respective voting power of New Clearwire multiplied by
thirteen; and if Sprint undergoes certain change of control
transactions, Sprint will only be entitled to nominate a number
of directors equal to the lesser of (1) the percentage of
its voting power of New Clearwire multiplied by thirteen and
(2) six. Furthermore, (1) each of Eagle River and
Intel will have the right to designate a board observer for so
long as Eagle River and Intel, respectively, has the right to
nominate a person for service as a director of New Clearwire and
(2) each of Bright House Networks and the Strategic
Investors, as a group, will have the right to designate a board
observer for so long as each of Bright House Networks and the
Strategic Investors, as a group,
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respectively, owns at least 50% of the number of shares of New
Clearwire Common Stock received by them in the Transactions.
The Equityholders Agreement will provide, among other
things, that:
The Audit Committee will initially consist of three or more
independent directors, including Sprints designated
director that qualifies as an independent director and the
independent director designated by Intel and the Strategic
Investors. The Audit Committee will perform the duties usually
reserved for an audit committee, including reviewing and
recommending to the full board of directors any transaction
involving New Clearwire or any of its controlled affiliates on
the one hand, and any Equityholder, any affiliate of any
Equityholder or any director, officer, employee or associate of
New Clearwire, an Equityholder or any affiliate of any
Equityholder on the other hand, which we refer to as a Related
Party Transaction, and the approval of a majority of the Audit
Committee will be required to approve any matter before it.
Subject to certain limitations and qualifications, the
Nominating Committee will consist of five members, including two
of Sprints designated directors, Eagle Rivers
designated director, one of the Strategic Investors
designated directors and Intels designated director. The
Nominating Committee will perform the functions usually reserved
for a nominating committee, and the approval of four of the five
members of the Nominating Committee will be required to nominate
any director the Nominating Committee is responsible for
nominating.
Subject to certain limitations and qualifications, New
Clearwires Compensation Committee, which we refer to as
the Compensation Committee, will consist of four members,
including one of Sprints designated directors, one of the
Strategic Investors designated directors, Eagle
Rivers designated director and the independent director
designated by Intel and the Strategic Investors. The
Compensation Committee will, among other things, determine
compensation for the chief executive officer of New Clearwire
and Clearwire Communications and all executive officers of New
Clearwire and Clearwire Communications who report directly to
the chief executive officer, and the approval of two-thirds of
the Compensation Committee will be required to approve such
compensation and no other approval of the board of directors
will be required with respect to such matters.
The Transactions Committee will consist of all directors other
than those directors designated by Sprint who are employees or
directors of Sprint or any its affiliates, or who would not be
independent directors of Sprint if they were to sit on the board
of directors of Sprint or any of its affiliates. Other than the
Audit Committee, the Nominating Committee, the Compensation
Committee, the Transactions Committee and a possible executive
committee, New Clearwire will establish no other committees
other than special committees that may be created from time to
time. If the board of directors delegates any authority to a
special committee or to an executive committee, then each of
Sprint, Intel, Eagle River and the Strategic Investors will be
entitled to designate at least one designee to any such
committee for so long as it has the right to nominate at least
one director, unless such designation would in the good faith
determination of a majority of the independent directors be
inappropriate as a result of a conflict of interest on the part
of such designee, the party designating such designee or any of
their respective affiliates. Any such designation by Sprint,
Intel, Eagle River or the Strategic Investors must be initially
made within a reasonable period of time following receipt of
written notification of the formation of such committee.
Under the Equityholders Agreement, New Clearwire will be
required to deliver to Sprint, Eagle River, Intel and each
Strategic Investor certain quarterly and annual financial
statements as well as certain budget variance analyses, subject
to certain minimum New Clearwire stock ownership requirements on
the part of each Equityholder.
The Equityholders Agreement will provide that certain
actions will require the prior approval of at least ten of the
13 directors of New Clearwire, except that if there are ten
or fewer directors on the board of directors at any time, these
actions will require the unanimous approval of the board of
directors. These actions include:
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the appointment or removal of the chief executive officer of New
Clearwire and Clearwire Communications or of any officer that
reports directly to the chief executive officer (except that if
Sprints ownership in New Clearwire falls below 50% of its
ownership at the Closing, as adjusted pursuant to
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the Transaction Agreement, and Sprint no longer nominates a
majority of board of directors, the removal of those officers
(other than the chief executive officer) will no longer require
such approval);
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the acquisition or disposition of, or the entry into a joint
venture involving the contribution by New Clearwire or any
of its subsidiaries of, assets with a book value in excess of
20% of the consolidated book value of the assets of New
Clearwire and its subsidiaries, subject to certain exceptions;
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any change of control of New Clearwire or any of its
subsidiaries;
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any action not in accordance with the business purpose of New
Clearwire; and
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the funding of (1) the expansion of the business purpose of
New Clearwire, (2) activities outside of the United States,
other than the maintenance of New Clearwires current
operations and assets located outside of the United States, or
(3) the acquisition of spectrum outside of the United
States.
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The Equityholders Agreement will further provide that the
following actions will require the prior approval of a majority
of the disinterested directors of New Clearwire:
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any Related Party Transaction; and
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any transfer of shares by the holder of the largest voting
interest in New Clearwire as between Sprint, the Strategic
Investors (treated as a single holder) and Intel (as long as
such holder holds at least 26% of the aggregate voting power of
New Clearwire), which we refer to as the Principal Equityholder,
that constitutes a change of control of New Clearwire or any of
its material subsidiaries.
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Under the Equityholders Agreement, the approval of each of
Sprint, Intel and the representative of the Strategic Investors
so long as Sprint, Intel or the Strategic Investors, as a group,
own at least 5% of the outstanding voting power of New
Clearwire, will be required to:
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amend the New Clearwire Charter, the New Clearwire Bylaws or the
Operating Agreement;
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change the size of the board of directors of New Clearwire;
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liquidate New Clearwire or Clearwire Communications or declare
bankruptcy of New Clearwire or its material subsidiaries;
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effect any material capital reorganization of New Clearwire or
any of its material subsidiaries, other than a financing
transaction in the ordinary course of business;
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take any action that would cause Clearwire Communications or any
of its material subsidiaries to be taxed as a corporation for
federal income tax purposes; and
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subject to certain exceptions, issue any New Clearwire Class B
Common Stock or any equity interests of Clearwire Communications.
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The Equityholders Agreement will also provide that
amending the New Clearwire Charter, the New Clearwire
Bylaws or the Operating Agreement or changing the size of New
Clearwires board of directors will also require the
approval of Eagle River if Eagle River then owns at least 50% of
the shares of New Clearwire Common Stock held by it immediately
before the Closing of the Transactions and the proposed action
would disproportionately and adversely affect Eagle River, the
public stockholders of New Clearwire or New Clearwire in its
capacity as a member of Clearwire Communications in any material
respect as compared to the impact of such action on Sprint,
Intel and the Strategic Investors as stockholders of New
Clearwire and members of Clearwire Communications.
The Equityholders Agreement will also provide that any
amendment to the Operating Agreement will require the prior
approval of a majority of the directors who have been nominated
as independent directors by the Nominating Committee and those
directors who are independent directors nominated by one or more
Equityholders other than those independent directors who are
current or former directors, officers or employees of the
nominating Equityholder. For as long as any of Sprint, Intel, or
the Strategic Investors as a group, owns at least 50% of the
number of shares of New Clearwire stock received by it in the
Transactions and holds
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securities representing at least 5% of the outstanding voting
power of New Clearwire, the written consent of such party will
be required before New Clearwire enters into a transaction
involving the sale of a certain percentage of the consolidated
assets of New Clearwire and its subsidiaries to, or the merger
of New Clearwire with, certain specified competitors of Sprint,
Intel and the Strategic Investors.
The approval of securities representing at least 75% of the
outstanding voting power of New Clearwire will be required to
approve (1) any merger, consolidation, share exchange,
recapitalization, business combination or other similar
transaction involving New Clearwire or Clearwire Communications,
(2) any issuance of capital stock of New Clearwire or
Clearwire Communications that constitutes a change of control of
New Clearwire or Clearwire Communications, respectively or
(3) any sale or disposition of all or substantially all the
assets of New Clearwire or Clearwire Communications.
Restrictions
on Transfer
Under the Equityholders Agreement, until the adjustment to
the number of shares that each Investor receives pursuant to the
Transactions,
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Equityholders (other than Eagle River), but not any other
holders of New Clearwire Class A Common Stock who are not
parties to the Equityholders Agreement, will be prohibited
from:
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transferring, directly or indirectly, any equity securities of
New Clearwire;
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entering into any hedging transactions with respect to any
equity securities of New Clearwire; or
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converting New Clearwire Class B Common Stock and Clearwire
Communications Class B Common Interests into New Clearwire
Class A Common Stock;
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all Equityholders will be prohibited from acquiring or agreeing
to acquire any equity securities of New Clearwire; and
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New Clearwire will be prohibited from issuing, selling,
redeeming or paying any dividends on, any equity securities of
New Clearwire.
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Subject to certain conditions, Equityholders may transfer their
shares of New Clearwire Class B Common Stock, along with
the corresponding Clearwire Communications Class B Common
Interests, to any then-existing holder of New Clearwire
Class B Common Stock, to certain affiliates of such holder,
or to persons who are not then-existing holders of New Clearwire
Class B Common Stock. If an Equityholder or any transferee
of an Equityholder transfers any New Clearwire Class B
Common Stock or Clearwire Communications Class B Common
Interests without also transferring to the same party an
identical number of Clearwire Communications Class B Common
Interests or New Clearwire Class B Common Stock,
respectively, then the New Clearwire Class B Common Stock
corresponding to those transferred shares or interests, as
applicable, will be redeemed by New Clearwire for par value.
Further, an Equityholder or its transferee may transfer its New
Clearwire Class B Common Stock and Clearwire Communications
Class B Common Interests only on notice to New Clearwire,
in accordance with the Clearwire Communications Operating
Agreement and, in the case of a transferee, on delivery of a
required transfer agreement to New Clearwire. Unless certain
conditions are satisfied, none of Sprint, Intel, the Strategic
Investors or their permitted transferees may transfer their
respective New Clearwire Class B Common Stock and Clearwire
Communications Class B Common Interests if such transfer or
transfers would result in the transferee having voting power in
New Clearwire equal to or greater than 50% of the voting power
that Sprint will receive in the Transactions. An Equityholder
that is a Securities Holding Company (as defined in the
Equityholders Agreement) may transfer its New Clearwire
Class B Common Stock and Clearwire Communications
Class B Common Interests through the transfer by the holder
of 100% of the securities in such Securities Holding Company of
all of its securities in such Securities Holding Company,
subject to certain restrictions.
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Additionally, the Principal Equityholder is prohibited from
transferring any New Clearwire equity securities to certain
specified competitors of the Strategic Investors, Intel or
Sprint under certain circumstances.
Right
of First Offer
If an Equityholder desires to transfer any of its New Clearwire
equity securities to a person other than an Equityholder or
permitted transferee of such Equityholder, it will be required
to first offer to sell such equity securities to the other
Equityholders on the same terms and conditions as it had
proposed to make such transfer, subject to certain limitations.
If the other Equityholders accept the offer, collectively, for
all but not less than all of the subject equity securities, the
Equityholders will consummate the purchase. If the offer to the
other Equityholders is over-subscribed, the subject equity
securities will be allocated among the accepting Equityholders
pro rata based on their then-current ownership of New Clearwire
capital stock. If the offer to other Equityholders is not fully
subscribed, the offer will be deemed to have been rejected and
the selling Equityholder may proceed with the proposed sale,
subject to certain limitations. Certain transfers, however, will
not be subject to this right of first offer, including open
market transfers by Eagle River, transfers by Intel of the New
Clearwire Class A Common Stock received by it pursuant to
the Merger, transfers that are part of a business combination
that constitutes a change of control of New Clearwire or
Clearwire Communications and that are approved by the board of
directors of New Clearwire and the stockholders of New Clearwire
in accordance with applicable law and the terms of the
Equityholders Agreement and certain spin-off
transactions by the Equityholders.
Tag-Along
Rights
If the Principal Equityholder elects to sell all or any portion
of its New Clearwire equity securities, which we refer to as the
Sale Shares, in a transaction after which the transferee would
hold voting power of New Clearwire greater than 50% of the
voting power that Sprint will have at the Closing of the
Transactions, as adjusted pursuant to the Transaction Agreement,
each other Equityholder, subject to certain conditions, will
have the option to sell a pro rata portion of its shares,
instead of the Sale Shares, and the number of Sale Shares to be
sold by the Principal Equityholder will be reduced accordingly
by the applicable number of equity securities to be included in
the sale by the other Equityholders.
Preemptive
Rights
If New Clearwire proposes to issue any securities, other than in
certain issuances, each Equityholder will have the right to
purchase its pro rata share of such securities, based on such
holders voting power in New Clearwire before such
issuance.
Standstill
Agreement
The Equityholders Agreement will provide that Sprint,
Intel and the Strategic Investors will not be able to purchase
any common stock of New Clearwire for at least five years after
the Closing of the Transactions, subject to certain exceptions,
which exceptions include the acquisition by an Equityholder of
100% of the outstanding common stock of New Clearwire where such
acquisition has been approved by a majority of both the board of
directors and stockholders of New Clearwire. Eagle River will
not be subject to this restriction.
Sprint
Debt Agreements
On completion of the Transactions, Sprint is expected to own
approximately 49% to 52% of the voting power of New Clearwire on
a fully-diluted basis. As a result, New Clearwire and its
subsidiaries may be considered subsidiaries of Sprint under
certain of Sprints agreements relating to its
indebtedness. Those agreements govern the incurrence of
indebtedness and certain other activities of Sprints
subsidiaries. Covenants in Sprints debt instruments may
purport to restrict New Clearwires financial and operating
flexibility and, if New Clearwires actions result in a
violation of those covenants, Sprints lenders may declare
due and payable all outstanding loan obligations, thereby
severely harming Sprints financial condition,
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operations and prospects for growth. The determination of
whether or not New Clearwire would be considered a subsidiary
under Sprints debt agreements is complex and subject to
interpretation, however, under the Equityholders
Agreement, Sprint agrees that if New Clearwire or any of its
subsidiaries proposes to incur any indebtedness or take any
other action that could violate the terms of Sprints debt
agreements, Sprint will deliver a Compliance Certificate and a
legal opinion from a nationally recognized law firm, certifying
that the proposed indebtedness or other action will not violate
Sprints debt agreements. If Sprint notifies New Clearwire
that it is unable to deliver a Compliance Certificate and the
accompanying legal opinion and the Transactions Committee of New
Clearwire determines that New Clearwire should proceed with the
proposed indebtedness or other action, Sprint is obligated to
take whatever action is necessary (including surrendering New
Clearwire Class B Common Stock or governance rights with
respect to New Clearwire and its subsidiaries), to enable Sprint
to deliver a Compliance Certificate and the accompanying legal
opinion, and Sprint will deliver a Compliance Certificate and
the accompanying legal opinion at the closing of the proposed
indebtedness or other action. With respect to certain of
Sprints outstanding credit agreements, Sprint agrees to
use its Reasonable Best Efforts (as defined in the
Equityholders Agreement) to cause any amendment thereto or
refinancing thereof not to contain restrictions on the ability
of New Clearwire and its subsidiaries to incur indebtedness or
take any other actions, and in no event to enter into any
agreement in connection with any such amendment or refinancing
that is more restrictive with respect to New Clearwire than a
certain specified prior agreement. Going forward, Sprint agrees
that neither it nor any of its affiliates will enter into any
agreement that restricts the ability of New Clearwire and its
subsidiaries to incur indebtedness or take any other actions.
Voting
Agreements
Concurrently with the execution and delivery of the Transaction
Agreement, each of Eagle River, Intel, Intel Capital Corporation
and Intel Capital (Cayman) Corporation entered into voting
agreements with Sprint and the Strategic Investors.
The
Eagle River Voting Agreement
Agreement to Vote. Under the terms of the
Eagle River Voting Agreement, Eagle River represented that as of
May 7, 2008 it beneficially owned (within the meaning of
Rule 13d-3
under the Exchange Act) 17,232,005 shares of Clearwire
Class A Common Stock and 18,690,953 shares of
Clearwire Class B Common Stock, which we refer to as the
Eagle River Subject Shares, which collectively represented
approximately 48.4% of the total voting power of Clearwire on
May 7, 2008 based on the number of shares of Clearwire
Class A Common Stock and Clearwire Class B Common
Stock outstanding as of April 30, 2008. Pursuant to the
Eagle River Voting Agreement, Eagle River has agreed that it
will vote shares of Clearwire Common Stock constituting not less
than 40% of the total voting power of all capital stock of
Clearwire outstanding as of May 7, 2008 (on a non-fully
diluted basis) that is entitled to vote on that matter, which we
refer to as the Eagle River Voting Share Amount, as follows:
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in favor of approval and adoption of the Transaction Agreement
and the Merger at the special meeting (and any adjournment or
postponement thereof); and
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except with the written consent (which may be withheld by each
in its sole discretion) of Sprint, Clearwire and four of the
five Investors, against any Acquisition Proposal.
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Agreement to Convert. The Eagle River Voting
Agreement provides that Eagle River will convert its shares of
Clearwire Class B Common Stock into shares of Clearwire
Class A Common Stock on a 1:1 basis pursuant to the
Conversion immediately before completion of the Merger (but
after the vote of the Clearwire stockholders at the special
meeting).
Certain Restrictions. The Eagle River Voting
Agreement provides that Eagle River will not transfer or convert
any of the Eagle River Subject Shares, grant any proxies (other
than the Clearwire proxy card in connection with the special
meeting), deposit any Eagle River Subject Shares into any voting
trust or enter into any voting agreement with respect to any of
the Eagle River Subject Shares. Eagle River may, however,
distribute its Eagle River Subject Shares to any of its members
provided that each such member agrees in
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writing to be bound by and comply with the terms of the Eagle
River Voting Agreement. Furthermore, Eagle River and any of its
members may transfer the Eagle River Subject Shares so long as
the Eagle River Subject Shares retained collectively by Eagle
River and all of its members after the transfer constitute at
least the applicable Eagle River Voting Share Amount then in
effect, unless a transfer is made by a member of Eagle River for
estate planning purposes and such member retains direct or
indirect sole voting control over such Eagle River Subject
Shares through the date of the special meeting.
Non-Solicitation. The Eagle River Voting
Agreement further provides that, subject to certain limited
exceptions, Eagle River will not, nor will it permit any
affiliate controlled by it to make, directly or indirectly, a
solicitation of proxies or similar rights to vote, or seek to
advise or influence any person with respect to the voting of,
any shares of capital stock of Clearwire intended to facilitate
an Acquisition Proposal or to cause stockholders of Clearwire
not to vote to approve and adopt the Transaction Agreement.
Eagle River agreed in the Eagle River Voting Agreement that it
will not, and will direct any investment banker, attorney, agent
or other adviser or representative of Eagle River not to,
directly or indirectly, through any officer, director, agent or
otherwise, enter into, solicit, initiate, conduct or continue
any discussions or negotiations with, or knowingly encourage or
respond to any inquiries or proposals by, or provide any
information to any persons, other than the parties to the
Transaction Agreement, relating to any Acquisition Proposal.
Termination. The Eagle River Voting Agreement
will automatically terminate:
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on the earlier to occur of (a) the approval and adoption of
the Transaction Agreement at the special meeting (and any
adjournment, postponement or continuation thereof),
(b) termination of the Transaction Agreement, unless the
termination is effected pursuant to certain sections of the
Transaction Agreement in connection with an Adverse
Recommendation Change by Clearwires board of directors as
a result of a Superior Proposal and (c) six months after
termination of the Transaction Agreement if the Transaction
Agreement is terminated in connection with an Adverse
Recommendation Change by Clearwires board of directors as
a result of a Superior Proposal; or
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at any time on the mutual written agreement of each of Sprint,
Clearwire and four of the five Investors.
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If the Transaction Agreement is terminated, but the Eagle River
Voting Agreement remains in effect in accordance with
clause (c) above, the Eagle River Voting Share Amount will
automatically be reduced from 40% to 25% of the total voting
power of all capital stock of Clearwire outstanding as of
May 7, 2008 (on a non-fully diluted basis).
The
Intel Voting Agreement
Agreement to Vote. Under the terms of the
Intel Voting Agreement, Intel, Intel Capital Corporation and
Intel Capital (Cayman) Corporation, which we refer to
collectively as the Intel Stockholders, and each individually as
an Intel Stockholder, represented that as of May 7, 2008,
Intel Capital (Cayman) Corporation beneficially owned (within
the meaning of
Rule 13d-3
under the Securities Act) 3,333,333 shares of Clearwire
Class A Common Stock and Intel Capital Corporation
beneficially owned (within the meaning of
Rule 13d-3
under the Exchange Act) 23,427,601 shares of Clearwire
Class A Common Stock and 9,905,732 shares of Clearwire
Class B Common Stock which we refer to collectively as the
Intel Subject Shares. The Intel Subject Shares represented 29.8%
of the total voting power of Clearwire on May 7, 2008,
based on the number of shares of Clearwire Class A Common
Stock and Clearwire Class B Common Stock outstanding as of
April 30, 2008. Pursuant to the Intel Voting Agreement,
each Intel Stockholder has agreed that at the special meeting
(or any adjournment, postponement or continuation thereof) it
will vote the Intel Subject Shares owned by each Intel
Stockholder as of the record date with respect to the special
meeting in at least the same proportion as the Clearwire
stockholders (excluding each Intel Stockholder and its
affiliates, Eagle River and its affiliates and any director or
executive officer of Clearwire); provided, that such vote in
favor of approval of the Transactions will only be required if a
majority of Clearwire stockholders (excluding each Intel
Stockholder and its affiliates, Eagle River and its affiliates
and any director or executive officer of Clearwire) has voted in
favor of the approval of the Transactions.
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Agreement to Convert. The Intel Voting
Agreement provides that Intel will convert its shares of
Clearwire Class B Common Stock into shares of Clearwire
Class A Common Stock on a 1:1 basis pursuant to the
Conversion immediately before completion of the Merger (but
after the vote of the Clearwire stockholders at the special
meeting).
No Transfer Restrictions. Each Intel
Stockholder may transfer its Intel Subject Shares without
restriction.
Non-Solicitation. Pursuant to the Intel Voting
Agreement, each Intel Stockholder will not, nor will it permit
any affiliate controlled by it to make, directly or indirectly,
a solicitation of proxies or similar rights to vote, or seek to
advise or influence any person with respect to the voting of,
any shares of capital stock of Clearwire to cause stockholders
of Clearwire not to vote to approve and adopt the Transaction
Agreement. Pursuant to the Intel Voting Agreement, each Intel
Stockholder agrees it will not, and will direct any investment
banker, attorney, agent or other adviser or representative of
the Intel Stockholder not to, directly or indirectly, through
any officer, director, agent or otherwise, enter into, solicit,
initiate, conduct or continue any discussions or negotiations
with, or knowingly encourage or respond to any inquiries or
proposals by, or provide any information related thereto to any
person other than the parties to the Transactions.
Termination. The Intel Voting Agreement will
terminate:
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on the earliest to occur of: (a) the approval and adoption
of the Transaction Agreement at the special meeting,
(b) provided that the special meeting has concluded, the
failure of the Clearwire stockholders to approve and adopt the
Transaction Agreement and the Transactions at the special
meeting, (c) May 7, 2009 and (d) the termination
of the Transaction Agreement; or
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at any time on written agreement of each of Sprint, Clearwire
and three of the four Strategic Investors.
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Registration
Rights Agreement
As part of the Transactions, New Clearwire, Sprint, Eagle River,
Intel and the Strategic Investors have agreed to enter into the
Registration Rights Agreement, which will set forth certain
registration rights of Sprint, Eagle River, Intel and the
Strategic Investors with respect to their shares of New
Clearwire Common Stock.
Demand
Registration Rights; Required Shelf Registration
Each of the Strategic Investors, Sprint, Eagle River and Intel
will be entitled to a specified number of demands, varying from
one to eight, that New Clearwire prepare and file with the SEC a
registration statement relating to the sale of its New Clearwire
Class A Common Stock and any common stock of New Clearwire
issued in respect of New Clearwire Class A Common Stock or
other securities of New Clearwire issued with respect to such
common stock, which we refer to collectively as the Registrable
Securities, including in an underwritten offering, provided that
such Registrable Securities have an aggregate price to the
public of not less than $50 million. In addition, if New
Clearwire becomes eligible to use
Form S-3,
each of the Strategic Investors, Sprint, Eagle River and Intel
may also demand that New Clearwire prepare and file with the SEC
a registration statement on
Form S-3
relating to the sale of their Registrable Securities, provided
that the Registrable Securities to be sold have an aggregate
price to the public of not less than $10 million. After New
Clearwire becomes eligible to use
Form S-3,
New Clearwire is required to file a shelf registration statement
with the SEC providing for the registration and sale of the
Registrable Securities on a delayed or continuous basis.
On receipt of a demand notice, New Clearwire will be required
to, as soon as practicable, give notice of such requested
registration to all persons that may be entitled to participate
in such sale. Thereafter, New Clearwire must, as soon as
practicable, effect such registration and all qualifications and
compliances as may be required. Additionally, with respect to a
demand registration, New Clearwire will be required to keep the
registration statement effective, subject to certain exceptions,
for at least 270 days from the effective time of such
registration statement or such shorter period in which all
Registrable Securities have been sold.
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With respect to a shelf registration, New Clearwire must
(a) prepare and file a shelf registration statement with
the SEC as promptly as practicable, but no later than
60 days, after New Clearwire becomes eligible to use
Form S-3
and (b) use its commercially reasonable efforts to have the
shelf registration statement declared effective as promptly as
reasonably practicable after filing. New Clearwire will be
required to use reasonable efforts to keep the shelf
registration effective, subject to certain limitations, until
the earlier of the date on which (1) all the Registrable
Securities have been sold thereunder and (2) another
registration statement is filed. For as long as the Strategic
Investors, Sprint, Eagle River and Intel are entitled to demand
registration of their New Clearwire securities, they will be
entitled to demand that New Clearwire effect an offering, which
we refer to as a Takedown, under the shelf registration
statement. On that demand, New Clearwire will be required to
promptly give notice of such requested Takedown to all persons
that may be entitled to participate in such offering, and
promptly supplement the prospectus included in the shelf
registration statement so as to permit the sale of the
securities covered by the requested Takedown and any other
securities requested to be included by those entitled to
participate in such sale, provided that such securities have an
aggregate price to the public of not less than $10 million.
For as long as the Strategic Investors, Sprint, Eagle River and
Intel are entitled to demand registration of their New Clearwire
securities, they will be entitled to demand that New Clearwire
effect an underwritten offering under the shelf registration
statement.
New Clearwire will be permitted to postpone the filing of a
registration statement, or in the case of a shelf registration,
suspend such shelf registration, for up to 90 days in any
12-month
period, if New Clearwires board of directors
determines in good faith that the registration and offering
(a) would materially and adversely affect or materially
interfere with any pending material financing or transaction
under consideration by New Clearwire or (b) would
require disclosure of any information that has not been, and is
not otherwise required to be, disclosed to the public, the
premature disclosure of which would materially and adversely
affect New Clearwire.
No demands for registration may be made between the Closing of
the Transactions and the date of adjustment pursuant to the
Transaction Agreement.
In addition, with respect to underwritten offerings of
securities, each of the Strategic Investors, Sprint, Eagle River
and Intel agrees that, for a period of 90 days (subject to
one extension of not more than 17 days in certain
circumstances) after the effective date of the registration
statement, it will not (1) transfer or purchase, or enter
any agreement to transfer or purchase, any shares of New
Clearwire Common Stock or any securities convertible into New
Clearwire Common Stock held immediately before the effectiveness
of the registration statement for such offering, or
(2) subject to certain exceptions, enter into any swap or
other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of New
Clearwire Common Stock.
Piggyback
Registration Rights
The Registration Rights Agreement will also provide each of the
Strategic Investors, Sprint, Eagle River and Intel with
piggyback registration rights such that if New Clearwire
proposes to file a registration statement in connection with a
public offering of any class of New Clearwire Common Stock, with
certain limited exceptions, New Clearwire will be required to
give prompt written notice of such proposed filing to each of
the Strategic Investors, Sprint, Eagle River and Intel and
register such number of securities as each of the Strategic
Investors, Sprint, Eagle River and Intel may request in writing
within 20 days of receiving such notice.
In connection with any underwritten offering, if the managing
underwriter determines in its good faith that market factors
require a reduction in the number of shares that may be offered,
the shares that New Clearwire is registering for its own
account will have first priority to be included in such
registration, shares of each of the Strategic Investors, Sprint,
Eagle River and Intel will have second priority, and shares held
by other holders will have third priority. All piggyback
registration rights will be in addition to any demand
registration rights, and no piggyback registration of shares
will relieve New Clearwire of its obligation to provide a demand
registration in accordance with the Registration Rights
Agreement.
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Expenses
New Clearwire will bear all registration expenses specified in
the Registration Rights Agreement as well as all other expenses
incurred by it in connection with the performance of its
obligations under the Registration Rights Agreement. Each of the
Strategic Investors, Sprint, Eagle River and Intel will bear all
transfer taxes and brokerage and underwriters discounts
and commissions relating to any registration or sale of their
respective shares.
Indemnification
The Registration Rights Agreement will require New Clearwire to
indemnify each holder of Registrable Securities against certain
losses that may be suffered by such holders in connection with
registrations made pursuant to the Registration Rights
Agreement. Furthermore, each holder whose Registrable Securities
are included in a registration statement agrees to indemnify New
Clearwire and each other holder of Registrable Securities to the
extent that any losses result from information furnished in
writing by that holder expressly for use in the registration
statement.
Operating
Agreement
General
As part of the Transactions, Clearwire has agreed to cause
Clearwire Communications to be governed by the Operating
Agreement, which will provide that the business and operations
of Clearwire Communications will be managed by New Clearwire, as
managing member, and will set forth, among other things, certain
transfer restrictions on membership interests in Clearwire
Communications, rights of first refusal and pre-emptive rights.
Allocations
and Distributions
Under the Operating Agreement, items of income, gain, loss or
deduction of Clearwire Communications generally will be
allocated among the members for capital account purposes and for
tax purposes in a manner that results in the capital account
balance of each member, immediately after making the allocation,
being as nearly as possible equal to the amount of the
distributions that would be made to the member if Clearwire
Communications sold all of its assets for cash and distributed
its net assets in liquidation. Under the Operating Agreement,
liquidating distributions made by Clearwire Communications
generally will be made on a pro rata basis to the holders of
Clearwire Communications Common Interests. Accordingly, it is
expected that, subject to the discussion of Section 704(c)
immediately below, items of income, gain, loss or deduction of
Clearwire Communications generally will be allocated among the
members, including New Clearwire, on a pro rata basis in
proportion to the number of Clearwire Communications Common
Interests held by each member.
New Clearwire (through the Merger) and Sprint will transfer to
Clearwire Communications assets, which we refer to as built-in
gain assets, whose fair market value is greater than the current
basis of those assets for tax purposes. Section 704(c) of
the Code and the Treasury regulations thereunder require
taxpayers that contribute
built-in-gain
property to a partnership to take into account the difference
between the value of the contributed property for capital
account purposes (initially equal to the fair market value of
the contributed property on contribution) and the tax basis of
the property through allocations of income, gain, loss and
deduction of the partnership, using one of the permissible
methods described in the Treasury regulations under
Section 704(c). Under the Operating Agreement, all of the
built-in gain assets contributed by New Clearwire and 50% of the
built-in gain in the assets contributed by Sprint will be
accounted for under the so-called remedial method.
Under that method, the non-contributing members will be
allocated phantom tax amortization deductions in the
amount necessary to cause their tax amortization deductions to
be equal to their amortization with respect to the built-in gain
assets for capital account purposes, and the contributing member
(New Clearwire, in the case of former Clearwire assets) will be
allocated a matching item of phantom ordinary
income. Under the Operating Agreement, the remaining 50% of the
built-in gain in the assets contributed by Sprint will be
accounted for under the so-called traditional
method. Under that method, the tax amortization deductions
allocated to the non-contributing members with respect to a
built-in gain asset are
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limited to the actual tax amortization arising from that asset.
The effect of the traditional method is that some of the burden
of the built-in gain on a built-in gain asset is shifted to the
non-contributing members, in the form of reduced tax
amortization deductions.
If, after Closing, Clearwire Communications sells a built-in
gain asset in a taxable transaction, then the tax gain on the
sale of the asset generally will be allocated first to the
contributing member (New Clearwire or Sprint) in an amount up to
the remaining (unamortized) portion of the built-in gain that
was previously credited to New Clearwire or Sprint (as the
case may be) for capital account purposes.
In general, under the Operating Agreement, Clearwire
Communications may make distributions to its members, including
New Clearwire, from time to time at the discretion of New
Clearwire, in its capacity as managing member of Clearwire
Communications. Such distributions generally will be made to the
members, including New Clearwire, on a pro rata basis in
proportion to the number of Clearwire Communications Common
Interests held by each member at the record date for the
distribution. Clearwire Communications generally may not make
any distributions, other than tax distributions, to its members
unless a corresponding distribution or dividend is paid by New
Clearwire to its stockholders contemporaneously with the
distributions made to the members of Clearwire Communications.
If New Clearwire would be liable for tax on the income and gains
of Clearwire Communications allocated to it under the Operating
Agreement, then three business days prior to each date on which
New Clearwire is required to make a deposit or payment of taxes,
Clearwire Communications will be required to make distributions
to its members, generally on a pro rata basis in proportion to
the number of Clearwire Communications Common Interests held by
each member, in amounts so that the aggregate portion
distributed to New Clearwire in each instance will be the amount
necessary to pay all taxes then reasonably determined by New
Clearwire to be payable with respect to its distributive share
of the taxable income of Clearwire Communications (including any
items of income, gain, loss or deduction allocated to New
Clearwire under the principles of Section 704(c) of the
Code), after taking into account all net operating loss
deductions and other tax benefits reasonably expected to be
available to New Clearwire.
Exchange
of Interests
The Operating Agreement will provide that holders of Clearwire
Communications Class B Common Interests (other than New
Clearwire and its subsidiaries) will have the right to exchange
one Clearwire Communications Class B Common Interest and
one share of New Clearwire Class B Common Stock for one
share of New Clearwire Class A Common Stock, subject to
adjustment of the exchange rate as provided in the Operating
Agreement. In addition, under the Operating Agreement, Sprint or
an Investor may effect an exchange of Clearwire Communications
Class B Common Interests and New Clearwire Class B
Common Stock for New Clearwire Class A Common Stock by
transferring to New Clearwire a holding company that owns the
Clearwire Communications Class B Common Interests and New
Clearwire Class B Common Stock in a transaction which the
Operating Agreement refers to as a holding company exchange.
At any time that a share of New Clearwire Class B Common
Stock is exchanged for a share of New Clearwire
Class A Common Stock, one Clearwire Communications
Class B Common Interest will be cancelled without any
further consideration, and one Clearwire Communications
Class A Common Interest and one Clearwire Communications
Voting Interest will be issued to New Clearwire. In general, at
any time that shares of New Clearwire Class A Common Stock
are redeemed, repurchased, acquired, cancelled or terminated by
New Clearwire, the managing member will cause the same number of
Clearwire Communications Class A Common Interests and the
same number of Clearwire Communications Voting Interests held by
New Clearwire to be redeemed, repurchased, acquired, cancelled
or terminated by Clearwire Communications for the same
consideration, if any, as the consideration paid by New
Clearwire for the New Clearwire Class A Common Stock, with
the intention that the number of Clearwire Communications
Class A Common Interests held by New Clearwire will equal
the number of shares of New Clearwire Class A Common
Stock outstanding.
At any time that New Clearwire issues any equity securities
(other than compensatory options issued pursuant to an incentive
plan or equity securities issued to fund other business
activities of New Clearwire that
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have been approved by the board of directors of New Clearwire),
the following will occur: (1) New Clearwire will contribute
to the capital of Clearwire Communications an amount of cash
equal to the issue price of the New Clearwire Class A
Common Stock or other equity securities and (2) Clearwire
Communications will issue Clearwire Communications Common
Interests or other securities as follows: (a) in the case
of an issuance of a number of shares of New Clearwire
Class A Common Stock, Clearwire Communications will issue
an equal number of Clearwire Communications Class A Common
Interests to New Clearwire and an equal number of Clearwire
Communications Voting Interests registered in the name of New
Clearwire; and (b) in the case of an issuance of any
securities not covered under (a) above, Clearwire
Communications will issue to New Clearwire an equal number of
Clearwire Communications Common Interests or other securities
(including Clearwire Communications Voting Interests, if
applicable) with rights, terms and conditions that are
substantially the same as those of the New Clearwire equity
securities issued.
Restrictions
on Transfer
Subject to certain conditions, members may transfer their
interests in Clearwire Communications (either with or without
the corresponding shares of New Clearwire Class B Common
Stock) to then-existing holders of interests in Clearwire
Communications or to certain affiliates of the member. However,
the Operating Agreement will provide that each member of
Clearwire Communications will not permit its interests in
Clearwire Communications to be held (whether by initial holders
or transferees) by more than a specified number of holders, and
will not transfer (whether directly or indirectly) any interest
in Clearwire Communications, or take any other action, that
would result in Clearwire Communications having more than 100
partners for United States federal income tax purposes.
Further, a member or its transferee may transfer its interests
in Clearwire Communications only on notice to Clearwire
Communications, in accordance with the Operating Agreement and,
in the case of a transferee, on delivery of a required transfer
agreement to Clearwire Communications. Unless certain conditions
are satisfied, none of Sprint, Intel, the Strategic Investors or
their permitted transferees may transfer their respective
interests in Clearwire Communications if such transfer or
transfers would result in the transferee having voting power in
New Clearwire equal to or greater than 50% of the voting power
that Sprint will have at the Closing of the Transactions, as
adjusted pursuant to the Transaction Agreement. A member that is
a Securities Holding Company (as defined in the Operating
Agreement) may transfer its interests in Clearwire
Communications through the transfer by the holder of 100% of the
securities in such Securities Holding Company of all of its
securities in such Securities Holding Company, subject to
certain restrictions.
Preemptive
Rights
If Clearwire Communications proposes to issue any new equity
securities, other than in certain issuances, each member of
Clearwire Communications, including Eagle River but excluding
New Clearwire, will have the right to purchase its pro rata
share of such equity securities, based on the number of equity
securities held by such holder before such issuance. Eagle
Rivers pro rata share will be determined based on the
number of equity securities that correspond to the number of
shares of New Clearwire Common Stock that Eagle River would have
been entitled to purchase as its pro rata share under the
Equityholders Agreement had the issued equity securities
been New Clearwire Common Stock issued by New Clearwire.
Rights
of First Offer
If a member desires to transfer any of its Clearwire
Communications Common Interests to a person other than a member
or permitted transferee of such member, it must first offer to
sell such Clearwire Communications Common Interests to the other
members (and to Eagle River) on the same terms and conditions as
it had proposed to make such transfer. The subject Clearwire
Communications Common Interests will be allocated among the
accepting members pro rata based on their ownership of Clearwire
Communications Common Interests. If the other members accept the
offer, collectively, for all but not less than all of the
subject Clearwire Communications Common Interests, the members
will consummate such purchase. If the offer to the other members
is over-subscribed, the subject Clearwire Communications Common
Interests will be allocated among the accepting members pro rata
based on their then ownership of Clearwire Communications
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Common Interests. If the offer to the other members is not fully
subscribed, the offer shall be deemed to have been rejected and
the selling member may proceed with the proposed sale, subject
to certain limitations. If Eagle River exercises its right of
first offer and acquires Clearwire Communications Common
Interests, then, if not previously admitted as a member, it will
be admitted as a member of Clearwire Communications by the
managing member. Certain transfers are not subject to this right
of first offer, however, including transfers that are part of a
business combination that constitutes a change of control of New
Clearwire or Clearwire Communications and certain
spin-off transactions.
Tag-Along
Rights
If the Principal Member (as defined in the Operating Agreement)
elects to sell all or any portion of its Clearwire
Communications Common Interests, which we refer to as the Sale
Interests, in a transaction after which the transferee would
hold voting power of Clearwire Communications greater than 50%
of the voting power that Sprint will have at the Closing of the
Transactions, as adjusted pursuant to the Transaction Agreement,
each other member (excluding New Clearwire, but including Eagle
River if Eagle River has become a member) will have the option
to sell a pro rata portion of its Clearwire Communications
Common Interests, instead of the Sale Interests, and the number
of Sale Interests to be sold by the Principal Member will be
reduced by the applicable number of Clearwire Communications
Common Interests to be included in the sale by the other members.
Other
Tax Matters
The Operating Agreement will provide that Clearwire
Communications will be treated as a partnership for federal and
all applicable state and local income tax purposes unless New
Clearwire causes Clearwire Communications to be treated other
than as a partnership in accordance with, and subject to the
conditions of, the Equityholders Agreement.
Unless there is a bona fide non-tax business need
(as defined in the Operating Agreement) for doing so, Clearwire
Communications and its subsidiaries are precluded from entering
into a taxable disposition of former Clearwire assets or former
Sprint assets that are intangible property and that would cause
the recognition of built-in gain in excess of $10 million
to be allocated to New Clearwire or Sprint under
Section 704(c) of the Code during any period of 36 months.
Certain notification procedures must be complied with prior to
Clearwire Communications entering into such a disposition.
If Clearwire Communications or any of its subsidiaries enters
into a transaction that results in the recognition of any
portion of the built-in gain with respect to a former Sprint
asset, subject to certain exceptions, Clearwire Communications
is required, upon request by Sprint, to make a tax loan to
Sprint on specified terms. The principal amount of any tax loan
to Sprint will be the amount by which the built-in gain
recognized by Sprint on the sale of former Sprint assets exceeds
any tax losses allocated by Clearwire Communications to Sprint
in the taxable year in which the sale of such built-in gain
assets occurs, multiplied by specified tax rates. Interest on
any tax loan will be payable by Sprint semiannually at a
specified floating rate.
Amendment
The Operating Agreement may be amended by the written consent of
the managing member, members (other than the managing member)
collectively holding a percentage interest of at least
662/3%
in Clearwire Communications, the independent designees nominated
to New Clearwires board of directors, and each of Sprint,
Intel, and the Strategic Investors as a group, for so long as
Sprint, Intel or the Strategic Investors as a group,
respectively, has a percentage interest of at least 5% in New
Clearwire.
Commercial
Agreements among New Clearwire, Clearwire Communications,
Sprint, Intel and the Strategic Investors
In connection with the completion of the Transactions, New
Clearwire will, and will cause Clearwire Communications to,
enter into certain commercial agreements with Sprint and the
Investors, which will relate
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to the bundling and reselling of New Clearwires WiMAX
services and Sprints 3G services, the embedding of WiMAX
chips into various devices, and the development of Internet
services and protocols, among other things.
Agreements
with Respect to Intellectual Property
Intellectual Property Agreement. Clearwire has
agreed to cause Clearwire Communications to enter into an
intellectual property agreement with Sprint, which we refer to
as the Intellectual Property Agreement, pursuant to which Sprint
will assign and cause its controlled affiliates to assign to New
Clearwire, and all persons in which New Clearwire is the
owner, directly or indirectly, of at least 50% of the
persons voting stock, all of Sprints right, title
and interest in certain WiMAX patent applications, certain
trademarks, and certain other software and other proprietary
information related to its WiMAX business. In addition, Sprint
will grant and cause its controlled affiliates to grant to New
Clearwire, and all persons in which New Clearwire is the owner
of at least 50% of the persons voting stock, non-exclusive
licenses to exercise any rights with respect to certain
proprietary software and certain WiMAX-related proprietary
information owned by Sprint or its controlled affiliates prior
to the effective date of the Intellectual Property Agreement and
not otherwise assigned to New Clearwire or any persons in
which New Clearwire is the owner of at least 50% of the
persons voting stock.
Under the Intellectual Property Agreement, Sprint and Clearwire
Communications will cooperate in connection with:
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the preparation, filing, prosecution, maintenance and defense of
each others patents;
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any suit for infringement of each others patents brought
by New Clearwire, Sprint or their controlled affiliates against
a third party; and
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executing any applicable documents requested by one another to
perfect ownership and register patent assignments with any
patent office.
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Further, New Clearwire and Sprint will not assert their
respective patent rights against each other for a period of ten
years from date of the agreement (or 15 years with respect
to patents related to VoIP owned by Sprint and its subsidiaries)
or for so long as Sprint has an ownership interest in Clearwire
Communications, whichever is longer. Subject to certain
exceptions, all intellectual property assigned or licensed would
be assigned or licensed, as applicable, as is,
without any representations, warranties or indemnifications.
Sprint and New Clearwire may potentially cooperate in
defending third-party infringement suits by asserting patents
for the benefit of the other.
MVNO
Agreements
3G MVNO Agreement. At the Closing, Clearwire
Communications will exercise an option to become a party to a
non-exclusive MVNO Support Agreement entered into on May 7,
2008, among Sprint Spectrum L.P. d/b/a Sprint, Comcast MVNO II,
LLC, TWC Wireless, LLC and BHN Spectrum Investments, LLC, which
we refer to as the 3G MVNO Agreement. Under the 3G MVNO
Agreement, Sprint agrees to sell its code division multiple
access, which we refer to as CDMA, mobile voice and data
communications service, which we refer to as the PCS Service,
for the purpose of resale by the other parties to each of their
respective end user customers. Certain related entities,
affiliates and purchases of divested cable operations are also
authorized in certain circumstances to purchase under the 3G
MVNO Agreement for resale to their respective end users. The PCS
Service includes Sprints existing core network services,
other network elements and information that enable a third party
to provide services over the network, or core network enablers,
and, subject to certain limitations and exceptions, new core
network services, core network enablers and certain customized
services. The 3G MVNO Agreement specifically excludes access to
Sprints Integrated Digital Enhanced Network, which we
refer to as iDEN, and services operating on a 2.5 GHz
spectrum or any unlicensed spectrum, except as provided in the
3G MVNO Agreement with respect to certain converged products and
services. Sprint has the right to implement network controls as
long as they are implemented consistently across the retail and
wholesale base and notice is provided.
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Subject to certain exceptions, each of Comcast MVNO II, LLC, TWC
Wireless, LLC and BHN Spectrum Investments, LLC and any other
parties, including Clearwire Communications, permitted to become
a party to the 3G MVNO Agreement that elect the option to do so,
which we refer to as the 3G MVNOs, may market and sell the PCS
Service provided that it does so as part of a defined bundle of
products and services (each 3G MVNO has its own unique bundling
terms). Also, subject to certain exceptions, the 3G MVNOs are
restricted from reselling the PCS Service to other resellers.
Subject to certain exceptions, the 3G MVNOs generally may not
target market their respective end users activated on the Sprint
network to switch to a competing wireless network or mass
migrate their respective end users activated on the Sprint
network to another competing wireless network.
With certain exceptions, the pricing of the PCS Service is
primarily volume or usage based pricing with provisions to
ensure long-term price competitiveness. Each 3G MVNO receives
price protections designed to keep the Sprint offering market
competitive with offerings to other similar resellers, taking
into account a number of factors. Each 3G MVNO also receives
protections from Sprint entering agreements with more favorable
terms. With certain exceptions, each 3G MVNO will have the
right to opt into any agreement related to the wireless
broadband services between Sprint and any other 3G MVNO on
substantially identical terms.
While each party is responsible for procuring its own devices,
Sprint is obligated to provide commercially reasonable
assistance in obtaining terms from device manufacturers that are
more favorable than those terms that could be obtained
independently. Each 3G MVNO is responsible for the relationship
with the end user customer, including pricing, care and billing.
Each 3G MVNO has the right to tag along with Sprint
to successor networks to which Sprint migrates its comparable
CDMA base, and, in certain circumstances, Sprint has a
drag along right to force these parties to
transition to such a successor network.
Each of Clearwire Communications, Google and Intel and their
respective controlled affiliates have the option to become a
party to the 3G MVNO Agreement under the same general terms as
the initial 3G MVNOs. In addition, each party to the 3G MVNO
Agreement has customary indemnification obligations.
The 3G MVNO Agreement has an initial term that ends on
December 31, 2018 with, subject to certain scale
conditions, the 3G MVNOs unilateral option to renew for up to
two additional successive five-year periods by notice to Sprint.
Following expiration of the second five-year renewal, the 3G
MVNO Agreement automatically renews for successive three-year
renewal periods unless Sprint or another party to the
3G MVNO Agreement provides notice of its intent not to
renew at least 90 days prior to the end of the term then in
effect. Sprint is permitted to terminate the 3G MVNO Agreement
with respect to any 3G MVNO on such other 3G MVNOs:
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failure to pay undisputed amounts;
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material breach;
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dissolution, bankruptcy or written admission of inability to pay
debts; or
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entry into a business combination transaction pursuant to which
such 3G MVNO becomes an affiliate of or acquires a business that
competes with Sprint (based on criteria specified in the 3G MVNO
Agreement).
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Each 3G MVNO is permitted to terminate the agreement on:
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Sprints material breach;
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Sprints dissolution, bankruptcy or written admission of
inability to pay debts;
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material degradation of Sprints network;
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Sprints entry into a business combination transaction
pursuant to which Sprint becomes an affiliate of or acquires a
business that competes with any 3G MVNO (based on criteria
specified in the 3G MVNO Agreement); or
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beyond a certain defined threshold, sale of licenses if Sprint
does not enter into a service assumption agreement or loss of
licenses in markets.
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After the termination of the 3G MVNO Agreement, Sprint has
varying obligations to provide post termination transition
assistance pursuant to varying phase out periods, based on the
circumstances giving rise to the termination.
4G MVNO Agreement. Under a non-exclusive 4G
MVNO Agreement that Clearwire has agreed to cause Clearwire
Communications to enter into at Closing with Comcast MVNO II,
LLC, TWC Wireless, LLC, BHN Spectrum Investments, LLC and Sprint
Spectrum L.P., which we refer to as the 4G MVNO Agreement,
Clearwire Communications will sell its wireless broadband
services to the other parties to the 4G MVNO Agreement, for the
purposes of the purchasers marketing and reselling the wireless
broadband services to each of their respective end user
customers. The wireless broadband services to be provided under
the 4G MVNO Agreement are generally comprised of those services
provided by Clearwire Communications to its retail customers, or
standard network services, and certain other wireless broadband
services, or non-standard network services requested by Comcast
MVNO II, LLC, TWC Wireless, LLC and BHN Spectrum Investments,
LLC and any other parties permitted to become a party to the 4G
MVNO Agreement that exercise the option to do so, which we refer
to as the 4G MVNOs. Under the 4G MVNO Agreement, Clearwire
Communications will, among other things, use commercially
reasonable efforts to provide support services to each of the 4G
MVNOs and to develop by certain prescribed dates certain
wireless service and network elements.
Subject to certain exceptions, each 4G MVNO may market and sell
the wireless broadband service provided that it does so as part
of a defined bundle (each 4G MVNO has a unique bundle
requirement). Also, subject to certain exceptions, the 4G MVNOs
will be restricted from reselling the wireless broadband service
to other resellers.
During the first seven years, Clearwire Communications will have
the exclusive right to develop and contract with original
equipment manufacturers, which we refer to as OEMs, regarding
embedded devices, including devices capable of functioning on a
mobile WiMAX network, and will exclusively work with OEMs to
embed client managers. For a period of time and subject to
certain exceptions, the 4G MVNOs generally may not target market
their respective end users activated on the Clearwire
Communications network to switch to a competing wireless network
or mass migrate their respective end users activated on the
Clearwire Communications network to another competing wireless
network.
With certain exceptions, each 4G MVNO will have the right to opt
into any agreement related to the wireless broadband services
between Clearwire Communications and any other 4G MVNO. Similar
opt-in rights and bundling service protections will be available
with respect to any 4G agency agreement entered into between
Clearwire Communications and any 4G MVNO. In certain
circumstances, any purchaser of the divested cable television
system of a multiple system operator that will be a party to the
4G MVNO Agreement or Sprint wireless operations will be
authorized to purchase services under the 4G MVNO Agreement.
With certain exceptions, the pricing of the wireless broadband
service will be primarily a discount from Clearwire
Communications retail price for similar services and
pricing determinations will differ between standard and
non-standard service offerings. Each 4G MVNO will receive price
protections in the form of certain terms and conditions that are
designed to keep the Clearwire Communications offering market
competitive with offerings to other similar resellers. Subject
to certain qualifications, each 4G MVNO will be entitled to more
favorable economic and non-economic terms for the wireless
broadband services provided by Clearwire Communications or
certain of its affiliates to any other reseller.
While each party will be responsible for procuring its own
devices, Clearwire Communications will be obligated to provide
commercially reasonable assistance in obtaining terms from
device manufacturers that are more favorable than those terms
that could be obtained independently. In addition, the 4G MVNO
Agreement will include certain protections from any partys
exclusive arrangements with device manufacturers. Clearwire
Communications will have the right to implement network controls
as long as they are implemented consistently across the retail
and wholesale base and notice was provided. Each 4G MVNO will be
responsible for the relationship with the end user customer,
pricing, care and billing with respect to the wireless broadband
service. The 4G MVNO Agreement will provide for broad
operational support capabilities that will be provided by
Clearwire Communications.
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Google and Intel and their respective controlled affiliates will
have the option to become a party to the 4G MVNO Agreement under
the same general terms as the 4G MVNOs. The 4G MVNO Agreement
will have a five-year initial term with perpetual automatic
five-year renewals, unless any 4G MVNO elects solely as to
itself to provide notice of its intent not to renew at least
180 days prior to the end of the term then in effect. The
4G MVNO Agreement will further provide that Clearwire
Communications cannot enter into any other agreement that
contains exclusivity provisions that are binding on any 4G MVNO
or its customers or otherwise limit any 4G MVNOs
ability to provide services to such 4G MNVO customers. Clearwire
Communications will have customary indemnification obligations
under the 4G MVNO Agreement. Clearwire Communications will be
permitted to terminate the 4G MVNO Agreement with respect to any
4G MVNO on such other 4G MVNOs:
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failure to pay undisputed amounts;
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material breach; or
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dissolution, bankruptcy or written admission of inability to pay
debts.
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If Intel becomes a party to the 4G MVNO Agreement, Clearwire
Communications will also be permitted to terminate the 4G MVNO
Agreement with respect to Intel if Clearwire Communications has
the right to terminate the Intel Market Development Agreement
(as defined below) between Intel and Clearwire Communications as
a result of an event of default under the Intel Market
Development Agreement. Each 4G MVNO will be permitted to
terminate the 4G MVNO on Clearwire Communicationss:
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material breach;
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dissolution, bankruptcy or written admission of inability to pay
debts; or
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change in control (unless Sprint or any of its controlled
affiliates is the surviving entity).
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Sales
Agreements
4G Authorized Sales Representative
Agreement. Clearwire has agreed to cause
Clearwire Communications to enter into an authorized sales
representative agreement, which we refer to as the 4G ASR
Agreement, pursuant to which Sprint may act as a non-exclusive
sales representative on behalf of Clearwire Communications, to
solicit subscribers to purchase Clearwire Communications
services. These subscribers will enter into service agreements
with Clearwire Communications and will be customers of Clearwire
Communications with respect to the services provided by
Clearwire Communications. The 4G ASR Agreement will have an
initial term of one year and will be extended beyond the initial
one-year term only if neither party gives notice that it does
not wish to extend the 4G ASR Agreement. The compensation
payable by Clearwire Communications to the authorized sales
representative will be negotiated before Closing.
3G National Retailer Agreement. Sprint has
agreed to cause Sprint Solutions, Inc. and other Sprint
affiliated entities, which we refer to collectively as the
Sprint Entities, to enter into a national retailer agreement,
which we refer to as the 3G Retailer Agreement, pursuant to
which Clearwire Communications may act as a non-exclusive sales
representative on behalf of the Sprint Entities to solicit
subscribers to purchase services from the Sprint Entities. These
subscribers will enter into subscription agreements with Sprint
Solutions, Inc. or another Sprint affiliate, and will be
customers of such Sprint entity with respect to the services
provided by Sprint. The 3G Retailer Agreement will have an
initial term of one year and will be extended beyond the initial
one-year term only if neither party gives notice that it does
not wish to extend the 3G Retailer Agreement. The compensation
payable by Sprint to Clearwire Communications for the activation
of Sprints services will be negotiated before Closing.
Intel
Market Development Agreement
Clearwire has agreed to cause Clearwire Communications to enter
into a market development agreement with Intel, which we refer
to as the Intel Market Development Agreement, pursuant to which
Clearwire Communications will promote the use of certain
notebook computers and mobile Internet devices on the New
Clearwire network, and Intel would develop, market, sell and
support WiMAX embedded chipsets for use in
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certain notebook computers and mobile Internet devices that may
be used on the New Clearwire network. The Intel Market
Development Agreement will last for a term of seven years from
the date of the agreement, with Intel having the option to renew
the agreement for successive one year terms up to a maximum of
13 additional years provided that Intel meets certain
requirements. If Intel elects to renew the agreement for the
maximum
20-year
term, the agreement will thereafter automatically renew for
successive one-year renewal periods until either party
terminates the agreement. In addition, any time during the
initial seven-year term, Intel may elect to become a party to
the 4G MVNO Agreement or a party to both the 4G MVNO Agreement
and the 3G MVNO Agreement. Any election with respect to the 4G
MVNO Agreement must be on the same terms and conditions as those
offered to the other 4G MNVOs, and includes an obligation on
Intel to bundle additional services with WiMAX access service.
If Intel elects to become a party to the 4G MVNO Agreement or a
party to both the 4G MVNO Agreement and the 3G MVNO Agreement,
and if such election is made in the first three years of the
Intel Market Development Agreement, the Intel Market Development
Agreement will terminate three years from the date of the
agreement. If such election is made more than three years after
the date of the Intel Market Development Agreement but before
the end of the seventh year of the Intel Market Development
Agreement, then the Intel Market Development Agreement will
terminate at the time such election becomes effective.
Under the Intel Market Development Agreement, Clearwire
Communications will pay to Intel a portion of the access
revenues received from some retail customers using certain
Intel-based notebook computers, or other mutually agreed on
devices on the New Clearwire network, for a defined period of
time, which we do not believe will have a significant impact on
our profitability. Subject to certain qualifications, Clearwire
Communications will also pay to Intel a
one-time
fixed payment for each new qualifying Intel-based device
activated on Clearwire Communicationss network during the
initial term. Intel has committed, subject to certain conditions
and limitations, to help ensure, during a specified period, the
commercial availability of notebook computers and mobile
Internet devices that operate on the New Clearwire network. In
addition, Intel will provide engineering and validation with
respect to the use of certain notebook computers on the New
Clearwire network, including supporting interoperability
testing. Subject to a number of conditions, Intel has committed
to spend, or cause others to spend, specified amounts on
marketing within the first seven-year period, and Clearwire
Communications will spend, or cause others to spend, set amounts
on marketing within a specified time frame. Intel has agreed to
develop a co-branding construct to promote the New Clearwire
network and will also be obligated to conduct direct marketing
and indirect marketing programs and activities. Clearwire
Communications will commit to achieving a minimum POPs coverage
during the initial term.
Under the Intel Market Development Agreement, for a period of
three years, Clearwire Communications will not be permitted to
commercially deploy any wireless broadband or data technology,
except for WiMAX and complementary services (including Wi-Fi,
for example). Clearwire Communications will be relieved of this
restriction if WiMAX service does not meet the minimum
performance requirements. The Intel Market Development Agreement
will also provide that Intel and Clearwire Communications will
become involved with Open Patent Alliance, LLC, an entity formed
to protect and promote the global implementation of WiMAX and to
create patent pools for licensing of patent claims essential to
WiMAX technology, and make certain capital contributions when
due to Open Patent Alliance, LLC. The Intel Market Development
Agreement will be terminable by either party without penalty on
default of the other party. Subject to certain conditions,
either party will be permitted to transfer the agreement on the
occurrence of a change in control.
Google/New
Clearwire Agreements
Google Products and Services
Agreement. Clearwire has agreed to cause
Clearwire Communications to enter into a products and services
agreement with Google, which we refer to as the Google Products
and Services Agreement, pursuant to which Clearwire
Communications and Google will collaborate on a variety of
products and services. Google will provide advertising services
to Clearwire Communications for use with certain websites and
devices, and Clearwire Communications will utilize these Google
advertising services on an exclusive basis for its retail
customers. Google will pay Clearwire Communications a percentage
of the revenue that Google generates from these advertising
services. Google will also provide a suite of hosted
communications services, including email, instant messaging and
calendar functionality, to New Clearwire for integration into
New Clearwires desktop portal offering. Furthermore,
Clearwire Communications will support
131
the open-source Android platform, will work with Google to offer
certain other Google applications, and will explore working with
Google on a variety of other potential products and services.
The Google Products and Services Agreement will have a term of
three years.
Google Spectrum Agreement. Clearwire has
agreed to cause Clearwire Communications to enter into a
spectrum agreement with Google, which we refer to as the Google
Spectrum Agreement, pursuant to which Clearwire Communications
will make available to Google certain of its excess 2.5 GHz
spectrum in various markets, if Clearwire Communications
determines there is any, for experimental usage by Google and
for development of alternative applications by third parties
operating under the direction and approval of New Clearwire and
Google. The third-party use of New Clearwires spectrum
beyond that used for WiMAX technology can not be utilized in a
manner that will interfere with New Clearwires use of the
its spectrum for WiMAX technology, and will be subject to
availability. The revenue generated from the spectrum usage
other than for WiMAX technology, if any, will be shared by
Google and New Clearwire. The Google Spectrum Agreement provides
for an initial term of five years from the date of the
agreement. The Google Spectrum Agreement will be terminable by
either party on default of the other party.
Clearwire
Communications/Sprint Network Agreements
Master Site Agreement. Clearwire has agreed to
cause Clearwire Communications to enter into a master site
agreement with Sprint, which we refer to as the Master Site
Agreement, pursuant to which Sprint and Clearwire Communications
will establish the contractual framework and procedures for the
leasing of tower and antenna collocation sites to each other.
Leases for specific sites will be negotiated by Sprint and
Clearwire Communications on request by the lessee. The leased
premises may be used by the lessee for any activity in
connection with the provision of wireless communications
services, including attachment of antennas to the towers at the
sites. The term of the Master Site Agreement will be ten years
from execution. The term of each lease for each specific
site will be five years, but the lessee has the right to extend
the term for up to an additional 20 years. The lessee will
be responsible for payment of a monthly fee per site to the
other party. The lessee is also responsible for the utility
costs and for certain additional fees.
Master Agreement for Network
Services. Clearwire has agreed to cause Clearwire
Communications to enter into a master agreement for network
services with the Sprint Entities, which we refer to as the
Master Agreement for Network Services, pursuant to which the
Sprint Entities and Clearwire Communications will establish the
contractual framework and procedures for Clearwire
Communications to purchase network services from Sprint
Entities. Clearwire Communications may order various services
from the Sprint Entities, including IP network transport
services, data center collocation, toll-free services and access
to the following business platforms: voicemail, instant
messaging services, location-based systems and media server
services. Clearwire Communications will not be obligated to
purchase these services from the Sprint Entities. The Sprint
Entities will provide a service level agreement that is
consistent with the service levels provided to similarly
situated customers. Pricing will be specified in separate
product attachments for each type of service; in general, the
pricing is based on the mid-point between fair market value of
the service and the Sprint Entities fully allocated cost
for providing the service. The term of the Master Agreement for
Network Services will be five years, but Clearwire
Communications will have the right to extend the term for an
additional five years.
IT Master Services Agreement. Clearwire has
agreed to cause Clearwire Communications to enter into an IT
master services agreement with the Sprint Entities, which we
refer to as the IT Master Services Agreement, pursuant to which
the Sprint Entities and Clearwire Communications will establish
the contractual framework and procedures for Clearwire
Communications to purchase information technology, which we
refer to as IT, application services from the Sprint Entities.
Clearwire Communications may order various information
technology application services from the Sprint Entities,
including human resources applications, supply chain and finance
applications, device management services, data warehouse
services, credit/address check, IT help desk services, repair
services applications, customer trouble management, coverage map
applications, network operations support applications, and other
services. The specific services requested by Clearwire
Communications will be identified in Statements of Work to be
completed by the Sprint Entities and Clearwire Communications.
The Sprint Entities will provide service levels consistent with
the service
132
levels the Sprint Entities provide to their affiliates for the
same services. Pricing will be specified in each separate
Statement of Work for each type of service. The term of the IT
Master Services Agreement will be five years, but Clearwire
Communications will have the right to extend the term for an
additional five years.
Subscription
Agreement
Under a subscription agreement entered into between CW
Investment Holdings LLC, which we refer to as CW Investment
Holdings, and Clearwire, which we refer to as the Subscription
Agreement, CW Investment Holdings will purchase, for an
aggregate amount of $10 million, a number of shares of New
Clearwire Class A Common Stock at the same per-share
purchase price paid by the Investors under the Transaction
Agreement, as such price is adjusted under the Transaction
Agreement. The closing of the subscription will occur on the
first business day following the adjustment date described in
the Transaction Agreement or as soon thereafter as reasonably
practicable and mutually agreed on. The obligations of the
parties under the Subscription Agreement are subject to the
closing of the Transactions and the determination of the
post-closing adjustment to the purchase price paid by the
Investors in accordance with the Transaction Agreement. Each
partys obligation under the Subscription Agreement will
also be conditioned on the fulfillment of certain conditions,
including the accuracy of each partys respective
representations and warranties. Each party must indemnify the
other for any breaches of the terms of the Subscription
Agreement. The Subscription Agreement terminates:
|
|
|
|
|
automatically on the termination of the Transaction Agreement;
|
|
|
|
on the mutual written agreement of the parties;
|
|
|
|
on notice by CW Investment Holdings to Clearwire or New
Clearwire if the closing of the subscription has not occurred by
the first anniversary of the date of the Subscription
Agreement; and
|
|
|
|
on notice by CW Investment Holdings, on the one hand, or by
Clearwire or New Clearwire, on the other hand, if the conditions
to the closing of the subscription are incapable of being
satisfied and have not been waived by the applicable party.
|
Under the Subscription Agreement, for so long as any member of
CW Investment Holdings is a director of New Clearwire, New
Clearwire must provide such director with a copy of any
arrangement or agreement entered into with or on behalf of any
other Founding Stockholder (as such term is defined in the
New Clearwire Charter), board member, board observer, or
officer of New Clearwire containing a waiver, supplement to or
modification of any of the provisions regarding the allocation
of corporate opportunities, competing with the business of New
Clearwire and its subsidiaries or any other matters covered by
Article 11 of the New Clearwire Charter. Such
director, at his option, will be entitled to receive the benefit
of any provisions in any such arrangement or agreement that are
more favorable, as a whole, to persons party thereto than those
set forth in the New Clearwire Charter or other existing
arrangements to which such director may be subject. While CW
Investment Holdings does not have a right under the Subscription
Agreement to appoint a director to the board of directors of New
Clearwire, it is possible that a member of CW Investment
Holdings will be appointed to New Clearwires board of
directors by a party to the Equityholders Agreement.
Further, CW Investment Holdings will receive certain tag-along
rights under the Equityholders Agreement and piggyback
registration rights under the Registration Rights Agreement. See
the sections titled Certain Agreements Related to the
Transactions The Equityholders
Agreement Tag-Along Rights and Certain
Agreements Related to the Transactions Registration
Rights Agreement, respectively.
133
UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The unaudited pro forma condensed combined statements of
operations for the six months ended June 30, 2008 and for
the year ended December 31, 2007 give effect to the
Transactions as if they were consummated on January 1, 2007
and includes all adjustments that give effect to events that are
directly attributable to the Transactions, expected to have a
continuing impact, and that are factually supportable. The
unaudited pro forma condensed combined balance sheet as of
June 30, 2008 gives effect to the Transactions and the
Subscription Agreement as if they had been consummated on
June 30, 2008 and includes all adjustments which give
effect to events that are directly attributable to the
Transactions and that are factually supportable. The notes to
the unaudited pro forma condensed combined financial information
describe the pro forma amounts and adjustments presented below.
The Transactions will be accounted for as a reverse acquisition
with the Sprint WiMAX Business considered the accounting
acquirer in accordance with U.S. GAAP. As a result, the
Clearwire assets acquired and liabilities assumed as part of the
Transactions will be recorded at fair value in purchase
accounting, with the excess between the estimated purchase
consideration and the fair value of the assets acquired and
liabilities assumed allocated to goodwill. The unaudited pro
forma condensed combined balance sheet has been adjusted to
reflect the preliminary allocation of the estimated purchase
consideration to the identifiable tangible and intangible assets
and liabilities of Clearwire. The allocation of the estimated
purchase consideration is preliminary and based on valuations
derived from significant estimates and assumptions by
management. While management believes that its preliminary
estimates and assumptions underlying the valuations are
reasonable, different estimates and assumptions could have
resulted in different valuations assigned to individual assets
acquired and liabilities assumed, and the resulting amount of
goodwill. In addition, the estimated purchase consideration
itself is preliminary. The final purchase consideration will
depend on the actual share price of New Clearwire Class A
Common Stock as of the Closing. The number of shares issued to
the Investors will be adjusted pursuant to the purchase price
adjustment contemplated in the Transaction Agreement. The
significant assumptions, including the estimated purchase
consideration, are described in more detail in the notes to the
unaudited pro forma condensed combined financial information.
The final purchase accounting adjustments may be materially
different from the preliminary pro forma adjustments presented
herein. The purchase method of accounting under Statement of
Financial Accounting Standards, which we refer to as SFAS,
No. 141, Business Combinations, was applied
based on managements expectation that the Transactions
will close in the fourth quarter of 2008. If the Transactions
close subsequent to 2008, they will be accounted for under the
new standard for business combinations in accordance with
SFAS No. 141(R), Business Combinations,
which may have significant impacts on the determination of the
purchase consideration, the reporting of transaction costs, and
the valuation of the assets acquired and liabilities assumed.
Additionally, on January 1, 2009, New Clearwire will adopt
SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements. The new accounting
standards will mainly impact the purchase accounting in the
following areas:
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|
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|
|
transaction costs incurred by Sprint would not be included as a
part of the purchase consideration; rather, these costs would be
capitalized until SFAS No. 141(R) is applied at
which time all such costs will be expensed. Any costs incurred
subsequent to adoption of SFAS No. 141(R) will be
expensed as incurred. Reference should be made to Note 1 of
the Unaudited Pro Forma Condensed Combined Financial
Information regarding the estimated transaction costs to be
incurred by Sprint and included in the purchase consideration in
accordance with SFAS No. 141; and
|
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|
|
non-controlling interests held by the Investors would not be
recorded between the liabilities and equity section; rather,
these non-controlling interests would be recorded in equity.
|
In connection with the plan to integrate the operations of the
Sprint WiMAX Business and Clearwire, management expects that
certain non-recurring charges such as transaction costs and
stock compensation expenses will be incurred. Management also
expects that certain synergies might be realized due to
operating efficiencies or future revenue synergies expected to
result from the Transactions. However, the amount and extent of
those synergies cannot be quantified at this time. Therefore, no
pro forma adjustments have been
134
reflected in the unaudited pro forma condensed combined
financial information to reflect any such costs or benefits.
Assumptions underlying the pro forma adjustments are described
in the accompanying notes, which should be read in conjunction
with the unaudited pro forma condensed combined financial
information. The unaudited pro forma condensed combined
financial information that follows is presented for
informational purposes only and is not intended to represent or
be indicative of the combined results of operations or financial
position that would have been reported had the Transactions been
completed as of January 1, 2007 or June 30, 2008, and
should not be taken as representative of the future consolidated
results of operations or financial position of New Clearwire.
The following unaudited pro forma condensed combined balance
sheet as of June 30, 2008 and the unaudited pro forma
condensed combined statements of operations for the year ended
December 31, 2007 and the six months ended June 30,
2008 were prepared using (1) the audited financial
statements of the Sprint WiMAX Business for the year ended
December 31, 2007; (2) the unaudited condensed
financial statements of the Sprint WiMAX Business as of and for
the six months ended June 30, 2008; (3) the audited
consolidated financial statements of Clearwire for the year
ended December 31, 2007; and (4) the unaudited
condensed consolidated financial statements of Clearwire as of
and for the six months ended June 30, 2008, all included
elsewhere in this proxy statement/prospectus. The unaudited pro
forma condensed combined financial information should be read in
conjunction with these separate historical financial statements
and accompanying notes thereto. The unaudited pro forma
condensed combined financial information should also be read in
conjunction with information contained in Risk
Factors, The Transactions and Selected
Historical and Pro Forma Condensed Combined Financial Data
for each of Clearwire and the Sprint WiMAX Business, and
Managements Discussion and Analysis of Financial
Condition and Results of Operations of each of Clearwire
and the Sprint WiMAX Business.
135
NEW
CLEARWIRE CORPORATION
UNAUDITED
PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of
June 30, 2008
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets not
|
|
|
|
|
|
|
|
|
Purchase
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed
|
|
|
|
|
|
|
|
|
Accounting
|
|
|
|
|
|
New Clearwire
|
|
|
|
Sprint
|
|
|
and Liabilities
|
|
|
Sprint WiMAX
|
|
|
Historical
|
|
|
and Investors
|
|
|
|
|
|
Corporation
|
|
|
|
WiMAX(2)
|
|
|
not Assumed(3)
|
|
|
as Adjusted
|
|
|
Clearwire
|
|
|
Contributions(4)
|
|
|
Other
|
|
|
Pro Forma
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
349,350
|
|
|
$
|
3,172,509
|
(4a)
|
|
$
|
(263,187
|
)(3a),(5)
|
|
$
|
3,258,672
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
178,737
|
|
|
|
|
|
|
|
|
|
|
|
178,737
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,183
|
|
|
|
|
|
|
|
|
|
|
|
1,183
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,818
|
|
|
|
|
|
|
|
|
|
|
|
4,818
|
|
Notes receivable, short-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
Inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,258
|
|
|
|
|
|
|
|
|
|
|
|
3,258
|
|
Prepaids and other assets
|
|
|
7,645
|
|
|
|
|
|
|
|
7,645
|
|
|
|
32,117
|
|
|
|
|
|
|
|
|
|
|
|
39,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
7,645
|
|
|
|
|
|
|
|
7,645
|
|
|
|
570,963
|
|
|
|
3,172,509
|
|
|
|
(263,187
|
)
|
|
|
3,487,930
|
|
Property, plant and equipment, net
|
|
|
822,095
|
|
|
|
(106,787
|
)(a)
|
|
|
715,308
|
|
|
|
632,766
|
|
|
|
(40,184
|
)(4b)
|
|
|
106,787
|
(3a)
|
|
|
1,414,677
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,595
|
|
|
|
|
|
|
|
|
|
|
|
9,595
|
|
Long-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,766
|
|
|
|
|
|
|
|
|
|
|
|
64,766
|
|
Notes receivable, long-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,214
|
|
|
|
|
|
|
|
|
|
|
|
5,214
|
|
Prepaid spectrum license fees
|
|
|
263,952
|
|
|
|
|
|
|
|
263,952
|
|
|
|
519,201
|
|
|
|
|
|
|
|
|
|
|
|
783,153
|
|
Spectrum licenses and other intangible assets, net
|
|
|
2,517,390
|
|
|
|
|
|
|
|
2,517,390
|
|
|
|
495,894
|
|
|
|
781,954
|
(4c)
|
|
|
|
|
|
|
3,795,238
|
|
Favorable spectrum lease contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500,700
|
(4c)
|
|
|
|
|
|
|
1,500,700
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,763
|
|
|
|
768,486
|
(4e)
|
|
|
|
|
|
|
807,249
|
|
Investments in equity investees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,288
|
|
|
|
24,452
|
(4d)
|
|
|
|
|
|
|
36,740
|
|
Other assets
|
|
|
8,635
|
|
|
|
(8,635
|
)(a)
|
|
|
|
|
|
|
29,239
|
|
|
|
(24,289
|
)(4f)
|
|
|
|
|
|
|
4,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(680
|
)(4g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
3,619,717
|
|
|
$
|
(115,422
|
)
|
|
$
|
3,504,295
|
|
|
$
|
2,378,689
|
|
|
$
|
6,182,948
|
|
|
$
|
(156,400
|
)
|
|
$
|
11,909,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
|
|
|
$
|
156,400
|
(b)
|
|
$
|
156,400
|
|
|
$
|
101,359
|
|
|
$
|
(6,649
|
)(4i)
|
|
$
|
(156,400
|
)(5)
|
|
$
|
94,710
|
|
Deferred rent-current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
606
|
|
|
|
(606
|
)(4h)
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,985
|
|
|
|
|
|
|
|
|
|
|
|
11,985
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,500
|
|
|
|
|
(4f)
|
|
|
|
|
|
|
22,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
156,400
|
|
|
|
156,400
|
|
|
|
136,450
|
|
|
|
(7,255
|
)
|
|
|
(156,400
|
)
|
|
|
129,195
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,228,125
|
|
|
|
|
(4f)
|
|
|
|
|
|
|
1,228,125
|
|
Unfavorable spectrum lease contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,700
|
(4c)
|
|
|
|
|
|
|
75,700
|
|
Deferred tax liabilities
|
|
|
692,058
|
|
|
|
(692,058
|
)(a)
|
|
|
|
|
|
|
45,986
|
|
|
|
213,849
|
(4g)
|
|
|
|
|
|
|
259,835
|
|
Other long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124,511
|
|
|
|
(81,662
|
)(4h)
|
|
|
|
|
|
|
42,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
692,058
|
|
|
|
(535,658
|
)
|
|
|
156,400
|
|
|
|
1,535,072
|
|
|
|
200,632
|
|
|
|
(156,400
|
)
|
|
|
1,735,704
|
|
NON-CONTROLLING INTERESTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,499
|
|
|
|
7,386,547
|
(4j)
|
|
|
|
|
|
|
7,398,046
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
2,927,659
|
|
|
|
420,236
|
|
|
|
3,347,895
|
|
|
|
2,357,036
|
|
|
|
(2,929,149
|
)(4j)
|
|
|
|
|
|
|
2,775,782
|
|
Accumulated other comprehensive income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,557
|
|
|
|
(36,557
|
)(4j)
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,561,475
|
)
|
|
|
1,561,475
|
(4j)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
2,927,659
|
|
|
|
420,236
|
|
|
|
3,347,895
|
|
|
|
832,118
|
|
|
|
(1,404,231
|
)
|
|
|
|
|
|
|
2,775,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
3,619,717
|
|
|
$
|
(115,422
|
)
|
|
$
|
3,504,295
|
|
|
$
|
2,378,689
|
|
|
$
|
6,182,948
|
|
|
$
|
(156,400
|
)
|
|
$
|
11,909,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying Notes to the Unaudited Pro Forma Condensed
Combined Financial Information
136
NEW
CLEARWIRE CORPORATION
UNAUDITED
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the
six months ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
|
|
New Clearwire
|
|
|
|
Sprint
|
|
|
|
|
|
Purchase
|
|
|
|
|
|
Corporation
|
|
|
|
WiMAX(2)
|
|
|
Clearwire
|
|
|
Accounting(4)
|
|
|
Other
|
|
|
Pro Forma
|
|
|
|
(In thousands, except per share data)
|
|
|
REVENUES
|
|
$
|
|
|
|
$
|
110,091
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
110,091
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods and services and network costs (exclusive of a
portion of depreciation and amortization shown below):
|
|
|
52,438
|
|
|
|
80,367
|
|
|
|
|
|
|
|
8,507
|
(4h)
|
|
|
141,312
|
|
Selling, general and administrative expense
|
|
|
66,946
|
|
|
|
193,878
|
|
|
|
|
|
|
|
945
|
(4h)
|
|
|
261,769
|
|
Transaction related expenses
|
|
|
|
|
|
|
10,224
|
|
|
|
|
|
|
|
|
|
|
|
10,224
|
|
Research and development
|
|
|
|
|
|
|
1,030
|
|
|
|
|
|
|
|
|
|
|
|
1,030
|
|
Depreciation and amortization
|
|
|
16,302
|
|
|
|
56,986
|
|
|
|
(17,580
|
)(4b)
|
|
|
|
|
|
|
77,041
|
|
|
|
|
|
|
|
|
|
|
|
|
21,333
|
(4c)
|
|
|
|
|
|
|
|
|
Spectrum lease expense
|
|
|
33,093
|
|
|
|
64,207
|
|
|
|
26,389
|
(4c)
|
|
|
|
|
|
|
122,292
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,397
|
)(4k)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
168,779
|
|
|
|
406,692
|
|
|
|
28,745
|
|
|
|
9,452
|
|
|
|
613,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING LOSS
|
|
|
(168,779
|
)
|
|
|
(296,601
|
)
|
|
|
(28,745
|
)
|
|
|
(9,452
|
)
|
|
|
(503,577
|
)
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
12,298
|
|
|
|
|
|
|
|
|
|
|
|
12,298
|
|
Interest expense
|
|
|
|
|
|
|
(54,305
|
)
|
|
|
|
|
|
|
3,186
|
(4f)
|
|
|
(51,119
|
)
|
Foreign currency gains, net
|
|
|
|
|
|
|
691
|
|
|
|
|
|
|
|
|
|
|
|
691
|
|
Other-than-temporary impairment loss and realized loss on
investments
|
|
|
|
|
|
|
(32,767
|
)
|
|
|
|
|
|
|
|
|
|
|
(32,767
|
)
|
Other income (expense), net
|
|
|
2,854
|
|
|
|
(1,209
|
)
|
|
|
(1,397
|
)(4k)
|
|
|
|
|
|
|
248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
2,854
|
|
|
|
(75,292
|
)
|
|
|
(1,397
|
)
|
|
|
3,186
|
|
|
|
(70,649
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES, NON-CONTROLLING INTERESTS AND LOSSES
FROM EQUITY INVESTEES
|
|
|
(165,925
|
)
|
|
|
(371,893
|
)
|
|
|
(30,142
|
)
|
|
|
(6,266
|
)
|
|
|
(574,226
|
)
|
Income tax provision
|
|
|
(11,078
|
)
|
|
|
(3,584
|
)
|
|
|
14,662
|
(4l)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE NON-CONTROLLING INTERESTS AND LOSSES FROM EQUITY
INVESTEES
|
|
|
(177,003
|
)
|
|
|
(375,477
|
)
|
|
|
(15,480
|
)
|
|
|
(6,266
|
)
|
|
|
(574,226
|
)
|
Non-controlling interests in net loss of consolidated
subsidiaries
|
|
|
|
|
|
|
2,345
|
|
|
|
414,505
|
(4m)
|
|
|
4,554
|
(4m)
|
|
|
421,404
|
|
Losses from equity investees
|
|
|
|
|
|
|
(2,311
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,311
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(177,003
|
)
|
|
$
|
(375,443
|
)
|
|
$
|
399,025
|
|
|
$
|
(1,712
|
)
|
|
$
|
(155,133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share, basic
|
|
|
|
|
|
$
|
(2.29
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(0.82
|
)(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share, diluted
|
|
|
|
|
|
$
|
(2.29
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(0.85
|
)(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
|
|
|
|
|
|
164,096
|
|
|
|
|
|
|
|
|
|
|
|
189,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, diluted
|
|
|
|
|
|
|
164,096
|
|
|
|
|
|
|
|
|
|
|
|
694,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying Notes to the Unaudited Pro Forma Condensed
Combined Financial Information
137
NEW
CLEARWIRE CORPORATION
UNAUDITED
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the
year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
|
|
New Clearwire
|
|
|
|
Sprint
|
|
|
|
|
|
Purchase
|
|
|
|
|
|
Corporation
|
|
|
|
WiMAX(2)
|
|
|
Clearwire
|
|
|
Accounting(4)
|
|
|
Other
|
|
|
Pro Forma
|
|
|
|
(In thousands, except per share data)
|
|
|
REVENUES
|
|
$
|
|
|
|
$
|
151,440
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
151,440
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods and services and network costs (exclusive of a
portion of depreciation and amortization shown below):
|
|
|
48,865
|
|
|
|
107,281
|
|
|
|
|
|
|
|
49,414
|
(4h)
|
|
|
205,560
|
|
Selling, general and administrative expense
|
|
|
99,490
|
|
|
|
360,666
|
|
|
|
|
|
|
|
5,490
|
(4h)
|
|
|
465,646
|
|
Research and development
|
|
|
|
|
|
|
1,397
|
|
|
|
|
|
|
|
|
|
|
|
1,397
|
|
Depreciation and amortization
|
|
|
3,979
|
|
|
|
84,694
|
|
|
|
16,761
|
(4b)
|
|
|
|
|
|
|
149,980
|
|
|
|
|
|
|
|
|
|
|
|
|
44,546
|
(4c)
|
|
|
|
|
|
|
|
|
Spectrum lease expense
|
|
|
60,051
|
|
|
|
96,417
|
|
|
|
52,778
|
(4c)
|
|
|
|
|
|
|
206,452
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,794
|
)(4k)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
212,385
|
|
|
|
650,455
|
|
|
|
111,291
|
|
|
|
54,904
|
|
|
|
1,029,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING LOSS
|
|
|
(212,385
|
)
|
|
|
(499,015
|
)
|
|
|
(111,291
|
)
|
|
|
(54,904
|
)
|
|
|
(877,595
|
)
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
65,736
|
|
|
|
|
|
|
|
|
|
|
|
65,736
|
|
Interest expense
|
|
|
|
|
|
|
(96,279
|
)
|
|
|
|
|
|
|
2,857
|
(4f)
|
|
|
(93,422
|
)
|
Foreign currency gains, net
|
|
|
|
|
|
|
363
|
|
|
|
|
|
|
|
|
|
|
|
363
|
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
(159,193
|
)
|
|
|
|
|
|
|
|
|
|
|
(159,193
|
)
|
Other-than-temporary impairment loss and realized loss on
investments
|
|
|
|
|
|
|
(35,020
|
)
|
|
|
|
|
|
|
|
|
|
|
(35,020
|
)
|
Other income (expense), net
|
|
|
4,022
|
|
|
|
1,801
|
|
|
|
(2,794
|
)(4k)
|
|
|
|
|
|
|
3,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
4,022
|
|
|
|
(222,592
|
)
|
|
|
(2,794
|
)
|
|
|
2,857
|
|
|
|
(218,507
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES, NON-CONTROLLING INTERESTS AND LOSSES
FROM EQUITY INVESTEES
|
|
|
(208,363
|
)
|
|
|
(721,607
|
)
|
|
|
(114,085
|
)
|
|
|
(52,047
|
)
|
|
|
(1,096,102
|
)
|
Income tax provision
|
|
|
(16,362
|
)
|
|
|
(5,427
|
)
|
|
|
21,789
|
(4l)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE NON-CONTROLLING INTERESTS AND LOSSES FROM EQUITY
INVESTEES
|
|
|
(224,725
|
)
|
|
|
(727,034
|
)
|
|
|
(92,296
|
)
|
|
|
(52,047
|
)
|
|
|
(1,096,102
|
)
|
Non-controlling interests in net loss of consolidated
subsidiaries
|
|
|
|
|
|
|
4,244
|
|
|
|
762,276
|
(4m)
|
|
|
37,831
|
(4m)
|
|
|
804,351
|
|
Losses from equity investees
|
|
|
|
|
|
|
(4,676
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,676
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(224,725
|
)
|
|
$
|
(727,466
|
)
|
|
$
|
669,980
|
|
|
$
|
(14,216
|
)
|
|
$
|
(296,427
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share, basic
|
|
|
|
|
|
$
|
(4.58
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(1.56
|
)(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share, diluted
|
|
|
|
|
|
$
|
(4.58
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(1.62
|
)(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
|
|
|
|
|
|
158,737
|
|
|
|
|
|
|
|
|
|
|
|
189,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, diluted
|
|
|
|
|
|
|
158,737
|
|
|
|
|
|
|
|
|
|
|
|
694,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying Notes to the Unaudited Pro Forma Condensed
Combined Financial Information
138
Notes to
New Clearwire Corporation
Unaudited
Pro Forma Condensed Combined Financial Information
On May 7, 2008, Clearwire, Sprint and the Investors entered
into the Transaction Agreement, pursuant to which Clearwire and
Sprint agreed to combine their respective WiMAX businesses, in
conjunction with a $3.2 billion capital contribution from
the Investors. Following the closing of the Transactions, CW
Investment Holdings will invest $10.0 million in New
Clearwire. Concurrent with the closing of the Transactions, New
Clearwire will enter into commercial agreements with each of the
Investors, which will establish the framework for development of
the WiMAX business.
Upon completion of the Transactions, Sprint will own the largest
interest in New Clearwire with an effective voting and economic
interest in New Clearwire and its subsidiaries of approximately
51% on a fully-diluted basis, based on the initial purchase
price of $20.00 per share and assuming no post-closing
adjustment. The Transactions will be accounted for under
SFAS No. 141 as a reverse acquisition with the Sprint
WiMAX Business deemed to be the acquirer.
Purchase
Consideration
As a result of the Transactions, Clearwires net assets
will be acquired and each share of Clearwire Class A Common
Stock will be exchanged for one share of New Clearwire
Class A Common Stock, and each option and warrant to
purchase shares of Clearwire Class A Common Stock and each
share of restricted stock will be exchanged for an option or
warrant to purchase the same number of shares of New Clearwire
Class A Common Stock, or a restricted share of New
Clearwire Class A Common Stock, as applicable.
The total purchase consideration to acquire Clearwire has been
estimated as approximately $3.6 billion, as follows (in
thousands, except per share amount):
|
|
|
|
|
Number of shares of Clearwire Class A Common Stock
exchanged in the Transactions(i)
|
|
|
164,273
|
|
Implied value per share of New Clearwire Class A Common
Stock(ii)
|
|
$
|
20
|
|
|
|
|
|
|
Fair value of Clearwire Class A Common Stock exchanged
|
|
$
|
3,285,466
|
|
Fair value adjustment for Clearwire stock options exchanged(iii)
|
|
|
179,224
|
|
Fair value adjustment for restricted stock and restricted stock
units exchanged(iv)
|
|
|
12,314
|
|
Fair value adjustment for warrants exchanged(v)
|
|
|
154,637
|
|
Estimated transaction costs(vi)
|
|
|
45,635
|
|
Net loss from settlement of pre-existing relationships (vii)
|
|
|
(42,000
|
)
|
|
|
|
|
|
Preliminary estimated fair value of purchase consideration for
Clearwire
|
|
$
|
3,635,276
|
|
|
|
|
|
|
|
|
|
(i) |
|
The number of shares of Clearwire Class A Common Stock
exchanged in the Transactions assumes the completion of the
Conversion before the closing of the Transactions. This number
reflects the total issued and outstanding shares of Clearwire
Class A Common Stock and Clearwire Class B Common
Stock as of June 30, 2008. |
|
(ii) |
|
The purchase consideration to acquire Clearwire was determined
based on the fair value of New Clearwire Common Stock. The fair
value of New Clearwire Common Stock was estimated using the
initial price at which the cash contributions will be made by
the Investors on the closing of the Transactions, which is
estimated to be $20.00 per share. However, the number of shares
issued to the Investors is subject to a post-closing adjustment
based on the trading prices of New Clearwire Class A Common
Stock on NASDAQ over 15 randomly-selected trading days
during the
30-day
period ending on the 90th day after the closing of the
Transactions, with a floor of $17.00 per share and a cap of
$23.00 per share. |
|
(iii) |
|
In accordance with the Transaction Agreement, all Clearwire
stock options issued and outstanding at the closing of the
Transactions will be exchanged on a one-for-one basis for New
Clearwire stock options |
139
Notes to
New Clearwire Corporation
Unaudited
Pro Forma Condensed Combined Financial
Information (Continued)
|
|
|
|
|
with equivalent terms. The fair value of the vested stock
options exchanged is included in the calculation of purchase
consideration using a Black-Scholes option pricing model. |
|
(iv) |
|
In accordance with the Transaction Agreement, all Clearwire
restricted stock and restricted stock units issued and
outstanding at the closing of the Transactions will be exchanged
on a one-for-one basis for New Clearwire restricted stock and
restricted stock units, respectively with equivalent terms. The
fair value of the portion of vested restricted stock and
restricted stock units exchanged is included in the calculation
of purchase consideration at a fair value equal to an
unrestricted share. |
|
(v) |
|
In accordance with the Transaction Agreement, all Clearwire
warrants issued and outstanding at the closing of the
Transactions will be exchanged on a one-for-one basis for New
Clearwire warrants with equivalent terms. The fair value of the
warrants exchanged is included in the calculation of purchase
consideration using a Black-Scholes option pricing model. |
|
(vi) |
|
Estimated transaction costs incurred by Sprint will be included
in the purchase consideration. Included in the estimate of total
transaction costs are $40.0 million in investment banking
fees and $5.6 million in other professional fees. |
|
(vii) |
|
Before the Closing, Sprint leases spectrum to Clearwire through
various spectrum lease arrangements. As part of the
Transactions, Sprint will contribute both the spectrum lease
agreements and the spectrum assets underlying those agreements
to the Sprint WiMAX Business. As a result of the Closing of the
Transactions, the spectrum lease agreements are effectively
terminated, and the settlement of those agreements is accounted
for as a separate element apart from the business combination.
The settlement gain or loss to be recognized from the
termination is valued based on the amount by which the
agreements are favorable or unfavorable to the Sprint WiMAX
Business as compared to current market rates. Based on
preliminary estimates, the spectrum lease agreements are
considered to be unfavorable to the Sprint WiMAX Business (as
accounting acquirer) by approximately $42.0 million on a
net basis. As such, the Sprint WiMAX Business will reduce the
purchase consideration paid and record a non-recurring loss of
approximately $42.0 million related to the settlement of
the unfavorable spectrum lease agreements. |
The fair value amounts for Clearwire Class A Common Stock,
stock options, restricted stock and restricted stock units and
warrants were estimated using the $20.00 per share price as
discussed in (ii) above. Based on the $17.00 to $23.00
range, the total purchase consideration could range from
$3.1 billion to $4.2 billion, respectively.
Commercial
Agreements
In connection with the Transactions, Clearwire has agreed to
cause New Clearwire or its subsidiaries to enter into several
commercial agreements with Sprint and certain of the Investors
relating to, among other things, resales by Clearwire
Communications and certain Investors of bundled 2G and 3G
wireless communications services from Sprint, resale by Sprint
and certain Investors of New Clearwires 4G wireless
communications services, most favored reseller status with
respect to economic and non-economic terms of certain service
agreements, collective development of new 4G wireless
communications services, creation of desktop and mobile
applications of the New Clearwire network, the embedding of
WiMAX chips into various New Clearwire network devices, the
development of internet services and protocols and other
infrastructure agreements such as access rights to Sprint owned
or leased towers. Management has performed a preliminary
assessment of these commercial agreements to consider whether
any adjustments were deemed necessary. The following factors,
among others, were considered in the assessment: the lack of a
developed market for 4G services, the variability of pricing
terms in light of future market conditions, the arms-length
nature of negotiated terms, and market participant perspectives.
Based on the assessment of these agreements, no separate asset,
liability, revenue or expense has been recorded in these
unaudited pro forma condensed combined financial information to
reflect the nature of the commercial agreements nor were any
purchase price adjustments deemed necessary given the
information that is available to date.
140
Notes to
New Clearwire Corporation
Unaudited
Pro Forma Condensed Combined Financial
Information (Continued)
Purchase
Price Allocation
The following table sets forth a preliminary allocation of the
estimated purchase consideration to the identifiable tangible
and intangible assets acquired and liabilities assumed of
Clearwire, with the excess recorded as goodwill, assuming that
the Transactions closed on June 30, 2008.
|
|
|
|
|
|
|
Fair Value of Net
|
|
|
|
Assets Acquired
|
|
|
|
(In thousands)
|
|
|
Current assets acquired
|
|
$
|
570,963
|
|
Property, plant and equipment
|
|
|
592,582
|
|
Other non-current assets
|
|
|
639,786
|
|
Intangible assets
|
|
|
1,277,848
|
|
Favorable spectrum lease contracts
|
|
|
1,500,700
|
|
Goodwill
|
|
|
807,249
|
|
Assumed debt
|
|
|
(1,250,625
|
)
|
Current liabilities less current portion of debt
|
|
|
(113,344
|
)
|
Unfavorable spectrum lease contracts
|
|
|
(75,700
|
)
|
Deferred tax liability
|
|
|
(259,835
|
)
|
Other non-current liabilities and non-controlling interests
|
|
|
(54,348
|
)
|
|
|
|
|
|
Total purchase price
|
|
$
|
3,635,276
|
|
|
|
|
|
|
For property, plant and equipment and intangible assets,
including spectrum lease contracts, preliminary estimates were
based on the midpoint of a range of fair values. Three different
valuation methodologies were used in estimating the fair value
ranges of the aforementioned assets: (i) the income
approach, (ii) the market approach and (iii) the cost
approach. In estimating the fair values, consideration has also
been given to both the intent of New Clearwire with respect to
whether the assets contributed by Clearwire will be held, sold
or abandoned, and certain assumptions that management believes
would be made by market participants.
The actual adjustments to the consolidated financial statements
upon the closing of the Transactions will be based on
Clearwires net assets acquired as of that date and will
depend on a number of factors, which cannot be predicted with
any certainty. The purchase price allocation may change
materially based upon the receipt of more detailed information
and upon closing of the Transactions. Therefore, the actual
allocations will differ from the pro forma adjustments presented
and may differ materially.
|
|
2.
|
Historical
Sprint WiMAX Financial Information
|
These amounts have been derived from the historical audited
statement of operations of the Sprint WiMAX Business for the
year ended December 31, 2007 and the historical unaudited
balance sheet and statement of operations of the Sprint WiMAX
Business as of and for the six months ended June 30, 2008,
each included elsewhere in this proxy statement/prospectus.
Certain adjustments have been made to conform line item
presentation in the unaudited pro forma condensed combined
financial information.
141
Notes to
New Clearwire Corporation
Unaudited
Pro Forma Condensed Combined Financial
Information (Continued)
|
|
3.
|
Adjustments
to Historical Sprint WiMAX Financial Information
|
a. These adjustments relate to amounts that were
included on the unaudited historical balance sheet of the Sprint
WiMAX Business as of June 30, 2008 prepared on a carve-out
basis that will not be contributed to New Clearwire.
Specifically, these amounts include the following items:
(i) Sprint WiMAX Business deferred tax liabilities
will not be transferred to New Clearwire. Therefore, the
existing balance of the Sprint WiMAX Business deferred tax
liabilities is not included in the unaudited pro forma condensed
combined balance sheet for New Clearwire.
(ii) Included in the Sprint WiMAX Business historical
financial statements is $106.8 million related to WiMAX
equipment purchased from Samsung Telecommunications America LLC,
which we refer to as Samsung Telecom, under a Master Supply
Agreement between Sprint/United Management Company and Samsung
Telecom. Under the terms of the Transaction Agreement, New
Clearwire will be required to purchase this equipment within
12 months of the Closing of the Transactions, for a
purchase price equal to Sprints cost in that equipment. A
pro forma adjustment in the amount of $106.8 million has
been included to remove the balance from the Sprint WiMAX
Business financial statement assets transferred to New
Clearwire. A separate entry has been recorded to reflect the
subsequent purchase of the equipment from Sprint in the
other column. Additionally, New Clearwire will be
required to purchase additional Samsung Telecom WiMAX equipment
under the terms of the original Master Supply Agreement up to a
total purchase price, including the equipment referenced above,
of $167.0 million over the 12-month period subsequent to
the Closing of the Transactions. No adjustment has been recorded
to reflect these future purchases.
(iii) Sprint WiMAX Business capitalized transaction
costs will not be transferred to or reimbursed by New Clearwire.
This adjustment removes the capitalized transaction costs.
However, this amount is included in the $45.6 million of the
estimated transaction costs that are included in the purchase
consideration calculation (see Note 1 Purchase
Consideration).
b. Represents the reclassification of
$155.0 million pre-closing financing and the accrual of
interest of $1.4 million from business equity to accrued
expenses. The $155.0 million was provided by Sprint to
finance the operations of the Sprint WiMAX Business between
April 1, 2008 and the Closing of the Transactions. This
balance will be assumed by Sprint Sub at the Closing of the
Transactions. See Note 5 for further details.
|
|
4.
|
Pro Forma
Adjustments related to Purchase Accounting and Investors
Contributions
|
a. Represents the total of $3.2 billion cash to
be contributed by the following investors on the date of
closing, net of estimated transaction fees of $37.5 million
expected to be paid by New Clearwire, upon the consummation of
the Transactions and the investment by CW Investment Holdings
(in thousands):
|
|
|
|
|
Comcast
|
|
$
|
1,050,000
|
|
Intel
|
|
|
1,000,000
|
|
Time Warner Cable
|
|
|
550,000
|
|
Bright House Networks
|
|
|
100,000
|
|
Sprint
|
|
|
37
|
|
|
|
|
|
|
Cash proceeds from investments in Clearwire Communications
|
|
|
2,700,037
|
|
|
|
|
|
|
Google
|
|
|
500,000
|
|
CW Investment Holdings
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
3,210,037
|
|
Less: Total estimated transaction fees to be incurred by
Clearwire of $41.1 million less fees already paid of
$3.6 million
|
|
|
(37,528
|
)
|
|
|
|
|
|
Net cash proceeds
|
|
$
|
3,172,509
|
|
|
|
|
|
|
142
Notes to
New Clearwire Corporation
Unaudited
Pro Forma Condensed Combined Financial
Information (Continued)
b. Represents the decrease in value resulting from
the preliminary allocation of purchase price to property, plant
and equipment. Management determined the fair value of
Clearwires property, plant and equipment to be
$592.6 million compared to its carrying value of
$632.8 million as of June 30, 2008.
The adjustments to the unaudited pro forma condensed combined
statements of operations represent adjustments to record
depreciation and amortization expense related to the new basis
of property, plant and equipment, which have been recorded at
their estimated fair value on a pro forma basis and will be
depreciated and amortized over the estimated remaining useful
lives on a straight-line basis.
The following table illustrates the estimated remaining useful
lives that management has assumed for each class of property,
plant and equipment in arriving at the pro forma adjustment.
|
|
|
|
|
Estimated Remaining
|
|
|
Useful Life
|
|
|
(Years)
|
|
Network and base station equipment
|
|
5
|
Customer premise equipment
|
|
1
|
Furniture, fixtures and equipment
|
|
2
|
Leasehold improvements
|
|
The lesser of the leasehold
agreement or 5
|
c. Represents the adjustments to record the fair
value of identifiable intangible assets on a pro forma basis as
of June 30, 2008, and the related adjustments to
amortization and spectrum lease expense calculated on a
straight-line basis for the six months ended June 30, 2008
and the year ended December 31, 2007. These identifiable
intangible assets include:
|
|
|
|
|
Existing technology Represents
Clearwires BOSS Billing System software code, which
relates to the IntralSP software business, and has been
determined to have an estimated useful life of approximately
four years.
|
|
|
|
Customer relationships Represents
relationships with software customers of our IntraISP software
business which have been determined to have a useful life of
approximately four years.
|
|
|
|
Owned spectrum licenses Represents
Clearwires (i) domestic owned 2.5 GHz FCC
licenses, which have been determined to have an indefinite
useful life; and (ii) internationally owned licenses, some
of which have been determined to have an indefinite useful life,
and some of which have estimated useful lives in a range from
five to 21 years.
|
|
|
|
Subscriber relationships Represents
relationships with the U.S. domestic subscribers that will
have an estimated useful life of approximately seven years,
while those relating to the international business will have an
estimated useful life of approximately four years.
|
|
|
|
Trademarks Represents the Clearwire brand
that has been estimated to have a useful life of approximately
15 years.
|
|
|
|
Favorable/unfavorable spectrum lease contracts
Represents Clearwires domestic spectrum lease
contracts for 2.5 GHz FCC licenses that have remaining
useful lives that are dependent on the terms of the lease. These
terms, some of which include expected renewal periods, have a
weighted average remaining useful life of 27 years.
|
143
Notes to
New Clearwire Corporation
Unaudited
Pro Forma Condensed Combined Financial
Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Book
|
|
|
Estimated Fair
|
|
|
|
|
|
Estimated
|
|
|
Value
|
|
|
Value
|
|
|
Pro Forma
|
|
|
Remaining Useful
|
Spectrum Leases and Other Intangibles
|
|
at June 30, 2008
|
|
|
at June 30, 2008
|
|
|
Adjustment
|
|
|
Life
|
|
|
|
|
|
|
|
|
|
|
|
(Years)
|
|
|
(In thousands)
|
|
|
|
|
Existing technology
|
|
$
|
2,969
|
|
|
$
|
2,969
|
|
|
$
|
|
|
|
4
|
Customer relationships
|
|
|
3,979
|
|
|
|
3,979
|
|
|
|
|
|
|
4
|
Patents and other
|
|
|
1,089
|
|
|
|
|
|
|
|
(1,089
|
)
|
|
n/a
|
Owned spectrum-international
|
|
|
76,761
|
|
|
|
136,700
|
|
|
|
59,939
|
|
|
5 to 21
|
Owned spectrum-international
|
|
|
13,000
|
|
|
|
36,700
|
|
|
|
23,700
|
|
|
Indefinite
|
Owned spectrum-U.S. domestic
|
|
|
398,096
|
|
|
|
850,000
|
|
|
|
451,904
|
|
|
Indefinite
|
Subscriber relationships-international
|
|
|
|
|
|
|
15,000
|
|
|
|
15,000
|
|
|
4
|
Subscriber relationships-U.S. domestic
|
|
|
|
|
|
|
212,500
|
|
|
|
212,500
|
|
|
7
|
Trademarks
|
|
|
|
|
|
|
20,000
|
|
|
|
20,000
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
495,894
|
|
|
|
1,277,848
|
|
|
|
781,954
|
|
|
|
Favorable spectrum lease contracts
|
|
|
|
|
|
|
1,500,700
|
|
|
|
1,500,700
|
|
|
27
|
Unfavorable spectrum lease contracts
|
|
|
|
|
|
|
(75,700
|
)
|
|
|
(75,700
|
)
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
495,894
|
|
|
$
|
2,702,848
|
|
|
$
|
2,206,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite lived intangible assets are not subject to
amortization but will be tested for impairment annually or more
frequently if events or changes in circumstances indicate that
the assets might be impaired.
d. Represents the adjustment to record the fair
value of the equity method investment in MVS Net S.A. de
C.V. of $36.7 million as of June 30, 2008.
e. Represents the adjustment to record goodwill
resulting from the Transactions and the elimination of the
historical goodwill balance. Goodwill represents the excess of
the estimated purchase consideration over the fair value of the
identifiable tangible and intangible assets acquired and
liabilities assumed. See determination of the goodwill in the
table relating to the preliminary allocation of the estimated
purchase consideration in Note 1 above. Goodwill resulting
from the acquisition is considered an indefinite lived asset and
is not subject to amortization. The goodwill will be tested for
impairment annually or more frequently if events or changes in
circumstances indicate that the asset might be impaired.
f. Represents the write-off of deferred financing
fees of $24.3 million as a result of the application of
purchase accounting. Amortization of the deferred financing
fees, in the amount of $3.2 million and $2.9 million
for the six months ended June 30, 2008 and the year ended
December 31, 2007, respectively, has been reversed as if
the Transactions were consummated on January 1, 2007.
The closing of the Transactions would result in an event of
default under the current terms of the credit agreement
underlying the senior term loan facility unless the prior
consent of the lenders is obtained. The occurrence of an event
of default would permit the lenders under the credit agreement
to accelerate the maturity of the loans. However, as described
elsewhere in this proxy statement/prospectus, it is a condition
to the parties obligations to complete the Transactions
that the lenders under the senior term loan facility first
consent to the Transactions or that the senior term loan
facility be refinanced by Clearwire. Accordingly, it has been
assumed for purposes of preparing the unaudited pro forma
condensed combined financial information that the condition to
closing of the Transactions will be satisfied and that the loans
under the senior term loan facility will remain outstanding over
the same term after the Closing. On that basis, management has
estimated the fair value of the outstanding debt at Closing to
be equal to its face value.
If we obtain the consent of the lenders under the credit
agreement or refinance the senior term loan facility prior to
the Closing, such action is likely to result in significant
additional fees being paid to the
144
Notes to
New Clearwire Corporation
Unaudited
Pro Forma Condensed Combined Financial
Information (Continued)
lenders or in changes to the terms of the credit agreement,
including potential increases in the interest rate payable on
the loans. A refinancing of the senior term loan facility would
require us to prepay the existing loans, which the credit
agreement permits at a price equal to 101% of face value. As the
terms of any consent or refinancing are currently unknown, no
adjustment has been made to the unaudited pro forma condensed
combined financial information for the effect of any consent or
refinancing.
g. Represents adjustments to reflect the recognition of
deferred tax assets and liabilities as a result of recording the
acquired assets and assumed liabilities of Clearwire at their
fair value. New Clearwire records a deferred tax balance based
on the difference between the basis for U.S. GAAP and tax
purposes of its investment in the partnership. A valuation
allowance is recorded for deferred tax assets in excess of the
tax-effected taxable temporary differences that are expected to
reverse, as their realization is not deemed to be more likely
than not.
h. Represents the elimination of (i) the tower and
site lease deferred liability of $38.3 million and
$0.6 million, which is the difference between the rent
expense on a straight-line basis and the actual rent payable;
and (ii) the deferred rent liability on spectrum lease of
$43.4 million, which is the difference between the rent
expense on a straight-line basis and the actual rent payable.
These do not represent liabilities that will be assumed by New
Clearwire.
Rent expense has been recalculated after the Transactions on a
straight-line basis. The difference between the historical rent
expense and the pro forma straight-line rent expense is
$9.5 million for the six months ended June 30, 2008
and $54.9 million for the year ended December 31,
2007. Clearwire entered into a significant number of new lease
agreements during the last month of 2007. For pro forma
purposes, the leases are assumed to have been outstanding for
the entire year. These pro forma adjustments are classified as
Cost of goods and services and network costs and
Selling, general and administrative expense
depending on the use of the leased item.
i. Represents the net reduction of the transaction costs
balance. As of June 30, 2008, Clearwire has accrued
$6.6 million of transaction related costs on its historical
financial statements. Management expects to incur an additional
$30.9 million of transaction costs, which include
investment banking fees of $27.0 million and other
professional fees of $3.9 million. Upon the consummation of
the Transactions, New Clearwire will pay the $37.5 million
accrued balance with proceeds received.
j. Represents the elimination of Clearwire equity
balances as a result of the Transactions being accounted for as
a reverse acquisition as described above and the recording of
the 72.7% non-controlling interests in the Clearwire
Communications subsidiary. New Clearwire will consolidate
Clearwire Communications, and the Clearwire Communications
Class B Common Interests represent the non-controlling
interests in the consolidated subsidiary. The total
non-controlling interests is calculated by multiplying the
Clearwire Communications Class B Common Interests ownership
percentage by Clearwire Communicationss net equity
immediately after the Transactions are complete. Clearwire
Communicationss net equity is equal to the sum of:
(i) cash contributions made by the Investors, (ii) the
fair value of Clearwires net assets as determined in
purchase accounting, and (iii) the Sprint WiMAX Business
net assets contributed at their historical carryover basis.
k. Represents the elimination of the inter-company
revenues and related expenses associated with the historical
agreements between the Sprint WiMAX Business and Clearwire where
Clearwire leases spectrum licenses from the Sprint WiMAX
Business. The revenues and related expenses were
$2.8 million in the year ended December 31, 2007 and
$1.4 million in the six months ended June 30, 2008.
l. Represents the adjustment to the pro forma income tax
expense for each period which was determined by computing the
pro forma effective tax rates for each period, giving effect to
the Transactions. New Clearwire expects to generate net
operating losses for tax purposes into the foreseeable future
and thus has recorded a valuation allowance for the deferred tax
assets not expected to be realized. For the year ended
145
Notes to
New Clearwire Corporation
Unaudited
Pro Forma Condensed Combined Financial
Information (Continued)
December 31, 2007 and for the six months ended
June 30, 2008, no tax benefit was recognized as a full
valuation allowance is recorded on the current losses.
m. Represent the allocation of a portion of the pro forma
combined net loss to the non-controlling interests in
consolidated subsidiaries based on the Clearwire Communications
Class B Common Interests ownership in Clearwire
Communications upon completion of the Transactions. This
adjustment is based on pre-tax loss because income tax
consequences associated with any loss allocated to the Clearwire
Communications Class B Common Interests will be incurred
directly by the Investors (other than Google) and by Sprint.
As the Investors and Sprint do not have an obligation to fund
any deficit of Clearwire Communications that may arise in the
future, losses to the non-controlling interests will only be
allocated to the extent that such allocation would not result in
a deficit balance for the non-controlling interests on the
unaudited pro forma condensed combined balance sheet. The
non-controlling interests did not have a deficit balance as of
the date of the unaudited pro forma condensed combined balance
sheet.
|
|
5.
|
Sprint
Pre-Closing Financing Agreement
|
The Sprint WiMAX Business will assume the liability for the
Sprint Financing Amount provided by Sprint to finance the
operations of the Sprint WiMAX Business between April 1,
2008 and the closing of the Transactions, as described under the
heading The Transaction Agreement Sprint
Pre-Closing Financing elsewhere in this proxy
statement/prospectus. If the Sprint Financing Amount is less
than or equal to $213.0 million, New Clearwire will be
required to repay the outstanding amount in cash to Sprint on
the first business day after closing. If the Sprint Financing
Amount is greater than $213.0 million but less than or
equal to $426.0 million, New Clearwire will be required to
pay $213.0 million in cash to Sprint with the remainder to
be repaid in the form of a secured promissory note issued to
Sprint (or its subsidiaries). Finally, if the Sprint Financing
Amount is greater than $426.0 million, New Clearwire will
be required to pay 50% of the amount in cash to Sprint and 50%
in the form of a promissory note issued to Sprint (or its
subsidiaries) on the terms described above. The amount of the
Sprint Financing Amount as of June 30, 2008 was
$156.4 million (including accrued interest of
$1.4 million). Accordingly, this adjustment reflects the
payment of cash of $156.4 million to Sprint.
|
|
6.
|
Pro Forma
Loss per Share
|
The New Clearwire combined pro forma net loss per share assumes
that the New Clearwire Common Stock to be issued to Sprint and
the Investors in the Transactions was outstanding from the
beginning of the periods presented. Accordingly, the weighted
average shares outstanding for New Clearwire reflects:
(i) the Conversion; (ii) the New Clearwire
Class A Common Stock exchanged for Clearwire Class A
Common Stock in the Merger, (iii) the sale of New Clearwire
Class A Common Stock to Google and CW Investment Holdings,
(iv) the sale of New Clearwire Class B Common Stock
and Clearwire Communications Class B Common Interests to
the Investors (other than Google); and (v) the issuance of
New Clearwire Class B Common Stock and Clearwire
Communications Class B Common Interests to Sprint in the
Contribution. The shares of New Clearwire Class B
Common Stock have nominal equity rights. These shares have no
right to dividends of New Clearwire and no right to any proceeds
on liquidation other than the par value of New Clearwire
Class B Common Stock. However, the holders of the New
Clearwire Class B Common Stock will be allocated income
(loss) in the New Clearwire consolidated financial statements in
accordance with their Clearwire Communications Class B
Common Interests.
146
Notes to
New Clearwire Corporation
Unaudited
Pro Forma Condensed Combined Financial
Information (Continued)
The following table presents the pro forma number of New
Clearwire shares outstanding as if the Transactions had been
consummated on January 1, 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
Diluted
|
|
|
New Clearwire Class A Common Stock held by existing
stockholders(i)
|
|
|
164,273
|
|
|
|
164,273
|
|
New Clearwire Class A Common Stock sold to Google(i)
|
|
|
25,000
|
|
|
|
25,000
|
|
New Clearwire Class A Common Stock sold to CW Investment
Holdings(i)
|
|
|
500
|
|
|
|
500
|
|
New Clearwire Class B Common Stock issued to Sprint(ii)
|
|
|
|
|
|
|
370,000
|
|
New Clearwire Class B Common Stock sold to Comcast(ii)
|
|
|
|
|
|
|
52,500
|
|
New Clearwire Class B Common Stock sold to Intel(ii)
|
|
|
|
|
|
|
50,000
|
|
New Clearwire Class B Common Stock sold to Time Warner
Cable(ii)
|
|
|
|
|
|
|
27,500
|
|
New Clearwire Class B Common Stock sold to Bright House
Networks(ii)
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
Weighted average New Clearwire Class A Common Stock
outstanding
|
|
|
189,773
|
|
|
|
694,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
Shares outstanding related to New Clearwire Class A Common
Stock held by Clearwire stockholders has been derived from the
sum of the number of shares of Clearwire Class A Common
Stock and Clearwire Class B Common Stock issued and
outstanding at June 30, 2008, and subject to conversion of
each share of Clearwire Class A Common Stock and Clearwire
Class B Common Stock into the right to receive one share of
New Clearwire Class A Common Stock. |
|
|
|
The basic weighted average shares outstanding related to New
Clearwire Class A Common Stock are the shares issued in the
Transactions and assumed to be outstanding for the entire period
for which loss per share is being calculated. |
|
|
|
The computation of pro forma diluted New Clearwire Class A
Common Stock outstanding for the six months ended
June 30, 2008 and the year ended December 31, 2007 did
not include the effects of the following options, shares of
nonvested restricted stock, restricted stock units and warrants,
as the inclusion of these securities would have been
anti-dilutive (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Year Ended
|
|
|
|
June 30, 2008
|
|
|
December 31, 2007
|
|
|
New Clearwire Class A Common Stock subject to outstanding
warrants
|
|
|
18,517
|
|
|
|
18,064
|
|
New Clearwire Class A Common Stock subject to outstanding
stock options
|
|
|
18,213
|
|
|
|
14,249
|
|
New Clearwire Class A Common Stock subject to outstanding
nonvested restricted stock
|
|
|
41
|
|
|
|
63
|
|
New Clearwire Class A Common Stock subject to outstanding
restricted stock units
|
|
|
699
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,470
|
|
|
|
32,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(ii) |
|
Holders of New Clearwire Class B Common Stock will be
entitled at any time to exchange one share of New Clearwire
Class B Common Stock, in combination with one Clearwire
Communications Class B Common Interest, for one share of
New Clearwire Class A Common Stock. |
As a result of the post-closing purchase price adjustment
contemplated in the Transaction Agreement, Clearwire
Communications may be required to issue additional Clearwire
Communications Class B Common Interests and shares of New
Clearwire Class B Common Stock or repurchase (for no
consideration) certain Clearwire Communications Class B
Common Interests and shares of New Clearwire Class B Common
Stock. The calculation of pro forma diluted loss per share for
the six months ended June 30, 2008 and the year ended
147
Notes to
New Clearwire Corporation
Unaudited
Pro Forma Condensed Combined Financial
Information (Continued)
December 31, 2007 did not include the effects of the
potential issuance of additional Clearwire Communications
Class B Common Interests and shares of New Clearwire
Class B Common Stock because such amounts will be
indeterminable until after closing.
Shares of New Clearwire Class B Common Stock have no impact
on pro forma basic net loss per share because they do not
participate in net income (loss) or distributions. However, the
hypothetical exchange of Clearwire Communications Class B
Common Interests together with New Clearwire Class B Common
Stock for New Clearwire Class A Common Stock may have
a dilutive effect on pro forma diluted loss per share due to
certain tax effects. As previously mentioned, that exchange
would result in a decrease to the non-controlling interests and
a corresponding increase in net loss attributable to the New
Clearwire Class A Common Stock. Further, to the extent that
all of the Clearwire Communications Class B Common
Interests and New Clearwire Class B Common Stock are
converted to New Clearwire Class A Common Stock, the
partnership structure will not exist and New Clearwire will
recognize a tax provision related to indefinite lived intangible
assets. Net loss available to holders of New Clearwire
Class A Common Stock, assuming conversion of the Clearwire
Communications Class B Common Interests and New Clearwire
Class B Common Stock, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Pro forma net loss
|
|
$
|
(155,133
|
)
|
|
$
|
(296,427
|
)
|
Non-controlling interests in net loss of consolidated
subsidiaries
|
|
|
(421,404
|
)
|
|
|
(804,351
|
)
|
Less: Pro forma tax adjustment resulting from creation of LLC
|
|
|
(14,662
|
)
|
|
|
(21,789
|
)
|
|
|
|
|
|
|
|
|
|
Net loss available to all stockholders, assuming the exchange
|
|
$
|
(591,199
|
)
|
|
$
|
(1,122,567
|
)
|
|
|
|
|
|
|
|
|
|
The pro forma net loss per share available to holders of New
Clearwire Class A Common Stock on a basic and diluted basis
is calculated as follows (in thousands, except per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Year Ended
|
|
|
|
Ended June 30, 2008
|
|
|
December 31, 2007
|
|
|
|
Basic
|
|
|
Diluted
|
|
|
Basic
|
|
|
Diluted
|
|
|
Pro forma net loss available to holders of New Clearwire
Class A Common Stock
|
|
$
|
(155,133
|
)
|
|
$
|
(591,199
|
)
|
|
$
|
(296,427
|
)
|
|
$
|
(1,122,567
|
)
|
Weighted average New Clearwire Class A Common Stock
outstanding
|
|
|
189,773
|
|
|
|
694,773
|
|
|
|
189,773
|
|
|
|
694,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted pro forma net loss per share of New Clearwire
Class A Common Stock
|
|
$
|
(0.82
|
)
|
|
$
|
(0.85
|
)
|
|
$
|
(1.56
|
)
|
|
$
|
(1.62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in diluted loss per share is due to the hypothetical
loss of partnership status for Clearwire Communications upon
conversion of all Clearwire Communications Class B Common
Interests and the conversion of the non-controlling interests as
discussed above.
Article 11 of
Regulation S-X
requires that pro forma adjustments reflected in the unaudited
pro forma statement of operations have a continuing impact on
the results of operations. The following charges are reflected
only in the unaudited pro forma condensed combined balance sheet
information (as changes to stockholders equity and/or
accruals/outlays of cash) as such charges will be incurred at
the time of the Transactions and are not expected to have an
ongoing impact on the results of operations after the
Transactions.
148
Notes to
New Clearwire Corporation
Unaudited
Pro Forma Condensed Combined Financial
Information (Continued)
Transaction
Costs
Clearwire estimates that it will incur approximately
$41.1 million in transaction costs for services provided by
the investment banks and other professional service providers in
connection with the Transactions. Of the total of
$41.1 million, $3.6 million has been paid and
$6.6 million accrued in the historical consolidated
financial statements of Clearwire as of June 30, 2008. Of
the remaining $30.9 million, $27.0 million of
investment banking fees is contingent on the closing of the
Transactions. These additional costs have not been reflected in
the unaudited pro forma condensed combined statements of
operations.
Stock
Compensation
The accelerated vesting of certain members of managements
stock options results in a one-time charge of approximately
$44.9 million. This charge has not been reflected in the
unaudited pro forma condensed combined financial information.
Settlement
of Pre-existing Relationships
The settlement of pre-existing spectrum lease agreements between
the Sprint WiMAX Business and Clearwire as a result of purchase
accounting results in a one-time charge of approximately
$42.0 million on a net basis. This charge has not been
reflected in the unaudited pro forma condensed combined
statement of operations. Reference should be made to Note 1
of the unaudited pro forma condensed combined financial
information for more information on this non-recurring charge.
149
COMPARISON
OF STOCKHOLDER RIGHTS AND CORPORATE GOVERNANCE MATTERS
After the completion of the Transactions, stockholders of
Clearwire will become stockholders of New Clearwire and
will become subject to the New Clearwire Charter and the New
Clearwire Bylaws. In addition, New Clearwire, Sprint, Eagle
River, and the Investors will enter into the Equityholders
Agreement which will govern certain rights of the parties
thereto and modify the rights of those stockholders under the
New Clearwire Charter and New Clearwire Bylaws, forms of which
are attached to this proxy statement/prospectus as
Annexes B and F, respectively. After the completion of the
Transactions, Sprint, Eagle River and the Investors will own
approximately 49% to 52%, 5% and 25% to 30%, respectively, of
the voting power of New Clearwire and, as a group, will have the
ability to control New Clearwire.
While there are substantial similarities between the charters
and bylaws of Clearwire and New Clearwire, some differences do
exist, including differences resulting from provisions of the
Equityholders Agreement. The following is a summary of the
material differences between the rights of Clearwire
stockholders and the rights of New Clearwire stockholders. While
we believe that this summary covers the material differences
between the rights of stockholders of Clearwire and stockholders
of New Clearwire, this summary may not contain all of the
information that is important to you. This summary is not
intended to be a complete discussion of the respective rights of
Clearwire and New Clearwire stockholders and it is qualified in
its entirety by reference to Delaware law, the full text of the
charters and bylaws of Clearwire and New Clearwire, the
Equityholders Agreement and the various documents
referenced in this summary. You should carefully read this
entire proxy statement/prospectus and the other documents
referenced in this proxy statement/prospectus for a more
complete understanding of the differences between being a
stockholder of Clearwire and being a stockholder of New
Clearwire, including the full discussion of the
Equityholders Agreement in the section titled
Certain Agreements Related to the Transactions
Equityholders Agreement.
|
|
|
|
|
|
|
Clearwire
|
|
New Clearwire
|
|
Authorized Capital Stock
|
|
The authorized capital stock of Clearwire consists of 355
million shares of stock, consisting of 300 million shares of
Class A Common Stock, par value $0.0001 per share, 50 million
shares of Class B Common Stock, par value $0.0001 per share and
5 million shares of preferred stock, par value $0.0001 per
share.
|
|
The authorized capital stock of New Clearwire will consist
of 2.065 billion shares of stock, consisting of 1.3 billion
shares of Class A Common Stock, par value $0.0001 per share, 750
million shares of Class B Common Stock, par value $0.0001 per
share and 15 million shares of preferred stock, par value
$0.0001 per share.
|
Voting Rights
|
|
The Clearwire Charter provides that holders of Clearwire Class
A Common Stock are entitled to one vote for each share of
Clearwire Class A Common Stock held and holders of Clearwire
Class B Common Stock are entitled to ten votes for each share of
Clearwire Class B Common Stock held, in each case, on each
matter submitted to a vote of stockholders. Holders of Clearwire
Class A Common Stock and Clearwire Class B Common Stock vote
together as a single class of Clearwire Common Stock on each
matter submitted to a vote of stockholders.
|
|
The New Clearwire Charter will provide that holders of New
Clearwire Class A Common Stock are entitled to one vote for each
share of New Clearwire Class A Common Stock held and
holders of New Clearwire Class B Common Stock are entitled
to one vote for each share of New Clearwire Class B Common Stock
held, in each case, on each matter submitted to a vote of
stockholders, except that holders of New Clearwire Class A
Common Stock and New Clearwire Class B Common Stock, as the case
may be, will have no voting power with respect to, and will not
be entitled to vote on, any amendment to the New Clearwire
Charter that relates solely to the terms of one or more
outstanding class or series of New Clearwire Common Stock
(other
|
150
|
|
|
|
|
|
|
Clearwire
|
|
New Clearwire
|
|
|
|
|
|
than the New Clearwire Class A Common Stock or New Clearwire
Class B Common Stock, as applicable) or preferred stock if the
holders of the affected class or series are entitled to vote on
such terms, either separately or together with the holders of
one or more other classes or series. Holders of New Clearwire
Class A Common Stock and New Clearwire Class B Common Stock will
vote together as a single class of New Clearwire Common Stock on
each matter submitted to a vote of stockholders.
|
Number of Directors
|
|
The Clearwire Bylaws provide that the number of directors shall
be not less than five nor more than 13 as fixed from time to
time by a majority vote of the entire board of directors or by a
vote of the majority of the outstanding shares entitled to vote
thereon.
|
|
The New Clearwire Bylaws will provide that number of directors
shall be as determined from time to time by a majority vote of
the entire board of directors or by a majority stockholder vote.
In addition, the New Clearwire Bylaws will require that the
board of directors establish committees, the composition of
which will be established in accordance with the
Equityholders Agreement.
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In accordance with the Equityholders Agreement, the first
board of directors will consist of 13 directors, the
nominees of which, as well as the committees they compose, will
be set forth in the Equityholders Agreement. Further, as
described in the Equityholders Agreement, subject to
certain minimum ownership thresholds, any change in the
authorized size of the board of directors requires the approval
of Intel, Sprint, and the Strategic Investors as a group and in
certain circumstances will also require the approval of Eagle
River. See Certain Agreements Related to the
Transactions Equityholders Agreement.
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Election of Directors
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The Clearwire Bylaws provide that directors are elected at each
annual meeting of stockholders by a plurality of the votes cast
by stockholders entitled to vote and present in person or by
proxy at the meeting.
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The New Clearwire Charter will provide that the directors, other
than the first board of directors, will be determined by
resolution of the board of directors or by the stockholders at
the annual meeting or a special meeting of stockholders.
Directors will be elected by a plurality of the votes cast by
stockholders entitled to vote thereon and present in person or
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New Clearwire
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by proxy at the annual meeting or the special meeting, as
applicable.
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Under a voting agreement entered into on August 29, 2006, among
Clearwire, Eagle River, Intel Pacific, Inc. and Intel Capital
Corporation, which we refer to as the 2006 Voting Agreement,
each party agreed that Eagle River, Intel Pacific, Inc. and any
person or entity to whom Eagle River or Intel Pacific, Inc.
transfers their respective shares of Clearwire capital stock,
and any person or entity to whom Clearwire may issue and sell
shares of Clearwire Class B Common Stock, or securities
convertible into or exchangeable for Clearwire Class B Common
Stock, must vote its shares in any election of Clearwires
directors as may be necessary to elect as director or directors
(1) two individuals designated by Intel Pacific, Inc. so long as
Intel Pacific, Inc. and Intel Capital Corporation, and their
respective affiliates, hold at least 15% of the outstanding
capital stock of Clearwire; (2) one individual designated by
Intel Pacific, Inc. so long as Intel Pacific, Inc. and Intel
Capital Corporation, and their respective affiliates, hold at
least 7.5% but less than 15% of the outstanding capital stock of
Clearwire; and (3) four individuals designated by Eagle River.
The 2006 Voting Agreement will be terminated in connection with
the Transactions.
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In accordance with the Equityholders Agreement, subject to
certain limitations and qualifications, Sprint, Eagle River,
Intel and the Strategic Investors may designate a specified
number of directors to the New Clearwire board of
directors. New Clearwire has agreed that it will use its
Reasonable Best Efforts (as defined in the Equityholders
Agreement) to cause the election of each of those designees to
the board of directors. Each Equityholder has agreed that it
will vote any equity securities of New Clearwire over which it
has the power to vote in favor of the director nominees
designated by the Equityholders and certain independent director
nominees. See Certain Agreements Related to the
Transactions Equityholders Agreement and
Directors of New Clearwire.
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Removal of Directors
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The Clearwire Bylaws provide that any director or the entire
board may be removed, with or without cause, with the approval
of a majority of the outstanding shares entitled to vote at an
election of directors.
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The New Clearwire Bylaws will provide that, except as provided
in the New Clearwire Charter and in the Equityholders
Agreement, any or all of the directors may be removed, with or
without cause, by the holders of a majority of the shares
entitled to vote at an election of directors.
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Under the 2006 Voting Agreement, each party agreed that Eagle
River, Intel Pacific, Inc. and any person or entity to whom
Eagle River or Intel Pacific, Inc. transfers their respective
shares of Clearwire capital stock, and any person or entity to
whom Clearwire may issue and sell shares of Clearwire Class B
Common Stock, or securities convertible into or
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The Equityholders Agreement will set forth certain
agreements of the parties thereto with respect to the removal of
directors. See Certain Agreements Related to the
Transactions Equityholders Agreement.
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exchangeable for Clearwire Class B Common Stock, must vote its
shares in any matter necessary to ensure that (1) no director
elected pursuant to the 2006 Voting Agreement may be removed
other than for cause unless such removal is approved by the
affirmative vote of the party entitled to designate such
director, or the person or entity originally entitled to
designate such director is no longer entitled to designate such
director; and (2) any vacancies created by the resignation,
removal, or death of a director elected pursuant to the 2006
Voting Agreement shall be filled in accordance with the 2006
Voting Agreement.
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Vacancies on the Board of Directors
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The Clearwire Bylaws provide that in the case of any vacancy in
the Clearwire board of directors, however created, such vacancy
shall be filled by majority vote of the directors then in office
or by a vote of the majority of the outstanding shares entitled
to vote thereon.
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The New Clearwire Bylaws will provide that, except as provided
in the New Clearwire Charter and in the Equityholders
Agreement, in the case of any vacancy in the board of directors,
however created, the vacancy will be filled by a majority vote
of the directors then in office or, if not by the directors, by
the stockholders.
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The Equityholders Agreement will set forth certain
agreements of the parties thereto with respect to the vacancies
on New Clearwires board of directors. See Certain
Agreements Related to the Transactions
Equityholders Agreement.
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Required Stockholder Vote
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Pursuant to the Clearwire Bylaws, unless applicable law, the
Clearwire Charter or the Clearwire Bylaws require a different
vote, any corporate action to be taken by stockholder vote at
any meeting duly called and held at which a quorum is present,
shall be authorized by a majority of the votes cast by the
stockholders entitled to vote and present in person or by proxy
at the meeting; provided that where a separate vote of a class
or classes is required, corporate action to be taken by such
class or classes shall be authorized by a majority of the votes
cast by such class or classes.
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Pursuant to the New Clearwire Bylaws, unless applicable law, the
New Clearwire Charter, the New Clearwire Bylaws, any stock
exchange rules applicable to New Clearwire or the
Equityholders Agreement require a different vote, any
corporate action to be taken by stockholder vote at any meeting
duly called and held at which a quorum is present, must be
authorized by a majority of the votes cast by the stockholders
entitled to vote and present in person or by proxy at the
meeting; provided that where a separate vote of a class or
classes is required, corporate action to be taken by such class
or classes shall be
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authorized by a majority of the votes cast by such class or
classes. The New Clearwire Bylaws will provide that holders of a
majority in voting power of the outstanding capital stock
entitled to vote constitutes a quorum, except as otherwise
provided by statute, the New Clearwire Charter or the New
Clearwire Bylaws. Where a separate vote by class or classes is
required, a majority of the voting power of such class or
classes will constitute a quorum for such matter.
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In addition, under the New Clearwire Charter, approval of the
holders of at least 75% in voting power of all of the
outstanding shares of capital stock of New Clearwire entitled to
vote in the election of directors, voting together as a single
class, will be required to approve: (1) any merger,
consolidation, share exchange or similar transaction involving
New Clearwire or Clearwire Communications, that upon
completion, would constitute a change of control of
New Clearwire or Clearwire Communications, respectively;
(2) the issuance of capital stock of New Clearwire or of
Clearwire Communications that, upon completion, would constitute
a change of control of New Clearwire or Clearwire
Communications, respectively; and (3) any sale or other
disposition of all or substantially all of the assets of New
Clearwire or Clearwire Communications.
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Under the Equityholders Agreement, the approval of each of
Sprint, Intel and the representative of the Strategic Investors
for so long as Sprint, Intel or the Strategic Investors, as a
group, own securities representing at least 5% of the
outstanding voting power of New Clearwire, will be required to
(1) amend the New Clearwire Charter, the New Clearwire Bylaws or
the Operating Agreement; (2) change the size of the board of
directors of New Clearwire; (3) subject to certain exceptions,
issue any New Clearwire Class B Common Stock or equity interests
of Clearwire Communications; (4) undertake any
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material capital reorganization of New Clearwire or any of its
material subsidiaries, other than a financing transaction in the
ordinary course of business; (5) undertake any liquidation of
New Clearwire or Clearwire Communications or bankruptcy of
New Clearwire or its subsidiaries; and (6) take any action that
would cause Clearwire Communications or any of its material
subsidiaries to be taxed as a corporation for federal income tax
purposes.
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The Equityholders Agreement will also provide that
amending the New Clearwire Charter, the New Clearwire Bylaws or
the Operating Agreement or changing the size of
New Clearwires board of directors will also require
the approval of Eagle River if Eagle River then owns at least
50% of the shares of New Clearwire Common Stock held by it
immediately before the Closing of the Transactions and the
proposed action would disproportionately and adversely affect
Eagle River, the public stockholders of New Clearwire or New
Clearwire in its capacity as a member of Clearwire
Communications.
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In addition to any stockholder approvals, the approval of at
least ten out of the 13 directors (or, if there are fewer
than ten directors, all of the directors) on New
Clearwires board of directors will be required for certain
transactions. See Certain Agreements Related to the
Transactions Equityholders Agreement.
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Stockholder Action by Written Consent
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The Clearwire Bylaws expressly permit stockholders to take
action by written consent, if the consent is signed by the
holders of outstanding stock having not fewer than the minimum
number of votes assigned under the Clearwire Charter that would
be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present.
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Both the New Clearwire Charter and the New Clearwire Bylaws will
expressly permit stockholders to take action by written consent
if the consent is signed by the holders of outstanding stock
having not fewer than the minimum number of votes under the New
Clearwire Charter that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote
thereon were present and voting.
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New Clearwire
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Amendment of the Certificate of Incorporation
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The Clearwire Charter may be amended by the affirmative vote of
the holders of a majority of the voting rights of all classes of
stock entitled to vote. However, in order to amend, alter,
change or repeal the sections of the Clearwire Charter that deal
with stockholder and director liability, indemnification,
certain business combinations, right to amend the Clearwire
Charter and the DGCL Section 203 election, the affirmative vote
of the holders of
662/3%
of the voting power of all of the outstanding shares of capital
stock of the corporation entitled to vote generally in the
election of directors, voting together as a single class, is
required, and, with respect to the sections covering corporate
opportunity and certain stockholder transactions with Clearwire,
the affirmative vote of 75% of all of the outstanding shares of
capital stock of the corporation entitled to vote in the
election of directors, voting together as a single class, is
required.
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The New Clearwire Charter may be amended by the affirmative vote
of the holders of a majority of outstanding New Clearwire stock
entitled to vote thereon. However, in order to amend or repeal
the New Clearwire Charter provisions covering the exchange
of Class B Common Stock and Class B Common Interests for Class A
Common Stock, the affirmative vote of the holders of at least
75% of the outstanding shares of Class B Common Stock will be
required. In addition, in order to amend the provisions of the
New Clearwire Charter covering (1) corporate opportunities and
certain stockholder transactions and (2) certain supermajority
stockholder approvals, the affirmative vote of the holders of at
least 75% of the outstanding shares of capital stock of New
Clearwire entitled to vote in the election of directors will be
required. See Required Stockholder Vote above.
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The Equityholders Agreement will provide that, subject to
certain minimum ownership thresholds, any amendment to the New
Clearwire Charter will require the approval of Sprint, Intel and
the Strategic Investors as a group and in certain circumstances
also will require the approval of Eagle River. See Certain
Agreements Related to the Transactions
Equityholders Agreement.
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Amendment of Bylaws
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The Clearwire Charter provides that the Clearwire Bylaws may be
amended or repealed by the board of directors, and any bylaw
made by the board of directors may be amended or repealed by the
board of directors or the stockholders in accordance with the
Clearwire Bylaws. The Clearwire Bylaws provide that the board of
directors may amend the Clearwire Bylaws except as otherwise
provided by law or the Clearwire Charter.
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The New Clearwire Charter will provide that, subject to any
additional vote required by the New Clearwire Charter, the New
Clearwire Bylaws or the Equityholders Agreement, the board
of directors may repeal, alter, amend and rescind the New
Clearwire Bylaws or may adopt new bylaws. The New Clearwire
Bylaws will provide that, subject to the New Clearwire
Charter and agreements entered into by the stockholders
(including the Equityholders Agreement), the board
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Clearwire
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New Clearwire
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of directors may amend, alter or repeal the New Clearwire
Bylaws or adopt new bylaws. Subject to agreements entered into
by the stockholders (including the Equityholders
Agreement), the stockholders may only adopt, amend, alter or
repeal the New Clearwire Bylaws by an affirmative vote of at
least 50% of the voting power of all outstanding shares of New
Clearwire stock entitled to vote generally at an election of
directors, voting together as a single class.
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The Equityholders Agreement will provide that any
amendment to the New Clearwire Bylaws will require the approval
of Sprint, Intel and the Strategic Investors voting together as
a group and in certain circumstances will also require the
approval of Eagle River. See Certain Agreements Related to
the Transactions Equityholders
Agreement.
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Special Meeting of Stockholders
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The Clearwire Bylaws provide that special meetings of the
stockholders may be called at any time by the chairman of the
board, the chief executive officer or the president, or, on
proper notice to Clearwire, by holders of at least a majority of
all of the votes attributable to the outstanding shares of
Clearwires common stock taken together as a single class.
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The New Clearwire Charter and the New Clearwire Bylaws will
provide that special meetings of the stockholders may be called
only by a majority of the board of directors, the chairman of
the board, the chief executive officer, the president, the
holders of at least
662/3%
in voting power of all of the then-outstanding shares of New
Clearwire Class B Common Stock or the holders of at least 50% in
voting power of all of the then-outstanding shares of
New Clearwire Class A Common Stock.
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Delivery and Notice Requirements of Stockholder Nominations and
Proposals
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The Clearwire Bylaws provide that for a stockholder proposal to
be brought properly before an annual meeting, the stockholder
must notify the corporate secretary of Clearwire not less than
60 days nor more than 90 days before the first
anniversary of the preceding years annual meeting.
However, if the actual date of the annual meeting is more than
30 days from that anniversary date, then notice must be
delivered no later than the
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The New Clearwire Bylaws will include a stockholder notice
provision similar to that of the Clearwire Bylaws. However,
under the New Clearwire Bylaws, for a stockholder to nominate a
director, in the event that the number of directors to be
elected has increased and there is no public announcement by New
Clearwire naming nominees for the additional directorships at
least 100 days before the first anniversary
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Clearwire
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New Clearwire
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close of business on the earlier of the seventh day following
the date on which notice of the date of the meeting was mailed
or a public announcement was made.
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of the preceding years annual meeting, such stockholder
notice will be timely with respect to the additional
directorships if delivered to the corporate secretary of New
Clearwire no later than the seventh day following the day on
which such public announcement is first made by New
Clearwire.
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Further, the stockholders notice must include, in addition
to the stockholders name and address, (1) the class and
number of shares of New Clearwire capital stock beneficially
owned by the stockholder; (2) any option, warrant convertible
security, stock appreciation right or similar right with an
exercise or conversion privilege at a price related to or value
derived from any class or series of New Clearwire capital
stock including those subject to settlement in a derivative
instrument and any other opportunity to profit or share in any
profit derived from any increase or decrease in the value of
shares of New Clearwire capital stock; (3) any proxy, contract,
arrangement, understanding or relationship pursuant to which the
stockholder has a right to vote any shares of New Clearwire
capital stock; (4) any participation involving the stockholder
profiting or sharing in any profit derived from any decrease in
the value of New Clearwire capital stock, otherwise known
as a short interest; (5) any rights to dividends on
the shares of New Clearwire capital stock that are separated or
separable from the underlying shares of New Clearwire capital
stock; (6) an interest in shares of New Clearwire capital stock
or derivative instruments held by a general or limited
partnership in which such stockholder is a general partner or
owns an interest in a general partner; and (7) any
performance-related fees (other than an asset-based fee) that
such stockholder is entitled to based on any increase or
decrease in the value of shares of capital stock of New
Clearwire or any derivative
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New Clearwire
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instruments including without limitation any such interests
held by members of such stockholders immediate family
sharing the same household. In addition, the stockholders
notice must provide a representation as to whether the
stockholder intends to or is part of a group that intends to
deliver a proxy statement or form of proxy to holders of at
least the percentage of New Clearwires outstanding
capital stock required to approve or adopt the proposal or elect
the nominee or otherwise solicit proxies from stockholders in
support of the proposal or nomination.
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Preemptive Rights
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The Clearwire Charter does not provide that stockholders
possess any preemptive right to subscribe to additional
issuances of its capital stock.
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The New Clearwire Charter will provide that, except as set forth
in the Equityholders Agreement, New Clearwire stockholders
will have no preemptive rights to subscribe to additional
issuances of the New Clearwires capital stock.
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The Equityholders Agreement will provide for certain
preemptive rights of the parties thereto. See Certain
Agreements Related to the Transactions
Equityholders Agreement.
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Dividend Rights
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The Clearwire Charter provides that holders of Clearwire Common
Stock are entitled to receive dividends, if any, as may be
declared by the Clearwire board of directors out of funds
lawfully available for the payment of dividends, whether payable
in cash, property or shares of capital stock of Clearwire,
subject to any preferential rights of any outstanding Clearwire
preferred stock as determined by Clearwires board of
directors and the restrictions set forth in the DGCL.
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The New Clearwire Charter will provide that holders of New
Clearwire Class A Common Stock will be entitled to receive
dividends, if any, as may be declared by the New Clearwire board
of directors out of funds lawfully available for the payment of
dividends, payable in cash or property, subject to any
preferential dividend rights of any outstanding New Clearwire
preferred stock and the restrictions set forth in the DGCL.
Subject to the terms of the Operating Agreement, the rights of
any New Clearwire preferred stock and the restrictions on
any indebtedness of New Clearwire, if a distribution will be
paid in respect of Clearwire Communications Common Interests,
New Clearwire will declare and pay a dividend on New
Clearwire Class A Common Stock equal to the amount per share
paid in respect of each Clearwire Communications Common Interest
in the distribution. New
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Clearwire
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New Clearwire
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Clearwire will not declare or pay any dividends, other than
stock dividends, in respect of New Clearwire Class B Common
Stock. In no event will any stock dividends be declared or made
on New Clearwire Class A Common Stock or New Clearwire Class B
Common Stock, as the case may be, unless contemporaneously
therewith (a) the shares of New Clearwire Class A Common Stock
or New Clearwire Class B Common Stock, as the case may be, at
the time outstanding are treated in the same proportion and the
same manner and (b) the stock dividend has been reflected in the
same economically equivalent manner on all Clearwire
Communications Common Interests. Stock dividends with respect to
New Clearwire Class A Common Stock may only be paid with New
Clearwire Class A Common Stock. Stock dividends with respect to
New Clearwire Class B Common Stock may only be paid with New
Clearwire Class B Common Stock.
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Board Committees
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Under the Clearwire Bylaws, the board of directors has the
authority to designate committees, each consisting of one or
more of the directors, along with any non-directors provided for
in board resolutions. In the absence or disqualification of a
member of a committee, the member or members present at any
meeting and not disqualified from voting, whether or not they
constitute a quorum, may unanimously appoint another member of
the board of directors to act at the meeting in place of any
absent or disqualified member.
Any
committee, to the extent provided in the resolution approved by
every member of the board of directors and permitted by law,
shall have and may exercise all the powers and authority of the
board of directors in the management of the business, property,
and affairs of Clearwire.
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Under the New Clearwire Bylaws, the board of directors will be
required to form an audit committee, a nominating committee, a
compensation committee and a transactions committee, the
composition of which will be established in accordance with the
Equityholders Agreement. Subject to the
Equityholders Agreement, the board of directors may
designate an executive committee consisting of one or more
directors. Other than these committees, New Clearwire will
establish no other committees of the board of directors other
than those special committees the board of directors creates in
its discretion in order to carry out its fiduciary duties,
provided that the composition of any committee to which the
board of directors delegates any authority shall be determined
in accordance with the Equityholders Agreement.
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The establishment of any additional committee of the board of
directors and the delegation of duties to such committee will
require the approval of at least ten members of the board of
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New Clearwire
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directors (or, if there are fewer than ten members of the board
of directors, all of such members of the board of directors), or
a majority of the disinterested directors if the establishment
of the committee is for the purpose of reviewing a related party
transaction.
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Subject to the agreements entered into by the stockholders, any
committee, to the extent provided in the resolution of the board
of directors, will have and may exercise all the powers and
authority of the board of directors in the management of the
business and affairs of New Clearwire, except that no committee
will have the power or authority of the board of directors in
reference to (1) approving or adopting, or recommending to the
stockholders for approval, any action or matter expressly
required by the DGCL or other applicable law to be submitted to
stockholders for approval or (2) adopting, amending, or
repealing any bylaw of New Clearwire.
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The
Equityholders Agreement will include certain provisions
with respect to committees of New Clearwires board of
directors. See Certain Agreements Related To The
Transactions Equityholders Agreement.
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Exculpation and Indemnification of Directors and Officers
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The Clearwire Charter eliminates the personal liability of
directors to Clearwire or its stockholders for or with respect
to any acts or omissions in the performance of each
directors duties as a director of Clearwire to the fullest
extent permissible under Delaware law.
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The New Clearwire Charter will eliminate the personal liability
of directors to New Clearwire or its stockholders for monetary
damages for any breach of fiduciary duty as a director to the
fullest extent permissible under Delaware law.
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The Clearwire Charter provides that Clearwire shall indemnify
its directors and executive officers to the fullest extent not
prohibited by Delaware law or other applicable law, though the
extent of indemnification may be modified by the Clearwire
Bylaws or through individual contracts.
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The New Clearwire Charter will provide that New Clearwire shall
indemnify its directors and executive officers to the fullest
extent permitted by Delaware law or other applicable law. New
Clearwire will not be required to indemnify any director or
executive officer in connection with any proceeding initiated by
such person unless the proceeding was authorized by the board of
directors.
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New Clearwire
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Expenses incurred by directors and executive officers in
connection with proceedings for which they are indemnified will
be paid by Clearwire as incurred and before final disposition of
such proceedings; provided, however, that if Delaware law
requires, such payment will be made on receipt of an undertaking
by or on behalf of such person to repay the amount if it is
determined ultimately that such person is not entitled to be
indemnified by Clearwire.
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Expenses incurred by directors and executive officers in
connection with proceedings for which they are indemnified will
be paid by New Clearwire as incurred and before final
disposition of such proceedings; provided that such payment will
be made on receipt of an undertaking on behalf of such person to
repay the amount if it is determined ultimately that such person
is not entitled to be indemnified by New Clearwire. New
Clearwire will be required to pay expenses incurred by directors
and executive officers in connection with proceedings initiated
by such persons only if the commencement of the proceedings by
such person was authorized by the board of directors.
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If a claim is not paid in full by Clearwire within 60 calendar
days after a written claim has been received by Clearwire,
except for a claim of advancement of expenses before final
disposition of proceedings, in which case the applicable period
will be 20 calendar days, the director or executive officer may
bring suit against Clearwire to recover the unpaid amount of the
claim. If successful in whole or in part in any such suit, or in
a suit brought by Clearwire to recover an advancement of
expenses pursuant to the terms of an undertaking, such director
or executive officer will also be entitled to expenses related
to the prosecution or defense of such suit. In any suit brought
by the director or executive officer to enforce a right to
indemnification, except for advance of expenses, it shall be a
defense that the director or executive officer has not met any
applicable standard for indemnification as set forth under
Delaware law, with the burden of proof that such director or
executive officer is not entitled to indemnification or to
advancement of expenses will be on Clearwire.
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If a claim is not paid in full by New Clearwire within 30
calendar days after a written claim has been received by New
Clearwire, the director or executive officer may bring suit
against Clearwire to recover the unpaid amount of the claim. If
successful in whole or in part in any such suit, such director
or executive officer will also be entitled to the expenses of
prosecuting the claims to the fullest extent permitted by law.
In any such action, New Clearwire will have the burden of
proving that such director or executive officer is not entitled
to the requested indemnification or advancement of expenses
under applicable law.
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Any person serving as a director, officer, employee or agent of
another corporation, partnership, limited liability company,
joint venture or other enterprise, at least 50% of
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Any person serving as a director, officer, employee or agent of
Clearwire Communications or another corporation, partnership,
limited liability company, joint venture or
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Clearwire
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New Clearwire
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whose equity interests are owned by Clearwire, will be
conclusively presumed to be serving in such capacity at the
request of Clearwire.
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other enterprise, at least 50% of whose equity interests are
owned directly or indirectly by New Clearwire, will be
conclusively presumed to be serving in such capacity at the
request of New Clearwire.
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Certain Business Combination Restrictions
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Section 203 of the DGCL provides that if a person acquires 15%
or more of the voting stock of a Delaware corporation, such
person is an interested stockholder and may not
engage in certain business combinations with the
corporation for a period of three years from the time such
person acquired 15% or more of the corporations voting
stock, unless: (1) the board of directors approves the
acquisition of stock or the merger transaction before the time
that the person becomes an interested stockholder, (2) the
interested stockholder owns at least 85% of the outstanding
voting stock of the corporation at the time the merger
transaction commences (excluding voting stock owned by directors
who are also officers and certain employee stock plans), or (3)
the merger transaction is approved by the board of directors and
by the affirmative vote at a meeting, not by written consent, of
stockholders of 2/3 of the holders of the outstanding voting
stock which is not owned by the interested stockholder. A
Delaware corporation may elect in its certificate of
incorporation or bylaws not to be governed by this Delaware law.
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The New Clearwire Charter will provide that New Clearwire will
not be subject to Section 203 of the DGCL.
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Although a Delaware corporation to which Section 203 applies may
elect not to be governed by Section 203, the Clearwire Charter
expressly elects to be governed by Section 203. However, the
Clearwire Charter declares that, notwithstanding Section 203,
none of Mr. McCaw, Eagle River, Intel or their affiliates will
be deemed to be an interested stockholder as defined
by Section 203.
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Corporate Opportunities
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The Clearwire Charter provides that neither Intel nor any of
Mr. McCaw, Eagle River and their affiliates,
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The New Clearwire Charter will provide that none of the Founding
Stockholders (as such term is defined
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Clearwire
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New Clearwire
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collectively, the Eagle River Entities, or any director,
officer, stockholder, member, manager or employee of Intel or
the Eagle River Entities has any duty to refrain from engaging
directly or indirectly in the same or similar business
activities or lines of business of Clearwire or from employing
any of Clearwires officers or employees. In the event that
Intel or an Eagle River Entity, for so long as Intel or such
Eagle River Entity serves as one of Clearwires directors
or officers, acquires knowledge of a potential transaction or
matter which may be a corporate opportunity for them and
Clearwire, Clearwire will not have any expectancy in such
corporate opportunity, and Intel or such Eagle River Entity will
not have any duty to communicate or offer such corporate
opportunity to Clearwire and may pursue or acquire such
corporate opportunity for themselves or direct such opportunity
to another person. The Clearwire Charter also provides that any
of its directors or officers who also serve as a director,
officer or employee of Clearwire will have fully satisfied his
or her fiduciary duties to Clearwire and Clearwires
stockholders with respect to such transaction, and will not be
obligated to communicate information regarding the corporate
opportunity to Clearwire, if the corporate opportunity is
offered or disclosed in accordance with the policy set forth in
the Clearwire Charter, which states, in general, that unless a
director is an employee of Clearwire, such person will not have
a duty to present to Clearwire a corporate opportunity of which
he or she becomes aware, except where the corporate opportunity
is expressly offered to such person in his or her capacity as an
employee, officer or director of Clearwire.
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in the New Clearwire Charter) has any duty to refrain from
engaging directly or indirectly in the same or similar business
activities or lines of business of New Clearwire or from
employing any of New Clearwires officers or employees. In
the event that a Founding Stockholder acquires knowledge of a
potential transaction or matter that may be a corporate
opportunity for it and New Clearwire, New Clearwire will have no
interest or expectancy in such corporate opportunity, and such
Founding Stockholder may pursue or acquire such corporate
opportunity for itself or direct such opportunity to another
person or otherwise not present the corporate opportunity to New
Clearwire. In addition, if any of New Clearwires directors
or officers serve as a director, officer, member, manager or
employee of any of the Founding Stockholders and independently
learns of a potential transaction or matter which may be a
corporate opportunity for New Clearwire and a Founding
Stockholder, such person will have no duty to present that
corporate opportunity to New Clearwire.
The
New Clearwire Charter will also provide that any of its
directors or officers who also serve as a director, officer,
stockholder, member, manager or employee of a Founding
Stockholder will have fully satisfied his or her fiduciary
duties to New Clearwire and New Clearwires stockholders
with respect to such transaction, will not be obligated to
communicate information regarding the corporate opportunity to
New Clearwire or the Founding Stockholder, and will, to the
fullest extent permitted by law, be presumed to have acted in
good faith, if the corporate opportunity is offered or disclosed
in accordance with the policy set forth in the New Clearwire
Charter. Such policy states, in general, that unless a director
is an employee of New Clearwire, such person will not have a
duty to present to New Clearwire a corporate opportunity of
which he or she becomes aware,
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Clearwire
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New Clearwire
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except where the corporate opportunity is expressly offered to
such person primarily in his or her capacity as a director of
New Clearwire.
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Transfer Restrictions
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Under the Clearwire Charter, Clearwire may restrict ownership
of shares of capital stock of Clearwire if such ownership would
violate or be inconsistent with the federal communications laws
and regulations or limit Clearwires business activities
under the federal communications laws. Clearwire has the right
to redeem such shares.
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The New Clearwire Charter will contain similar restrictions on
the ownership of shares of capital stock of New Clearwire that
would violate federal communications law regarding foreign
ownership and will provide that New Clearwire may redeem from
any holder causing such violation a sufficient number of shares
of New Clearwire capital stock to eliminate the violation at a
market price determined in accordance with the New Clearwire
Charter.
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Under the Clearwire Charter, at any time or from time to time
each share of Clearwire Class B Common Stock is convertible at
the option of the holder into one share of Class A Common Stock.
In addition, if a holder of Clearwire Class B Common Stock
should at any time own less than 5% of the outstanding Clearwire
Class B Common Stock, or if such a holder shall transfer shares
of Clearwire Class B Common Stock other than in a transfer
permitted under the Clearwire Charter, then such shares will
automatically convert to the same number of shares of Clearwire
Class A Common Stock.
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In addition, under the New Clearwire Charter, one share of New
Clearwire Class B Common Stock may be exchanged for one share of
New Clearwire Class A Common Stock only when exchanged in
combination with one Clearwire Communications Class B Common
Interest. Following the exchange, the shares of New Clearwire
Class B Common Stock surrendered in the exchange will be
retired, will cease to be outstanding, and may not be reissued.
The
Equityholders Agreement will provide that if an
Equityholder or any transferee of an Equityholder transfers any
New Clearwire Class B Common Stock or Clearwire Communications
Class B Common Interests without also transferring to the same
party an identical number of Clearwire Communications Class B
Common Interests or New Clearwire Class B Common Stock,
respectively, then the New Clearwire Class B Common Stock
corresponding to those transferred shares or interests, as
applicable, will be redeemed by New Clearwire for par value.
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The Equityholders Agreement will set forth certain
agreements of the parties thereto with respect to transfer
restrictions. See Certain Agreements Related to the
Transactions Equityholders
Agreement Restrictions on Transfer.
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165
NEW
CLEARWIRE STOCK PLAN
Approval
of the New Clearwire Stock Plan
In connection with the Transactions, the Clearwire board of
directors is proposing the adoption of the New Clearwire Stock
Plan. If approved by Clearwires stockholders, the New
Clearwire Stock Plan will only become effective on the
consummation of the Transactions. If the Transactions are not
consummated, or if Clearwires stockholders do not approve
the New Clearwire Stock Plan, the New Clearwire Stock Plan will
not become effective and awards will not be granted thereunder.
The following is a summary of certain principal features of the
New Clearwire Stock Plan. This summary is qualified in its
entirety by reference to the complete text of the New Clearwire
Stock Plan, which is attached to this proxy statement/prospectus
as Annex H. Throughout this summary and unless the context
otherwise requires, words that are capitalized but not defined
herein have the meanings ascribed to them in the New Clearwire
Stock Plan. Stockholders are urged to read the actual text of
the New Clearwire Stock Plan in its entirety. The key terms
and provisions of the New Clearwire Stock Plan, including
eligibility for participation and the types of awards that may
be granted under the New Clearwire Stock Plan, are substantially
similar to those of the Clearwire Corporation 2007 Stock
Compensation Plan, which we refer to as the Prior Plan. The
primary purpose of adopting the New Clearwire Stock Plan and
submitting the New Clearwire Stock Plan for stockholder approval
is to enable compliance with Section 162(m) of the Code and
to increase the number of shares reserved by New Clearwire for
equity incentive grants to service providers of New Clearwire
and its affiliates. For purposes of this section, references to
Shares or a Share refer to a share or
shares of Clearwire Class A Common Stock before completion
of the Transactions, or New Clearwire Class A Common Stock,
after completion of the Transactions, as applicable.
The Clearwire board of directors unanimously recommends a
vote FOR the approval of the New Clearwire
Stock Plan.
Description
of the New Clearwire Stock Plan
Purpose
The New Clearwire Stock Plan is intended to further the growth
and profitability of New Clearwire by increasing incentives and
encouraging share ownership on the part of the employees,
independent contractors and members of the board of directors of
New Clearwire and its Subsidiaries and Related Companies (each
as defined in the New Clearwire Stock Plan). The New Clearwire
Stock Plan is intended to permit the grant of awards that
constitute incentive stock options, non-qualified stock options,
stock appreciation rights, restricted stock, restricted stock
units and other stock awards.
Administration
The New Clearwire Stock Plan will be administered by the
Compensation Committee of the board of directors of New
Clearwire, which we refer to as the Committee. Except as
provided in or pursuant to the Equityholders Agreement, if
the Committee consists of more than one member, a quorum shall
consist of not fewer than two members of the Committee and a
majority of a quorum may authorize any action. Subject to
applicable law, the Committee may delegate its authority under
the New Clearwire Stock Plan to any other person or persons
(except that the Committee may not delegate to an individual the
authority to grant an award to him or herself). References to
the Committee will refer to the board of directors of New
Clearwire if the Committee ceases to exist and the board of
directors of New Clearwire does not appoint a successor
Committee.
The Committee is required to administer the New Clearwire Stock
Plan in accordance with the New Clearwire Stock Plans
provisions. The Committee will have all powers and discretion
necessary or appropriate to administer the New Clearwire Stock
Plan and to control its operation, including, but not limited
to, the power to (1) determine which employees, independent
contractors and members of the board of directors of New
Clearwire will be eligible to receive awards, and to grant
awards, (2) prescribe the form, amount, timing
166
and other terms and conditions of each award, (3) interpret
the New Clearwire Stock Plan and the written agreement setting
forth the terms and conditions applicable to an award, which we
refer to as the Award Agreements, (4) adopt such procedures
as it deems necessary or appropriate to permit participation in
the New Clearwire Stock Plan by eligible employees, independent
contractors and members of the Board, (5) adopt such rules
as it deems necessary or appropriate for the administration,
interpretation and application of the New Clearwire Stock Plan,
(6) interpret, amend or revoke any such procedures or
rules, (7) correct any technical defect(s) or technical
omission(s), or reconcile any technical inconsistency(ies), in
the New Clearwire Stock Plan
and/or any
Award Agreement, (8) accelerate the vesting or payment of
any award, (9) extend the period during which a stock
option may be exercisable, and (10) make all other
decisions and determinations that may be required pursuant to
the New Clearwire Stock Plan
and/or any
Award Agreement or as the Committee deems necessary or advisable
to administer the New Clearwire Stock Plan.
Except as provided in or pursuant to the Equityholders
Agreement, the acts of the Committee will be either
(1) acts of a majority of the members of the Committee
present at any meeting at which a quorum is present or
(2) acts approved in writing by all of the members of the
Committee without a meeting. A majority of the Committee will
constitute a quorum. The Committees determinations under
the New Clearwire Stock Plan need not be uniform and may be made
selectively among individuals, whether or not such individuals
are similarly situated. Each member of the Committee is
entitled, in good faith, to rely or act upon any report or other
information furnished to that member by any employee of New
Clearwire or any of its Subsidiaries, Affiliates (as defined in
the New Clearwire Stock Plan), or Related Companies, New
Clearwires independent certified public accountants or any
executive compensation consultant or other professional retained
by New Clearwire to assist in the administration of the New
Clearwire Stock Plan.
New Clearwire will effect grants of awards under the New
Clearwire Stock Plan, in accordance with the determinations made
by the Committee, by written agreements
and/or other
instruments in such form as approved by the Committee.
Shares
Available For Awards
Subject to adjustment described below under the section titled
Changes in Capital Structure, the number of shares
available for grants of awards under the New Clearwire Stock
Plan will be 80,000,000 shares of Clearwire Class A
Common Stock. Shares awarded under the New Clearwire Stock Plan
may be either authorized but unissued shares, authorized and
issued shares reacquired and held as treasury shares or a
combination thereof. Unless prohibited by applicable law or
exchange rules, shares issued in assumption of, or in
substitution for, any outstanding awards of any entity acquired
in any form of combination by New Clearwire or any
Subsidiary or Affiliate will not reduce the shares available for
grants of awards under the New Clearwire Stock Plan.
On consummation of the Transactions, the shares reserved under
the New Clearwire Stock Plan will be converted into shares of
New Clearwire Class A Common Stock, with the number of
shares of New Clearwire Class A Common Stock reserved for
issuance under the New Clearwire Stock Plan equaling the number
of shares of New Clearwire Class A Common Stock into which
the number of shares of Clearwire Class A Common Stock
reserved hereunder would be converted pursuant to the
Transaction Agreement if they were then outstanding. Subject to
adjustment described below under the section titled
Changes in Capital Structure, (1) in no event
may more than 20,000,000 Shares be issued upon the exercise
of an incentive stock option granted under the New Clearwire
Stock Plan and (2) the maximum number of Shares that may be
subject to stock options or stock appreciation rights granted to
any individual in any
12-month
period is 4,000,000.
To the extent that Shares are subject to an outstanding stock
option (except to the extent Shares are issued or delivered by
New Clearwire in connection with the exercise of a tandem stock
appreciation right) or other award are not issued or delivered
by reason of (1) the expiration, cancellation, forfeiture
or other termination of such award, (2) the withholding of
the Shares in satisfaction of applicable federal, state or local
taxes or (3) of the settlement of all or a portion of such
award in cash, then the Shares will again be available under the
New Clearwire Stock Plan.
The closing price per share of Clearwire Class A Common
Stock on October 16, 2008 was $7.50.
167
Term
of the New Clearwire Stock Plan
Unless earlier terminated by the board of directors of New
Clearwire, as described below under the section titled
Amendment and Termination, the New Clearwire Stock
Plan will terminate ten years after adoption by the board of
directors of New Clearwire, unless earlier terminated by the
board of directors of New Clearwire and no further awards will
be granted under the New Clearwire Stock Plan. The termination
of the New Clearwire Stock Plan will not affect any awards
granted prior to the termination of the New Clearwire Stock
Plan.
Eligibility
The persons eligible to receive awards under the New Clearwire
Stock Plan are the members of the board of directors, officers,
employees and independent contractors of New Clearwire, a
Subsidiary or a Related Company and any individual to whom New
Clearwire, a Subsidiary or a Related Company has extended a
formal, written offer of employment, in either case, who are
designated by the Committee, which we refer to as Eligible
Individuals. As of June 30, 2008, there were
10 directors and approximately 2,475 employees of
Clearwire and the Sprint WiMAX Business who could have been
eligible to receive an award under the New Clearwire Stock Plan,
assuming the Transactions had been completed prior to such date
and all such persons remained with New Clearwire and its
Subsidiaries. Persons receiving awards, which we refer to as
Participants, will enter into individual Award Agreements with
New Clearwire that contain the terms and conditions of the award
established by the Committee.
Stock
Options
Stock options may be granted to Participants at such times, and
subject to such terms and conditions, as determined by the
Committee in its sole discretion. An award of stock options may
include incentive stock options, which we refer to as ISOs,
non-qualified stock options, which we refer to as NQSOs, or a
combination thereof; provided, however, that an ISO may only be
granted to an employee of New Clearwire or a Subsidiary and no
ISO will be granted more than ten years after the earlier of
(1) the date the New Clearwire Stock Plan is adopted by the
board of directors of New Clearwire or (2) the date the New
Clearwire Stock Plan is approved by Clearwires
stockholders.
Each stock option will be evidenced by an Award Agreement that
specifies the exercise price, the expiration date of the stock
option, the number of Shares to which the stock option pertains,
any conditions to the exercise of all or a portion of the stock
option, and such other terms and conditions as the Committee, in
its discretion, determines. The Award Agreement pertaining to a
stock option will designate such stock option as an ISO or an
NQSO. Notwithstanding any such designation, to the extent that
the aggregate Fair Market Value (as determined as of
the grant date) of Shares with respect to which stock options
designated as ISOs are exercisable for the first time by a
Participant during any calendar year (under the New Clearwire
Stock Plan or any other plan of New Clearwire, or any parent or
subsidiary as defined in Section 424 of the Code) exceeds
$100,000, such stock options shall constitute NQSOs. For
purposes of the preceding sentence, ISOs will be taken into
account in the order in which they are granted.
For purposes of the New Clearwire Stock Plan, Fair Market
Value on any date means (1) the closing price in the
primary trading session for a Share on such date on the stock
exchange, if any, on which Shares are primarily traded (or if no
Shares were traded on such date, then on the most recent
previous date on which any Shares were so traded), (2) if
clause (1) is not applicable, the closing price of the
Shares on such date on NASDAQ at the close of the primary
trading session (or if no Shares were traded on such date, then
on the most recent previous date on which any Shares were so
traded) or (3) if neither clause (1) nor
clause (2) is applicable, the value of a Share for such
date as established by the Committee, using any reasonable
method of valuation.
The exercise price with respect to Shares subject to a stock
option will be determined by the Committee in its sole
discretion; provided, however, that the exercise price will be
not less than one hundred percent (100%) of the Fair Market
Value of a Share on the grant date; and provided further, that
the exercise price
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with respect to an ISO granted to a Ten Percent Holder (as
defined in the New Clearwire Stock Plan) will not be less than
one hundred ten percent (110%) of the Fair Market Value of a
Share on the grant date.
Each stock option will terminate no later than the expiration
date specified in the Award Agreement pertaining to such stock
option; provided, however, that the expiration date with respect
to a stock option will not be later than the tenth anniversary
of its grant date and the expiration date with respect to an ISO
granted to a ten percent holder will not be later than the fifth
anniversary of its grant date.
Subject to the expiration dates described immediately above,
stock options granted under the New Clearwire Stock Plan
will be exercisable at such times, and will be subject to such
restrictions and conditions, as the Committee determines in its
sole discretion. The exercise of a stock option is contingent on
payment by the Participant of the amount sufficient to pay all
taxes required to be withheld by any governmental agency. Such
payment may be in any form approved by the Committee.
Stock options will be exercised by the Participants
delivery of a written notice of exercise to the Chief Financial
Officer of New Clearwire (or his or her designee), setting forth
the number of Shares with respect to which the stock option is
to be exercised, accompanied by full payment of the exercise
price with respect to each such Share and an amount sufficient
to pay all taxes required to be withheld by any governmental
agency. The exercise price shall be payable to New Clearwire in
full in cash or its equivalent. The Committee, in its sole
discretion, also may permit exercise (1) by tendering
previously acquired Shares having an aggregate Fair Market Value
at the time of exercise equal to the aggregate exercise price of
the Shares with respect to which the stock option is to be
exercised, or (2) by any other means which the Committee,
in its sole discretion, determines to both provide legal
consideration for the Shares, and to be consistent with the
purposes of the New Clearwire Stock Plan, including, without
limitation, through a registered broker-dealer pursuant to such
cashless exercise procedures which are, from time to time,
deemed acceptable by the Committee. As soon as practicable after
receipt of a written notification of exercise and full payment
for the Shares with respect to which the stock option is
exercised, New Clearwire will deliver to the Participant Share
certificates (which may be in book entry form) for such Shares
with respect to which the stock option is exercised.
ISOs are not transferable, except by will or the laws of
descent. The Committee may impose such additional restrictions
on any Shares acquired pursuant to the exercise of a stock
option as it may deem advisable, including, but not limited to,
restrictions related to applicable federal securities laws, the
requirements of any national securities exchange or system upon
which Shares are then listed or traded, or any blue sky or state
securities laws.
Stock
Appreciation Rights
Stock appreciation rights, which we refer to as SARs, may be
granted to such Participants at such times, and subject to such
terms and conditions, as determined by the Committee in its sole
discretion; provided, however, that any tandem SAR (i.e., a SAR
granted in tandem with a stock option) related to an ISO will be
granted at the same time that such ISO is granted. The
Committee, subject to the provisions of the New Clearwire Stock
Plan, will have complete discretion to determine the terms and
conditions of SARs granted under the New Clearwire Stock
Plan. Without limiting the foregoing, the price at which a SAR
may be exercised with respect to a Share, which we refer to as
the Base Price, with respect to Shares subject to a tandem SAR
shall be the same as the exercise price with respect to the
Shares subject to the related stock option.
Each SAR grant will be evidenced by an Award Agreement that will
specify the Base Price (which will not be less than one hundred
percent (100%) of the Fair Market Value of a Share on the grant
date), the term of the SAR, the conditions of exercise, and such
other terms and conditions as the Committee, in its sole
discretion, determines. Each SAR will terminate no later than
the tenth anniversary of its grant date; provided, however, that
the expiration date with respect to a tandem SAR will not be
later than the expiration date of the related stock option.
Unless otherwise specified in the Award Agreement pertaining to
a SAR, a SAR may be exercised by the Participants
(1) delivery of a written notice of exercise to the Chief
Financial Officer of New Clearwire (or
169
his or her designee) setting forth the number of whole SARs
which are being exercised, (2) in the case of a tandem SAR,
surrender to New Clearwire any stock options which are cancelled
by reason of the exercise of such SAR, and (3) execution of
such documents as New Clearwire may reasonably request. Except
as otherwise provided in the relevant Award Agreement, upon
exercise of a SAR, the Participant will be entitled to receive
payment from New Clearwire in an amount determined by
multiplying: (i) the amount by which the Fair Market Value
of a Share on the date of exercise exceeds the Base Price
specified in the Award Agreement pertaining to such SAR by
(ii) the number of Shares with respect to which the SAR is
exercised. Payment to a Participant upon the exercise of the SAR
will be made, as determined by the Committee in its sole
discretion, either (a) in cash, (b) in Shares with a
Fair Market Value equal to the amount of the payment or
(c) in a combination thereof, as set forth in the
applicable Award Agreement.
Restricted
Stock and Restricted Stock Units
A grant of restricted stock is an award of Shares that may be
forfeited back to New Clearwire if certain requirements are not
met, such as continued employment for a specified period of
time. Further, the shares may not be sold or disposed of prior
to the end of the restricted period specified by the Committee.
The Committee may set additional restrictions on restricted
stock as it may deem advisable or appropriate in the individual
Award Agreements. A Participant who has been granted restricted
stock generally has the right to vote the Shares, unless
otherwise determined by the Committee. During the period of
restriction, Participants holding Shares of restricted stock
shall be entitled to receive all dividends and other
distributions paid with respect to such Shares unless otherwise
provided in the applicable Award Agreement but any such
dividends or distributions will be deposited with New Clearwire
and will be subject to the same restrictions on transferability
and forfeitability as the Shares of restricted stock with
respect to which they were paid.
Restricted stock units, which we refer to as RSUs, are similar
to restricted shares except that no Shares are actually awarded
to the Participant on the date of grant. Instead, Shares are
delivered to the Participant upon satisfaction of all applicable
terms and conditions specified in the award. A holder of an RSU
does not have voting rights or any entitlement to dividends or
other distributions until the Shares are delivered upon the
completion of the restricted period.
Performance
Awards
The Committee will have the authority to grant awards under the
New Clearwire Stock Plan that are contingent upon the
achievement of specified performance goals, which we refer to as
Performance Goals. Such Performance Goals are to be specified in
the relevant Award Agreement and may be based on such criteria
as the Committee may determine. Performance Goals may be
expressed in terms of earnings per Share, net income, revenue
growth, market share, ratings, rank, market valuation, cash
flow, cash flow per Share, adjusted earnings before interest,
taxes and depreciation, Share price, pre-tax profits, net
earnings, return on equity or assets, sales, any combination of
the foregoing or, with respect to Performance Awards that are
not intended to qualify as performance-based compensation under
Section 162(m) of the Code, such other criteria as the
Committee may determine. Performance Goals may be in respect of
the performance of New Clearwire, any of its Subsidiaries,
Related Companies or Affiliates or any combination thereof on
either a consolidated, business unit or divisional level.
Performance Goals may be absolute or relative (to prior
performance of New Clearwire or to the performance of one
or more other entities or external indices) and may be expressed
in terms of a progression within a specified range. Before the
vesting, payment, settlement or lapsing of any restrictions with
respect to any performance-based award that is intended to
constitute performance-based compensation made to a
Participant who is subject to Section 162(m) of the Code,
the Committee will certify in writing that the specified
applicable Performance Goals have been satisfied to the extent
necessary for such award to qualify as performance-based
compensation. Performance Awards may be made in the form of
Performance Units or Performance Shares.
Performance Units may be denominated in Shares or a specified
dollar amount and, contingent on the attainment of specified
Performance Goals within a specified performance cycle,
represent the right to receive payment of (1) in the case
of Share-denominated Performance Units, the Fair Market Value of
a Share on the date the Performance Unit was granted, the date
the Performance Unit became vested or any other date
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specified by the Committee, (2) in the case of
dollar-denominated Performance Units, the specified dollar
amount or (3) a percentage (which may be more than 100%) of
the amount described in clause (1) or (2) depending on
the level of Performance Goal attainment; provided, however,
that, the Committee may at the time a Performance Unit is
granted specify a maximum amount payable in respect of a vested
Performance Unit. Each Award Agreement will specify the number
of Performance Units to which it relates, the Performance Goals
which must be satisfied in order for the Performance Units to
vest and the performance cycle within which such Performance
Goals must be satisfied. A Participant will become vested with
respect to the Performance Units to the extent that the
Performance Goals set forth in the Award Agreement are satisfied
for the applicable performance cycle and payment to Participants
in respect of vested Performance Units will be made in
accordance with the terms of the relevant Award Agreement. Such
payments may be made entirely in Shares valued at their Fair
Market Value, entirely in cash, or in such combination of Shares
and cash as the Committee in its discretion determines at any
time prior to such payment.
The Committee, in its discretion, may grant awards of
Performance Shares to Eligible Individuals, the terms and
conditions of which will be set forth in an Award Agreement
between New Clearwire and the Eligible Individual. Each Award
Agreement may require that an appropriate legend be placed on
Share certificates. The Committee will provide at the time an
award of Performance Shares is made the time or times at which
the actual Shares represented by such award will be issued in
the name of the Participant; provided, however, that no
Performance Shares will be issued until the Participant has
executed an Award Agreement evidencing the award, the
appropriate blank stock powers and, in the discretion of the
Committee, an escrow agreement and any other documents which the
Committee may require as a condition to the issuance of such
Performance Shares.
Restrictions upon Performance Shares will lapse and such
Performance Shares will become vested at such time or times and
on such terms, conditions and satisfaction of Performance Goals
as the Committee may, in its discretion, determine at the time
an award is granted. Upon the lapse of the restrictions on
Performance Shares, the Committee will cause a stock certificate
to be delivered to the Participant with respect to such Shares,
free of all restrictions hereunder. The Committee may also
impose such other restrictions and conditions on the Performance
Shares, if any, as it deems appropriate.
Until the vesting of Performance Units or the lapsing of any
restrictions on Performance Shares, as the case may be, such
Performance Units or Performance Shares will not be sold,
transferred or otherwise disposed of and will not be pledged or
otherwise hypothecated by a Participant.
Subject to adjustment described below under the section titled
Changes in Capital Structure, (1) the maximum
number of Shares that may be subject to performance-based awards
granted to any Eligible Individual in any
12-month
period is 4,000,000 and (2) the maximum amount that can be
paid out in cash to any Participant in respect of any
cash-settled
Performance Awards granted to such Participant in any
12-month
period that is not expressed in the form of Share equivalents is
the Fair Market Value of 4,000,000 Shares as of the date of
grant.
Other
Stock Awards
Subject to the provisions of the New Clearwire Stock Plan, the
Committee may develop sub-plans or grant other equity-based
awards on such terms as it may determine, including, but not
limited to, awards designed to comply with or take advantage of
applicable local laws of jurisdictions outside of the United
States.
Tax
Withholding; Other Terms of Awards
Before the delivery of any Shares or cash pursuant to an award
(or exercise thereof), New Clearwire will have the power and the
right to deduct or withhold, or require a Participant to remit
to New Clearwire, an amount sufficient to satisfy any federal,
state, local and foreign taxes of any kind (including, but not
limited to, the Participants Federal Insurance
Contributions Act and State Disability Insurance obligations)
which the Committee, in its sole discretion, deems necessary to
be withheld or remitted to comply with the Code
and/or any
other applicable law, rule or regulation with respect to such
award (or exercise thereof). The Committee, in its sole
discretion and pursuant to such procedures as it may specify
from time to time, may permit or require a Participant to
satisfy all or part of the tax withholding obligations in
connection with an award by
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(1) having New Clearwire withhold otherwise deliverable
Shares, or (2) delivering to New Clearwire already-owned
Shares having a Fair Market Value equal to the amount required
to be withheld. Awards granted under the New Clearwire Stock
Plan generally may not be pledged or otherwise encumbered and
are not transferable except by will or by the laws of descent
and distribution, or to a designated beneficiary upon the
Participants death, except that a Participant may, unless
otherwise specified in a particular Award Agreement, transfer,
without consideration, awards other than ISOs to such
Participants immediate family as defined in
the New Clearwire Stock Plan.
Changes
in Capital Structure
The board of directors of New Clearwire will equitably adjust
any or all of (1) the number of Shares or other securities
of New Clearwire (or number and kind of other securities or
property) with respect to which awards may be granted,
(2) the number of Shares or other securities of New
Clearwire (or number and kind of other securities or property)
subject to outstanding awards, and (iii) the exercise price
or Base Price with respect to any award, or make provision for
an immediate cash payment to the holder of an outstanding award
in consideration for the cancellation of such award in the event
that any extraordinary dividend or other distribution (whether
in the form of cash, Shares, other securities, or other
property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation,
split-up,
spin-off, combination, repurchase, change of control or exchange
of Shares or other securities of New Clearwire, or other
corporate transaction or event, which we refer to as a Corporate
Event, affects the Shares.
If New Clearwire enters into or is or may become involved in any
Corporate Event or a Change in Control (as defined in the New
Clearwire Stock Plan), the board of directors of New Clearwire
will, before such Corporate Event and effective upon such
Corporate Event, take such action as it deems appropriate,
including, but not limited to, replacing awards with substitute
awards in respect of the Shares, other securities or other
property of the surviving corporation or any affiliate of the
surviving corporation on such terms and conditions, as to the
number of shares, pricing and otherwise, which will
substantially preserve the value, rights and benefits of any
affected awards granted under the New Clearwire Stock Plan as of
the date of the consummation of the Corporate Event or a Change
in Control. New Clearwire will also have the right, but not the
obligation, to cancel each Participants awards immediately
before such Corporate Event and to pay to each affected
Participant in connection with the cancellation of such
Participants awards, an amount equal that the Committee,
in its sole discretion, in good faith determines to be the
equivalent value of such award (e.g., in the case of a stock
option, the amount of the spread).
Upon receipt by any affected Participant of any such substitute
awards (or payment) as a result of any such Corporate Event,
such Participants affected awards for which such
substitute awards (or payment) were received will then be
cancelled without the need for obtaining the consent of any such
affected Participant. Any actions or determinations of the
Committee in this regard need not be uniform as to all
outstanding awards, nor treat all Participants identically.
Amendment
and Termination
The board of directors of New Clearwire may amend, suspend or
terminate the New Clearwire Stock Plan, or any part thereof, at
any time and for any reason, subject to any requirement of
stockholder approval required by applicable law, rule or
regulation, including, without limitation, Sections 162(m)
and 422 of the Code and the rules of the NASDAQ Global Market.
In addition, the board of directors of New Clearwire may amend
the New Clearwire Stock Plan and any Award Agreement, including
without limitation retroactive amendments, without stockholder
approval as necessary to avoid the imposition of any taxes under
Section 409A of the Code. Subject to the preceding
sentence, the amendment, suspension or termination of the New
Clearwire Stock Plan or any Award Agreement will not, without
the consent of the Participant, materially adversely alter or
impair any rights or obligations under any award theretofore
granted to such Participant. No award may be granted during any
period of suspension or after termination of the
New Clearwire Stock Plan.
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Federal
Income Tax Consequences of Awards of Options
The following is a brief description of the federal income tax
consequences generally arising with respect to awards of stock
options under the New Clearwire Stock Plan.
The grant of a stock option does not give rise to any tax
consequences for the Participant or New Clearwire. The exercise
of a stock option has different tax consequences depending on
whether the stock option is an ISO or an NQSO. Upon exercise of
an ISO, the Participant recognizes no income for regular income
tax purposes, but the stock option spread is taken into account
in computing liability for the alternative minimum tax. Upon
exercise of an NQSO, the Participant recognizes ordinary income
equal to the excess, on the date of exercise, of the fair market
value of the Shares acquired on exercise of the stock option
over the exercise price.
The disposition of Shares acquired upon exercise of a stock
option may have different tax consequences depending on whether
the stock option is an ISO or an NQSO and the timing of the
disposition. Upon the disposition of Shares acquired upon
exercise of an ISO before the Participant has held those Shares
for at least two years from the date the stock option was
granted and at least one year from the date the stock option was
exercised, which we refer to as the ISO Holding Periods, the
Participant recognizes ordinary income equal to the lesser of
(1) the excess of the fair market value of the Shares on
the date of exercise of the ISO over the exercise price and
(2) the excess of the amount realized on the disposition of
those Shares over the exercise price. Upon a disposition of
Shares acquired upon the exercise of an NQSO or upon exercise of
an ISO when the ISO Holding Periods have been met, the
Participant will recognize capital gain or loss equal to the
difference between the sales price of such Shares and the
Participants tax basis in the Shares. That gain or loss
will be long-term if the Shares have been held for more than one
year as of the date of disposition. The Participants tax
basis in the Shares generally will be equal to the exercise
price of the stock option plus the amount of any ordinary income
recognized in connection with the stock option.
Section 409A of the Code provides that participants in
certain deferred compensation arrangements will be
subject to immediate taxation and, among other penalties, will
be required to pay an additional 20% tax on the value of vested
deferred compensation if the requirements of Section 409A
are not satisfied. Stock options may be considered
deferred compensation for purposes of
Section 409A unless certain requirements are met. New
Clearwire expects that stock options granted under the New
Clearwire Stock Plan will meet these requirements and, thus,
will not be subject to Code Section 409A, but no assurances
to this effect can be given.
The entity for which services are provided will generally be
entitled to a tax deduction equal to the amount that the
Participant recognizes as ordinary income in connection with a
stock option. Such entity is not entitled to a tax deduction
relating to any amount that constitutes a capital gain for a
Participant. Accordingly, such entity will not be entitled to
any tax deduction with respect to an ISO if the Participant
holds the Shares for the requisite ISO Holding Periods prior to
disposing of the Shares.
Section 162(m) of the Code generally disallows a public
companys tax deduction for compensation in excess of
$1,000,000 paid in any taxable year to New Clearwires
chief executive officer or any of its other three highest
compensated officers other than its chief financial officer,
which we refer to as the Covered Employees. Compensation that
qualifies as Performance-Based Compensation, however, is
excluded from the $1,000,000 deductibility cap. New Clearwire
intends that stock options and certain other awards granted to
employees whom the Committee expects to be Covered Employees at
the time a deduction arises in connection with the awards
qualify as Performance-Based Compensation such that deductions
with respect to stock options and such other awards will not be
subject to the $1,000,000 cap under Section 162(m) of the Code.
Future changes in Section 162(m) of the Code or the
regulations thereunder may adversely affect the ability of New
Clearwire to ensure that stock options or other awards under the
New Clearwire Stock Plan will qualify as Performance-Based
Compensation such that deductions are not limited by
Section 162(m) of the Code.
Awards made under the New Clearwire Stock Plan may provide for
accelerated vesting
and/or
accelerated payment in the event of a change in control of New
Clearwire. If there is a change in control of New Clearwire,
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amounts paid under the New Clearwire Stock Plan may be
characterized as parachute payments under
Section 280G of the Code. An employee who is a
disqualified individual with respect to New
Clearwire (generally, an officer, highly compensated individual
or 1% stockholder) and who receives parachute
payments will be subject to a 20% excise tax on any
excess parachute payment pursuant to Code
Section 4999 and the entity for which services are provided
will be denied a deduction with respect to such excess parachute
payment pursuant to Code Section 280G. An individual is
generally deemed to have received a parachute
payment if such individual receives compensation that
(1) is contingent upon a change in the ownership or control
of New Clearwire and (2) exceeds, in the aggregate, an
amount equal to three times the individuals base
amount. The base amount is generally the
average of the annual compensation of such individual for the
five years preceding the change in ownership or control. An
excess parachute payment with respect to any
individual is the excess of the total parachute payments to such
individual over such individuals base amount.
The foregoing discussion, which is general in nature and is not
intended to be a complete description of the federal income tax
consequences of the New Clearwire Stock Plan, is intended for
the information of stockholders considering how to vote on the
New Clearwire Stock Plan proposal and not as tax guidance to
Participants in the New Clearwire Stock Plan. This discussion
does not address the effects of other federal taxes or taxes
imposed under state, local or foreign tax laws. Participants in
the New Clearwire Stock Plan should consult a tax adviser as to
the tax consequences of participation.
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DESCRIPTION
OF NEW CLEARWIRE CAPITAL STOCK
The following summary of the terms of the capital stock of New
Clearwire is not meant to be complete and is qualified in its
entirety by reference to the New Clearwire Charter and the New
Clearwire Bylaws. Copies of the New Clearwire Charter and New
Clearwire Bylaws, substantially in the form proposed to be
effective as of the completion of the Transactions, are attached
as Annexes B and F, respectively, to this
proxy statement/prospectus.
Authorized
Capital Stock
Under the New Clearwire Charter, New Clearwire will have the
authority to issue 2.065 billion shares of stock, initially
consisting of 1.3 billion shares of Class A Common
Stock, par value $0.0001 per share, 750 million shares of
Class B Common Stock, par value $0.0001 per share and
15 million shares of preferred stock, par value $0.0001 per
share. On completion of the Transactions, assuming a share price
of $20.00 per share and based upon the aggregate number of
shares of Clearwire Common Stock outstanding as of
September 30, 2008, there will be 189,403,213 shares
of New Clearwire Class A Common Stock and
505,000,000 shares of New Clearwire Class B Common
Stock outstanding.
Under the Transaction Agreement, the price to be paid by the
Investors pursuant to the Transaction Agreement will initially
be based on a purchase price of $20.00 per share or interest, as
applicable, but is subject to post-closing adjustment based on
the trading prices of New Clearwire Class A Common Stock on
NASDAQ over 15 randomly-selected trading days during the
30-trading day period ending on the 90th day after the
Closing date. The final price per share will be based on the
volume weighted average price on such randomly selected days,
and is subject to a cap of $23.00 per share and a floor of
$17.00 per share. The aggregate number of shares each Investor
ultimately receives for its investment in New Clearwire will be
equal to its investment amount divided by such volume weighted
average price per share of New Clearwire Class A Common
Stock. Based on the aggregate number of shares of Clearwire
Common Stock outstanding as of September 30, 2008,
(1) if the price paid by the Investors is adjusted pursuant
to these provisions to $17.00 per share, there will be
193,814,978 shares of New Clearwire Class A Common
Stock and 528,823,529 shares of New Clearwire Class B
Common Stock outstanding, and (2) if the price paid by the
Investors is adjusted to $23.00 per share, there will be
186,142,343 shares of New Clearwire Class A Common
Stock and 487,391,304 shares of New Clearwire Class B
Common Stock outstanding.
Subject to adjustment and to applicable lockup periods, holders
of New Clearwire Class B Common Stock will be entitled to
exchange one share of New Clearwire Class B Common Stock,
together with one Clearwire Communications Class B Common
Interest, for one share of New Clearwire Class A Common
Stock.
New
Clearwire Common Stock
New
Clearwire Common Stock Outstanding
The shares of New Clearwire Class A Common Stock and New
Clearwire Class B Common Stock issued pursuant to the
Transactions will be duly authorized, validly issued, fully paid
and non-assessable. The rights, preferences and privileges of
holders of New Clearwire Class A Common Stock and New
Clearwire Class B Common Stock will be subject to, and may
be adversely affected by, the rights of the holders of shares of
any series of New Clearwire preferred stock which New Clearwire
may designate and issue in the future.
To the greatest extent permitted by applicable Delaware law, the
shares of New Clearwire Class A Common Stock will be
uncertificated, and transfer will be reflected by book-entry,
unless a physical certificate is requested by a holder.
Voting
Rights
Holders of New Clearwire Class A Common Stock will be
entitled to one vote for each share of New Clearwire
Class A Common Stock held. Holders of New Clearwire
Class B Common Stock will be entitled to one vote for each
share of New Clearwire Class B Common Stock held. Holders
of New Clearwire
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Class A Common Stock and New Clearwire Class B Common
Stock will vote together as a single class on each matter
submitted to a stockholder vote. Holders of New Clearwire
Class A Common Stock and New Clearwire Class B Common
Stock, as the case may be, will have no voting power with
respect to, and will not be entitled to vote on, any amendment
to the New Clearwire Charter that relates solely to the terms of
one or more outstanding classes or series of New Clearwire
Common Stock (other than the respective class or classes held by
such holder) or preferred stock if the holders of the class or
series affected by such amendment are entitled to vote on such
terms, either separately or together with the holders of one or
more other classes or series.
The New Clearwire Bylaws will provide that unless provided
otherwise in the New Clearwire Bylaws, New Clearwire Charter,
the Equityholders Agreement or under applicable laws or
rules, any corporate action that requires stockholder approval
must be authorized by a majority of the votes cast by the
stockholders entitled to vote and present in person or by proxy
at a meeting duly called and held at which a quorum is present;
provided that where a separate vote of a class or classes is
required, corporate action to be taken by such class or classes
must be authorized by a majority of the votes cast by such class
or classes. The New Clearwire Bylaws will provide that the
New Clearwire stockholders may only adopt, amend, alter or
repeal the New Clearwire Bylaws by an affirmative vote of not
less than 50% of the voting power of all outstanding shares of
New Clearwire stock entitled to vote generally at an election of
directors, voting together as a single class. Further, the New
Clearwire Bylaws will also provide that, subject to the New
Clearwire Charter and agreements entered into by the New
Clearwire stockholders (including the Equityholders
Agreement), the board of directors may adopt, amend, alter or
repeal the New Clearwire Bylaws.
The New Clearwire Charter may be amended by the affirmative vote
of the holders of a majority of the voting rights of all classes
of capital stock of New Clearwire entitled to vote. However, the
New Clearwire Charter will provide that, in order to amend or
repeal certain sections of the New Clearwire Charter, including
the sections covering supermajority approval of certain
transactions constituting a change of control of
New Clearwire or Clearwire Communications and corporate
opportunities and certain stockholder transactions, the approval
of the holders of at least 75% of all of the then-outstanding
shares of capital stock of New Clearwire entitled to vote in the
election of directors will be required. In addition, to amend
the provision of the New Clearwire Charter covering the
exchange of new Clearwire Class B Common Stock and
Clearwire Communications Class B Common Interests for New
Clearwire Class A Common Stock, the approval of the holders
of at least 75% in voting power of the Class B Common Stock
will be required.
Further, the Equityholders Agreement will provide that any
amendment to the New Clearwire Charter or the New Clearwire
Bylaws will require the approval of Sprint, Intel and the
Strategic Investors as a group and in certain circumstances also
will require the approval of Eagle River.
Dividend
Rights
Only the holders of New Clearwire Class A Common Stock will
be entitled to receive dividends, if any, payable in cash or
property, as may be declared by New Clearwires board of
directors out of funds legally available for the payment of
dividends, subject to any preferential dividend rights of
outstanding New Clearwire preferred stock and the
restrictions set forth in the DGCL.
Liquidation
Rights
On the consolidation, merger, recapitalization, reorganization
or similar event or liquidation, dissolution or winding up of
New Clearwire, the holders of New Clearwire Class A Common
Stock and New Clearwire Class B Common Stock will be
entitled to share pari passu in the net assets of New
Clearwire available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding
New Clearwire preferred stock up to their per share par value
amounts and subject to the structurally prior rights of
equityholders of Clearwire Communications as set forth in the
Operating Agreement. After all New Clearwire Class A Common
Stock and New Clearwire Class B Common Stock holders
have received their per share par value amounts, the holders of
all outstanding shares of New Clearwire Class A Common
Stock will be entitled to receive the remaining net assets
ratably in proportion to each holders respective number of
shares of New Clearwire Class A Common Stock.
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Preemptive
Rights
Under the New Clearwire Charter, the holders of New Clearwire
Class A Common Stock and Class B Common Stock will
have no preemptive rights except as set forth in the
Equityholders Agreement. The Equityholders
Agreement, however, will provide that if New Clearwire proposes
to issue any securities, other than in certain issuances, each
Equityholder will have the right to purchase its pro rata share
of such securities, based on such holders voting power in
New Clearwire before such issuance. See Certain Agreements
Related to the Transactions Equityholders
Agreement.
Exchange
Rights
Under the New Clearwire Charter and subject to restrictions
imposed in the Operating Agreement, the holders of New Clearwire
Class B Common Stock will be entitled to exchange one share
of New Clearwire Class B Common Stock and one Clearwire
Communications Class B Common Interest for one share of New
Clearwire Class A Common Stock.
Use of
Certain Proceeds
Pursuant to the New Clearwire Charter, except to the extent that
the board of directors of New Clearwire has approved the
expansion of New Clearwires business activities to include
other business activities, and has approved the funding of any
such other business activities out of net proceeds from the
issuance of equity securities in accordance with the
Equityholders Agreement, the net proceeds from any
issuance of New Clearwire equity securities will be contributed
to Clearwire Communications. In addition, except to the extent
that the board of directors of New Clearwire has approved the
expansion of New Clearwires business activities to include
other business activities, and has approved the funding of any
such other business activities out of net proceeds of any
indebtedness issued or incurred by New Clearwire, New Clearwire,
to the extent permitted by law and subject to restrictions
imposed under the Operating Agreement, will be required to lend
the net proceeds to Clearwire Communications on substantially
the same terms and conditions as the indebtedness issued or
incurred by New Clearwire.
Change
in Control Provisions
Under the New Clearwire Charter, approval of the holders of at
least 75% of all of the outstanding shares of capital stock of
New Clearwire entitled to vote in the election of directors,
voting together as a single class, will be required to approve:
(1) any merger, consolidation, share exchange or similar
transaction involving New Clearwire or Clearwire Communications,
that upon completion, would constitute a change of control of
New Clearwire or Clearwire Communications, respectively,
(2) the issuance of capital stock of New Clearwire or of
Clearwire Communications that, upon completion, would constitute
a change of control of New Clearwire or Clearwire
Communications, respectively and (3) any sale or other
disposition of all or substantially all of the assets of
New Clearwire or Clearwire Communications.
In addition, the Equityholders Agreement will provide that
the approval of Sprint, Intel and the Strategic Investors as a
group (for so long as each maintains certain minimum ownership
interests in New Clearwire) will be required for any
restructuring or reorganization of New Clearwire (excluding
certain financings in the ordinary course of business), any
bankruptcy of New Clearwire or its subsidiaries, or any
liquidation, dissolution or winding up of New Clearwire or
Clearwire Communications. In addition, the approval of at least
ten directors (or, if there are fewer than ten directors, then
all of the directors) on New Clearwires board of directors
will be required before any change of control transaction. See
Certain Agreements Related to the Transactions
Equityholders Agreement.
Transfer
Restrictions
Under the New Clearwire Charter, one share of New Clearwire
Class B Common Stock may only be transferred in exchange
for one share of New Clearwire Class A Common Stock when
exchanged in combination with one Clearwire Communications
Class B Common Interest. Following the exchange, the shares
of New Clearwire Class B Common Stock surrendered in the
exchange will be retired, will cease to be
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outstanding, and may not be reissued. Under the
Equityholders Agreement, if any shares of New Clearwire
Class B Common Stock or Clearwire Communications
Class B Common Interests are transferred without also
transferring to the same transferee an identical number of
Clearwire Communications Class B Common Interests or shares
of New Clearwire Class B Common Stock, respectively, then
the transferred shares of New Clearwire Class B Common
Stock or the shares of New Clearwire Class B Common Stock
corresponding to those transferred Clearwire Communications
Class B Common Interests, as applicable, will be redeemed
by New Clearwire for par value.
Further, under the New Clearwire Charter, if a holder of New
Clearwire Common Stock acquires additional shares, or is
otherwise attributed with ownership of such shares, that would
cause New Clearwire to violate any requirement of the federal
communications laws regarding foreign ownership, then New
Clearwire may, at the option of its board of directors, redeem
from the holder a sufficient number of shares to eliminate the
violation, at a market price determined in accordance with the
New Clearwire Charter.
Delaware
Anti-Takeover Statute
Section 203 of the DGCL provides that if a person acquires
15% or more of the voting stock of a Delaware corporation, such
person becomes an interested stockholder and may not
engage in certain business combinations with the
corporation for a period of three years from the time such
person acquired 15% or more of the corporations voting
stock, unless: (1) the board of directors approves the
acquisition of stock or the merger transaction before the time
that the person becomes an interested stockholder, (2) the
interested stockholder owns at least 85% of the outstanding
voting stock of the corporation at the time the merger
transaction commences (excluding voting stock owned by directors
who are also officers and certain employee stock plans), or
(3) the merger transaction is approved by the board of
directors and by the affirmative vote at a meeting, not by
written consent, of stockholders of 2/3 of the holders of the
outstanding voting stock which is not owned by the interested
stockholder. A Delaware corporation may elect in its certificate
of incorporation or bylaws not to be governed by this particular
Delaware law.
Under the New Clearwire Charter, New Clearwire will opt out of
Section 203 of the DGCL, and will therefore not be subject
to Section 203.
New
Clearwire Preferred Stock
New
Clearwire Preferred Stock Outstanding
On completion of the Transactions, no shares of New Clearwire
preferred stock will be issued and outstanding.
Blank
Check Preferred Stock
Under the New Clearwire Charter, New Clearwires board of
directors will have the authority to issue preferred stock in
one or more classes or series, and to fix for each class or
series the voting powers and the distinctive designations,
preferences and relative, participation, optional or other
special rights and such qualifications, limitations or
restrictions, as may be stated and expressed in the resolution
or resolutions adopted by New Clearwires board of
directors providing for the issuance of such class or series as
may be permitted by the DGCL, including dividend rates,
conversion rights, terms of redemption and liquidation
preferences and the number of shares constituting each such
class or series, without any further vote or action by the
stockholders of New Clearwire.
Corporate
Opportunities and Transactions with Founding
Stockholders
In recognition that directors, officers, stockholders, members,
managers or employees of any Founding Stockholder (as such term
is defined in the New Clearwire Charter) may engage in similar
activities or lines of business to those of New Clearwire, the
New Clearwire Charter will provide for the allocation of certain
corporate opportunities between New Clearwire and the Founding
Stockholders. Specifically, none of the Founding Stockholders
will have any duty to refrain from engaging directly or
indirectly in the same or similar business activities or lines
of business to those of New Clearwire, competing against New
Clearwire, doing
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business with any competitor, customer or supplier of New
Clearwire or employing any officer or employee of New Clearwire.
In the event that a Founding Stockholder acquires knowledge of a
potential transaction or matter which may be a corporate
opportunity for it and New Clearwire, New Clearwire will not
have any expectancy in such corporate opportunity, and such
Founding Stockholder will not have any duty to communicate or
offer such corporate opportunity to Clearwire and may pursue or
acquire such corporate opportunity for itself or direct such
opportunity to another person. In addition, if any director,
officer, member, manager or employee of any Founding Stockholder
acquires knowledge, in his capacity as a director, board
observer or officer of New Clearwire, of a potential
transaction or matter which may be a corporate opportunity for
Clearwire and a Founding Stockholder, New Clearwire will not
have any expectancy in such corporate opportunity as long as the
Founding Stockholder also learns of or develops such opportunity
independently.
The New Clearwire Charter will provide that any of New
Clearwires directors or officers who also serves as a
director, officer or employee of a Founding Stockholder and who
acquires knowledge of a potential transaction that may be a
corporate opportunity of New Clearwire and the Founding
Stockholder (1) will have fully satisfied and fulfilled his
or her fiduciary duty to New Clearwire and its stockholders with
respect to such transaction; (2) will not be obligated to
communicate information regarding the corporate opportunity to
New Clearwire or the Founding Stockholder; (3) will be
presumed to have acted in good faith and in a manner reasonably
believed to be in the best interests of New Clearwire; and
(4) will not be deemed to have breached any duty of loyalty
to New Clearwire or its stockholders and not to have derived
improper benefit therefrom, if the corporate opportunity is
offered or disclosed in accordance with the policy set forth in
the New Clearwire Charter. Such policy states, in general, that
unless a director is an employee of New Clearwire, such person
will not have a duty to present to New Clearwire a corporate
opportunity of which he or she becomes aware, except where the
corporate opportunity is expressly offered to such person
primarily in his or her capacity as a director of New Clearwire.
By becoming a stockholder in our company, you will be deemed to
have notice of and consented to these provisions of the New
Clearwire Charter. Any amendment to the foregoing provisions of
the New Clearwire Charter requires the affirmative vote of at
least 75% of the voting power of all of the then-outstanding
shares of New Clearwire capital stock.
Transfer
Agent and Registrar
American Stock Transfer & Trust Company is the
transfer agent and registrar for the New Clearwire Common Stock.
Listing
of New Clearwire Common Stock
We will apply for listing of New Clearwire Class A Common
Stock on NASDAQ under the trading symbol CLWR.
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BUSINESS
Clearwire
Clearwire builds and operates next generation wireless broadband
networks that provide entire communities with high-speed
residential Internet access services, residential voice services
and mobile Internet services. Our wireless broadband networks
not only create a new communications path into the home or
office, but also provide a broadband connection anytime and
anywhere within our coverage area. Today, we operate our
networks in 50 markets covering approximately 16.8 million
people, and we have approximately 461,000 wireless broadband
subscribers, which we believe makes us the largest operator of
next generation wireless broadband networks in the world. In
some of our most mature markets, our penetration of homes is
nearly 20% and in some of our markets our gross margins are
exceeding 80%.
We are in the process of expanding the geographic coverage of
our networks, and currently have networks under various stages
of design and construction that cover more than 36 million
additional people. The next markets that we intend to launch
include Atlanta, Georgia, Portland, Oregon, Las Vegas, Nevada
and Grand Rapids, Michigan. All of the new networks that we
are building utilize standards based mobile WiMAX technology. We
believe mobile WiMAX technology will enable us to offer mobile
and fixed communications services over a single next generation
wireless network competitive with services offered by both
wireline and other wireless operators, as well as new services
not previously offered by either. There are more than 100 end
user devices that are currently in the mobile WiMAX
certification process, and many more in development, which we
believe will enable us to deliver a broader range of mobile
communications services than we offer today. In the future, we
expect manufacturers to offer a number of handheld
communications and consumer electronic devices that will be
enabled to communicate using our mobile WiMAX network. These
devices could include notebook computers, ultra mobile personal
computers, which we refer to as UMPCs, personal data assistants,
which we refer to as PDAs, gaming consoles, MP3 players, mobile
Internet devices and other handheld devices.
Clearwires service is both competitive with and
complementary to existing wireline and wireless networks. Our
subscribers are able to access the same rich content,
applications and services as subscribers of wireline broadband
services, while also experiencing much of the freedom and
flexibility that large scale wireless networks enable. We
believe our current pre-WiMAX network combines some of the best
features of cellular, cable modem, DSL and Wi-Fi networks into a
single service offering that legacy networks do not currently
match. As our capabilities evolve with the introduction of
mobile WiMAX, we also expect to develop and offer additional
innovative and differentiated products and services. These may
include services such as mobile broadcast video, video on demand
for mobile media players, mobile video conferencing, advanced
telematics, multiplayer online games and other services.
We believe our customers buy our wireless broadband Internet
access services today because our services are:
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Fast. We offer connectivity speeds that
typically exceed cellular networks and we believe offer a
competitive alternative to wireline broadband offerings.
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Simple. Our services are easy to acquire and
use, with little or no professional installation typically
required.
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Portable. Unlike wired networks, our customers
can access our network from anywhere within our coverage area.
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Reliable. We use licensed radio frequencies,
or spectrum, which enables us to minimize interference common on
certain wireless networks that use unlicensed or shared radio
frequencies.
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Affordable. We offer a value proposition that
is competitive while recognizing the unique benefits of our
service offerings.
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Clearwire was founded by telecommunications pioneer Craig O.
McCaw, its Chairman, in October 2003, and Clearwire launched its
first market in August 2004. As of June 30, 2008, Clearwire
offered its services to
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approximately 16.8 million people in the United States and
Europe. As of June 30, 2008, Clearwires network in
the United States was deployed in 46 markets and covers an
estimated 13.9 million people. Clearwires markets
range from major metropolitan areas to small, rural communities,
and all sizes in between. As of June 30, 2008, Clearwire
also offered its wireless broadband services in Ghent and
Brussels, Belgium, Dublin, Ireland and Seville, Spain, where its
network covers approximately 2.9 million people.
Clearwire currently conducts its operations through its domestic
and international subsidiaries. Clearwires operations in
the United States are primarily conducted through its
subsidiary, Clearwire US LLC, and its spectrum leases and
licenses in the United States are primarily held by separate
holding companies. Internationally, Clearwires operations
are conducted through Clearwire International, LLC, its
wholly-owned subsidiary, which indirectly holds investments in
Europe and Mexico.
Subscribers have rapidly adopted our services as we have grown
from approximately 62,000 wireless broadband Internet
subscribers as of December 31, 2005 to approximately
461,000 as of June 30, 2008. We believe that substantially
all of the households we cover in the United States have access
to cable modem
and/or DSL
Internet services, leading us to conclude that our rapid
subscriber growth rates reflect the mass market appeal and
robust customer demand for our differentiated services, even in
the presence of these wireline broadband alternatives. With the
advent of mobile WiMAX and the expected introduction of mobile
WiMAX in mobile devices, we believe demand for our services will
expand from the current cable/DSL replacement business to more
mobile wireless uses with the advent of new form factors like PC
express cards and embedded chipsets in devices.
Our pre-WiMAX network, utilized in the markets in which we
offered our services as of June 30, 2008, relies on network
infrastructure equipment that is based on non-line-of-sight,
which we refer to as NLOS, Orthogonal Frequency
Division Multiplexing, which we refer to as OFDM,
Expedience technologies acquired from Motorola. We intend to
deploy a network based on the mobile WiMAX standard in our new
markets. In addition, we expect manufacturers to offer a number
of handheld communications and consumer electronic devices that
will be enabled to communicate using our mobile WiMAX network.
In addition, Clearwire currently has an agreement with Intel to
jointly develop, promote and market a mobile WiMAX service
offering as a co-branded service available over Clearwires
mobile WiMAX network in the United States. This service will
target users of notebook computers, UMPCs and other mobile
computing devices containing Intel microprocessors.
We are an early stage company, and as such we are investing
heavily in building our network and acquiring other assets
necessary to expand our business. As a result, we have a history
of operating losses and expect to have significant losses in the
future. As of June 30, 2008, our accumulated deficit was
approximately $1.56 billion, and our total indebtedness was
approximately $1.25 billion.
XOHM
Like Clearwire, Sprint, through its XOHM business unit, is in
the process of deploying next generation mobile WiMAX networks
in the United States. Sprint began formal next generation
network planning in early 2005 after the completion of 4G mobile
data field trials in Raleigh-Durham, North Carolina. During
August 2006, Sprint selected mobile WiMAX technology as the
technology choice for its next generation wireless network.
Since this decision, Sprint formed a dedicated business unit,
built a world-class multi-vendor technology lab, and helped
build a global ecosystem around the technology.
Sprint is in the process of completing construction of its
initial mobile WiMAX networks in Washington, DC, Baltimore,
Maryland and Chicago, Illinois, and it has made substantial
progress in a number of other markets throughout the country.
Sprint is one of the industry leaders in creating a thriving
mobile WiMAX ecosystem. Sprint has worked with silicon vendors,
such as Intel, Beceem Communications Inc. and Marvell Technology
Group Ltd., and device vendors, such as ASUSTek Computer
Incorporation, ZTE, ZyXEL Communications Inc., Nokia
Corporation, which we refer to as Nokia, Motorola, Fujitsu
Limited, Samsung, Lenovo Group, Toshiba Corporation and
Panasonic Corporation of North America for the development,
manufacturing and distribution
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of mobile WiMAX products. Sprint has also made significant
progress in working with infrastructure vendors and back office
systems vendors to significantly advance system and device
interoperability. Sprint expects the progress it has made with
vendors to increase demand for and speed the adoption of mobile
WiMAX services.
In connection with the Transactions, Sprint will contribute all
of its 2.5 GHz spectrum holdings and its WiMAX-related
assets, including network assets, infrastructure and the
XOHMtm
brand, to Clearwire Communications. Sprint and Clearwire have
also entered into commercial agreements which will give
Clearwire access to certain of Sprints existing
telecommunications infrastructure at below market rates,
including communication towers, co-location facilities, and
fiber.
New
Clearwires Business Strategy
New Clearwire intends to grow its business by pursuing the
following strategies:
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Redefining the broadband user experience. We
plan to deliver a robust, rich and consistent communications
experience to devices of all shapes and sizes. We expect to
offer our consumers and business customers a fast and mobile
broadband connection that enables enhanced access to
information, applications and online entertainment, while also
creating new ways for people to communicate with each other. Our
mobile WiMAX network will be designed to serve our
subscribers Internet and voice communications needs, while
also providing subscribers with the flexibility to access our
services anywhere and anytime in our coverage area, whether at
home, in the office or on the road. We expect that our
subscribers will eventually be able to select from a number of
service offerings, including Internet and voice communications
service offerings, that will be designed to satisfy their
varying needs. We expect our mobile WiMAX services to offer
faster speeds, greater bandwidth and lower latency than are
currently available from other wireless service providers and
will also appeal to subscribers as simple, easy to buy and use,
reliable and affordable.
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Deploying our service broadly and increasing our subscriber
base rapidly. We intend to broadly deploy our
mobile WiMAX network in markets throughout the United States. We
are targeting our mobile WiMAX network to cover between 60 and
80 million people in the United States by the end of 2009
and between 120 and 140 million people by the end of 2010.
The timing and extent of our new market roll-outs will largely
be determined by the timing of completion of the Transactions
and our access to additional funding. We believe that this
deployment will enable us to rapidly increase our subscriber
base. Our mobile WiMAX network should enable us to offer our
services to a range of subscribers, from individuals, households
and businesses to market segments that depend on mobile
communications, such as public safety personnel, field
salespeople, traveling professionals, contractors, real estate
agents and others. Our services should allow us not only to
target subscribers that desire a mobile network connection, but
to offer a viable alternative to existing wireline services. To
reach potential subscribers, we plan to offer our services
through multiple sales channels, including direct and indirect
sales representatives, Company-owned retail stores, independent
dealers, Internet sales, telesales, national retail chains and
wholesale arrangements with third parties, including our
strategic partners. Additionally, under the commercial
agreements, we will be able to offer our subscribers access to
Sprints CDMA and EVDO Rev. A network, which will
expand the geographic area in which our subscribers will be able
to receive service while we are building our network and
potentially allow us to offer dual mode devices to subscribers.
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Taking advantage of our leading spectrum
position. On completion of the Transactions, we
will hold more wireless spectrum in the United States than any
other mobile carrier, with holdings expected to exceed more than
42 billion MHz-POPs of spectrum in the 2.5 GHz
(2495-2690 MHz)
band in our portfolio, including spectrum we will own, lease or
have pending agreements to acquire or lease. We will hold
approximately 150 MHz of spectrum on average in the Top 100
markets in the United States. In Europe, we continue to hold
approximately 8.7 billion MHz-POPs of spectrum
predominantly in the 3.5 GHz band, with a varying amount of
spectrum in each of our markets. We believe that consumers will
demand greater access to information, applications and online
entertainment over the Internet, each of which will require
service providers to be able to offer greater bandwidth access.
With our planned
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mobile WiMAX network and leading spectrum position, we believe
that we are uniquely positioned to satisfy this demand. We
believe that our significant spectrum holdings, both in terms of
spectrum depth and breadth, in the 2.5 GHz band will be
optimal for delivering broadband access services, and our
substantial spectrum depth will allow us to offer premium
services and data intensive multimedia content.
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Offering premium value-added services and
content. We intend to generate incremental
revenues, leverage our cost structure and improve subscriber
retention by offering a variety of premium services and content
over our network. We intend initially to focus on voice services
as a primary premium service. We currently offer VoIP telephony
services on a fixed basis to our subscribers homes and
offices in each of our markets and expect to offer mobile VoIP
telephony services in each of our markets within 2 to
3 years after the Closing. Other future service and content
offerings may include live videoconferencing, online games and
music broadcast programming, video on demand, and location based
services. We believe that our planned mobile WiMAX deployment
will enable us to offer additional premium services and content
over our network as manufacturers develop and sell devices that
take advantage of the capabilities of mobile WiMAX technology.
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Achieving Efficient Economics. We believe our
economic model for deploying our network combines meaningful
early coverage while optimizing the capital outlay required for
us to build the network and obtain subscribers. We believe our
business requires significantly lower fixed capital and
operating expenditures relative to other wireless and wireline
broadband service providers. Our deployment plan is based on
replicable and scalable individual market builds, allowing us to
repeat our build-out processes as we expand. Under our
commercial agreements, we expect to be able to leverage existing
Sprint network infrastructure to both accelerate the build-out
and reduce the costs of network deployment, including utilizing
its towers, collocation facilities and fiber resources. We also
expect to achieve lower subscriber acquisition costs due to
manufacturers plans to embed mobile WiMAX chipsets into
consumer electronic devices, such as notebook computers, UMPCs,
PDAs, gaming consoles, MP3 players, and other handheld devices.
This should reduce subscriber acquisition costs by reducing
subsidies and leveraging OEM distribution networks. As our
capabilities evolve, we also expect to generate incremental
revenue from our subscriber base by developing and offering
premium products and services, such as VoIP telephony services.
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Leveraging key strategic relationships. We
expect to benefit from our key strategic relationships with
industry-leaders that have a strong track record of driving
technology innovation, delivering premium content, and marketing
compelling products and services to consumers, including Sprint,
Intel, Google, Comcast, Time Warner Cable and Bright House
Networks. We believe these relationships place us in an
advantageous position with respect to access to existing
wireless infrastructure, cutting edge online applications,
proven distribution channels and subscriber devices with
embedded WiMAX capabilities.
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Services
Clearwire currently offers its services in both United States
and international markets. Our services today consist primarily
of providing wireless broadband connectivity, and in 45 of our
domestic markets, we also offer VoIP telephony services. Our
service revenue accounted for virtually all of our total
revenues in 2007 and the first half of 2008. Before the launch
of our first market in August 2004, equipment and other revenue
accounted for all of our total revenues. Domestic sales
accounted for approximately 82% of our service revenue for the
six months ended June 30, 2008, while our international
sales accounted for approximately 18% of service revenue over
the same period. We began introducing VoIP telephony services in
a limited number of our markets in 2006 and completed a much
broader deployment in 2007.
New Clearwire expects to offer its services primarily in markets
throughout the United States. We are targeting New
Clearwires mobile WiMAX network to cover between 60 and
80 million people in the United States by the end of 2009
and between 120 and 140 million people by the end of 2010.
We plan to offer our subscribers a number of Internet and voice
services, including mobile services, as our primary service
offerings, and we will also offer value-added services through
partnerships with device manufacturers/
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developers, value-added application developers, and content
development companies. Unlike 3G, 4G WiMAX applications will be
Internet-based with open Application Programming Interfaces,
which we refer to as APIs, that can be accessed on a variety of
electronic devices. This approach should encourage the continual
creation of new applications and the services to support them.
Among others, New Clearwire expects to be able to eventually
offer live videoconferencing, recorded video, online gaming and
music and location-based services as value-added services.
Clearwire
Wireless Broadband Services
We believe that current Clearwire subscribers are attracted to
our current wireless broadband services primarily because our
existing networks combine certain features of cable modem, DSL
and cellular networks into a single service offering at an
attractive price. While we serve a large variety of subscribers,
we believe that the majority of our subscriber base can be
divided into the following broad categories:
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subscribers who require a portable or mobile high-speed Internet
connection, such as on-the-go professionals, field salespeople,
contractors, police and fire personnel and others;
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subscribers who value the flexibility of a portable or mobile
wireless broadband service;
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subscribers who desire a simple way to obtain and use high-speed
Internet access at a reasonable price; and
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subscribers who are dissatisfied with other service offerings,
often because of perceived or actual poor quality of service,
slow speeds, price, the requirement to participate in undesired
bundled offers, difficulty of installation or unsatisfactory
customer service.
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Based on a subscriber survey we conducted in the second quarter
of 2008, approximately 59% of our new domestic subscribers in
that quarter reported they were subscribers of either DSL or
cable modem service at the time that they subscribed for our
services, while approximately 23% of our new domestic
subscribers in that month were Internet users migrating from
dial-up to
broadband and a small minority of our new domestic subscribers
were subscribers of other services or they were first time
Internet subscribers. As of June 30, 2008, approximately
68% of our United States subscribers selected one of our premium
offerings that offer increased download speeds and additional
features, such as ClearPremium or ClearPremium Plus.
In our markets in the United States and internationally, our
subscribers generally make their payments through an automatic
charge to a credit or debit card or bank account. In the future,
we expect to offer additional forms of payment as we target new
customer segments. For example, in the United States, we expect
to implement a point of sale system and begin accepting cash
payments at Clearwire retail outlets in 2009, for those
subscribers who prefer the convenience of paying with cash.
To use our current services, our subscribers must obtain one of
our residential modems or PC cards. Our subscribers generally
lease a residential modem from us at a rate of $4.99 per month
or a PC card at $6.99 per month in our United States
markets. We also offer modems and PC cards for sale to those
subscribers who prefer to own rather than lease. We require
subscribers under our no contract payment plan to
purchase a modem or PC card in order to subscribe for our
broadband services.
Clearwire
Residential VoIP Telephony Service
As a part of our plan to offer value-added services to increase
subscriber demand and generate incremental revenue from our
wireless broadband subscribers, in April 2006, we began offering
VoIP telephony services in a limited number of our domestic
markets, which we call Clearwire Internet Phone Service. As of
June 30, 2008, we offered our VoIP telephony services more
broadly in 45 out of our 46 domestic markets. We continue to
explore options for deploying VoIP telephony services in our
international markets, but we do not have specific plans to
deploy VoIP telephony services in those markets in the near term.
In our VoIP markets, we are currently offering a single VoIP
telephony service plan that provides subscribers with unlimited
local and long distance calling, including calls within the
United States, Canada, and Puerto Rico, for a fixed monthly fee
of $34.99 per month with various promotional discounts
available.
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Our VoIP telephony service permits calls outside these countries
on a
charge-per-call
basis. Our VoIP telephony service package includes enhanced
calling features such as voice mail, call waiting, 3-way calling
and caller ID. Our service is also E911 (as defined below)
compliant and offers number portability. In addition, our
subscribers can set a range of telephony options online, such as
call forwarding and call blocking. We provide optional email
notification of voicemail messages through which a subscriber
may choose to receive a voicemail message attached as a file to
an email message.
Our VoIP telephony service is facilities-based, which means that
the service is provided across our network and switches through
infrastructure we control. We believe this allows us to deliver
better average call quality than is generally available on non
facilities-based VoIP systems, while using less data capacity.
Future
Mobile WiMAX Services
New Clearwire expects to deploy its mobile WiMAX network in all
future domestic market launches. We plan to offer fixed and
mobile Internet services and fixed voice services in each of our
markets following the completion of the Transactions. Following
the launch of a market, we expect that potential subscribers
will be able to immediately activate service through either a
recurring subscription or a use-based (e.g., one-time, daily,
weekly) billing model of service. We also expect to introduce
service bundles that will include multiple devices on a single
subscription and multiple subscriptions for a single family or
business.
We also intend to offer a variety of premium services and
content over our mobile WiMAX network. We intend to focus on
voice services as our primary premium service. We plan to
initially offer VoIP telephony services on a fixed basis to our
subscribers homes and offices in each of our markets.
Within two to three years after the Closing, we plan to offer
mobile VoIP telephony services in each of our markets over our
mobile WiMAX network. Other future premium service and content
offerings may include live videoconferencing, recorded video,
online games and music and location based services. We believe
that manufacturers will enable a broad array of handheld
communications and consumer electronic devices to work on our
mobile WiMAX network, which may include notebook computers,
UMPCs, PDAs, gaming consoles, MP3 players, and other
productivity and mobile Internet devices. As these products are
introduced, we intend to explore offering new services designed
to take advantage of the capabilities of these devices.
As with our current services, we intend to initially require our
subscribers to generally make their payments through an
automatic charge to a credit or debit card or bank account.
However, we also expect to implement a point of sale system that
will allow our subscribers to make cash payments, and we expect
that we may offer additional forms of payment in the future as
we target new customer segments.
Markets
Served and Deployment
Clearwire
Markets
We use the term market to refer to one or more
municipalities in a geographically distinct location in which we
provide our services. Our markets range from major metropolitan
areas to small, rural communities, and markets of all sizes in
between.
We pursue market clustering opportunities which allow our
customers to roam in areas of regional interest. A clustering
strategy can also deliver cost efficiencies and sales and
marketing synergies compared to areas in which markets are not
deployed in a geographic cluster.
As of June 30, 2008, we offered our services in 46 markets
in the United States covering an estimated 13.9 million
people and we had approximately 410,000 subscribers in the
United States.
Our initial mobile WiMAX markets are expected to include
Atlanta, Georgia, Portland, Oregon, Las Vegas, Nevada and
Grand Rapids, Michigan. We expect to start adding mobile WiMAX
customers in Portland, Oregon by the end of the fourth quarter
of 2008, with commercial launches to follow.
Outside the United States, as of June 30, 2008, Clearwire
offered its wireless broadband services in Ghent and
Brussels, Belgium, Dublin, Ireland and Seville, Spain, where our
network covers approximately 2.9 million people.
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As of June 30, 2008, we have approximately 51,000
subscribers in Belgium, Ireland and Spain. We also have minority
investments in a company that offers services in Mexico.
XOHM
Markets
As of June 30, 2008, Sprint did not offer mobile WiMAX
services for sale to subscribers in any markets. Sprint is in
the process of completing construction of its initial mobile
WiMAX networks in Washington, DC, Baltimore, Maryland and
Chicago, Illinois, and it has made progress in a number of other
markets throughout the country.
New
Clearwire Markets
New Clearwire will continue to operate the existing Clearwire
pre-WiMAX services after the Closing until those markets are
upgraded to mobile WiMAX. We expect the majority of the markets
to be upgraded in 2009. New Clearwire will also initially
operate in the mobile WiMAX markets launched by Clearwire and
Sprint before the Closing.
After the Closing, beginning in 2009, we expect New Clearwire to
continue to deploy mobile WiMAX in markets across the United
States. We are targeting our mobile WiMAX network to cover
between 60 and 80 million people in the United States by
the end of 2009 and between 120 and 140 million people by
the end of 2010.
Sales and
Marketing
Clearwire
Sales and Marketing
Our current marketing efforts include reliance on a full range
of integrated marketing campaigns and sales activities,
including advertising, direct marketing, public relations and
events to support our direct sales teams, company-owned retail
stores, mall and portable kiosks, large volume electronic
stores, authorized representatives and resellers.
We believe that we currently have a strong local presence in our
markets, which enhances our ability to design marketing
campaigns tailored to the preferences of the local community. We
advertise across a broad range of media, including print,
billboards, online, and radio and television broadcast media,
with television only recently introduced selectively in some of
our larger markets. We also conduct community awareness
campaigns that focus on grass-roots marketing efforts, and host
local community events where potential subscribers can
experience our service. Our direct marketing efforts have
included direct mailings and delivering door hangers to
potential subscribers in our network coverage area.
We currently use multiple distribution channels to reach
potential subscribers, including:
Direct
Clearwire has hired salespeople to sell its services directly to
consumers. Our salespeople also set up mobile kiosks at local
community and sporting events and near retail establishments or
educational institutions to demonstrate our services. Each of
these salespeople carries a supply of modems, so that a new
subscriber can activate his or her account and receive equipment
while at the mobile kiosk. As of June 30, 2008, we employed
approximately 370 salespeople in the United States. We generally
compensate these employees on a salary plus commission basis.
Our direct sales teams are expanding their focus to include
acquiring small and medium sized business accounts as
subscribers, particularly with the introduction of the PC cards.
Indirect
Clearwires indirect sales channels include a variety of
authorized representatives, such as traditional cellular
retailers, satellite television dealers and computer sales and
repair stores. These authorized representatives typically
operate retail stores but, subject to our approval, can also
extend their sales efforts online. Authorized representatives
assist in developing awareness of and demand for our service by
promoting our
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services and brand as part of their own advertising and direct
marketing campaigns. We compensate these dealers solely on the
basis of commission. As of June 30, 2008, we had
approximately 2,210 authorized representatives in the United
States.
We also offer our services pursuant to distribution agreements
through national retail chains, and we believe that the
percentage of our total sales from this indirect sales channel
will continue to increase.
Clearwire
Owned and Operated Retail Outlets
Clearwire markets its products and services through a number of
Clearwire-operated retail outlets, including retail stores, but
primarily kiosks located in malls and shopping centers. We
generally compensate the employees at these locations on an
hourly basis plus commissions.
Internet
and Telephone Sales
We direct prospective subscribers to our website or our
telesales centers in our advertising. Our website is a fully
functional sales channel where subscribers can check pricing and
service availability, research service plans and activate
accounts using a credit card. Prospective subscribers can also
call into one of our telesales centers to activate service.
New
Clearwire Sales and Marketing
We expect New Clearwire to initially utilize the same sales and
marketing strategy as Clearwire. However, with the deployment of
mobile WiMAX networks, New Clearwire will also focus its sales
and marketing efforts on additional channels that are not
currently used by Clearwire, including embedded consumer
electronic devices and wholesale services.
Embedded
Devices
An important component of New Clearwires distribution
strategy is expected to include embedding mobile WiMAX into
consumer electronic devices, which is the current distribution
model for Wi-Fi devices. As mobile WiMAX is standards-based
technology that is already being adopted internationally,
chipset and device vendors and manufacturers have committed to
developing and integrating these chipsets into a number of
consumer electronic devices such as notebook computers, UMPCs,
PDAs, gaming consoles, MP3 players and other handheld devices.
Vendors and manufacturers that have committed to mobile WiMAX
include chip vendors such as Intel, Beceem Communications Inc.
and Marvell Technology Group Ltd. and device manufacturers such
as ASUSTek Computer Incorporation, ZTE, ZyXEL Communications
Inc., Fujitsu Limited, Samsung, Lenovo Group, Toshiba
Corporation and Panasonic Corporation of North America.
Embedding mobile WiMAX chipsets into consumer electronic devices
is expected to provide greater exposure to potential subscribers
who will be able to purchase devices compatible with our network
through the vendors and manufacturers existing
distribution channels. We believe that embedding mobile WiMAX
technology into consumer electronic devices will enable those
who purchase these devices to immediately activate services
within our mobile WiMAX market coverage areas without the need
for professional installation or a separate visit to a New
Clearwire retail or other location.
Wholesale
Distribution
Under the 4G MVNO Agreement, each of the 4G MVNOs will be
entitled to market and resell wireless broadband services over
our network to their end user customers as part of a defined
bundle, subject to certain exceptions. We expect the 4G MVNOs to
resell the wireless broadband services under their own brand
names. Any purchasers of wireless broadband services through the
4G MVNOs will remain customers of the 4G MVNOs, but New
Clearwire will be entitled to receive payment directly from the
4G MVNOs for providing the wireless broadband services to those
customers. In addition to the 4G MVNOs, New Clearwire may seek
to enter into other wholesale relationships with other third
parties. Any wholesale arrangements, including the 4G MVNO
Agreement, should provide New Clearwire with significant
additional distribution channels for its services.
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Customer
Service and Technical Support
New Clearwire will be focused on providing a simple, yet
comprehensive, set of
set-up and
self-service tools. The intent is to support an environment
where customers acquire their mobile WiMAX devices from a
variety of distribution channels and have the option to easily
subscribe and initiate self-activation through an online
web-based portal. While pursuing a self-service strategy, there
will still be a need for live support for technical and
non-technical customer issues.
We believe reliable customer service and technical support are
critical to attracting and retaining subscribers and we
currently provide the following support for all subscribers:
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toll-free, live telephone and email-based assistance available
seven days a week;
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resources on our website that cover frequently asked questions
and provide signal and networking tips;
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online account access and, for VoIP subscribers, web-based
resources that allow them to control their telephony features
and settings; and
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a network of service technicians available to provide
on-site
customer assistance and technical support.
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In October 2006, Clearwire opened a call center in Las Vegas,
Nevada currently staffed with approximately 260 customer service
and technical support personnel. In April 2007, Clearwire opened
a second call center in Milton, Florida currently staffed with
approximately 230 customer service representatives.
Our
Networks
Pre-WiMAX
Network
Our pre-WiMAX network, in both our domestic and international
markets, relies on the Expedience wireless broadband access
system that supports delivery of any
IP-compatible
broadband applications, including high-speed Internet access and
VoIP telephony services. This system, which is manufactured by
NextNet, a wholly-owned subsidiary of Motorola, is comprised of
base station transceivers, a network management system, and
modems used by our subscribers. Expedience operates over our
spectrum in the 2.5 GHz band in the United States and in
the 3.5 GHz band in Europe. We believe that the Expedience
system has certain key advantages over competing technologies
that are currently available, such as:
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simple self-installation by subscribers and provisioning of
modems, with no software installation required on the
subscribers computer;
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easy network and tower installation and deployment requirements;
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flexible and scalable architecture that can service large
metropolitan or small rural areas;
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ability to provide overlapping coverage from multiple sites for
reliable and robust connectivity; and
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enhanced reliability and reduced latency provided by linking our
towers via a microwave mesh network that carries the majority of
our backhaul traffic over licensed and unlicensed frequencies.
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In 2009, we expect New Clearwire to continue to deploy mobile
WiMAX in markets across the United States. We expect our mobile
WiMAX network to cover between 60 and 80 million people in
the United States by the end of 2009 and between 120 and
140 million people by the end of 2010.
Mobile
WiMAX Network
The mobile WiMAX network is based on the IEEE mobile Worldwide
Interoperability of Microwave Access
802.16e-2005
standard. On adopting the mobile WiMAX standard, we believe our
mobile WiMAX network will continue to support fixed, portable
and mobile service offerings using a network architecture that
shares the key advantages of our current pre-WiMAX network.
However, with more than 100 end user devices that are currently
in the mobile WiMAX certification process, and many more in
development, we believe mobile WiMAX technology will enable us
to deliver a broader range of mobile communications services
than we offer today.
188
In the future, we will evaluate the option to deploy other
technologies on our network that are complementary or, in
certain cases, alternatives to mobile WiMAX. Technologies, such
as Wi-Fi, may complement our mobile WiMAX network by allowing us
to offer additional services to consumers. Additionally, once
our commitment to deploy mobile WiMAX lapses, we may elect to
deploy alternative technologies to mobile WiMAX, if and when
they become available, on our network either in place of, or
together with, mobile WiMAX. We believe that due to our spectrum
depth and common network core, deploying other technologies on
our network would be at a lower cost than building a new network.
Technology
Mobile
WiMAX
Most of the next generation wireless technologies (i.e.,
Expedience, mobile WiMAX, LTE and Ultra Mobile Broadband) use
OFDM technology to improve performance in non-line-of-sight
areas. OFDM allows subdivision of bandwidth into multiple
frequency sub-carriers so that data can be divided and
transmitted separately to ensure a higher reliability of packet
data reception at the receiving end. This characteristic of OFDM
enables a 4G network to more efficiently serve subscribers in
urban and suburban settings compared to existing 3G
technologies. Current mobile WiMAX technology is based on a Time
Division Duplex, which we refer to as TDD, physical layer. TDD
allows upstream and downstream links to a network to
co-exist on
the same radio frequency channel. Relative to the other
technologies mobile WiMAX has the following advantages:
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Open Standard. Mobile WiMAX technology is
based on the 802.16 IEEE standard. It is an open standard that
builds off the success of the 802.11 IEEE standard more commonly
known as Wi-Fi. We expect mobile WiMAX to attract many
technology vendors in the IT and consumer electronic industries
just as Wi-Fi has done. Intel, which has been a leading
proponent of Wi-Fi, has indicated publicly that it will
similarly push the adoption of mobile WiMAX by incorporating it
into the Centrino platform.
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Time-to-Market. Mobile WiMAX has a unique head
start over other 4G technologies. The standards for LTE are
still being written and, a result, we do not expect
LTE equipment to be commercially deployed before 2010, at
the earliest.
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Expansive and Diverse Ecosystem. The global
support of WiMAX continues to build momentum with more than 300
WiMAX deployments now in 118 countries, and incumbent wireless
operators in Russia and India recently announced additional
commitments to deploy mobile WiMAX networks. While the device
ecosystem for 2G and 3G cellular is primarily focused on
telecommunications, the WiMAX ecosystem extends beyond
telecommunications and includes the consumer electronics and PC
industries. Plans for new WiMAX-enabled consumer devices
continue to expand with more than 80 suppliers providing a total
of more than 480 different devices, from base stations and
customer premise equipment, which we refer to as CPE, to PC
Cards and handsets, and, based on recent industry news releases,
more than 100 new certified WiMAX-enabled products are slated to
be introduced in the next six to 12 months. Together with
Intel, we are testing laptops and notebooks from major laptop
manufacturers on our mobile WiMAX network in Portland, Oregon,
and, due to the commitment from global PC manufacturers to
deliver embedded WiMAX products, more notebooks are on the way.
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TDD
Flexibility
Unlike Frequency Division Duplex, which we refer to as FDD,
which requires paired spectrum with guardbands, TDD only
requires a single channel for downlink and uplink, making it
more flexible for use in various global spectrum allocations. It
also ensures complete channel reciprocity for better support of
closed loop advanced antenna technologies like Multiple In
Multiple Out, which we refer to as MIMO, and the various
link adaptation algorithms. Additionally, TDD allows a service
provider to maximize spectrum utilization by allocating up and
down link resources appropriate to the traffic pattern over a
given market. Finally, radio designs for TDD are less complex
and less expensive to implement than FDD radios.
189
Expedience
Technology
The Expedience system is a wireless
IP-based,
Ethernet platform that is also built around an OFDM and TDD
physical layer, which allows us to address two challenges that
face wireless carriers, namely NLOS performance and frequency
utilization. OFDM is a physical layer protocol for NLOS
broadband networks that uses a large number of individual
carriers and a process of mapping a users data to those
carriers to leverage the presence of multi-path to transmit and
receive data robustly in the NLOS service environment. OFDM is
preferable to single carrier technologies for addressing
multi-path and frequency-selective fading in a broadband
channel. TDD allows upstream and downstream links to the network
to exist on the same radio frequency channel, meaning that there
is no need to use multiple channels or to have guard-bands
between downstream and upstream channels.
Pre-WiMAX
Network Components
The Expedience CPE that operates on our pre-WiMAX network is a
NLOS wireless modem that connects to any
IP-based
device, such as a computer, using a standard Ethernet
connection. It is simple to install and requires no service
provider configuration or support and no software download or
installation. A subscriber need only connect the CPE to an
external power source and to the subscribers computer. In
addition to the Expedience CPE, in October 2007 we began
offering our True
Broadbandtm
PC card in all of our United States markets.
The Expedience base station allows for 360 degree coverage by
employing multiple transceivers and antennas on a single tower
to maximize subscriber density and spectral efficiency. This
setup is scalable, expandable and flexible, allowing us to
control costs to promote efficient expansion as our subscriber
base grows. Our base stations generally are located on existing
communications towers, but can also be placed on rooftops of
buildings and other elevated locations. We generally lease our
tower locations from third parties.
We also use a network management system that incorporates a
complete set of management tools to enable the configuration,
management, monitoring and reporting of all network status
elements. This system provides secure, centralized and remote
configuration of base stations, CPE, switches and other network
elements. The system reports to and alerts our system
administrators to alarms and faults, and monitors system
performance down to the individual CPE. It supports customizable
report generation to track network performance, utilization and
capacity.
Mobile
WiMAX Network Components
Mobile WiMAX is an all
IP-based
technology and, like Expedience, is optimized for
high-throughput, real-time data applications. Mobile WiMAX is
based on the IEEE
802.16e-2005
standard and will operate in our 2.5 GHz and 3.5 GHz
spectrum bands.
Similar to our current pre-WiMAX network, we expect our planned
mobile WiMAX network to be a wireless
IP-based,
Ethernet platform designed around an OFDM and TDD physical
layer, to address NLOS performance and frequency utilization
issues. We expect that mobile WiMAX will meet all of our
anticipated requirements for mobile Internet usage, as we
believe it will support multiple handoff mechanisms,
power-saving mechanisms for mobile devices, advanced quality of
service and low latency for improved support of real-time
applications, and advanced authorization, authentication and
accounting functionality.
Our mobile WiMAX network is expected to consist of many of the
same primary elements as Expedience, and will include base
station transceivers, a backhaul network connected to
point-of-presence traffic aggregation sites, an Operations,
Administration, Maintenance and Provisioning system and
subscriber devices. For subscribers, we expect that mobile WiMAX
enabled chipsets will initially be included in NLOS modems
similar to the Expedience CPE and in PC cards. Eventually, we
anticipate manufacturers to sell a number of handheld
communications and consumer electronic devices with embedded
WiMAX chipsets that will be enabled to communicate using our
mobile WiMAX network, such as notebook computers, UMPCs, PDAs,
gaming consoles and MP3 players and other handheld devices.
190
Spectrum
Clearwire
Clearwires network operates over licensed spectrum in its
United States and international markets. Although several
broadband technologies can operate in unlicensed or public
access spectrum, we believe using licensed spectrum enables us
to provide a consistently higher quality of service to our
subscribers, without the interference that is typically
associated with unlicensed frequency bands.
United
States
In the United States, licensed spectrum is governed by FCC rules
that restrict interference from other licensees and spectrum
users, providing some protection against interruption and
degradation of service. Under FCC rules, unlicensed spectrum
users do not have exclusive use of any frequencies, may not
cause interference with the operations of any licensed operators
and may suffer interference from others using licensed
frequencies in overlapping geographic areas, making quality and
availability of their services unpredictable.
We are designing our network in the United States to operate
primarily on spectrum located within the 2496 to 2690 MHz
band, or 2.5 GHz band, which is designated for BRS and EBS.
Most BRS and EBS licenses are allocated in a scheme that
provides for overlapping circular territories with a
35-mile
radius. Other BRS licenses provide for 493 separate BTA
licenses. Under current FCC rules, the BRS and EBS band in each
territory is generally divided into 33 channels consisting of a
total of 186 MHz of spectrum, with an additional eight MHz
of guard band spectrum. Before the adoption of the current FCC
rules, BRS and EBS licenses were referred to, respectively, as
Multipoint Distribution Service, which we refer to as MDS,
Multichannel Multipoint Distribution Services, which we refer to
as MMDS, and Instructional Television Fixed Services, which we
refer to as ITFS, and licenses were divided into
33 channels consisting of 198 MHz of spectrum.
Under current FCC rules, we can access BRS spectrum either
through outright ownership of a BRS license issued by the FCC or
through a leasing arrangement with a BRS license holder. The FCC
rules limit eligibility to hold EBS licenses to accredited
educational institutions and certain governmental, religious and
nonprofit entities, but permit those license holders to lease up
to 95% of their capacity for non-educational purposes.
Therefore, although we cannot hold an EBS license, we can access
EBS spectrum through a long-term leasing arrangement with a
license holder. EBS leases entered into before January 10,
2005 may remain in effect for up to 15 years and may be
renewed and assigned in accordance with the terms of those
leases and the applicable FCC rules and regulations. The initial
term of EBS leases entered into after January 10, 2005 is
required by FCC rules to be coterminous with the term of the
license. In addition, these leases typically give the
leaseholder the right to participate in and monitor compliance
by the license holder with FCC rules and regulations. EBS leases
entered into after July 19, 2006 that exceed 15 years
in length must give the licensee the right to reassess their
needs every five years starting in year 15. Our EBS spectrum
leases typically have an initial term equal to the remaining
term of the EBS license, with an option to renew the lease for
up to three renewal terms of ten years or less with respect
to a final renewal term, for a total lease term of up to
30 years. In addition, we generally have a right of first
refusal for a period of time after our leases expire to match
another partys offer to lease the same spectrum. Our
leases are generally transferable.
Since our formation, we have focused on acquiring BRS licenses
and leases, as well as EBS leases, in markets throughout the
United States. As of June 30, 2008, we believe that we are
the second largest holder of licensed spectrum in the
2.5 GHz band in the United States. As of June 30,
2008, we owned or leased, or entered into agreements to acquire
or lease, approximately 15.8 billion MHz-POPs of spectrum
in the United States. Of our approximately
15.8 billion MHz-POPs of spectrum in the United States, we
estimate that we own approximately 23% with the remainder leased
from third parties, generally under lease terms of up to
30 years. When the FCCs current rules for the
2.5 GHz band in the United States are fully implemented,
the MHz for certain channels within this band will decrease from
6 MHz to 5.5 MHz. This regulatory change will not
adversely affect our ability to deliver our services, but will
cause a proportionate reduction of our calculated MHz-POPs.
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Our pending spectrum acquisition agreements are subject to
various closing conditions, some of which are outside of our
control and, as a result, we may not acquire all of the spectrum
that is subject to these agreements. Nearly all of such closing
conditions relate either to licensee or FCC consents, which we
expect are likely to be granted. A limited number of our pending
acquisition agreements are subject to closing conditions
involving the resolution of bankruptcy or similar proceedings.
As of June 30, 2008, we had minimum purchase commitments of
approximately $23.5 million to acquire new spectrum.
We engineer our networks to optimize both the service that we
offer and the number of subscribers to whom we can offer
service. With the change to mobile WiMAX, we do not expect to
launch our services in a market unless we control a minimum of
three blocks of 10 contiguous MHz of spectrum bandwidth.
However, we expect the spectral efficiency of technologies we
deploy to continue to evolve, and as a result, we may decide to
deploy our services in some markets with less spectrum.
Alternatively, we could find that new technologies and
subscriber usage patterns require us to have more spectrum
available in our markets.
International
Clearwire currently holds spectrum rights in Belgium, Germany,
Ireland, Poland, Romania and Spain. We also hold minority
interests in a company that holds spectrum in Mexico. In each of
Germany, Poland, Romania and Spain, our licenses cover the
entire country. Our licenses in Belgium and Ireland cover a
significant portion of the countries populations. We
believe that each of the frequencies are or will be suitable for
our service. A summary of the spectrum rights held by our
subsidiaries and our equity investees is below, including the
frequency band in which the spectrum is held, an estimate of the
population covered by our spectrum in each country and the total
MHz-POPs of our spectrum.
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Frequency
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Licensed
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Country
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(GHz)
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Population(1)
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MHz-POPs(2)
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(In millions)
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(In millions)
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Subsidiaries
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Belgium
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3.5
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10.6
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1,060.0
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Germany
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3.5
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82.5
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3,465.0
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Ireland
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3.5
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1.5
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127.5
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Poland
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3.6
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38.1
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1,066.8
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Romania
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3.5
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21.6
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1,209.6
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Spain
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3.5
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45.1
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1,804.0
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Equity Investees
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Mexico
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2.5
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81.0
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N/A
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(1) |
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Estimates based on country population data derived from the
Economist Intelligence Unit database, except for Ireland and
Mexico, which are based on census or other market information
gathered by us or our affiliates regarding the number of
residents within the licensed coverage area. |
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(2) |
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Represents the amount of our spectrum in a given area, measured
in MHz, multiplied by the estimated population of that area. |
As in the United States, we engineer our international networks
to optimize the number of users that the network can support
while providing sufficient capacity and bandwidth. Thus far, we
have chosen not to launch our services in a market using our
current technology unless we control a minimum of 30 MHz of
spectrum. However, we expect the spectral efficiency of
technologies we deploy to continue to evolve, and as a result,
we may decide to deploy our services in some markets with less
spectrum. Alternatively, as in the United States, we could find
that new technologies and subscriber usage patterns require us
to have more spectrum available in our markets.
XOHM
XOHMs network will operate over licensed spectrum in the
United States. As a business unit of Sprint, XOHM has focused on
acquiring BRS licenses and leases, as well as EBS leases, in
markets throughout the
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United States. XOHM is the largest holder of licensed spectrum
in the 2.5 GHz band in the United States. As of
June 30, 2008, XOHM owned or leased, or had entered into
agreements to acquire or lease, approximately 28.9 billion
MHz-POPs of spectrum in the United States. Of XOHMs
approximately 28.9 billion MHz-POPs of spectrum in the
United States, XOHM estimates that it owns approximately 50%
with the remainder leased from third parties, generally under
lease terms of up to 30 years.
Under current FCC rules, like Clearwire, XOHM can access BRS
spectrum either through outright ownership of a BRS license
issued by the FCC or through a leasing arrangement with a BRS
license holder. The FCC rules limit eligibility to hold EBS
licenses to accredited educational institutions and certain
governmental, religious and nonprofit entities, but permit those
license holders to lease up to 95% of their capacity for
non-educational purposes. Therefore, although XOHM cannot hold
an EBS license, XOHM can access EBS spectrum through a long-term
leasing arrangement with a license holder. EBS leases entered
into before January 10, 2005 may remain in effect for up to
15 years and may be renewed and assigned in accordance with
the terms of those leases and the applicable FCC rules and
regulations. The initial term of EBS leases entered into after
January 10, 2005 is required by FCC rules to be coterminous
with the term of the license. In addition, these leases
typically give the leaseholder the right to participate in and
monitor compliance by the license holder with FCC rules and
regulations, and give the licensee the right to reassess their
needs every five years starting in year 15. XOHMs EBS
spectrum leases typically extend up to a maximum of
30 years, pursuant to initial and renewal terms of varying
lengths, subject to renewal by the FCC of the licenses of the
leased spectrum. In addition, XOHM generally has a right of
first refusal for a period of time after our leases expire to
match another partys offer to lease the same spectrum.
XOHMs leases are generally transferable.
XOHMs pending spectrum acquisition agreements are subject
to various closing conditions, some of which are outside of
XOHMs control and, as a result, XOHM may not acquire all
of the spectrum that is subject to these agreements. Nearly all
of the closing conditions relate either to licensee or FCC
consents, which XOHM expects will likely be granted. A limited
number of XOHMs pending acquisition agreements are subject
to closing conditions involving the resolution of bankruptcy or
similar proceedings. As of June 30, 2008, XOHM had purchase
commitments of approximately $42 million to acquire new
spectrum.
New
Clearwire
Following the Closing, New Clearwire will continue to operate
over licensed and leased BRS and leased EBS spectrum in the
2.5 GHz band. We believe that our significant spectrum
holdings, both in terms of spectrum depth and breadth, in the
2.5 GHz band will be optimal for delivering our planned
wireless broadband services.
New Clearwire will hold all of Clearwires and
Sprints spectrum in the 2.5 GHz band, including all
of both parties BRS licenses and leases and EBS leases.
When the spectrum is combined, after eliminating any spectrum
that is currently subject to agreement between the parties and
assuming the transition of all markets to the current rules for
the 2.5 GHz band, we expect New Clearwire to hold more than
42 billion MHz-POPs of spectrum in the United States. We
believe that this will make New Clearwire the largest spectrum
holder in terms of MHz-POPs of any wireless operator in the
United States.
The International Telecommunications Union, which we refer to as
ITU, recently approved the technical requirements for 4G
technology. The ITU has recommended that 4G technology needs at
least 40 MHz of spectrum, and preferably up to 100 MHz of
spectrum in each market, regardless of the frequency used, in
order to provide sufficient channel width to enable the data
throughput that 4G services will demand.
Following the Closing, New Clearwire will hold approximately
150 MHz of spectrum on average in the largest 100 markets
in the United States and approximately 125 MHz of spectrum in
the next 100 largest markets. New Clearwires deep spectrum
position in most of its markets is expected to enable New
Clearwire to eventually offer faster download speeds and premium
services and data-intensive multimedia content, such as
videoconferencing, online games, streaming audio, video on
demand and location-based services.
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In Europe, we will continue to hold the approximately
8.7 billion MHz-POPs of spectrum held by Clearwire
predominantly in the 3.5 GHz band.
Research
and Development
Clearwire
Our research and development efforts have focused on the design
of our network, enhancements to the capabilities of our network
and the evolution of our service offerings. A significant
portion of our development efforts involves working with the
suppliers of our network infrastructure and subscriber
equipment. We are currently working with Intel, Motorola and
other vendors to develop network components and subscriber
equipment for our mobile WiMAX network, including an ongoing
mobile WiMAX trial in Portland, Oregon. We expect to continue
these efforts in the future.
We spent approximately $1.0 million on research and
development activities during the six months ended June 30,
2008.
XOHM
XOHMs research and development efforts started with trials
of various technologies, including, Flash Orthogonal Frequency
Division Multiplexing, which we refer to as f-OFDM, Time
Division Code Division Multiple Access, which
we refer to as TD-CDMA, wireless broadband, which we refer to as
WiBRO, and WiMAX.
Samsung, Motorola and Nokia were chosen as XOHMs Radio
Access Network, which we refer to as RAN, partners. XOHMs
research and development efforts have been focused on three key
areas, which include technical requirement assessment, network
and performance validation, and interoperability testing,
spanning access, backhaul, Core (i.e., the central
aggregation points for XOHMs radio network),
devices/chipsets, and back office systems. XOHM continues to
improve the performance and functionality of the technology and
products through its ongoing research and development
activities. Several evolutionary products are currently in the
early stages of development with RAN partners, including, among
others, multi-carrier power amplifiers, remote radio head
solutions, high power Picocells (which are base stations
designed to cover a small area, such as within office buildings,
shopping malls and airports), and beamforming solutions;
however, there can be no assurance that these products will be
developed as planned, or at all.
Suppliers
Motorola, which acquired our former NextNet subsidiary in August
2006, is currently the only supplier of certain network
components and subscriber equipment for the Expedience system
deployed on our pre-WiMAX network. Thus, we are dependent on
Motorola to produce the equipment and software we need for our
pre-WiMAX network in a timely manner. For our mobile WiMAX
network, we expect to use a number of suppliers for our network
components and subscriber equipment, including Motorola and
Samsung, among others. The terms of New Clearwires
agreements with each of these suppliers remain subject to
further negotiation.
Competition
The market for broadband services is highly competitive and
includes companies that offer a variety of services using a
number of different technological platforms, such as 3G
cellular, cable, DSL, satellite, wireless Internet service and
other emerging technologies. We compete with these companies on
the basis of the ease of use, portability, speed, reliability,
and price of our respective services.
Our principal competitors include wireless providers, cable and
DSL operators, Wi-Fi and, prospectively, WiMAX providers,
satellite providers and others.
194
Cellular
and PCS Services
Cellular and PCS carriers are seeking to expand their capacity
to provide data and voice services that are superior to ours.
These providers have substantially broader geographic coverage
than we have and, for the foreseeable future, than we expect to
have. Carriers such as AT&T and Verizon Wireless, among
others, have announced plans to deploy LTE which, when
developed, may deliver performance that is similar to, or better
than, or may be more widely accepted than the mobile WiMAX
technology we are currently committed to deploy. Although we do
not expect LTE networks to be in commercial operation in the
near term, Verizon Wireless has stated that, starting in 2010
and beyond, it plans to deploy LTE on its network. If one or
more of these providers can deploy technologies, such as LTE,
that compete effectively with our services, the mobility and
coverage offered by these carriers will provide even greater
competition than we currently face.
Cable
Modem and DSL Services
We compete with companies that provide Internet connectivity
through cable modems or DSL. Principal competitors include cable
companies, such as Time Warner Cable and Comcast, as well as
incumbent telephone companies, such as AT&T, Sprint, Qwest
Communications International, Inc. and Verizon Communications,
Inc.
Wireless
Broadband Service Providers
We also face competition from other wireless broadband service
providers that use licensed spectrum. Moreover, if our
technology is successful and garners widespread support, we
expect these and other competitors to adopt or modify our
technology or develop a technology similar to ours. We believe
that, as network infrastructure based on mobile WiMAX technology
becomes commercially available and manufacturers develop and
sell handheld communications and consumer electronic devices
that are enabled to communicate using mobile WiMAX networks,
other network operators will introduce mobile WiMAX services
comparable to ours in both our domestic and international
markets.
Satellite
Satellite providers like WildBlue Communications, Inc. and
Hughes Communications, Inc. offer broadband data services that
address a niche market, mainly less densely populated areas that
are unserved or underserved by competing service providers.
Although satellite offers service to a large geographic area,
latency caused by the time it takes for the signal to travel to
and from the satellite may challenge the ability to provide some
services, such as VoIP, and reduces the size of the addressable
market.
WISPs
and Wi-Fi
Clearwire also competes with other wireless Internet service
providers, which we refer to as WISPs, that use unlicensed
spectrum. In addition to these commercial operators, many local
governments, universities and other governmental or
quasi-governmental entities are providing or subsidizing Wi-Fi
networks over unlicensed spectrum, in some cases at no cost to
the user. Unlicensed spectrum may be subject to interference
from other users of the spectrum, which can result in
disruptions and interruptions of service. We rely exclusively on
licensed spectrum for our network and do not expect significant
competition from providers using unlicensed spectrum to deliver
services to their customers.
International
In its international markets, Clearwire generally faces
competition from incumbent telecommunications companies that
provide their own wireless broadband or VoIP telephony services,
as well as from other companies that provide Internet
connectivity services. Although in certain European countries,
incumbent telecommunications companies may have a dominant
market share based on their past status as the single operator
of telecommunications services in a particular country, these
incumbent telecommunications companies rely on systems initially
designed for voice transmission which have been upgraded to
provide wireless broadband services.
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Other
We believe other emerging technologies may also enter the
broadband services market. For example, certain Internet service
providers are working with electric distribution utilities to
install broadband over power line, which we refer to as BPL,
technology on electric distribution lines to provide broadband
services. These Internet service and BPL providers are potential
competitors. BPL technology may turn electrical lines into large
unshielded transmitting antennas that would allow transmission
of data over these lines, but could potentially create
interference with some wireless networks.
Regulatory
Matters
Overview
The regulatory environment relating to Clearwires business
and operations is evolving. A number of legislative and
regulatory proposals under consideration by federal, state and
local governmental entities may lead to the repeal, modification
or introduction of laws or regulations that could affect our
business. Significant areas of existing and potential regulation
for our business include broadband Internet access,
telecommunications, interconnected VoIP telephony service,
spectrum regulation and Internet taxation.
Broadband
Internet Access Regulation
The result of recent court decisions and the FCCs 2005
classification of wireline broadband Internet access service as
an information service, rather than a
telecommunications service resulted in allowing both
DSL and cable modem providers to retain exclusive use of their
broadband Internet access lines without having to open them up
to competing Internet service providers. This regulatory
framework may encourage independent Internet service providers
to explore other options for broadband Internet access,
including wireless services.
On September 23, 2005, the FCC released an Internet Policy
Statement outlining its general views toward ensuring that
broadband networks are widely deployed, open, affordable and
accessible to all consumers. It adopted four principles to
encourage broadband deployment and preserve and promote the open
and interconnected nature of the public Internet, and suggested
that it would incorporate these principles into its ongoing
policy-making activities. On March 22, 2007, the FCC
initiated an inquiry into the performance of the broadband
marketplace under the FCCs 2005 Internet Policy Statement.
In this inquiry, the FCC also seeks comment on whether the
Policy Statement should incorporate a new principle of
nondiscrimination and, if so, how such a nondiscrimination
principle would be defined and applied. On January 14,
2008, the FCC sought comment on two petitions related to its
Internet Policy Statement seeking FCC determinations that
further define its four broadband principles as well as what
practices constitute reasonable broadband network management.
On November 7, 2006, the FCC issued an order classifying
BPL Internet access service as an information
service. Like cable modem and DSL service, the broadband
transmission component of BPL Internet access service is not
required to be offered as a telecommunications service.
On March 23, 2007, the FCC adopted a Declaratory Ruling
that wireless broadband services are information services
regulated under Title I of the Communications Act and that
mobile Internet access service is not a commercial mobile
service, under section 332 of the Act, even when
offered using mobile technologies.
On August 20, 2008, the FCC released an enforcement order
finding that under the specific facts of a complaint before it,
a certain network management practice of a broadband provider
violated the 2005 Internet Policy Statement.
Telecommunications
Regulation
The FCC has classified Internet access services generally as
interstate information services rather than as
telecommunications services regulated under
Title II of the Communications Act. Accordingly, many
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regulations that apply to telephone companies and other common
carriers currently do not apply to our wireless broadband
Internet access service. For example, we are not currently
required to contribute a percentage of gross revenues from our
Internet access services to the Universal Service Fund, which we
refer to as USF, used to support local telephone service and
advanced telecommunications services for schools, libraries and
rural health care facilities. However, in the last year, the FCC
has begun to impose certain consumer-oriented regulatory
mandates upon VoIP service providers, despite the fact that
interconnected VoIP service has not been officially classified
as an information service. As an interconnected VoIP
service, Clearwires Internet Phone Service is subject to
some of the same regulations as telecommunications carriers. For
example, Clearwire is required to contribute a percentage of its
gross Internet Phone Service revenues to the federal USF.
In addition, Clearwire is required to provide enhanced 911,
which we refer to as E911, service for its Internet Phone
Service customers; comply with the FCCs recent number
portability rules; comply with the FCCs customer
proprietary network information, which we refer to as CPNI,
rules; and to support devices that enable hearing-impaired
customers to use Clearwires Internet Phone Service, among
other regulations. Despite these recent regulatory mandates,
both Clearwires Internet Phone Service and its broadband
Internet access are subject to many fewer regulations than
traditional telephone services.
Internet access providers also are not required to file tariffs
with the FCC, setting forth the rates, terms and conditions of
their Internet access service offerings. The FCC, however, is
currently considering whether to impose various consumer
protection obligations, similar to Title II obligations, on
broadband Internet access providers, including DSL, cable modem
and wireless broadband providers. These requirements may include
obligations related to
truth-in-billing,
slamming, discontinuing service, customer proprietary network
information and federal USF mechanisms. The FCC is also
considering whether to impose automatic roaming obligations on
wireless broadband service providers similar to the obligations
currently imposed on commercial mobile radio services, which we
refer to as CMRS, providers. Internet access providers are
currently subject to generally applicable state consumer
protection laws enforced by state Attorneys General and general
FTC consumer protection rules.
The FCC has not yet classified interconnected VoIP services as
either information services or telecommunications services under
the Communications Act. In November 2004, the FCC determined
that regardless of their regulatory classification, certain
interconnected VoIP services qualify as interstate services with
respect to economic regulation. The FCC preempted state
regulations that address such issues as entry certification,
tariffing and E911 requirements, as applied to certain
interconnected VoIP services. On March 21, 2007, the United
States Court of Appeals for the Eighth Circuit affirmed the
FCCs November 2004 Order with respect to these VoIP
services, particularly those having portable or nomadic
capability. The jurisdictional classification of other types of
interconnected VoIP services, particularly fixed
services, remains uncertain at this time.
In June 2006, the FCC determined that all
interconnected VoIP services are required to
contribute a percentage of interstate gross revenues to the USF
beginning October 1, 2006. On June 1, 2007, the
United States Court of Appeals for the District of Columbia
Circuit upheld the FCCs order that interconnected VoIP
providers contribute to the USF on the basis of a 64.9% safe
harbor or on the basis of actual traffic studies. The court
vacated the portions of the order mandating that VoIP providers
using traffic studies get the traffic studies pre-approved by
the FCC. Our VoIP service qualifies as interconnected
VoIP for purposes of USF regulation and therefore is
subject to this fee which may be passed on to our subscribers.
We have incorporated this fee requirement into our VoIP billing
system and collect and remit federal USF payments.
The FCC is conducting a comprehensive proceeding to address all
types of
IP-enabled
services, including interconnected VoIP service, and to consider
what regulations, if any, should be applied to such services, as
use of broadband services becomes more widespread. In June 2005,
the FCC adopted the first set of regulations in this
comprehensive
IP-enabled
proceeding, imposing E911-related requirements on interconnected
VoIP service providers as a condition of offering such service
to consumers. The FCC defined interconnected VoIP
service as voice service that: (1) enables real-time,
two-way voice communications; (2) requires a broadband
connection from the users location; (3) requires
IP-compatible
CPE; and (4) permits users generally to receive calls that
originate on and terminate to the public switched telephone
network, which we refer to as PSTN. Effective November 28,
2005, all interconnected VoIP providers are required to
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transmit, via the wireline E911 network, all 911 calls, as well
as a call-back number and the callers registered location
for each call, to the appropriate public safety answering point,
provided that the public safety answering point is capable of
receiving and processing that information. In addition, all
interconnected VoIP providers must have a process to obtain a
subscribers registered location before activating service,
and a process to allow their subscribers to update their
registered location immediately if the subscriber moves the
service to a different location. Interconnected VoIP providers
are also required to prominently and in plain English advise
subscribers of the manner in which dialing 911 using VoIP
service is different from dialing 911 service using traditional
telephone service, and to provide warning labels with VoIP CPE.
On May 31, 2007, the FCC initiated a proceeding proposing
to adopt additional E911 obligations for providers of
interconnected VoIP service that a customer may use at more than
one location including a requirement to automatically identify
subscribers physical locations through an automatic
location technology that meets the same accuracy standards that
apply to providers of CMRS. The FCC has also proposed to tighten
the current accuracy standards into a single, technology neutral
standard and to clarify the geographic area over which wireless
E911 providers must satisfy the E911 accuracy requirements. E911
service for interconnected VoIP service is also subject to E911
funding obligations in certain states.
On April 2, 2007, the FCC released an Order imposing,
pursuant to its ancillary authority under Title I, the
Communications Acts Section 222, CPNI requirements on
interconnected VoIP providers. CPNI includes call detail
information about a customer gained by the service provider as a
result of providing the service, and includes such information
as telephone numbers called, duration of such calls, and calling
patterns. In this same Order, the FCC adopted new CPNI
obligations designed to prevent fraud, unauthorized access to a
customers CPNI, and other abuses of customer privacy,
including specific required customer and law enforcement
notification, annual certification, and explicit consent
requirements. These new CPNI rules which became effective on
December 8, 2007 are applicable to all providers subject to
Section 222, including interconnected VoIP providers, such
as Clearwire.
On May 31, 2007, the FCC also adopted new rules requiring
interconnected VoIP service and equipment providers to comply
with the same disability-access regulations that apply to
traditional telephony service and equipment under
Section 255 of the Communications Act, including the
designation of an agent for the receipt and handling of
accessibility complaints and inquiries. In addition, the FCC
adopted requirements that interconnected VoIP providers
contribute to the Telecommunications Relay Service, which we
refer to as TRS fund, and provide
711-dialing
for hearing and speech-impaired individuals to reach a local TRS
provider pursuant to Section 225 of the Act. While these
requirements became effective on October 5, 2007, the FCC
waived two specific TRS requirements for interconnected VoIP
providers for six months the requirement to
transmit 711 calls to a geographically appropriate relay
provider and the requirement that a traditional TRS provider
route emergency-related VoIP 711 calls to the geographically
appropriate public safety answering points. The commission also
sought comment on various requests for a more permanent waiver
of the TRS rules to VoIP providers.
On November 8, 2007, the FCC released an order extending
local number portability requirements to interconnected VoIP
providers and clarifying that local exchange carriers and CMRS
providers have an obligation to port numbers to VoIP providers.
At the same time the FCC requested comment on extending porting
timeframes to VoIP providers, among other requirements. These
rules became effective March 24, 2008.
The FCC is considering additional regulations, including what
intercarrier compensation regime should apply to interconnected
VoIP traffic over the PSTN. Accordingly, our costs to provide
VoIP service may increase, which will impact our pricing
decisions in relation to our competitors and our profit margins,
if any.
On August 5, 2005, the FCC adopted an Order finding that
both facilities-based broadband Internet access providers and
interconnected VoIP providers are subject to CALEA, which
requires service providers covered by that statute to build
certain law enforcement surveillance assistance capabilities
into their communications networks and to maintain CALEA-related
system security policies and procedures. On May 3, 2006,
the FCC adopted an additional Order addressing the CALEA
compliance obligations of these providers. In that order, the
FCC: (1) affirmed the May 14, 2007
assistance-capability compliance deadline; (2) indicated
compliance
198
standards are to be developed by the industry within the
telecommunications standards setting bodies working together
with law enforcement; (3) permitted the use of certain
third parties to satisfy CALEA compliance obligations;
(4) restricted the availability of compliance extensions;
(5) concluded that facilities-based broadband Internet
access providers and interconnected VoIP providers are
responsible for any CALEA development and implementation costs;
(6) declared that the FCC may pursue enforcement action, in
addition to remedies available through the courts, against any
non-compliant provider; and (7) adopted interim progress
report filing requirements. The FCC required facilities-based
broadband Internet access providers and interconnected VoIP
providers to comply with CALEAs assistance capability
requirements by May 14, 2007. We believe we have taken the
necessary actions to be in compliance with these requirements.
Regulatory policies applicable to broadband Internet access,
VoIP and other
IP-services
are continuing to develop, and it is possible that our broadband
Internet access and VoIP services could be subject to additional
regulations in the future. The extent of the regulations that
will ultimately be applicable to these services and the impact
of such regulations on the ability of providers to compete are
currently unknown.
Spectrum
Regulation
The FCC routinely reviews its spectrum policies and may change
its position on spectrum allocations from time to time. On
July 29, 2004, the FCC issued rules revising the band plan
for BRS and EBS and establishing more flexible technical and
service rules to facilitate wireless broadband operations in the
2495 to 2690 MHz band. The FCC adopted new rules that
(1) expand the permitted uses of EBS and BRS spectrum so as
to facilitate the provision of high-speed data and voice
services accessible to mobile and fixed users on channels that
previously were used primarily for one-way video delivery to
fixed locations; and (2) change some of the frequencies on
which BRS and EBS operations are authorized to enable more
efficient operations. These new rules streamlined licensing and
regulatory burdens associated with the prior service rules and
created a PCS-like framework for geographic
licensing and interference protection. Under the new rules,
existing holders of BRS and EBS licenses and leases generally
have exclusive rights over use of their assigned frequencies to
provide commercial wireless broadband services to residences,
businesses, educational and governmental entities within their
geographic markets. These rules also require BRS licensees,
including us, to bear their own expenses in transitioning to the
new band plan and, if they are seeking to initiate a transition,
to pay the costs of transitioning EBS licensees to the new band
plan. The transition rules also provide a mechanism for
reimbursement of transaction costs by other operators in the
market. Additionally, the FCC expanded the scope of its spectrum
leasing rules and policies to allow BRS and EBS licensees to
enter into flexible, long-term spectrum leases.
On April 21, 2006, the FCC issued an Order adopting
comprehensive rules for relocating incumbent BRS operations in
the 2150 to 2162 MHz band. These rules will further
facilitate the transition to the new 2.5 GHz band plan.
This Order is currently subject to Petitions for Reconsideration
and judicial appeal.
On April 27, 2006, the FCC released a further Order
revising and clarifying its BRS/EBS rules. Significantly, the
FCC generally reaffirmed the flexible technical and operational
rules on which our systems are designed and operating. The FCC
clarified the process of transitioning from the old spectrum
plan to the new spectrum plan, but reduced the transition area
from large major economic areas, to smaller, more
manageable basic trading areas. Proponents seeking
to initiate a transition to the new band plan will be given a
30-month
timeframe within which to notify the FCC of their intent to
initiate a transition, followed by a
three-month
planning period and an
18-month
transition completion period. In markets where no proponent
initiates a transition, licensees will be permitted to
self-transition to the new band plan. The FCC adopted a
procedure whereby the proponent will be reimbursed for the value
it adds to a market through reimbursement by other commercial
operators in a market, on a pro-rata basis, after the transition
is completed and the FCC has been notified.
The FCC also clarified the procedure by which BRS and EBS
licensees must demonstrate substantial service, and required
them to demonstrate substantial service by May 1, 2011.
Substantial service showings demonstrate to the FCC that a
licensee is not warehousing spectrum. If a BRS or EBS licensee
fails to
199
demonstrate substantial service by May 1, 2011, its license
may be canceled and made available for
re-licensing.
The FCC reaffirmed its decision to permit mobile satellite
service providers to operate in the 2496 to 2500 MHz band
on a shared, co-primary basis with BRS licensees. It also
concluded that spectrum sharing in the 2496 to 2500 MHz
band between BRS licensees and a limited number of incumbent
licensees, such as broadcast auxiliary service, fixed microwave
and public safety licensees, is feasible. It therefore declined
to require the relocation of those incumbent licensees in the
2496 to 2500 MHz band. Additionally, the FCC reaffirmed its
conclusion that BRS licensees can share the 2496 to
2500 MHz band with industrial, scientific and medical,
which we refer to as ISM, devices because ISM devices typically
operate in a controlled environment and use frequencies closer
to 2450 MHz. The FCC also reaffirmed its decision to permit
low-power, unlicensed devices to operate in the 2655 to
2690 MHz band, but emphasized that unlicensed devices in
the band may not cause harmful interference to licensed BRS
operations. Previously, low-power, unlicensed devices were
permitted to operate in the 2500 to 2655 MHz band, but not
in the 2655 to 2690 MHz band.
Finally, the FCC reaffirmed the application of its spectrum
leasing rules and policies to BRS and EBS, and ruled that new
EBS spectrum leases may provide for a maximum term (including
initial and renewal terms) of 30 years. The FCC further
required that new EBS spectrum leases with terms of
15 years or longer must allow the EBS licensee to review
its educational use requirements every five years, beginning at
the fifteenth year of the lease.
On March 20, 2008, the FCC released a further order
revising, clarifying and reconsidering certain of its BRS/EBS
rules as well as seeking comment on additional matters. The
order generally affirmed the technical rules adopted by the FCC
in 2004 and modified in 2006, except for some minor adjustments.
In addition, it clarified that licensees should use the
splitting-the-football methodology to divide
overlapping geographic service areas for EBS licenses that
expired and are later reinstated. This could impact the
geographic service areas in which we are able to deploy service.
The FCC determined that it would use its existing auction rules
to auction the over 70 unassigned BRS BTA spectrum licenses. The
FCC has not yet established a date for this auction. The FCC
also reinstated a Gulf of Mexico service area for the BRS band,
the boundary of which will be 12 nautical miles from the shore,
that will be divided into three zones for licensing purposes.
BRS licensees in the Gulf of Mexico will be subject to the same
service and technical rules that apply to all other BRS
licensees. This may have an impact on Clearwires ability
to deploy service in areas near the Gulf of Mexico.
Finally, the FCC clarified that EBS leases executed before
January 10, 2005 cannot run in perpetuity and are limited
to 15 years. In making this clarification, the FCC affirmed
its general policy that it should not become enmeshed in
interpreting private contracts. In discussing its prior rulings
governing the maximum EBS lease term, the FCC referred to
previous statements regarding EBS lease terms that it has never
made before which may affect some of Clearwires lease
rights if not subsequently reconsidered. These will have an
impact on some existing leases that had been entered into prior
to January 10, 2005. Petitions for reconsideration of this
issue are currently pending.
The FCC sought further comment on how to license the available
and unassigned white spaces in the EBS spectrum
band, including whether and how to license EBS spectrum in the
Gulf of Mexico. The FCC noted that public and educational
institutions that are eligible to hold EBS licenses may be
constrained from participating in competitive bidding. These
issues remain unresolved by the FCC.
We believe that the FCCs BRS/EBS rules will enable us to
pursue our long-term business strategy, although it is possible
that these rules may be interpreted in a manner materially and
adversely to our business. In addition, these rules may be
amended in a manner that materially and adversely affects our
business.
In June 2006, the Federal Aviation Administration, which we
refer to as the FAA, proposed regulations governing potential
interference to navigable airspace from certain FCC-licensed
radio transmitting devices, including 2.5 GHz transmitters.
These regulations would require FAA notice and approval for new
or modified transmitting facilities. If adopted, these
regulations could substantially increase the administrative
burden and costs involved in deploying our service.
200
In certain international markets, our subsidiaries are subject
to rules that provide that, if the subsidiarys wireless
service is discontinued or impaired for a specified period of
time, the spectrum rights may be revoked.
Internet
Taxation
The Internet Tax Freedom Act, which was signed into law in
October 2007, renewed and extended until November 2014 a
moratorium on taxes on Internet access and multiple,
discriminatory taxes on electronic commerce under the Internet
Tax Freedom Act. This moratorium was scheduled to expire in
November 2007, and its extension preserved the
grandfathering of states that taxed Internet access
before October 1998 to allow them to continue to do so. The
moratorium does not apply to taxes levied or measured on net
income, net worth or property value and does not extend to a tax
on telecommunications services. Certain states have enacted
various taxes on Internet access or electronic commerce, and
selected states taxes are being contested. State tax laws
may not be successfully contested and future state and federal
laws imposing taxes or other regulations on Internet access and
electronic commerce may arise, any of which could increase the
cost of our services and could materially and adversely affect
our business.
Intellectual
Property
Clearwire
We review our technological developments with our technology
staff and business units to identify and capture innovative and
novel features of our core technology that provide us with
commercial advantages and file patent applications as necessary
to protect these features both in the United States and
elsewhere. We hold 30 granted United States patents (two of
which are jointly held), and we also have 13 pending United
States patent applications. For our wireless broadband network,
the patents and applications cover features and functionality,
including the ability to manage device power output to ensure
frequency stabilization, as well as the ability to manage
network output and infrastructure in a dynamic output
environment to produce, among other things, reliable network
uptime. We currently hold 23 granted patents and have 18 pending
patent applications in various foreign jurisdictions. Assuming
that all maintenance fees and annuities continue to be paid, the
patents expire on various dates from 2017 until 2027.
Clearwire and the associated Clearwire corporate
logo, Clear Business, ClearPremium,
ClearClassic and ClearValue are among
our registered trademarks in the United States, and we have
issued or pending trademark registrations covering all countries
of the European Union and eight other jurisdictions.
XOHM
Under the Intellectual Property Agreement, patents and patent
applications owned by Sprint and used exclusively in the Sprint
WiMAX Business and otherwise specifically identified will be
assigned to New Clearwire and to all persons in which New
Clearwire is the owner, directly or indirectly, of at least 50%
of the persons voting stock, including Clearwire
Communications. Currently, the portfolio to be assigned consists
of approximately 26 United States patent applications.
The Intellectual Property Agreement will provide that the
parties will cooperate regarding certain aspects of patents such
as providing reasonable assistance to each other in connection
with the preparation and filing of future patent applications
and for certain suits for infringement or enforcement of any
assigned patents. The parties have agreed not to assert certain
patents against the other party for a period of time. The period
of time depends on the technology and is generally the longer of
ten years or as long as Sprint has an ownership interest but
extends to 15 years for specified VoIP patents and extends
for the life of the patents for the assigned patents. This
covenant terminates if a party is acquired by certain designated
entities.
According to the Intellectual Property Agreement, Sprint will
also assign certain formative trademarks and their associated
goodwill to Clearwire Communications. These include the
XOHMtm
mark and the
XOHMtm
logo, both of which have trademark registrations that are
pending in the United States, the European Community and nine
other countries. Subject to applicable third party rights,
Sprint will also transfer software and proprietary information
that is used or is being developed for the WiMAX business
provided that such
201
software and proprietary information is not used or anticipated
to be used by any Sprint company. Subject to applicable
third-party rights, Sprint will grant licenses to Clearwire
Communications to other software and proprietary information
used by the XOHM business. In return, Clearwire Communications
will grant Sprint certain licenses for software and proprietary
information that is used or required by Sprint.
Subject to certain exceptions, all of these assignments and
licenses will be granted as is. There are no
representations and warranties or indemnification with respect
to the assigned or licensed intellectual property.
Employees
As of June 30, 2008, Clearwire had approximately
1,505 employees in the United States and approximately
315 employees in its international operations. As of
June 30, 2008, XOHM had approximately 655 employees in
the United States. The number of persons to be employed by New
Clearwire will be determined at the Closing.
Our employees enter into agreements containing confidentiality
restrictions. We have never had a work stoppage and no employees
are represented by a labor organization. We believe our employee
relations are good.
Properties
Clearwire
Clearwires executive offices are currently located in
Kirkland, Washington, where Clearwire leases approximately
68,500 square feet of space. The lease expires in 2013.
We believe that substantially all of our property and equipment
is in good condition, subject to normal wear and tear. We
believe that our current facilities have sufficient capacity to
meet the projected needs of our business for the next
12 months.
The following table lists our significant properties and the
inside square footage of those properties:
|
|
|
|
|
|
|
Approximate Size
|
|
City, State (Function)
|
|
(Square Feet)
|
|
|
Kirkland, WA (headquarters and administrative)
|
|
|
68,500
|
|
Milton, FL (call center)
|
|
|
40,000
|
|
Las Vegas, NV (call center)
|
|
|
30,000
|
|
Henderson, NV (administrative and warehouse space)
|
|
|
29,000
|
|
Dublin, Ireland (shared service center)
|
|
|
16,000
|
|
We lease additional office space in many of our current and
planned markets. We also lease approximately 70 retail stores
and mall kiosks. Our retail stores, excluding mall kiosks, range
in size from approximately 480 square feet to
1,500 square feet, with leases having terms typically from
three to seven years. Internationally we also have offices in
Bucharest, Romania; Brussels, Belgium; Madrid, Spain and Warsaw,
Poland.
XOHM
The headquarters of Sprints XOHM business unit is located
at 593 Herndon Parkway, Herndon, Virginia. The building, which
contains approximately 130,000 square feet of space, is
currently leased by Sprint, but it is expected that the lease
will be assigned to New Clearwire following the completion of
the Transactions. The lease expires in 2013. The building houses
all of the XOHM business units employees, including its
executive team, and also houses the XOHM lab, which is used for
testing WiMAX equipment. Further, the XOHM business unit has
sub-let a small portion of the facility to certain of its key
WiMAX infrastructure vendors, including Intel, Motorola and
Samsung, for the purpose of ensuring close collaboration on
WiMAX development with those vendors.
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Legal
Proceedings
Clearwire and Sprint are parties to various pending judicial and
administrative proceedings. Our management and legal counsel and
those of Sprint have reviewed the probable outcome of these
proceedings, the costs and expenses reasonably expected to be
incurred, the availability and limits of our and Sprints
respective insurance coverage, and each of our established
liabilities. While the outcome of the pending proceedings cannot
be predicted with certainty, based on our review and that of
Sprint, we and Sprint believe that any unrecorded liability that
may result will not have a material adverse effect on our or
Sprints liquidity, financial condition or results of
operations.
On May 7, 2008, Sprint filed an action in the Delaware
Court of Chancery against iPCS, Inc. and its wholly-owned
subsidiaries, iPCS Wireless, Inc., which we refer to as iPCS
Wireless, Horizon Personal Communications, Inc., which we refer
to as Horizon, and Bright Personal Communications Services, LLC,
which we refer to as BPCS. Sprint is seeking a declaratory
judgment that, among other things, the Transactions do not
violate the exclusivity provisions of iPCS Wireless,
Horizons and BPCSs agreements with various Sprint
subsidiaries known collectively as Sprint PCS. The exclusivity
provisions in these agreements place certain restrictions on the
ability of Sprint to own, operate, build or manage specified
wireless mobility communication networks or to sell certain
types of wireless services within specified geographic areas
where iPCS Wireless, Horizon and BPCS operate.
On May 12, 2008, iPCS Wireless, Horizon and BPCS filed a
lawsuit in the Illinois Circuit Court, Cook County, alleging
that the Transactions would violate the exclusivity provisions
of their agreements. The lawsuit seeks, among other things, to
enjoin Sprint, Clearwire and the Investors from consummating the
Transactions and from engaging in certain competitive business
conduct in the respective service areas of iPCS Wireless,
Horizon and BPCS.
On May 15, 2008, iPCS, Inc., iPCS Wireless, Horizon and
BPCS filed a motion to dismiss or stay the Delaware action
asserting that Sprint has no contractual relationship with iPCS,
Inc., that the Delaware court lacks personal jurisdiction with
respect to Horizon and BPCS, and that Illinois is the proper
venue for deciding the action. Similarly, on June 2, 2008,
Sprint filed a motion to dismiss or stay the Illinois lawsuit on
the grounds that it is duplicative of the pending Delaware
action.
On July 14, 2008, the Delaware court issued an opinion
finding that it lacks personal jurisdiction over Horizon and
BPCS and dismissing Sprints claims against those parties.
The Delaware court denied iPCS Inc.s motion to dismiss the
claims against it, and denied the defendants motion to
dismiss or stay the Delaware action in favor of the Illinois
proceeding. Subsequently, iPCS, Inc. and iPCS Wireless filed a
second motion to dismiss in the Delaware Chancery Court,
asserting that the Chancery Court lacks subject matter
jurisdiction and that the case should be transferred to the
Delaware Superior Court. The motion to dismiss is still pending.
On September 15, 2008, the Illinois Circuit Court denied
Sprints motion to dismiss or stay the Illinois action. On
September 16, 2008, iPCS, Inc. and iPCS Wireless filed a
renewed motion to stay the Delaware action in light of the
Illinois Circuit Courts September 15, 2008 decision.
The Delaware Court held a hearing on the renewed motion to stay
on October 1, 2008. On October 8, 2008, the Delaware Court
granted the renewed motion to stay in favor of the Illinois
action.
The trial for the Illinois action is scheduled to begin on
December 2, 2008.
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CLEARWIRE
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis summarizes the
significant factors affecting our consolidated results of
operations, financial condition and liquidity position for the
years ended December 31, 2007, 2006 and 2005 and for the
six-month periods ended June 30, 2008 and 2007, and should
be read in conjunction with our consolidated financial
statements and related notes included elsewhere in this proxy
statement/prospectus. The following discussion and analysis
contains forward-looking statements that reflect our plans,
estimates and beliefs. Our actual results could differ
materially from those discussed in the forward-looking
statements; see Cautionary Note Regarding the
Forward-Looking Statements. Factors that could cause or
contribute to these differences include those discussed below
and elsewhere in this proxy statement/prospectus, particularly
in the section titled Risk Factors.
Recent
Developments and Overview
We build and operate wireless broadband networks that enable
fast, simple, reliable and affordable communications on a
mobile, portable and fixed basis. Our networks cover entire
communities, delivering a wireless high-speed Internet
connection and enabling other services and features that create
a new communications path into the home or office.
Our network in our current markets relies on network
infrastructure equipment that is based on NLOS and OFDM
technologies from Motorolas Expedience line. We intend to
deploy networks utilizing standards based mobile WiMAX
technology in all new markets. As with our current pre-WiMAX
network infrastructure equipment, we expect mobile WiMAX
technology to support fixed, portable and mobile service
offerings using a single network architecture. In addition, as
mobile WiMAX is a standards-based technology, we anticipate
manufacturers will offer a number of handheld communications and
consumer electronic devices that will be enabled to communicate
using our mobile WiMAX network, including notebook computers,
UMPCs, PDAs, gaming consoles, MP3 players, and other handheld
devices.
We launched our first broadband market in August 2004 and are
growing rapidly in terms of the number of markets served, number
of people covered by our network, and number of total
subscribers. As of June 30, 2008 we offered our service for
sale to an estimated 13.9 million people in the United
States and to nearly 2.9 million people internationally in
Ghent and Brussels, Belgium; Dublin, Ireland; and Seville, Spain.
As of June 30, 2008 we had approximately 461,000 total
subscribers worldwide, representing an increase of approximately
54% over our June 30, 2007 total subscribers of
approximately 299,000 subscribers. For the six months ended
June 30, 2008 and 2007, we experienced an average monthly
churn, which refers to the percentage of our existing customers
who terminate service in a given month, of approximately 2.4%
and 1.8%, respectively. Management believes that our churn rate
is comparable to other regional and independent wireless
competitors.
As of June 30, 2008, we had approximately 410,000 customers
in the United States, representing an increase of 140,000, or
approximately 52%, from the approximately 270,000 United States
subscribers we had as of June 30, 2007. Internationally, we
ended the quarter with approximately 51,000 customers,
representing a 22,000 increase, or approximately 76% increase
from the approximately 29,000 international subscribers we had
as of June 30, 2007.
We are investing heavily to expand the coverage of our wireless
broadband network. As we invest in building networks, our
efforts also include offering premium services and applications
in order to make our service more attractive, such as VoIP
telephony and our recently introduced PC card. This expansion
will require significant capital expenditures as well as
increased sales and marketing expenses, and will likely be
accompanied by significant operating losses over the next five
years or more as we expand the area covered by our network and
invest to build our brand and develop subscriber loyalty.
Following the consummation of the Transactions, as a result of
our entering into certain of the commercial agreements with
Sprint and the Investors described herein, including the 4G MVNO
Agreement, the 3G MVNO Agreement, the Intel Market Development
Agreement, and the Google Products and Services
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Agreement, we expect a portion of our revenues to be derived
from our arrangements with our strategic partners, including
Sprint and the Investors. Specifically, in the next
12 months, we expect that the 4G MVNO Agreement and the
Intel Market Development Agreement will increase the
distribution opportunities of New Clearwire, thereby permitting
us to expand our subscriber base and increase revenues.
Additionally, we believe that certain other commercial
agreements, including the Master Site Agreement, the Master
Agreement for Network Services, the 4G ASR Agreement, the
3G Retailer Agreement, and the IT Master Services
Agreement will reduce the cost of operating our network due to
decreased tower rental costs and lower core network
infrastructure costs. These contracts will have a material
impact on our results of operations as New Clearwires
network expands and covers a greater number of markets.
We believe that we have the second largest spectrum position in
the 2.5 GHz
(2496-2690 MHz)
band in the United States with a spectrum portfolio that as of
June 30, 2008 includes approximately 15.8 billion
MHz-POPs. In
Europe, as of June 30, 2008, we held approximately
8.7 billion MHz-POPs of spectrum, predominantly in the
3.5 GHz band, in Belgium, Germany, Ireland, Poland, Romania
and Spain. We plan to continue acquiring spectrum in markets
that we believe are attractive for our service offerings,
primarily within the United States as New Clearwire will have a
domestic focus. If demand increases for spectrum rights, our
spectrum acquisition costs may increase.
We engineer our networks to optimize both the services that we
offer and the number of subscribers to whom we can offer
service. Consequently, we have not launched our services in a
market using our current technology unless we control a minimum
of three blocks of 10 contiguous MHz of spectrum bandwidth.
However, we expect the spectral efficiency of technologies we
deploy to continue to evolve, and as a result, we may decide to
deploy our services in some markets with less spectrum.
Alternatively, we could find that new technologies and
subscriber usage patterns require us to have more spectrum
available in our markets.
As a result of continued expansion and ongoing spectrum
acquisitions, we expect to require significant additional
capital, which we intend to raise through subsequent equity
offerings, by increasing our debt, or a combination of the two.
As of June 30, 2008, our total assets were
$2.4 billion and our stockholders equity was
$832.1 million, which compares to total assets of
$2.7 billion and stockholders equity of
$1.2 billion at December 31, 2007. Our unrestricted
cash and cash equivalents and unrestricted short-term and
long-term investments were $592.9 million and
$1.0 billion at June 30, 2008 and December 31,
2007, respectively. As a consequence of the turbulent financial
markets of late, we cannot offer assurances that the necessary
capital to achieve our current plan will be available on
attractive terms or at all, and we plan to manage our use of
capital by adjusting the rate at which we build our network,
acquire spectrum and deploy our services.
As we have concentrated our financial and management resources
on expanding the geographic footprint of our network and the
availability of our services, we have incurred net losses of
$375.4 million and $210.7 million for the six months
ended June 30, 2008 and 2007, respectively.
At June 30, 2008, we held available for sale short-term and
long-term investments with a fair value and cost of
$243.5 million, of which investments with a fair value and
cost of $64.8 million were in auction rate securities. In
addition, we have an investment with a fair value and recorded
cost of $4.1 million in commercial paper issued by a
structured investment vehicle for which an insolvency event has
been declared. We recorded an other-than-temporary impairment
loss on this investment of $1.6 million during the first
six months of 2008. As of August 15, 2008, we had received
from the trustee of the receivership cash proceeds approximating
the fair value of our investment as at June 30, 2008.
Auction rate securities are variable rate debt instruments whose
interest rates are reset approximately every 30 or 90 days
through an auction process. Beginning in August 2007, the
auctions failed to attract buyers and sell orders could not be
filled. Current market conditions do not allow us to estimate
when the auctions will resume. While we continue to earn
interest on these investments at the maximum contractual rate,
until the auctions resume, the investments are not liquid and we
may not have access to these funds until a future auction on
these investments is successful or a secondary market develops
for these securities. At June 30, 2008, the estimated fair
value of these auction rate securities no longer approximated
cost and we recorded other-than-temporary impairment losses and
realized losses on our auction rate securities of
$31.1 million for the six months ended June 30, 2008.
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Critical
Accounting Policies
Our discussion and analysis of our financial condition and
results of operations are based on our financial statements,
which have been prepared in accordance with U.S. GAAP. The
preparation of these consolidated financial statements requires
us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On an
ongoing basis, we evaluate our estimates used, including those
related to investments, long-lived assets, goodwill and
intangible assets, including spectrum, share-based compensation,
and deferred tax asset valuation allowance.
Our accounting policies require management to make complex and
subjective judgments. By their nature, these judgments are
subject to an inherent degree of uncertainty. These judgments
are based on our historical experience, terms of existing
contracts, observance of trends in the industry, information
provided by our customers and information available from other
outside sources, as appropriate. Additionally, changes in
accounting estimates are reasonably likely to occur from period
to period. These factors could have a material impact on our
financial statements, the presentation of our financial
condition, changes in financial condition or results of
operations.
In consultation with our board of directors, we have identified
the following accounting policies that we believe are key to an
understanding of our financial statements: revenue recognition;
impairments of long-lived assets; impairments of goodwill and
intangible assets with indefinite useful lives; share-based
compensation; valuation of common stock; accounting for spectrum
licenses and leases; the deferred tax asset valuation allowance
and investments.
Revenue
Recognition
We recognize revenue in accordance with Staff Accounting
Bulletin, which we refer to as SAB, Topic 13, Revenue
Recognition, when all of the following conditions exist:
(1) persuasive evidence of an arrangement exists in the
form of an accepted purchase order; (2) delivery has
occurred, based on shipping terms, or services have been
rendered; (3) the price to the buyer is fixed or
determinable, as documented on the accepted purchase order; and
(4) collectibility is reasonably assured.
We primarily earn service revenue by providing access to our
wireless broadband network. Also included in service revenue are
revenue from optional services, including VoIP service, personal
and business email and static Internet Protocol. Activation fees
are charged to customers when initiating a service subscription.
We apply Emerging Issues Task Force, which we refer to as EITF,
Issue
No. 00-21,
Accounting for Revenue Arrangements with Multiple
Deliverables, to account for revenue arrangements with
activation and service components. These arrangements are
allocated among the separate units of accounting based on the
relative fair values if the deliverables in the arrangement meet
certain criteria.
Service revenue from customers for the wireless broadband and
optional services are billed in advance and recognized ratably
over the service period. Activation fees charged to the customer
are deferred and recognized as service revenue on a
straight-line basis over the expected life of the customer
relationship, which we have estimated to be 3.5 years. This
expected life was determined based on our assessment of industry
averages and our assessment of data on the duration of a
customer life and average monthly churn.
Revenue associated with the shipment of CPE and other equipment
to our customers is recognized when title and risk of loss
transfers to the customer. Generally, the risks of ownership and
title pass when product is delivered to our customer. Shipping
and handling costs billed to customers are recorded to service
revenue.
Before our sale of NextNet in August 2006, we primarily earned
equipment revenue from sales to third party network providers of
base stations, CPE, related infrastructure, system services and
software maintenance contracts.
With the NextNet arrangements that included multiple elements
including software, such as the sale of a base station with a
software maintenance contract, we applied the accounting
guidance in accordance with Statement of Position, which we
refer to as SOP,
No. 97-2,
Software Revenue Recognition. Revenue was allocated
to each element of the transaction based on its fair value as
determined by vendor specific objective
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evidence. Vendor specific objective evidence of fair value for
all elements of an arrangement was based on the normal pricing
and discounting practices for those products and services when
sold separately.
Revenue was deferred for any undelivered elements and revenue
was recognized when the product was delivered or over the period
in which the service is performed. If we could not objectively
determine the fair value of any undelivered element included in
the bundled product and software maintenance arrangements,
revenue was deferred until all elements were delivered and
services had been performed, or until fair value could be
objectively determined for any remaining undelivered elements.
If the fair value of a delivered element had not been
established, we would use the residual method to record revenue
if the fair value of all undelivered elements was determinable.
Under the residual method, the fair value of the undelivered
elements was deferred and the remaining portion of the
arrangement fee was allocated to the delivered elements and was
recognized as revenue.
Fees for software maintenance services were typically billed
annually in advance of performance of the services with
provisions for subsequent annual renewals. We deferred the
related revenues and recognized them ratably over the respective
maintenance terms, which typically were one to two years.
Impairments
of Long-lived Assets
We review our long-lived assets to be held and used, including
property, plant and equipment and intangible assets with
definite useful lives, for recoverability whenever an event or
change in circumstances indicates that the carrying amount of
such long-lived asset or group of long-lived assets may not be
recoverable. Such circumstances include, but are not limited to
the following:
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a significant decrease in the market price of the asset;
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a significant change in the extent or manner in which the asset
is being used;
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a significant change in the business climate that could affect
the value of the asset;
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a current period loss combined with projections of continuing
losses associated with use of the asset;
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a significant change in our business or technology strategy,
such as a switch to mobile WiMAX wireless broadband network;
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a significant change in our managements views of growth
rates for our business; and
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a significant change in the anticipated future economic and
regulatory conditions and expected technological availability.
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We frequently evaluate whether such events and circumstances
have occurred. As our losses to date are a direct result of
expanding our business to support our growth, we have not
considered our losses to date as an event that indicates that
the carrying amount of our long-lived assets may not be
recoverable. In addition, there have been no other impairment
indicators for any of our asset groups. When such events or
circumstances exist, we would determine the recoverability of
the assets carrying value by estimating the undiscounted
future net cash flows (cash inflows less associated cash
outflows) that are directly associated with and that are
expected to arise as a direct result of the use of the asset.
For purposes of recognition and measurement, we group our
long-lived assets at the lowest level for which there are
identifiable cash flows that are largely independent of the cash
flows of other assets and liabilities.
If the total of the expected undiscounted future net cash flows
is less than the carrying amount of the asset, a loss, if any,
is recognized for the difference between the fair value of the
asset and its carrying value.
Changes in technology used in our business, such as a transition
to mobile WiMAX, may result in an impairment in the value or a
change in the estimated useful life of our Expedience network
equipment already placed in service. If and when such a change
occurs, we may be required to record an impairment charge to
reduce the carrying amount of equipment in service to its fair
value,
and/or to
accelerate the useful life of the respective equipment. This may
result in an increase in periodic depreciation expense over the
remaining
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useful life of the equipment, or, in appropriate instances, a
write off of a portion or the entire net book value of the
equipment.
Impairments
of Goodwill and Intangible Assets with Indefinite Useful
Lives
We assess the impairment of goodwill and intangible assets with
indefinite useful lives at least annually, or whenever an event
or change in circumstances indicates that the carrying value of
such asset or group of assets may not be recoverable. Factors we
consider important, any of which could trigger an impairment
review, include:
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significant underperformance relative to expected historical or
projected future operating results;
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significant changes in our use of the acquired assets or the
strategy for our overall business; and
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significant negative industry or economic trends.
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Our owned spectrum licenses in the United States, Belgium and
Ireland have indefinite useful lives, and were evaluated for
impairment testing purposes as a single unit of accounting for
each country, in accordance with EITF Issue
No. 02-7,
Unit of Accounting for Testing Impairment of
Indefinite-Lived Intangible Assets.
We complete a two-step process to determine the amount of
goodwill impairment. The first step involves comparison of the
fair value of the reporting unit to its carrying value to
determine if any impairment exists. If the fair value of the
reporting unit is less than the carrying value, goodwill is
considered to be impaired and the second step is performed. The
second step involves comparison of the implied fair value of
goodwill to its carrying value. The implied fair value of
goodwill is determined by allocating fair value to the various
assets and liabilities within the reporting unit in the same
manner goodwill is recognized in a business combination. In
calculating an impairment charge, the fair value of the impaired
reporting units are estimated using a discounted cash flow
valuation methodology or by reference to recent comparable
transactions. In making our assessment, we rely on a number of
factors, including operating results, business plans, economic
projections, and anticipated future cash flows. There are
inherent uncertainties related to these factors and judgment in
applying these factors to our goodwill impairment test. We
performed our annual impairment tests of goodwill as of
October 1, 2007, and concluded that there was no impairment
of our goodwill.
Our intangible assets with indefinite useful lives in the United
States and internationally consist mainly of our spectrum
licenses originally issued by the FCC, trade names and
trademarks. The impairment test for intangible assets with
indefinite useful lives consists of a comparison of the fair
value of an intangible asset with its carrying amount. If the
carrying amount of an intangible asset exceeds its fair value,
an impairment loss will be recognized in an amount equal to that
excess. The fair value is determined by estimating the
discounted future cash flows that are directly associated with,
and that are expected to arise as a direct result of the use and
eventual disposition of, the asset. We performed our annual
impairment test of indefinite lived intangible assets for each
country of operation as of October 1, 2007, and concluded
that there was no impairment of these intangible assets.
Share-Based
Compensation
We account for our share-based compensation in accordance with
SFAS No. 123(R), Share-Based Payment, or
SFAS No. 123(R), which requires the measurement and
recognition of compensation expense for all share-based awards
made to employees and directors based on estimated fair values.
We recognize compensation costs, net of a forfeiture rate, for
those shares expected to vest on a graded vesting schedule over
the requisite service period of the award, which is generally
the option vesting term of four years.
We issue incentive awards to our employees through stock-based
compensation consisting of stock options and RSUs. The value of
RSUs is determined using the fair value method, which in this
case, is based on the number of shares granted and the quoted
price of our common stock on the date of grant. In determining
the fair value of stock options, we use the Black-Scholes
valuation model, which we refer to as BSM, to estimate the fair
value of stock options which requires complex and judgmental
assumptions including estimated stock price volatility, employee
exercise patterns (expected life of the option) and future
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forfeitures. The computation of expected volatility is based on
an average historical volatility from common shares of a group
of our peers as well as our own historical volatility. The
expected life of options granted is based on the simplified
calculation of expected life, described in SAB No. 107,
Share-Based Payment, due to lack of option exercise
history. If any of the assumptions used in the BSM change
significantly, share-based compensation expense may differ
materially for future grants as compared to the current period.
See Note 13, Share-Based Payments, of our consolidated
financial statements for additional information.
SFAS No. 123(R) also requires that we recognize
compensation expense for only the portion of stock options or
RSUs that are expected to vest. Therefore, we apply estimated
forfeiture rates that are derived from historical employee
termination behavior. If the actual number of forfeitures
differs from those estimated by management, additional
adjustments to stock-based compensation expense may be required
in future periods.
Valuation
of Common Stock
Prior to our initial public offering, members of our management
possessing the requisite valuation experience estimated the fair
value of our capital stock in connection with our stock option
grants, stock awards, and other equity based compensation
arrangements. We did not obtain contemporaneous valuations
prepared by an unrelated valuation specialist at the time of
each stock option issuance because we believe our management
possessed the requisite valuation expertise to prepare a
reasonable estimate of the fair value of the interests at the
time of each issuance since inception.
The determination of the fair value of our common stock prior to
our initial public offering required management to make
judgments that were complex and inherently subjective.
Management used the market approach to estimate the value of our
enterprise at each date options were granted and at each
reporting date. Under the market approach, a transaction-based
method was used to estimate the value of our enterprise based on
transactions involving capital stock with unrelated investors
and other third parties. This approach assumes that such
transactions constitute the best evidence as to the fair value
of our common stock.
Additionally, we used the best information available to
corroborate our determination, including events affecting the
fair value of our common stock during the year, such as:
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the implementation of our business strategy, including the
achievement of significant qualitative and quantitative
milestones relating to, among others things, the number of
markets launched, subscriber growth, revenue growth, spectrum
licenses acquired or leased, employee growth and the execution
of strategic transactions;
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the exercise price of warrants for the purchase of our common
stock issued to both related parties and third parties;
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the terms of cash sale transactions for the purchase of our
common stock by related parties; and
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the terms of non-cash transactions in which related parties
received our common stock as consideration.
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In evaluating each of these events, we assumed that such
transactions provided additional corroborating evidence as to
the fair value of our capital stock. For those transactions
involving related parties, the facts and circumstances present
were reviewed to evaluate whether the terms of these agreements
differed materially from those that would have existed in an
arms-length transaction with an unrelated party. This evaluation
was performed by comparing those related party transactions to
similar transactions with unrelated parties.
We further corroborated the estimate of fair value by
calculating the enterprise value using the income approach at
various points throughout the year. The income approach applies
an appropriate discount rate to an estimate of the future cash
flows based on our forecasts of revenues, costs and capital
expenditures. Given that we are an early stage company,
forecasting these cash inflows and outflows required us to make
judgments that were substantially more complex and inherently
more subjective than those that would be required in a mature
business.
As such, we determined that the market approach was a more
accurate method of estimating fair value and relied on the
income approach for corroboration only.
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Accounting
for Spectrum Licenses and Leases
We have two types of arrangements for spectrum licenses in the
United States: direct licenses from the FCC which we own and
leases or subleases from third parties that own or lease one or
more FCC licenses.
The owned FCC licenses in the United States and internationally
are accounted for as intangible assets with indefinite lives in
accordance with the provisions of SFAS No. 142,
Goodwill and Other Intangible Assets, or
SFAS No. 142. In accordance with
SFAS No. 142, intangible assets with indefinite useful
lives are not amortized but must be assessed for impairment
annually or more frequently if an event indicates that the asset
might be impaired. We performed our annual impairment test of
indefinite lived intangible assets as of October 1, 2007
and concluded that there was no impairment of these intangible
assets. For leases involving significant up-front payments, we
account for such payments as prepaid spectrum license fees.
We account for the spectrum lease arrangements as executory
contracts which are similar to operating leases. For leases
containing scheduled rent escalation clauses we record minimum
rental payments on a straight-line basis over the terms of the
leases, including the renewal periods as appropriate.
Deferred
Tax Asset Valuation Allowance
A valuation allowance is provided for deferred tax assets if it
is more likely than not that these items will either expire
before we are able to realize their benefit, or that future
deductibility is uncertain. In accordance with
SFAS No. 109, Accounting for Income Taxes,
we record net deferred tax assets to the extent we believe these
assets will more likely than not be realized. In making such
determination, we consider all available positive and negative
evidence, including our limited operating history, scheduled
reversals of deferred tax liabilities, projected future taxable
income/loss, tax planning strategies and recent financial
performance.
Investments
SFAS No. 115, Accounting for Certain Investments
in Debt and Equity Securities, and SAB No. 59,
Accounting for Non-current Marketable Equity
Securities, provide guidance on determining when an
investment is other-than-temporarily impaired. We classify
marketable debt and equity securities that are available for
current operations as short-term available-for-sale investments,
and are stated at fair value. Unrealized gains and losses are
recorded as a separate component of accumulated other
comprehensive income (loss). Losses are recognized when a
decline in fair value is determined to be other-than-temporary.
Realized gains and losses are determined on the basis of the
specific identification method. We review our short-term and
long-term investments on an ongoing basis for indicators of
other-than-temporary impairment, and this determination requires
significant judgment.
We have an investment portfolio comprised of marketable debt and
equity securities including commercial paper, corporate bonds,
municipal bonds, auction rate securities and other securities.
The value of these securities is subject to market volatility
for the period we hold these investments and until their sale or
maturity. We recognize realized losses when declines in the fair
value of our investments below their cost basis are judged to be
other-than-temporary. In determining whether a decline in fair
value is other-than-temporary, we consider various factors
including market price (when available), investment ratings, the
financial condition and near-term prospects of the issuer, the
length of time and the extent to which the fair value has been
less than our cost basis, and our intent and ability to hold the
investment until maturity or for a period of time sufficient to
allow for any anticipated recovery in market value. We make
significant judgments in considering these factors. If it is
judged that a decline in fair value is other-than-temporary, the
investment is valued at the current estimated fair value and a
realized loss equal to the decline is reflected in the
consolidated statement of operations.
In determining fair value, we use quoted prices in active
markets where such prices are available, or we use models to
estimate fair value using various methods including the market,
income and cost approaches. For investments where we use models
to estimate fair value in the absence of quoted market prices,
we often utilize certain assumptions that market participants
would use in pricing the investment, including assumptions
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about risk and or the risks inherent in the inputs to the
valuation technique. These inputs are readily observable, market
corroborated, or unobservable company inputs.
We estimated the fair value of securities without quoted market
prices using internally generated pricing models that require
various inputs and assumptions. We believe that our pricing
models, inputs and assumptions are what market participants
would use in pricing the securities. We maximize the use of
observable inputs to the pricing models where quoted market
prices from securities and derivatives exchanges are available
and reliable. We typically receive external valuation
information for United States Treasuries, other United States
Government and Agency securities, as well as certain corporate
debt securities, money market funds and certificates of deposit.
We also use certain unobservable inputs that cannot be validated
by reference to a readily observable market or exchange data and
rely, to a certain extent, on managements own assumptions
about the assumptions that market participants would use in
pricing the security. Our internally generated pricing models
may include our own data and require us to use our judgment in
interpreting relevant market data, matters of uncertainty and
matters that are inherently subjective in nature. We use many
factors that are necessary to estimate market values, including,
interest rates, market risks, market spreads, and timing of cash
flows, market liquidity, and review of underlying collateral and
principal, interest and dividend payments. The use of different
judgments and assumptions could result in different
presentations of pricing and security prices could change
significantly based on market conditions.
Fair
Value Measurements
During the first quarter of 2008, we adopted
SFAS No. 157, Fair Value Measurements, or
SFAS No. 157, for our financial assets and liabilities
that are recognized or disclosed at fair value on an annual or
more frequently recurring basis. These include our derivative
instruments and our short-term and long-term investments.
As defined in SFAS No. 157, fair value is the price
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants
at the measurement date. In determining fair value, we utilize
certain assumptions that market participants would use in
pricing the asset or liability, including assumptions about
risk. These inputs can be readily observable, market
corroborated, or generally unobservable inputs. We utilize
valuation techniques that maximize the use of observable inputs
and minimize the use of unobservable inputs. Based on the
observability of the inputs used in the valuation techniques we
are required to provide the following information according to
the fair value hierarchy:
Level 1: Quoted market prices in active
markets for identical assets or liabilities.
Level 2: Observable market based inputs
or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not
corroborated by market data.
In accordance with SFAS No. 157, it is our practice to
maximize the use of observable inputs and minimize the use of
unobservable inputs when developing fair value measurements.
When available, we use quoted market prices to measure fair
value. If listed prices or quotes are not available, fair value
is based on internally developed models that primarily use, as
inputs, market-based or independently sourced market parameters,
including but not limited to interest rate yield curves,
volatilities, equity or debt prices, and credit curves. In
estimating fair values, we utilize certain assumptions that
market participants would use in pricing the financial
instrument, including assumptions about risk. The degree of
management judgment involved in determining the fair value of a
financial instrument is dependent on the availability of quoted
market prices or observable market parameters. For financial
instruments that trade actively and have quoted market prices or
observable market parameters, there is minimal subjectivity
involved in measuring fair value. When observable market prices
and parameters are not fully available, management judgment is
necessary to estimate fair value. In addition, changes in the
market conditions may reduce the availability of quoted prices
or observable data. In these instances, we use certain
unobservable inputs that cannot be validated by reference to a
readily observable market or exchange data and rely, to a
certain extent, on managements own assumptions about the
assumptions that market participant would use in pricing the
security. These internally derived values are compared to values
received from brokers or other independent sources.
211
Derivative
Instruments
During the first quarter of 2008, we adopted
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, or
SFAS No. 133, when we began hedging the London
Interbank Offered Rate, which we refer to as the LIBOR rate.
SFAS No. 133, as amended and interpreted, establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other
contracts, and for hedging activities. As required by
SFAS No. 133, we record all derivatives on the balance
sheet at fair value as either assets or liabilities. The
accounting for changes in the fair value of derivatives depends
on the intended use of the derivative and the resulting
designation. A hedge may also remain undesignated. Derivatives
used to hedge the exposure to changes in the fair value of an
asset, liability, or firm commitment attributable to a
particular risk, such as interest rate risk, are considered fair
value hedges. Derivatives used to hedge the exposure to
variability in expected future cash flows, or other types of
forecasted transactions, are considered cash flow hedges. To
qualify for hedge accounting, we must comply with the detailed
rules and strict documentation requirements at the inception of
the hedge, and hedge effectiveness is assessed at inception and
periodically throughout the life of each hedging relationship.
In the normal course of business, we are exposed to the effect
of interest rate changes. We have limited our exposure by
adopting established risk management policies and procedures
including the use of derivatives. It is our policy that
derivative transactions are executed only to manage exposures
arising in the normal course of business and not for the purpose
of creating speculative positions or trading.
Currently, we only have derivatives that are designated as cash
flow hedges and which are effective. Changes in the fair value
of derivatives that are designated and effective as cash flow
hedges are recorded in other comprehensive income and
reclassified to the statement of operations when the effects of
the item being hedged are recognized.
All designated hedges are formally documented as to the
relationship with the hedged item as well as the risk management
strategy. Both at inception and on an ongoing basis, the hedging
instrument is assessed as to its effectiveness. If and when a
derivative is determined not to be highly effective as a hedge,
or the underlying hedged transaction is no longer likely to
occur, or the derivative is terminated, any changes in the
derivatives fair value, that will not be effective as an
offset to the income effects of the item being hedged, will be
recognized currently in the statement of operations.
To determine the fair value of derivative instruments, we use a
method with various assumptions that are based on market
conditions and risks existing at each balance sheet date. For
the majority of financial instruments, including most
derivatives, standard market conventions and techniques such as
discounted cash flow analysis, option pricing models,
replacement cost and termination cost are used to determine fair
value. All methods of assessing fair value result in a general
approximation of value, and such value may never actually be
realized.
212
Results
of Operations
The following table sets forth certain operating data for the
periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
$
|
110,091
|
|
|
$
|
64,759
|
|
|
$
|
151,440
|
|
|
$
|
67,598
|
|
|
$
|
8,451
|
|
Equipment and other (includes related party sales of $0, $0, $0,
$15,546, and $9,728)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,583
|
|
|
|
25,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
110,091
|
|
|
|
64,759
|
|
|
|
151,440
|
|
|
|
100,181
|
|
|
|
33,454
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods and services (exclusive of a portion of
depreciation and amortization shown separately below):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (includes related party costs of $1,874, $1,390,
$2,877, $606 and $0)
|
|
|
80,367
|
|
|
|
40,048
|
|
|
|
107,281
|
|
|
|
50,438
|
|
|
|
13,086
|
|
Cost of equipment (includes related party costs of $0, $0, $0,
$8,914 and $1,843)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,674
|
|
|
|
10,483
|
|
Selling, general and administrative expense
|
|
|
193,878
|
|
|
|
156,032
|
|
|
|
360,666
|
|
|
|
214,669
|
|
|
|
106,211
|
|
Transaction related expenses
|
|
|
10,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
1,030
|
|
|
|
1,023
|
|
|
|
1,397
|
|
|
|
8,890
|
|
|
|
9,639
|
|
Depreciation and amortization
|
|
|
56,986
|
|
|
|
35,899
|
|
|
|
84,694
|
|
|
|
40,902
|
|
|
|
11,913
|
|
Spectrum lease expense
|
|
|
64,207
|
|
|
|
28,265
|
|
|
|
96,417
|
|
|
|
23,516
|
|
|
|
9,356
|
|
Gain on sale of NextNet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,793
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
406,692
|
|
|
|
261,267
|
|
|
|
650,455
|
|
|
|
338,296
|
|
|
|
160,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
|
(296,601
|
)
|
|
|
(196,508
|
)
|
|
|
(499,015
|
)
|
|
|
(238,115
|
)
|
|
|
(127,234
|
)
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
12,298
|
|
|
|
35,410
|
|
|
|
65,736
|
|
|
|
30,429
|
|
|
|
6,605
|
|
Interest expense
|
|
|
(54,305
|
)
|
|
|
(47,729
|
)
|
|
|
(96,279
|
)
|
|
|
(72,280
|
)
|
|
|
(14,623
|
)
|
Foreign currency gains, net
|
|
|
691
|
|
|
|
(68
|
)
|
|
|
363
|
|
|
|
235
|
|
|
|
20
|
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
(159,193
|
)
|
|
|
|
|
|
|
|
|
Other-than-temporary impairment loss and realized loss on
investments
|
|
|
(32,767
|
)
|
|
|
|
|
|
|
(35,020
|
)
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
(1,209
|
)
|
|
|
1,744
|
|
|
|
1,801
|
|
|
|
2,150
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(75,292
|
)
|
|
|
(10,643
|
)
|
|
|
(222,592
|
)
|
|
|
(39,466
|
)
|
|
|
(7,698
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Before Income Taxes, Minority Interest And Losses From
Equity Investees
|
|
|
(371,893
|
)
|
|
|
(207,151
|
)
|
|
|
(721,607
|
)
|
|
|
(277,581
|
)
|
|
|
(134,932
|
)
|
Income tax provision
|
|
|
(3,584
|
)
|
|
|
(2,729
|
)
|
|
|
(5,427
|
)
|
|
|
(2,981
|
)
|
|
|
(1,459
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Before Minority Interest And Losses From Equity Investees
|
|
|
(375,477
|
)
|
|
|
(209,880
|
)
|
|
|
(727,034
|
)
|
|
|
(280,562
|
)
|
|
|
(136,391
|
)
|
Minority interest in net loss of consolidated subsidiaries
|
|
|
2,345
|
|
|
|
1,967
|
|
|
|
4,244
|
|
|
|
1,503
|
|
|
|
387
|
|
Losses from equity investees
|
|
|
(2,311
|
)
|
|
|
(2,807
|
)
|
|
|
(4,676
|
)
|
|
|
(5,144
|
)
|
|
|
(3,946
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(375,443
|
)
|
|
$
|
(210,720
|
)
|
|
$
|
(727,466
|
)
|
|
$
|
(284,203
|
)
|
|
$
|
(139,950
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share, basic and diluted
|
|
$
|
(2.29
|
)
|
|
$
|
(1.37
|
)
|
|
$
|
(4.58
|
)
|
|
$
|
(2.93
|
)
|
|
$
|
(1.97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic and diluted
|
|
|
164,096
|
|
|
|
153,561
|
|
|
|
158,737
|
|
|
|
97,085
|
|
|
|
71,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213
Six
Months Ended June 30, 2008 as Compared to the Six Months
Ended June 30, 2007
Revenue
Service revenue is primarily generated from subscription and
modem lease fees for our wireless broadband service. Revenue
from activation fees and fees for other services such as email,
VoIP, and web hosting services are also included in service
revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Dollar
|
|
|
Percentage
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Revenue
|
|
$
|
110,091
|
|
|
$
|
64,759
|
|
|
$
|
45,332
|
|
|
|
70.0
|
%
|
Revenue in the U.S. represented 82.1% and international
represented 17.9% of total revenue for the six months ended
June 30, 2008 compared to 80.6% and 19.4% for the six
months ended June 30, 2007, respectively. This increase in
U.S. revenue as a percent of total revenue is due primarily
to a greater number of markets launched domestically as compared
to international. The increase is due primarily to an increase
in our subscriber base. As of June 30, 2008, we operated in
46 U.S. markets and four international markets covering a
geographic area containing approximately 16.8 million
people. This is compared to 40 U.S. and three international
markets covering approximately 11.6 million people as of
June 30, 2007. Total subscribers in all markets grew to
approximately 461,000 as of June 30, 2008 from
approximately 299,000 as of June 30, 2007. The growth in
subscribers and the increase in services available to customers
were the primary reasons for the increase in revenue when
comparing the six months ended June 30, 2008 to the six
months ended June 30, 2007.
Cost
of Goods and Services
Service costs primarily include costs associated with tower
rents, direct Internet access and back haul costs, which is the
transporting of data traffic between distributed sites and a
central point in the market or point-of-presence.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Dollar
|
|
|
Percentage
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Cost of goods and services
|
|
$
|
80,367
|
|
|
$
|
40,048
|
|
|
$
|
40,319
|
|
|
|
100.7
|
%
|
As a percent of revenue
|
|
|
73.0
|
%
|
|
|
61.8
|
%
|
|
|
|
|
|
|
|
|
The increase in cost of goods and services was primarily due to
an increase in the number of tower sites, increases in direct
Internet access and related back haul costs, as we launched more
markets and incurred additional expenses as we prepared for
future WiMAX builds from June 30, 2007 to June 30,
2008.
Selling,
General and Administrative Expense
Selling, general and administrative expense primarily includes
salaries and benefits, sales commissions, travel expenses and
related facilities costs for the following personnel: sales,
marketing, network deployment, executive, finance and
accounting, information technology, customer care, human
resource and legal. It also includes costs associated with
advertising, trade shows, public relations, promotions and other
market development programs and third-party professional service
fees.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Dollar
|
|
|
Percentage
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Selling, general and administrative expense
|
|
$
|
193,878
|
|
|
$
|
156,032
|
|
|
$
|
37,846
|
|
|
|
24.3
|
%
|
As a percent of revenue
|
|
|
176.1
|
%
|
|
|
240.9
|
%
|
|
|
|
|
|
|
|
|
The increase was due primarily to a $26.8 million increase
in employee compensation and related costs, including facilities
costs, resulting from higher employee headcount of approximately
1,820 employees at
214
June 30, 2008 compared to approximately
1,680 employees at June 30, 2007. The primary reason
these additional employees were hired was to support the launch
of new markets and the support of additional customers. In
addition, for the six months ended June 30, 2008 as
compared to the six months ended June 30, 2007, there was a
$3.7 million increase in professional fees, due to expenses
related to business expansion projects, contractor and
consulting expenses for costs for compliance projects related to
the Sarbanes Oxley Act of 2002; an increase of $4.0 million
associated with our call center, bad debt and collection fees,
and a $1.3 million increase in third party commissions as
we continue to increase our sales and services through third
party providers. The remaining increase resulted from increases
in other miscellaneous expenses primarily arising out of growth
in and operation of our business.
Transaction
Related Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Dollar
|
|
|
Percentage
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Transaction related expenses
|
|
$
|
10,224
|
|
|
$
|
|
|
|
$
|
10,224
|
|
|
|
N/M
|
|
This is attributable to the expensing of the deal costs related
to the Transaction Agreement we entered into with Sprint and the
Investors on May 7, 2008.
Depreciation
and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Dollar
|
|
|
Percentage
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Depreciation and amortization
|
|
$
|
56,986
|
|
|
$
|
35,899
|
|
|
$
|
21,087
|
|
|
|
58.7
|
%
|
The increase was primarily due to the additional depreciation
expense associated with our continued network build-out and the
depreciation of CPE related to associated subscriber growth.
Capital expenditures for depreciable property, plant and
equipment decreased to $115.4 million for the six months
ended June 30, 2008, from $164.6 million for the six
months ended June 30, 2007. The majority of these
expenditures relate to the construction of our pre-WiMAX
network, purchases of base station equipment, and CPE equipment.
Spectrum
Lease Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Dollar
|
|
|
Percentage
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Spectrum lease expense
|
|
$
|
64,207
|
|
|
$
|
28,265
|
|
|
$
|
35,942
|
|
|
|
127.2
|
%
|
Total spectrum lease expense increased as a direct result of a
significant increase in the number of spectrum leases held by us
as well as an increase in the cost of new spectrum leases. With
the significant number of spectrum leases and the increasing
cost of these leases, we expect our spectrum lease expense to
increase.
Interest
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Dollar
|
|
|
Percentage
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Interest income
|
|
$
|
12,298
|
|
|
$
|
35,410
|
|
|
$
|
(23,112
|
)
|
|
|
(65.3
|
)%
|
The decrease was primarily due to the reduction in interest
returns earned on investments, as well as lower balances of
short-term and long-term investments held during the first half
of 2008 compared to 2007.
215
Interest
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Dollar
|
|
|
Percentage
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Interest expense
|
|
$
|
(54,305
|
)
|
|
$
|
(47,729
|
)
|
|
$
|
(6,576
|
)
|
|
|
13.8
|
%
|
The increase in interest expense was primarily due to an
increase in debt, as debt increased to $1.25 billion at
June 30, 2008 from $655.90 million at June 30,
2007, partially offset by an overall reduction in the interest
rate applied to the debt. We recorded no amortization of
original issuance discount for the six months ended
June 30, 2008, compared to $11.2 million for the six
months ended June 30, 2007. We recorded amortization of
deferred financing costs related to our $1.25 billion
credit agreement of $3.2 million for the six months ended
June 30, 2008, and $3.3 million for the six months
ended June 30, 2007 related to our secured notes and senior
term facility. In addition, we recorded $1.2 million of
interest expense reclassified from accumulated other
comprehensive income related to our hedge activities for the six
months ended June 30, 2008. These amounts were partially
offset by capitalized interest of $11.4 million and
$12.6 million for the six months ended June 30, 2008
and 2007, respectively.
Other-Than-Temporary
Impairment Loss On Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Dollar
|
|
|
Percentage
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Other-than-temporary impairment loss on investments
|
|
$
|
(32,767
|
)
|
|
$
|
|
|
|
$
|
(32,767
|
)
|
|
|
N/M
|
|
The increase in the other-than-temporary impairment loss on
investments is due to the recognition of a decline in value of
investment securities which we determined to be other than
temporary. At June 30, 2008, we held available-for-sale
short-term and long-term investments with a fair value and cost
of $243.5 million. During the six months ended
June 30, 2008, we incurred other-than-temporary impairment
losses of $32.8 million related to a decline in the
estimated fair values of our investment securities. Included in
our investments were auction rate securities with a fair value
and cost of $64.8 million as of June 30, 2008.
Year
Ended December 31, 2007 Compared to Year Ended
December 31, 2006
Revenue
Service revenue is primarily generated from subscription and
modem lease fees for our wireless broadband service. Revenue
from our acquired businesses, activation fees and fees for other
services such as email, VoIP, and web hosting services are also
included in service revenue. Our equipment and other revenue
include sales of NextNet equipment through the date of sale of
NextNet in August 2006.
Total revenue increased $51.2 million to
$151.4 million in 2007 from $100.2 million in 2006.
This includes an $83.8 million increase in service revenue
as we increased our subscriber base, offset partially by a
decrease in equipment revenue of $32.6 million from our
NextNet operations due to the sale of NextNet in August 2006.
Service revenues were $151.4 million in the year ended
December 31, 2007 compared to $67.6 million in the
year ended December 31, 2006. As of December 31, 2007,
we operated in 46 United States markets and four international
markets covering a geographic area containing approximately
16.3 million people. This is compared to 34 United States
and two international markets covering approximately
9.6 million people as of December 31, 2006. Total
subscribers in all markets grew from approximately 206,000 as of
December 31, 2006 to approximately 394,000 as of
December 31, 2007, primarily due to continued subscriber
growth in existing markets and the additional markets launched
during 2007.
Revenue in the United States represented 81.2% and international
represented 18.8% of total revenue in 2007 compared to 83.3% and
16.7% in 2006, respectively. This increase was due primarily to
the increase in
216
subscribers internationally which grew 102.5% over the prior
year compared to an 89.9% increase in United States
subscribers over the prior year.
Equipment and other revenue in the year ended December 31,
2007 decreased from the year ended December 31, 2006 due to
the sale of NextNet in August 2006.
Cost
of Goods and Services
Service costs primarily include costs associated with tower
rents, direct Internet access costs and back haul costs, which
is the transporting of data traffic between distributed sites
and a central point in the market or point-of-presence. Our cost
of equipment consists of costs incurred for equipment
manufactured by NextNet through August 2006.
There were no costs related to equipment in the year ended
December 31, 2007 due to the sale of NextNet in August 2006.
Total cost of goods and services increased $37.2 million to
$107.3 million in 2007 from $70.1 million in 2006.
Cost of services were $107.3 million in the year ended
December 31, 2007 compared to $50.4 million in the
year ended December 31, 2006. These increases were
primarily due to an increase in the number of sites on-air,
direct Internet access and related back haul costs, as the
number of on-air sites increased to approximately 2,360 at
December 31, 2007 compared to approximately 1,310 at
December 31, 2006. In both 2007 and 2006, in anticipation
of build-out and future market launches, we also had tower lease
expenses for markets under construction.
As a percentage of service revenue, cost of service decreased to
70.8% in the year ended December 31, 2007 from 74.6% in the
year ended December 31, 2006, primarily as a result of our
costs of services rising at a slower rate as compared to our
revenues generated from our increased subscriber base. While our
cost of service will increase as we continue to expand our
network, we anticipate that cost of service as a percentage of
revenue will fluctuate due to the timing of new market launches,
the construction and leasing of new towers, and growth in the
number of subscribers.
United States cost of goods and services represented
approximately 88.1% and international represented approximately
11.9% of total cost of goods and services in 2007 compared to
approximately 87.2% and approximately 12.8%, respectively, in
2006. This increase in United States costs of goods and services
as a percent of total cost of goods and services is due
primarily to increase lease and site costs related to an
increased number of sites being built out in the United States
as compared to international.
Selling,
General and Administrative Expense
Selling, general and administrative expense primarily includes:
salaries and benefits, sales commissions, travel expenses and
related facilities costs for the following personnel: sales,
marketing, network deployment, executive, finance, information
technology, human resource and legal. It also includes costs
associated with advertising, trade shows, public relations,
promotions and other market development programs and third-party
professional service fees.
Selling, general and administrative expense was
$360.7 million for the year ended December 31, 2007 as
compared to $214.7 million in the year ended
December 31, 2006. The increase of $146.0 million was
due primarily to a $98.6 million increase in employee
compensation and related costs, including facilities costs,
resulting from higher employee headcount of approximately
1,990 employees at December 31, 2007 compared to
approximately 1,240 employees at December 31, 2006.
These additional employees were hired as a result of bringing
customer care in-house, new market deployments, and to support
the overall growth of our business. In addition, for the year
ended December 31, 2007 as compared to the year ended
December 31, 2006, there was a $13.1 million increase
in professional fees, due to expenses for business development
projects and compliance efforts with the Sarbanes Oxley Act of
2002; a $10.8 million increase in advertising expenses
related to the expansion of our business and new market
launches; an $8.9 million increase in third party
commissions as we sold more services through third party
providers; and an increase of $5.1 million
217
associated with bad debt and collection fees and bank fees. The
remaining increase of $9.5 million resulted from increases
in other miscellaneous expenses primarily arising out of growth
in our business.
As a result of expense controls, slower growth in headcount and
fewer planned market launches in 2008, we expect that our
selling, general, and administrative expenses will begin to
flatten over the course of the year.
Research
and Development
Research and development expenses consist of salaries and
related benefits for our development personnel. Research and
development expense was $1.4 million and $8.9 million
for the years ended December 31, 2007 and 2006,
respectively. This decrease was due to prior period expenses
related to NextNet product research that were not recurring in
2007 due to the sale of NextNet in August 2006. Research and
development expenses may increase in 2008 as a result of system
and technical development efforts related to implementation of
mobile WiMAX.
Depreciation
and Amortization
Depreciation and amortization expense increased to
$84.7 million for the year ended December 31, 2007
from $40.9 million for the year ended December 31,
2006. This increase was primarily due to the additional network
build-out and the cost of CPE related to our expansion into new
markets and associated subscriber growth. Capital expenditures
for depreciable property, plant and equipment increased to
$361.9 million for the year ended December 31, 2007
from $191.7 million for the year ended December 31,
2006. The majority of these expenditures relate to the
construction of our network and purchases of base station
equipment.
Spectrum
Lease Expense
Spectrum lease expense increased by $72.9 million to
$96.4 million for the year ended December 31, 2007
from $23.5 million for the year ended December 31,
2006. Total spectrum lease expense increased as a direct result
of a significant increase in the number of spectrum leased held
by us, including the additional spectrum from the BellSouth
transaction, as well as an increase in the cost of new spectrum
leases. As certain of our leases include escalation clauses, we
are required to record expense on a straight-line basis over the
term of these leases, including renewal periods where
appropriate, which in combination with the significant lease
obligation paid up front results in significant non-cash lease
expenses. We expect spectrum lease expense to continue to
increase.
Gain
on Sale of NextNet
In August 2006 we sold our NextNet operations and recorded a
gain on sale of $19.8 million.
Interest
Income
We recognized $65.7 million of interest income for the year
ended December 31, 2007 compared to $30.4 million for
the year ended December 31, 2006. This increase of
$35.3 million was primarily due to the higher balances of
short-term and long-term investments held during 2007 compared
to 2006.
Interest
Expense
We incurred $96.3 million of interest expense in year ended
December 31, 2007 compared to $72.3 million for the
year ended December 31, 2006. This increase in interest
expenses was primarily due to an increase in debt, as debt
increased by $611.2 million to $1.26 billion at
December 31, 2007 from $645.7 million at
December 31, 2006. We recorded amortization of original
issuance discount of $14.0 million for the year ended
December 31, 2007 compared to $15.8 million for the
year ended December 31, 2006. We recorded amortization of
deferred financing costs related to our secured notes and senior
term loan facility of $6.7 million for the year ended
December 31, 2007 compared to $3.9 million for the
year ended December 31,
218
2006. These amounts were partially offset by capitalized
interest of $29.0 million for year ended December 31,
2007 compared to $16.6 million for the year ended
December 31, 2006.
Loss
on Extinguishment of Debt
In connection with the retirement of the $620.7 million
senior secured notes due 2010 and the repayment of the
$125.0 million term loan, we recorded a $159.2 million
loss on extinguishment of debt, which was primarily due to the
write-off of the unamortized portion of the proceeds allocated
to the warrants originally issued in connection with the senior
secured notes and the related deferred financing costs.
Other-Than-Temporary
Impairment Loss and Realized Loss On Investments
The increase in the other-than-temporary impairment loss and
realized loss on investment securities of $35.0 million for
the year ended December 31, 2007, as compared to the year
ended December 31, 2006, is primarily due to the
recognition of a decline in value of investment securities which
we determined to be other than temporary. At December 31,
2007, we held available for sale short-term and long-term
investments with a fair value of $155.6 million and a cost
of $162.9 million.
Included in our investments were auction rate securities with a
fair value of $88.6 million and a cost of
$95.9 million. Auction rate securities are variable rate
debt instruments whose interest rates are reset approximately
every 30 or 90 days through an auction process. The auction
rate securities are classified as available for sale and are
recorded at fair value. At December 31, 2007, the estimated
fair value of these auction rate securities no longer
approximates cost and we recorded other-than-temporary
impairment losses and realized losses on our auction rate
securities of $32.3 million for the year ended
December 31, 2007. For certain other auction rate
securities, we recorded an unrealized loss of $7.3 million
in other comprehensive income reflecting the decline in the
estimated fair value of these securities. We consider these
declines in fair value to be temporary given our consideration
of the collateral underlying these securities and our conclusion
that the declines are related to changes in interest rates
rather than any credit concerns related to the underlying
assets. Additionally, we have the intent and ability to hold the
investments until maturity or for a period of time sufficient to
allow for any anticipated recovery in market value.
Our investments in auction rate securities represent interests
in collateralized debt obligations supported by preferred equity
securities of small to medium sized insurance companies and
financial institutions and asset backed capital commitment
securities supported by high grade, short term commercial paper
and a put option from a monocline insurance company. These
auction rate securities were rated AAA/Aaa or AA/Aa by
Standard & Poors and Moodys rating services at
the time of purchase and their ratings have not changed as of
December 31, 2007. With regards to the asset backed capital
commitment securities, both rating agencies have placed the
issuers ratings under review for possible downgrade.
In addition to the above mentioned securities, we hold one
commercial paper security issued by a structured investment
vehicle that was placed in receivership in September 2007 for
which an insolvency event was declared by the receiver in
October 2007. The issuer of that security invests in residential
and commercial mortgages and other structured credits. Some of
the assets consist of sub-prime mortgages. At December 31,
2007, the estimated fair value of this security was
$7.5 million based on prices provided from our internally
generated pricing models and our evaluation of the value of the
underlying collateral and our position in the structured
investment vehicle. During 2007 we had realized
other-than-temporary impairment losses of $2.5 million
related to this commercial paper security. A restructuring plan
for this security is expected by mid-2008.
As issuers and counterparties to our investments announce
financial results in the coming quarters, it is possible that we
may record additional losses and realize losses that are
currently unrealized. We will continue to monitor our
investments for substantive changes in relevant market
conditions, substantive changes in the financial condition and
performance of the investments issuers and other
substantive changes in these investments.
219
The stated maturity of these securities is longer than ten
years; however, because we considered them to be highly liquid
and available for operations, our convention was to use the next
auction date, which occurs every 30 to 90 days, as the
effective maturity date and these securities were recorded as
short-term investments. Current market conditions do not allow
us to estimate when the auctions for its auction rate securities
will resume. As a result, during 2007 we reclassified our
auction rate securities from short-term investments to long-term
investments.
Other
Income (Expense), Net
In the year ended December 31, 2007 we had approximately
$1.8 million in other income compared to approximately
$2.2 million in other expenses in the year ended
December 31, 2006.
Income
Tax Provision
We incurred $5.4 million of income tax expense in 2007 as
compared to $3.0 million in 2006. The expense represents
the recognition of a deferred tax liability related to the
accounting for FCC licenses we own. Owned FCC licenses are
amortized over 15 years for United States tax purposes but,
since these licenses have an indefinite life under
U.S. GAAP, they are not amortized for financial statement
reporting purposes. This ongoing difference between the
financial statements and tax amortization treatment resulted in
our deferred income tax expense.
Losses
from Equity Investees
During the year ended December 31, 2007, we had
approximately $4.7 million in losses from equity investees
compared to approximately $5.1 million in losses in year
ended December 31, 2006. This decrease was primarily due to
the growth in the aggregate subscriber base offset by the
increasing overhead costs to grow the businesses and the impact
of a weakening United States dollar.
Minority
Interest In Net Loss Of Consolidated Subsidiaries
During the year ended December 31, 2007, we allocated
approximately $4.2 million in losses on our consolidated
subsidiaries to minority interests, compared to approximately
$1.5 million in losses allocated to minority interests in
the year ended December 31, 2006. This increase in amount
of losses assigned to minority interests was primarily due to
the addition of a minority partner for our Hawaii operations.
Year
Ended December 31, 2006 Compared to Year Ended
December 31, 2005
Revenue
Total revenues increased $66.7 million to
$100.2 million in 2006 from $33.5 million in 2005.
This result includes a $59.1 million increase in service
revenue as we increased our subscriber base, as well as a
$7.6 million increase in equipment revenue derived from
NextNet operations. United States revenue represented
approximately 83.3% of total revenue and international
represented approximately 16.7% of total revenue in 2006
compared to approximately 95.7% and approximately 4.3% in 2005,
respectively.
Service
Revenue
As of December 31, 2006, we operated in 34 United States
markets and two international markets covering a geographic area
containing approximately 9.6 million people. Total
subscribers in all markets grew from approximately 62,300 as of
December 31, 2005 to approximately 206,200 as of
December 31, 2006, generating service revenue of
approximately $67.6 million in 2006 as compared to
$8.5 million in 2005. This $59.1 million increase
reflects net increases of 84,800 subscribers in markets launched
before January 1, 2006, and 59,100 subscribers in the nine
markets launched during 2006. Of these nine new markets, seven
were launched in the second half of 2006.
220
Equipment
and Other Revenue
Our equipment and other revenue includes sales of NextNet
equipment through the date of sale in August 2006. Equipment and
other revenue increased approximately $7.6 million, to
$32.6 million for the eight-month period ending on the date
of sale from $25.0 million for the full year of 2005. This
increase is primarily due to an increase in the volume of sales
of CPE and other units to Inukshuk, Inc., a joint venture
between Rogers Cable Enterprises and Bell, through an
arrangement with FFW, an entity controlled by Mr. McCaw.
Total related party sales increased $5.8 million to
$15.5 million in 2006 from $9.7 million in 2005. The
remainder of the increase is a result of an increase in overall
sales volume across our customer base.
Cost
of Goods and Services
Total cost of goods and services increased $46.5 million to
$70.1 million in 2006, from $23.6 million in 2005.
United States cost of goods and services represented
approximately 87.2% and international represented approximately
12.8% of total cost of goods and services in 2006 compared to
approximately 94.0% and approximately 6.0%, respectively, in
2005.
Cost
of Service
As a result of the expansion in 2006 of our wireless broadband
network and related subscriber growth, cost of service increased
to $50.4 million in 2006 as compared to $13.1 million
in 2005. The increase is due to an increase in costs for towers
leased and related back haul costs, the number of subscribers
using our service, and additional markets served. As a
percentage of service revenue, cost of service decreased to
74.6% in 2006 from 154.8% in 2005, primarily as a result of the
revenue generated from our increased subscriber base.
Cost
of Equipment
Our cost of equipment consists of costs incurred for equipment
manufactured by NextNet through August 29, 2006. Following
the increase in the number of CPE units sold in 2006, cost of
equipment increased $9.2 million to $19.7 million for
the eight months we owned NextNet in 2006, as compared to
$10.5 million in 2005. As a percentage of equipment and
other revenue, cost of equipment increased to 60.4% in 2006 from
41.9% in 2005, as a result of a full year of sales in 2005 to
FFW, a related party, which had higher overall margins, as
compared to eight months in 2006, due to the sale of NextNet. As
a result of our sale of NextNet, we do not currently expect to
incur any future material cost of equipment.
Selling,
General and Administrative Expense
Selling, general and administrative expense increased
$108.5 million, or 102.1%, to $214.7 million in 2006
from $106.2 million in 2005. The overall increase is
primarily due to employee compensation and related costs,
including facilities costs due to higher employee headcount,
additional marketing and advertising expenses related to the
expansion of our business, increases in third party commission
expenses; and higher professional fee expenses. Employee and
related compensation expense increased $63.4 million due to
headcount increases to support the overall growth of our
business. Our total employee headcount increased from
approximately 622 at December 31, 2005 to approximately
1,240 at December 31, 2006. Marketing and advertising
expense increased $20.5 million as we expanded our number
of markets from 27 to 36 and increased our subscriber base from
62,300 at December 31, 2005 to 206,200 at December 31,
2006. Facilities expenses increased $6.2 million in
connection with the headcount increase and market expansion.
Third party commission expenses increased $5.5 million as
we sold more services through third party providers.
Professional fees, which include legal, accounting and other
costs related to regulatory compliance, increased
$5.3 million to $20.9 million in 2006 from
$15.6 million in 2005 resulting primarily from costs
associated with our prior withdrawn registration statement and
general growth in our legal, accounting and regulatory needs
caused by our growth. Other costs increased $7.5 million
and included expenses related to our new call center.
221
Research
and Development Expense
Research and development expense decreased $749,000, or 7.8%, to
$8.9 million in 2006 from $9.6 million in 2005. The
decrease was due primarily from the sale of NextNet in August
2006.
Depreciation
and Amortization Expense
Depreciation and amortization expense increased
$29.0 million to $40.9 million in 2006 from
$11.9 million in 2005, primarily due to increased network
build-out and deployed CPE costs related to our expansion into
new markets and associated subscriber growth. Capital
expenditures for depreciable property, plant and equipment
increased $59.0 million to $191.7 million in 2006 from
$132.7 million in 2005. The majority of these expenditures
relate to the construction of our network and purchases of base
station equipment.
Changes in technology customarily used in our business, such as
a transition to mobile WiMAX, may result in an impairment in the
value or a change in the estimated useful life of our pre-WiMAX
network equipment already placed in service. If such a change
occurs, we may be required to record an impairment charge to
reduce the carrying amount of equipment in service to its fair
value, and to accelerate the useful life of the respective
equipment, resulting in an increase in periodic depreciation
expense over the remaining useful life of the equipment, or, in
appropriate instances, to write off the entire unamortized value.
Spectrum
Lease Expense
Spectrum lease expense increased $14.1 million to
$23.5 million in 2006 from $9.4 million in 2005. As
certain of our leases include escalation clauses, we are
required to record expense on a straight-line basis over the
term of these leases, including renewal periods where
appropriate. Total spectrum lease expense increased as a direct
result of an increase in the number of spectrum licenses leased
as part of the deployment of our wireless broadband network.
Gain
on Sale of NextNet
The sale of NextNet in August 2006, resulted in a gain of
$19.8 million, comprised of net proceeds from the sale of
$47.1 million less the book value of net assets sold of
$26.1 million and transaction related costs of
$1.2 million.
Operating
Loss
As a result of the above, operating loss increased from
$127.2 million in 2005 to $238.1 million in 2006.
Interest
Income
We recognized $30.4 million of interest income in 2006
compared to $6.6 million in 2005. This increase is due to
an increase in our total short-term and long-term investments.
Interest
Expense, Net
We incurred $72.3 million of net interest expense in 2006
compared to $14.6 million in 2005. This increase in net
interest expense is due to the issuance in August 2005 of senior
secured notes, due 2010, in an aggregate principal amount of
$260.3 million, and the issuance in February 2006 of
additional senior secured notes, due 2010, in an aggregate
principal amount of $360.4 million, as well as additional
loans totaling $135.0 million. We recorded interest expense
totaling $69.1 million, including $63.2 million
related to our senior secured notes in 2006. We also recorded
amortization of original issuance discount of $15.8 million
and deferred financing costs of $3.9 million related to our
senior secured notes. These amounts were partially offset by
capitalized interest of $16.6 million in 2006. In the year
ended December 31, 2005, we recorded interest expense
totaling $11.6 million related to our notes,
$4.4 million of amortization of original issuance discount,
and deferred financing costs of $898,000, partially offset by
$2.3 million of capitalized interest.
222
Other
Income (Expense), Net
We recognized $2.2 million of other income in 2006 as
compared to $300,000 of other income in 2005. This increase was
due primarily to the sale of spectrum assets in 2006.
Income
Tax Provision
We incurred $3.0 million of income tax expense in 2006 as
compared to $1.5 million in 2005. The expense represents
the recognition of a deferred tax liability related to the
accounting for FCC licenses we own. Owned FCC licenses are
amortized over 15 years for United States tax purposes but,
since these licenses have an indefinite life, they are not
amortized for financial statement reporting purposes. The
ongoing difference between the financial statements and tax
amortization treatment resulted in our recording a deferred
income tax expense of $3.0 million 2006.
Losses
from Equity Investees, Net
Losses from equity investees net increased
$1.2 million to $5.1 million in 2006 from
$3.9 million in 2005. The increase is due to continued
losses from our equity investee MVS Net S.A. de C.V. in Mexico,
as well as losses from our equity investee Danske Telecom A/S in
Denmark that we invested in during June 2005.
Net
Loss
As a result of the above, our net loss increased to
$284.2 million in 2006 as compared to $140.0 million
in 2005.
Liquidity
and Capital Resource Requirements
As of June 30, 2008, we believe that we held sufficient
cash, cash equivalents and marketable securities to cause our
estimated liquidity needs to be satisfied for at least the next
12 months. We are currently focused on closing the
Transactions. On the consummation of the Transactions under the
Transaction Agreement, including the Merger and the
Contribution, the Investors will invest an aggregate of
$3.2 billion of cash proceeds into New Clearwire or
Clearwire Communications, as applicable. We expect the cash
proceeds from this investment to be primarily used by New
Clearwire and Clearwire Communications to build a mobile WiMAX
network in the United States and for general corporate purposes.
We expect the Transactions under the Transaction Agreement,
which remain subject to various closing conditions, to close
during the fourth quarter of 2008.
While we believe that, as of June 30, 2008, we held
sufficient cash, cash equivalents and marketable securities to
operate our business for at least the next 12 months, we
wish to continue expanding our network during the period between
now and the completion of the Transactions. To do so, we may
choose to raise additional capital during that period. After the
Closing of the Transactions, we plan to ultimately cover more
than 200 million people in the United States and to add more
than 30 million subscribers by 2017. To pursue this plan, we
believe we will need to raise approximately $2.0 billion to
$2.3 billion in additional capital. As a result, we will
likely seek additional capital after the Closing. Any additional
debt financing would increase our future financial commitments,
while any additional equity financing would be dilutive to our
stockholders. This additional financing may not be available to
us on favorable terms or at all. Our ability to obtain
additional financing depends on several factors, including
market conditions, our future creditworthiness and restrictions
contained in the Sprint debt agreements. If additional financing
does become available, the terms of the Transaction Agreement
limit the amount of additional debt we may incur and the amount
and price of additional equity we may issue without the approval
of Sprint and the Investors.
We regularly evaluate our plans and strategy, and these
evaluations often result in changes, some of which may be
material and may significantly increase or decrease our cash
requirements. If the Transactions do not close or close later
than expected or we fail to obtain additional financing, we may
have to revise our current plans and strategy. Changes in our
plans and strategy may include, among other things, changes to
the extent
223
and timing of our network deployment, increases or decreases in
the number of our employees, introduction of new features or
services, investments in capital and network infrastructure,
acquisitions of spectrum or any combination of the foregoing.
The following table presents a summary of our cash flows for the
six months ended June 30, 2008 and 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
Cash used in operating activities
|
|
$
|
(281,245
|
)
|
|
$
|
(280,639
|
)
|
Cash used in investing activities
|
|
|
(239,752
|
)
|
|
|
(349,553
|
)
|
Cash provided by (used in) financing activities
|
|
|
(5,465
|
)
|
|
|
572,250
|
|
Effect of foreign currency exchange rates on cash and cash
equivalents
|
|
|
(940
|
)
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
Total cash flows
|
|
$
|
(527,402
|
)
|
|
$
|
(57,992
|
)
|
|
|
|
|
|
|
|
|
|
Operating
Activities
Net cash used in operating activities increased by
$0.6 million to $281.2 million in the six months ended
June 30, 2008, from $280.6 million in the six months
ended June 30, 2007. The increase in cash used in
operations is due primarily to an increase in operating expenses
as we continue to expand our business. This increase in cash
used was partially offset by an increase in cash received from
customers, which increased to $110.9 million in the first
half of 2008 from $66.5 million in the first half of 2007.
This increase was primarily due to an increase in our subscriber
base as we continued to both increase subscribers in our
existing markets as well as operating in seven additional
markets during the six months ended June 30, 2008 as
compared to June 30, 2007.
Investing
Activities
During the six months ended June 30, 2008, net cash used in
investing activities was $239.7 million compared to
$349.6 million during the six months ended June 30,
2007, representing a $109.9 million decrease in net cash
used. The decrease in net cash used in investing activities was
due to a $49.2 million decrease in cash paid for property,
plant and equipment and a $181.1 million decrease in cash
paid for acquisitions of spectrum licenses. These decreases were
offset by increases in sales of available for sale securities of
$99.0 million and cash from restricted investments of
$33.7 million.
Financing
Activities
Net cash used in financing activities was $5.5 million for
the six months ended June 30, 2008 compared to
$572.3 million provided by financing activities for the six
months ended June 30, 2007, representing a
$577.8 million decrease in cash received. This was
primarily due to net cash proceeds of $556.0 million from
our IPO in the first quarter of 2007. In addition, there was a
contribution of $15.0 million in the first half of 2007
from a minority interest partner. There was no such contribution
in the first half of 2008.
Contractual
Obligations
The contractual obligations presented in the table below
represent our estimates of future payments under fixed
contractual obligations and commitments as of December 31,
2007. Changes in our business needs or interest rates, as well
as actions by third parties and other factors, may cause these
estimates to change. Because these estimates are complex and
necessarily subjective, our actual payments in future periods
are likely to vary from those presented in the table. The
following table summarizes our contractual obligations,
224
including principal and interest payments under our debt
obligations and payments under our spectrum lease obligations,
as of December 31, 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations
|
|
Total
|
|
|
1 Year
|
|
|
1 - 3 Years
|
|
|
3 - 5 Years
|
|
|
Over 5 Years
|
|
|
Long-term debt obligations
|
|
$
|
1,256,875
|
|
|
$
|
22,500
|
|
|
$
|
25,000
|
|
|
$
|
1,209,375
|
|
|
$
|
|
|
Interest payments(1)
|
|
|
605,153
|
|
|
|
136,889
|
|
|
|
269,646
|
|
|
|
198,618
|
|
|
|
|
|
Operating lease obligations
|
|
|
2,060,539
|
|
|
|
87,320
|
|
|
|
173,898
|
|
|
|
170,259
|
|
|
|
1,629,062
|
|
Spectrum lease obligations
|
|
|
1,761,256
|
|
|
|
39,226
|
|
|
|
79,168
|
|
|
|
85,113
|
|
|
|
1,557,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(2)(3)(4)
|
|
$
|
5,683,823
|
|
|
$
|
285,935
|
|
|
$
|
547,712
|
|
|
$
|
1,663,365
|
|
|
$
|
3,186,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Our interest payment obligations are calculated for all years
using an interest rate of approximately 11% based on our
weighted-average interest rate at December 31, 2007. |
|
(2) |
|
Excludes $51.6 million remaining under our commitment to
purchase no less than $150.0 million of infrastructure
products and subscriber products from Motorola through
August 29, 2008 under the terms of the commercial
agreements that were entered into on August 29, 2006.
Please see Note 3 to our consolidated financial statements
for further details. |
|
(3) |
|
Excludes obligations of approximately $57.8 million under
pending spectrum acquisition agreements at December 31,
2007. |
|
(4) |
|
Excludes $89.8 million of capital and service credit
commitments related to certain spectrum lease agreements. |
We do not have any obligations that meet the definition of an
off-balance sheet arrangement that have or are reasonably likely
to have a material effect on our financial statements.
Recent
Accounting Pronouncements
SFAS No. 141(R)
In December 2007, the Financial Accounting Standards Board,
which we refer to as FASB, issued SFAS No. 141
(revised 2007), Business Combinations, which we
refer to as SFAS No. 141(R). In
SFAS No. 141(R), the FASB retained the fundamental
requirements of SFAS No. 141 to account for all
business combinations using the acquisition method (formerly the
purchase method) and for an acquiring entity to be identified in
all business combinations. The new standard requires the
acquiring entity in a business combination to recognize all (and
only) the assets acquired and liabilities assumed in the
transaction; establishes the acquisition-date fair value as the
measurement objective for all assets acquired and liabilities
assumed; requires transaction costs to be expensed as incurred;
and requires the acquirer to disclose to investors and other
users all of the information they need to evaluate and
understand the nature and financial effect of the business
combination. SFAS No. 141(R) is effective for annual
periods beginning on or after December 15, 2008.
Accordingly, any business combinations we engage in will be
recorded and disclosed following existing GAAP until
January 1, 2009. We expect SFAS No. 141(R) will
have an impact on our consolidated financial statements when
effective, but the nature and magnitude of the specific effects
will depend upon the nature, terms and size of the acquisitions
we consummate after the effective date.
SFAS No. 159
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities, which we refer to as SFAS No. 159.
SFAS No. 159 permits entities to choose, at specified
election dates, to measure eligible items at fair value, or fair
value option, and to report in earnings unrealized gains and
losses on those items for which the fair value option has been
elected. SFAS No. 159 also requires entities to
display the fair value of those financial assets and liabilities
on the face of the balance sheet and establishes presentation
and disclosure requirements designed to facilitate comparisons
between entities that choose different measurement attributes
for similar types of financial assets and liabilities.
SFAS No. 159 is effective as of the beginning of an
entitys first fiscal year beginning after
November 15,
225
2007. We have not adopted the fair value option for any
financial assets or liabilities and, accordingly, the adoption
of SFAS No. 159 did not have an impact on our
condensed consolidated financial statements.
SFAS No. 160
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, which we refer to as SFAS No. 160.
SFAS No. 160 amends Accounting Research
Bulletin No. 51, Consolidated Financial
Statements, and requires all entities to report
noncontrolling (minority) interests in subsidiaries within
equity in the consolidated financial statements, but separate
from the parent shareholders equity.
SFAS No. 160 also requires any acquisitions or
dispositions of noncontrolling interests that do not result in a
change of control to be accounted for as equity transactions.
Further, SFAS No. 160 requires that a parent recognize
a gain or loss in net income when a subsidiary is
deconsolidated. SFAS No. 160 is effective for annual
periods beginning on or after December 15, 2008. Management
is currently evaluating whether the adoption of
SFAS No. 160 will have a material impact on our
financial statements.
SFAS No. 161
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, which we refer to as SFAS No. 161.
SFAS No. 161 is intended to improve financial
reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better
understand their effects on an entitys financial position,
financial performance, and cash flows. It is effective for
financial statements issued for fiscal years and interim periods
beginning after November 15, 2008. Management is currently
evaluating whether the adoption of SFAS No. 161 will
have a material impact on our financial statements.
FSP
No. 142-3
In April 2008, the FASB issued FASB Staff Position, which we
refer to as FSP,
No. 142-3,
Determination of the Useful Life of Intangible
Assets, which we refer to as FSP
No. 142-3.
FSP
No. 142-3
amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under
SFAS No. 142, Goodwill and Other Intangible
Assets, or SFAS No. 142. The FSP is intended to
improve the consistency between the useful life of an intangible
asset determined under SFAS No. 142 and the period of
expected cash flows used to measure the fair value of the asset
under SFAS No. 141 and under U.S. GAAP. FSP
No. 142-3
is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those fiscal years. Management is currently assessing
whether the adoption of FSP
No. 142-3
will have a material impact on our financial statements.
Quantitative
and Qualitative Disclosures About Market Risk
Market risk is the potential loss arising from adverse changes
in market rates and prices, such as interest rates, foreign
currency exchange rates and changes in the market value of
investments.
Interest
Rate Risk
Our primary interest rate risk is associated with our senior
term loan facility. We have a total outstanding balance on our
senior term loan facility of $1.24 billion at June 30,
2008. The rate of interest for borrowings under the senior term
loan facility is the LIBOR rate plus 6.00% or the alternate base
rate plus 5.00%, with interest payable quarterly with respect to
alternate base rate loans, and with respect to LIBOR-based
loans, interest is payable in arrears at the end of each
applicable period, but at least every three months. The weighted
average interest rate under this facility was 9.25% at
June 30, 2008.
Interest
Rate Hedge Contracts
When interest rates rise, the fair value of our interest rate
hedge contracts decrease and vice-versa, when interest rates
fall, the fair value increases. As we are fixed rate payers, an
increase of 100 basis points in
226
interest rates results in a change in fair value of the interest
rate swaps of $12.4 million, reducing our interest rate
hedge liability from $356,000 to an interest rate hedge asset of
$12.0 million. Alternatively, a decrease in interest rates
of 100 basis points results in a change in fair value of
$12.6 million, increasing our interest rate hedge liability
to $12.9 million.
In addition, we are exposed to certain losses in the event of
non-performance by the counterparties under the interest rate
hedge contracts. We expect the counterparties, which are major
financial institutions with high credit ratings, to perform
fully under these contracts. However, if the counterparties were
to default on their obligations under the interest rate swap
agreements, the agreements would terminate and we could incur
higher interest expense due to the loss of protection afforded
by the interest rate agreements and we could be required to pay
the counterparty the fair value of the interest rate swap
agreement at the time of default.
Foreign
Currency Exchange Rates
We are exposed to foreign currency exchange rate risk as it
relates to our international operations. We currently do not
hedge our currency exchange rate risk and, as such, we are
exposed to fluctuations in the value of the United States dollar
against other currencies. Our international subsidiaries and
equity investees generally use the currency of the jurisdiction
in which they reside, or local currency, as their functional
currency. Assets and liabilities are translated at exchange
rates in effect as of the balance sheet date and the resulting
translation adjustments are recorded as a separate component of
accumulated other comprehensive income (loss). Income and
expense accounts are translated at the average monthly exchange
rates during the reporting period. The effects of changes in
exchange rates between the United States Dollar and the currency
in which a transaction is denominated are recorded as foreign
currency transaction gains (losses) as a component of net loss.
This did not have a material impact on our financial statements.
Investment
Risk
At June 30, 2008, we held available-for-sale short-term and
long-term investments with a fair value and cost of
$243.5 million, of which investments with a fair value and
cost of $64.8 million were auction rate securities and
$178.7 million were government and agency issues, bonds and
commercial paper. We regularly review the carrying value of our
short-term and long-term investments and identify and record
losses when events and circumstances indicate that declines in
the fair value of such assets below our accounting basis are
other-than-temporary, which we experienced with our auction rate
securities during the six months ended June 30, 2008. The
fair values of our investments are subject to significant
fluctuations due to volatility of the credit markets in general,
company-specific circumstances, and changes in general economic
conditions.
Beginning in August 2007, the auctions for our auction rate
securities failed to attract buyers and sell orders could not be
filled. Current market conditions are such that we are unable to
estimate when the auctions will resume. While we continue to
earn interest on these investments at the maximum contractual
rate, the estimated fair value of these auction rate securities
no longer approximates cost and until the auctions are
successful the investments are not liquid. We may not have
access to these funds until a future auction on these
investments is successful, a secondary market develops for these
securities, or the underlying collateral matures.
Our investments in auction rate securities represent interests
in collateralized debt obligations supported by preferred equity
securities of insurance companies and financial institutions
with a stated final maturity date of 2033 and 2034. We also own
auction rate securities that are asset backed capital commitment
securities supported by high grade, short-term commercial paper
and a put option from a monoline insurance company; these
securities are perpetual and do not have a final stated
maturity. These CDO securities were rated
AAA/Aaa or
AA/Aa by Standard & Poors and the equivalent at
Moodys rating services at the time of purchase and their
ratings have not changed as of June 30, 2008. With regards
to the asset backed capital commitment securities,
Standard & Poors and Moodys have downgraded
these securities from AA/Aa to
A1/A3,
respectively, during the six months ended June 30, 2008.
In addition to the above mentioned securities, we hold one
commercial paper security issued by a structured investment
vehicle that defaulted in January 2008 and was placed into
receivership. The issuer
227
invests in residential and commercial mortgages and other
structured credits including sub-prime mortgages. At
June 30, 2008, the estimated fair value of this security
was $4.1 million based on the pending resolution of the
receivership and expected proceeds on completion of this
process. During the six months ended June 30, 2008, we
recognized other-than-temporary impairment losses of
$1.6 million related to this commercial paper security. As
of August 15, 2008, we had received from the trustee of the
receivership cash proceeds approximating the fair value of our
investment at June 30, 2008.
Derivative
Instruments and Hedging Activities
To meet our long-term investment and short-term liquidity
requirements, we primarily borrow funds at variable rates plus
fixed rate margins. Borrowings under our senior term loan
facility bear interest at variable rates. Our interest rate risk
management objective is to limit the impact of interest rate
changes on the volatility of earnings and cash flows. To achieve
this objective, in January 2008 we entered into two interest
rate swap contracts in order to mitigate our interest rate risk.
We are not holding these derivative contracts for trading or
speculative purposes.
We currently have variable rate debt tied to
3-month
LIBOR in excess of the $600 million notional amount of
interest rate contracts outstanding and we expect this condition
to persist throughout the term of the contracts. An increase in
the 3-month
LIBOR rate results in higher interest expense. We entered into
the interest rate swap agreements to hedge the uncertain cash
flows associated with the variable rate funding. In accordance
with SFAS No. 133, we designated the interest rate
swap agreements as cash flow hedges. Net settlements made to
counterparties under interest rate hedge contracts was $839,000
during the six months ended June 30, 2008.
The following table sets forth information regarding our
interest rate hedge contracts as of June 30, 2008 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
Maturity
|
|
|
Receive
|
|
|
Pay
|
|
|
Fair Market
|
|
Type of Hedge
|
|
Amount
|
|
|
Date
|
|
|
Index Rate
|
|
|
Fixed Rate
|
|
|
Value
|
|
|
Swap
|
|
$
|
300,000
|
|
|
|
3/5/2010
|
|
|
|
3-month LIBOR
|
|
|
|
3.50
|
%
|
|
$
|
(1,788
|
)
|
Swap
|
|
$
|
300,000
|
|
|
|
3/5/2011
|
|
|
|
3-month LIBOR
|
|
|
|
3.62
|
%
|
|
$
|
747
|
|
In addition, we are exposed to certain losses in the event of
non-performance by the counterparties under the interest rate
hedge contracts. We expect the counterparties, which are major
financial institutions with high credit ratings, to perform
fully under these contracts. However, if the counterparties were
to default on their obligations under the interest rate hedge
contracts, we could be required to pay the full rates on our
debt, even if such rates were in excess of the rates in the
contracts.
Changes
In and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
228
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF THE SPRINT WIMAX BUSINESS
The following discussion and analysis summarizes the
significant factors affecting the results of operations,
financial condition and liquidity position of the Sprint WiMAX
Business for the year ended December 31, 2007 and for the
six months ended June 30, 2008 and 2007, and should be read
in conjunction with the financial statements and related notes
of the WiMAX Operations of Sprint Nextel Corporation that are
included elsewhere in this proxy statement/prospectus. Neither
the following discussion and analysis nor the financial
statements of the Sprint WiMAX Business represent the financial
position or results of operations of Sprint. The following
discussion and analysis contains forward-looking statements that
reflect the Sprint WiMAX Business plans, estimates and
beliefs. Actual results could differ materially from those
discussed in the forward-looking statements; see
Cautionary Note Regarding Forward-Looking
Statements. Factors that could cause or contribute to
these differences include those discussed below and elsewhere in
this proxy statement/prospectus, particularly in the section
titled Risk Factors.
Recent
Developments and Overview
The Sprint WiMAX Business is a development stage enterprise that
represents a collection of assets, related liabilities and
activities accounted for in various legal entities that are
wholly-owned subsidiaries of Sprint and allocations from Sprint
and other non-WiMAX Sprint entities that are acting on behalf of
the Sprint WiMAX Business. These assets, related liabilities and
activities have been collectively utilized with the objective of
developing a next generation wireless broadband network that
will enable simple, fast, portable, reliable and affordable
Internet communications. The Sprint WiMAX Business expects to
deploy the WiMAX technology in its planned markets using
2.5 GHz FCC licenses. As mobile WiMAX is a standards-based
technology, the Sprint WiMAX Business believes manufacturers may
begin to offer a number of handheld communications and consumer
electronic devices that will be WiMAX-enabled. The Sprint
WiMAX Business successfully launched commercial WiMAX
service in Baltimore, Maryland on September 29, 2008.
On May 7, 2008, Sprint announced that it had entered into
the Transaction Agreement. Before closing the Transactions, the
assets and activities of the Sprint WiMAX Business, currently
accounted for in various legal entities, will be transferred to
a single legal entity, Sprint Sub, which will be a wholly-owned
subsidiary of Sprint HoldCo that will be a wholly-owed
subsidiary of Sprint. Following the Merger, Sprint HoldCo will
effect the Contribution by contributing all of the equity
interests in Sprint Sub to Clearwire Communications in exchange
for Clearwire Communications Class B Common Interests. New
Clearwire, the parent of Clearwire Communications, will be
focused on expediting the deployment of the first nationwide
mobile WiMAX network to provide a true mobile broadband
experience for consumers, small businesses, medium and large
enterprises, public safety organizations and educational
institutions. The Transactions are expected to close in the
fourth quarter of 2008.
The financial statements for the Sprint WiMAX Business represent
the collective assets, related liabilities and activities of the
Sprint WiMAX Business, including any allocations from Sprint and
other non-WiMAX Sprint entities that have acted on behalf of the
Sprint WiMAX Business. The nature of the assets held by the
legal entities is primarily 2.5 GHz FCC licenses and
certain property, plant and equipment related to the WiMAX
network. The acquisition of the assets was funded by Sprint.
There is no intention of repaying this funding, other than as
required pursuant to the Transaction Agreement, and it is
treated as business equity. As Sprint has acquired significant
amounts of FCC licenses on behalf of the Sprint WiMAX Business
in the past, these purchases have been presented as part of the
opening business equity. Principal operations of the Sprint
WiMAX Business did not commence until January 1, 2007, at
which time the Sprint WiMAX Business qualified as a business
pursuant to
Rule 11-01(d)
of
Regulation S-X.
229
Results
of Operations
The following table sets forth certain operating data for the
periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Net operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Direct and allocated costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Spectrum expense
|
|
|
33,093
|
|
|
|
26,004
|
|
|
|
60,051
|
|
Network costs
|
|
|
52,438
|
|
|
|
8,360
|
|
|
|
48,865
|
|
General and administrative
|
|
|
66,946
|
|
|
|
34,336
|
|
|
|
99,490
|
|
Depreciation and amortization
|
|
|
16,302
|
|
|
|
162
|
|
|
|
3,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168,779
|
|
|
|
68,862
|
|
|
|
212,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(168,779
|
)
|
|
|
(68,862
|
)
|
|
|
(212,385
|
)
|
Other income
|
|
|
2,854
|
|
|
|
1,754
|
|
|
|
4,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations before income taxes
|
|
|
(165,925
|
)
|
|
|
(67,108
|
)
|
|
|
(208,363
|
)
|
Income tax expense
|
|
|
(11,078
|
)
|
|
|
(7,265
|
)
|
|
|
(16,362
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(177,003
|
)
|
|
$
|
(74,373
|
)
|
|
$
|
(224,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Operating Revenues
As the Sprint WiMAX Business has yet to commence commercial
operations, there have been no net operating revenues through
June 30, 2008.
Spectrum
Expense
The Sprint WiMAX Business enters into contracts with third
parties that provide it with the right to use spectrum for a
specified period of time. The Sprint WiMAX Business accounts for
these contracts as executory contracts and generally recognizes
expense as payments are made. Many of these contracts were
entered into before 2007 and the periodic payments before
January 1, 2007 were funded by Sprint. Spectrum expense for
these contracts was $21 million and $35 million in
2005 and 2006, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Dollar
|
|
|
Percentage
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
|
|
|
(In thousands, except percentage)
|
|
|
Spectrum expense
|
|
$
|
33,093
|
|
|
$
|
26,004
|
|
|
$
|
7,089
|
|
|
|
27
|
%
|
Spectrum expense increased 27% in the six months ended
June 30, 2008 as compared to the six months ended
June 30, 2007, primarily due to the increase in the number
of spectrum contracts entered into in late 2007 and early 2008
and due to the increased number of prepaid spectrum agreements
requiring larger prepayments that are being amortized to
spectrum expense. Spectrum expense for 2007 was
$60.1 million.
Shared
Services
Sprint directly assigns, where possible, certain costs to the
Sprint WiMAX Business based on the actual use by the Sprint
WiMAX Business of the shared services. These costs include
network related expenses, office facilities, treasury services,
human resources, supply chain management and other shared
services. Where direct assignment of costs is not possible or
practical, Sprint uses indirect methods, including time studies,
to estimate the assignment of its costs to the Sprint WiMAX
Business, which are allocated to the Sprint WiMAX Business
through a management fee. The allocations of these costs are
re-evaluated periodically. Sprint allocated $115 million
and $107 million of shared services costs to the Sprint
WiMAX Business in 2007 and for the six months ended
June 30, 2008, respectively. The increase in 2008 is
230
consistent with the additional resources, headcount and other
shared services that the Sprint WiMAX Business has utilized
through June 30, 2008. Network costs and general and
administrative, each as described below, include directly
attributable costs and a portion of the respective shared
services allocation. Network costs and general and
administrative costs together account for substantially all of
the shared services expense.
Network
Costs
Network costs include network related expenses, which primarily
consist of external services and internal payroll incurred in
connection with the design, development and construction of the
network. Network costs also includes certain network equipment,
site costs, facilities costs, software licensing and certain
office equipment. The external services include consulting fees,
contractor fees and project based fees that are not
capitalizable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Dollar
|
|
|
Percentage
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
|
|
|
(In thousands, except percentage)
|
|
|
Network costs
|
|
$
|
52,438
|
|
|
$
|
8,360
|
|
|
$
|
44,078
|
|
|
|
527
|
%
|
Network costs increased 527% in the six months ended
June 30, 2008 as compared to the six months ended
June 30, 2007 primarily due to the growth in the
development of the WiMAX network. As the Sprint WiMAX Business
continues to devote substantially all of its resources and
efforts to develop the WiMAX network, the Sprint WiMAX Business
expects network costs to become the primary cost of service.
Network costs for 2007 were $48.9 million.
General
and Administrative
General and administrative costs include treasury services,
human resources and other shared services that are provided by
Sprint and are allocated to the Sprint WiMAX Business either
directly or indirectly as described above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Dollar
|
|
|
Percentage
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
|
|
|
(In thousands, except percentage)
|
|
|
General and administrative
|
|
$
|
66,946
|
|
|
$
|
34,336
|
|
|
$
|
32,610
|
|
|
|
95
|
%
|
General and administrative costs increased 95% in the six months
ended June 30, 2008 as compared to the six months ended
June 30, 2007. The increase is consistent with the
additional resources, headcount and shared services that the
Sprint WiMAX Business has utilized during this development
stage. In addition, as the number of markets to be developed has
expanded, additional administrative support has been required in
multiple locations. Additional services have also been provided
by Sprint and these have been allocated accordingly, as noted
above. General and administrative costs for 2007 were
$99.5 million.
Depreciation
and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Dollar
|
|
|
Percentage
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
|
|
|
(In thousands, except percentage)
|
|
|
Depreciation and amortization
|
|
$
|
16,302
|
|
|
$
|
162
|
|
|
$
|
16,140
|
|
|
|
N/M
|
|
Depreciation and amortization primarily represents the
depreciation recorded on network assets that are being placed
into service as the Sprint WiMAX Business continues to build and
develop the WiMAX network. During the six months ended
June 30, 2007, substantially all of the capital
expenditures related to the Sprint WiMAX Business represented
construction work in progress and therefore very little
depreciation was recorded. In the latter portion of 2007 and
throughout 2008, assets have been placed into service as they
are available for use and have been depreciated accordingly.
Depreciation and amortization for 2007 was $4 million.
231
Other
Income
Although the Sprint WiMAX Business has yet to commence
commercial operations, it has been able to negotiate executory
agreements with third parties where it is paid for the use of
certain of its FCC licenses or where it subcontracts its right
to use such licenses. The Sprint WiMAX Business recognized
$2.9 million and $1.8 million of other income
associated with these types of transactions for the six months
ended June 30, 2008 and 2007, respectively. Other income
for 2007 was $4 million.
Income
Taxes
The Sprint WiMAX Business was included as part of Sprints
consolidated federal income tax return and certain unitary or
combined state income tax returns for the year ended
December 31, 2007. Income tax expense and related income
tax liabilities represent amounts as if the Sprint WiMAX
Business were filing stand-alone separate returns. As such, the
Sprint WiMAX Business recognized $16 million of deferred
tax expense in 2007 and has recorded a deferred tax liability of
$679 million as of December 31, 2007. For the six
months ended June 30, 2008 and 2007, the Sprint WiMAX
Business recognized $11.1 million and $7.3 million,
respectively, of deferred tax expense.
Critical
Accounting Policies, Estimates and Significant New Accounting
Policies
The Sprint WiMAX Business has prepared its consolidated
financial statements in conformity with U.S. GAAP, which
requires its management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date
of the balance sheet, as well as the reported amounts of
expenses during the reporting periods. Due to the inherent
uncertainty involved in making those estimates, actual results
could differ from those estimates. Areas in which significant
estimates have been made include, but are not limited to, tax
valuation allowances, useful lives for property, plant and
equipment and indefinite lived intangible asset impairment
analyses. See Note 3. Significant Accounting
Policies in the Notes to Financial Statements as of
December 31, 2007 of the Sprint WiMAX Business, which are
included elsewhere in this proxy statement/prospectus.
Liquidity
and Capital Resources
The nature of the Sprint WiMAX Business assets is primarily
2.5 GHz FCC licenses and certain property, plant and
equipment related to the WiMAX network. The acquisition of the
assets was funded by Sprint. There is no intention of repaying
this funding, other than as required pursuant to the Transaction
Agreement, and it is presented as business equity. As Sprint has
acquired significant amounts of FCC licenses on behalf of the
Sprint WiMAX Business in the past, these purchases have been
presented as part of the opening business equity as of
January 1, 2007, at which time the Sprint WiMAX Business
qualified as a business.
232
Reconciliation
of Changes in Business Equity
The following is a reconciliation of changes in business equity:
|
|
|
|
|
|
|
Period From
|
|
|
|
January 1, 2007
|
|
|
|
(Inception) to
|
|
|
|
June 30, 2008
|
|
|
|
(In thousands)
|
|
|
Opening business equity, January 1, 2007
|
|
$
|
1,402,410
|
|
Contributions and advances from Sprint:
|
|
|
|
|
Advances from Sprint
|
|
|
1,022,599
|
|
Increase in Sprints accruals for capital expenditures
|
|
|
164,652
|
|
Sprints purchase of 2.5 GHz FCC licenses with stock(1)
|
|
|
100,000
|
|
|
|
|
|
|
Total contributions and advances from Sprint
|
|
|
1,287,251
|
|
Net loss for the year ended December 31, 2007
|
|
|
(224,725
|
)
|
|
|
|
|
|
Business equity at December 31, 2007
|
|
|
2,464,936
|
|
Contributions and advances from Sprint:
|
|
|
|
|
Advances from Sprint
|
|
|
698,910
|
|
Decrease in Sprints accruals for capital expenditures
|
|
|
(63,184
|
)
|
Sprints purchase of 2.5 GHz FCC licenses with stock(1)
|
|
|
4,000
|
|
|
|
|
|
|
Total contributions and advances from Sprint
|
|
|
639,726
|
|
Net loss for the six months ended June 30, 2008
|
|
|
(177,003
|
)
|
|
|
|
|
|
Business equity at June 30, 2008
|
|
$
|
2,927,659
|
|
|
|
|
|
|
|
|
|
(1) |
|
Sprint acquired FCC licenses on behalf of the Sprint WiMAX
Business for $100 million of Sprint common stock and
$4 million of Sprint common stock in 2007 and the six
months ended June 30, 2008, respectively. |
Cash
Flow Analysis
The statement of cash flows presents the activities that were
paid by Sprint on behalf of the Sprint WiMAX Business. Financing
activities include funding advances from Sprint, presented as
business equity, since it manages the Sprint WiMAX
Business financing activities on a centralized basis.
Sprint has not charged the Sprint WiMAX Business any interest
and there has not been any reimbursement of these funds to date,
nor are there obligations to repay these amounts at this time.
Further, the net cash used in operating activities and the net
cash used in investing activities for capital expenditures and
acquisitions of FCC licenses and patents represent transfers of
expenses or assets paid for by other Sprint subsidiaries. No
cash payments were made by the Sprint WiMAX Business for income
taxes or interest in 2007 or for the six months ended
June 30, 2008.
The following table presents a summary of the Sprint cash flows
paid on behalf of the Sprint WiMAX Business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Changes
|
|
|
|
(In thousands, except percentages)
|
|
|
Cash used in operating activities
|
|
$
|
(197,112
|
)
|
|
$
|
(113,863
|
)
|
|
|
73
|
%
|
Cash used in investing activities
|
|
|
(501,798
|
)
|
|
|
(100,390
|
)
|
|
|
400
|
%
|
Cash provided by financing activities
|
|
|
698,910
|
|
|
|
214,253
|
|
|
|
226
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash flows
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
233
Operating
Activities
Net funding used by operating activities of $197.1 million
for the six months ended June 30, 2008 increased
$83.2 million from the six months ended June 30, 2007
reflecting an increase in the Sprint WiMAX Business
net loss.
Investing
Activities
Net funding used in investing activities was $501.8 million
for the six months ended June 30, 2008, an increase of
$401.4 million from the six months ended June 30,
2007, primarily due to acquisition activities as the Sprint
WiMAX Business continues to devote its efforts in developing the
WiMAX network. Of this amount, $410.4 million of funding
was used for capital expenditures and $91.4 million was
used to acquire additional FCC licenses and patents in the six
months ended June 30, 2008.
Financing
Activities
The net funding from financing activities of $698.9 million
for the six months ended June 30, 2008 increased
$484.7 million from the six months ended June 30,
2007. The net funding from financing activities represents the
additional contributions made by Sprint for the period.
Capital
Requirements and Future Financing
Since the Sprint WiMAX Business is currently a collection of
assets and activities that do not generate revenue, it is
dependent on Sprint to fund the acquisition and development of
its network assets. Sprint has committed to provide the required
financial support through the earlier of the Closing, at which
time future funding will become New Clearwires obligation,
or August 31, 2009. However, should Sprint be unable to
provide the committed support, this would significantly affect
the Sprint WiMAX Business ability to further develop the
existing network. The Sprint WiMAX Business anticipates that its
funding requirements for the six months ending December 31,
2008 will be approximately $271 million, which would result
in a Sprint Financing Amount of $426 million at the
Closing, assuming the Closing occurs on December 31, 2008.
Contractual
Obligations
The contractual obligations presented in the table below
represent the Sprint WiMAX Business estimates of future
payments under fixed contractual obligations and commitments as
of December 31, 2007. Changes in the Sprint WiMAX
Business business needs, as well as actions by third
parties and other factors, may cause these estimates to change.
Because these estimates are complex and necessarily subjective,
actual payments in future periods are likely to vary from those
presented in the table. The following table summarizes the
Sprint WiMAX Business contractual obligations, including
payments under lease obligations and minimum amounts due under
other contractual commitments, as of December 31, 2007 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
Contractual Obligations
|
|
Total
|
|
|
1 Year
|
|
|
1 - 3 Years
|
|
|
3 - 5 Years
|
|
|
5 Years
|
|
|
Operating leases(1)
|
|
$
|
167,517
|
|
|
$
|
13,885
|
|
|
$
|
31,482
|
|
|
$
|
33,164
|
|
|
$
|
88,986
|
|
Other contractual obligations(2)
|
|
|
3,321,227
|
|
|
|
936,326
|
|
|
|
271,489
|
|
|
|
157,021
|
|
|
|
1,956,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,488,744
|
|
|
$
|
950,211
|
|
|
$
|
302,971
|
|
|
$
|
190,185
|
|
|
$
|
2,045,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Sprint WiMAX Business leases various switching facilities
and transmitter and receiver sites under operating leases. The
non-cancelable portion of these leases ranges from monthly to up
to 25 years. These leases, with few exceptions, provide for
automatic renewal options and escalations that are either fixed
or based on the consumer price index. Any rent abatements, along
with rent escalations, are included in the computation of rent
expense calculated on a straight-line basis over the lease term.
The lease term for most leases includes the initial
non-cancelable term plus at least one renewal period, as the
exercise of the related renewal option or options is reasonably
assured. Cell site leases generally provide for an initial
non-cancelable term of five to seven years with up to five
renewal options for five years each. As of |
234
|
|
|
|
|
December 31, 2007, the Sprint WiMAX Business rental
commitments and in-substance rental commitments to Sprint for
operating leases, including lease renewals that are reasonably
assured, consisted of leases for cell and switch sites. The
rental commitments are subject to the terms of a Master Lease
Agreement, which we refer to as MLA, with Sprint. The
in-substance rental commitments represent cell and switch sites
that are co-located with WiMAX equipment and therefore represent
a true commitment; however, they are yet to be executed under
the MLA. Total rent expense was $2 million for 2007. |
|
(2) |
|
The Sprint WiMAX Business is a party to other contractual
commitments, which primarily include purchases of network
inventory, spectrum usage agreements and other executory
contracts. |
Off-Balance
Sheet Arrangements
The Sprint WiMAX Business does not have any obligations that
meet the definition of an
off-balance
sheet arrangement that have or are reasonably likely to have a
material effect on its financial statements.
Quantitative
and Qualitative Disclosures About Market Risk
Market risk is the potential loss arising from adverse changes
in market rates and prices, such as interest rates, foreign
currency exchange rates and changes in the market value of
investments. Since the Sprint WiMAX Business has been funded to
date by Sprint, there is no direct potential loss arising from
changes in market rates and prices as described above. The
Sprint WiMAX Business has secured long-term fixed price
contracts for certain capital expenditures that may be
manufactured in foreign locations.
Changes
In and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Market
Prices of Equity Interests
As of the date of this proxy statement/prospectus, there is no
established public trading market for the equity interests of
Sprint HoldCo, Sprint Sub or the Sprint WiMAX Business.
235
DIRECTORS
OF NEW CLEARWIRE
The Equityholders Agreement provides for the nomination by
each of Sprint, Eagle River, Intel and the Strategic Investors
as a group, of a certain number of members of the board of
directors of New Clearwire. Unless a director resigns or is
removed, each director (other than the first board of directors
who will hold office until their successors are elected and
qualified at New Clearwires 2009 annual meeting) elected
will hold office for the longer of one year or until that
directors successor is elected and qualified. The
directors, other than the first board of directors, will be
elected by resolution of the board of directors or by the
stockholders at the annual meeting or a special meeting of
stockholders, except as provided in the New Clearwire
Bylaws. The table below lists the persons expected to be
nominated and elected to the board of directors of New Clearwire
following the completion of the Transactions, along with the
party to the Equityholders Agreement expected to nominate
each person, each nominees age as of the date of the
special meeting and any other position that such nominee holds
with New Clearwire:
|
|
|
|
|
|
|
|
|
Position With
|
|
Age as of the
|
|
|
Name
|
|
New Clearwire
|
|
Special Meeting
|
|
Nominated by
|
|
Craig O. McCaw
|
|
Chairman
|
|
59
|
|
Eagle River
|
Daniel R. Hesse
|
|
Director
|
|
54
|
|
Sprint
|
The following is a brief biography of each director nominee of
New Clearwire that is known as of the date of this proxy
statement/prospectus:
Craig O. McCaw is expected to serve as Chairman of New
Clearwire on completion of the Transactions. He has served as
Clearwires Chairman since he founded the Company in
October 2003. Previously, Mr. McCaw served as
Clearwires Chief Executive Officer from October 2003 until
May 2006 and as Clearwires Co-Chief Executive Officer from
May 2006 to January 2007. Since May 2000, Mr. McCaw has
served as a director and Chairman of ICO Global Communications
(Holdings) Limited, which we refer to as ICO, and has served as
a director of ICO North America, Inc. since December 2004.
Mr. McCaw is also Chairman, Chief Executive Officer and a
member of Eagle River Investments, LLC, Eagle River, and ERI and
its affiliates, which are private investment companies that
focus on strategic investments in the communications industry.
Mr. McCaw also currently serves as a director of RadioFrame
Networks, Inc. and of Tello Corp. Mr. McCaw is a former
director of Nextel Communications, Inc. and XO Communications,
Inc., formerly known as NEXTLINK Communications, Inc.
Daniel R. Hesse is expected to serve as a director of New
Clearwire on completion of the Transactions. He has served as
Chief Executive Officer, President and Director of Sprint since
December 2007. He served as Chairman, President and Chief
Executive Officer of Embarq Corporation from May 2006 to
December 2007. He served as President of Sprints local
telecommunications business from June 2005 to May 2006. He
served as Chairman, President and Chief Executive Officer of
Terabeam Corporation, a Seattle-based communications company,
from March 2000 to June 2004. He served as President and Chief
Executive Officer of AT&T Wireless Services, a division of
AT&T, from 1997 to 2000.
We expect the remaining members of the board of directors of New
Clearwire to be determined before the Closing in accordance with
the terms of the Equityholders Agreement.
Director
Nominations
Under the Equityholders Agreement, the board of directors
of New Clearwire will consist of 13 directors, of which
seven directors will be nominated by Sprint (of whom at least
one must be independent and who must qualify for service on New
Clearwires Audit Committee under NASDAQ rules and federal
securities laws and be willing to serve on the Audit Committee),
one director will be nominated by Eagle River, one director will
be nominated by Intel, two directors will be nominated by the
Strategic Investors as a group, one independent director (who
must qualify for service on New Clearwires Audit Committee
under NASDAQ rules and federal securities laws and be willing to
serve on the Audit Committee) will be nominated by the Investors
as a group and one independent director (who must qualify for
service as chairman of New Clearwires Audit Committee
under NASDAQ rules and federal securities laws and be willing to
serve as chairman of the Audit Committee) nominated by the
Nominating Committee of New Clearwire. The number
236
of nominees that an Equityholder has the right to nominate is
subject to adjustment in the event that the number of shares of
New Clearwire Common Stock held by such Equityholder is reduced
below a certain level, generally 50% of the number of shares it
held at the Closing of the Transactions.
Director
Independence
Under the NASDAQ Marketplace Rules, a controlled
company is a company of which more than 50% of the voting
power is held by an individual, a group or another company. It
is expected that New Clearwire will be a controlled company
within the meaning of the NASDAQ Marketplace Rules. On
completion of the Transactions, Sprint is expected to own
approximately 49% to 52% of the outstanding voting power of
New Clearwires outstanding capital stock. In
addition, the Investors are expected to own approximately 25% to
30% and Eagle River is expected to own approximately 5% of the
outstanding voting power of New Clearwires Common Stock.
As a result of the Equityholders Agreement and the
combined voting power of Sprint, Eagle River and the Investors,
we expect that New Clearwire will be exempt from complying with
NASDAQs requirements that (1) a majority of the board
of directors consist of independent directors, (2) the
compensation of officers be determined, or recommended to the
board of directors for determination, by a majority of the
independent directors or a Compensation Committee comprised
solely of independent directors, and (3) director nominees
be selected, or recommended for the board of directors
selection, by a majority of the independent directors or a
Nominating Committee comprised solely of independent directors
with a written charter or board resolution addressing the
nomination process. New Clearwire will elect to use these
exemptions available to controlled companies.
Board
Meetings and Committees
In accordance with the Equityholders Agreement, it is
expected that New Clearwire will establish four committees: an
Audit Committee, a Compensation Committee, a Nominating
Committee and a Transactions Committee. To the extent that New
Clearwires board of directors delegates any authority to a
committee, then each of Sprint, Intel, Eagle River and the
Strategic Investors will be entitled to designate at least one
designee to any such committee for so long as it has the right
to nominate at least one director, unless such designation would
in the good faith determination of a majority of the independent
directors be inappropriate as a result of a conflict of interest
on the part of such designee, the party designating such
designee or any of their respective affiliates. Each such
committee is expected to be governed by a written charter, and a
current copy of each such charter will be available to New
Clearwires stockholders on its website. The membership for
each of the board committees has not been determined as of the
date of this proxy statement/prospectus, but will be determined
before the Closing.
Audit
Committee
It is expected that the primary responsibilities of the Audit
Committee will be to oversee the accounting and financial
reporting processes of New Clearwire as well as its affiliated
and subsidiary companies, and to oversee the internal and
external audit processes. It is also expected that the Audit
Committee will assist New Clearwires board of
directors in fulfilling its oversight responsibilities by
reviewing the financial information which is provided to
stockholders and others, and the system of internal controls
which management and New Clearwires board of directors
will have established. It is expected that the Audit Committee
will oversee the independent auditors, including their
independence and objectivity. However, the Audit Committee
members will not act as professional accountants or auditors,
and their functions will not be intended to duplicate or
substitute for the activities of management and the independent
auditors. It is expected that the Audit Committee will be
empowered to retain independent legal counsel and other advisors
as it deems necessary or appropriate to assist the Audit
Committee in fulfilling its responsibilities, and to approve the
fees and other retention terms of the advisors.
Pursuant to the Equityholders Agreements, it is expected
that the Audit Committee will consist of three or more
independent directors, including Sprints designated
director that qualifies as an independent director
237
and the independent director designated by Intel and the
Strategic Investors (as a group), and that the approval of a
majority of the Audit Committee will be required to approve any
matter before the Audit Committee. At least one member of the
Audit Committee will qualify as an audit committee
financial expert under the federal securities laws and
each member of the Audit Committee will have the financial
sophistication required under the rules of the NASDAQ
Global Select Market.
Compensation
Committee
It is expected that the primary responsibilities of the
Compensation Committee will be to periodically review and
approve the compensation and other benefits for New
Clearwires employees, officers and independent directors,
including reviewing and approving corporate goals and objectives
relevant to the compensation of New Clearwires executive
officers in light of those goals and objectives, and setting
compensation for these officers based on those evaluations. It
is also expected that New Clearwires Compensation
Committee will administer and have discretionary authority over
the issuance of stock awards under any New Clearwire stock
compensation plans.
It is expected that the Compensation Committee will be able to
delegate authority to review and approve the compensation of New
Clearwires employees to certain of New Clearwires
executive officers, including with respect to stock option or
stock appreciation rights grants made to under any New Clearwire
stock option plans, stock compensation plans or stock
appreciation rights plans.
Pursuant to the Equityholders Agreement and subject to
certain limitations and qualifications, it is expected that the
Compensation Committee will, among other things, determine
compensation for the Chief Executive Officer of New Clearwire
and Clearwire Communications and all executive officers of New
Clearwire and Clearwire Communications who report directly to
the Chief Executive Officer, and will consist of four members,
including one of Sprints designated directors, one of the
Strategic Investors designated directors, Eagle
Rivers designated director and the independent director
designated by the Investors.
Nominating
Committee
It is expected that the Nominating Committee will assist New
Clearwires board of directors with respect to:
(a) the organization and membership and function of New
Clearwires board of directors, including the
identification and recommendation of director nominees and the
structure and membership of each committee of New
Clearwires board of directors, (b) corporate
governance principles applicable to the New Clearwire, and
(c) New Clearwires policies and programs that relate
to matters of corporate responsibility. The Nominating Committee
is expected to review and make recommendations to New
Clearwires board of directors regarding the composition of
New Clearwires board of directors, structure, format and
frequency of the meetings. It is expected that the Nominating
Committee will not formally establish any specific, minimum
qualifications that must be met by each candidate for New
Clearwires board of directors or specific qualities or
skills that are necessary for one or more of the members of the
board of directors to possess. However, it is expected that the
Nominating Committee, when considering a potential candidate,
will factor into its determination the following qualities of a
candidate, among others: professional experience, educational
background, knowledge of our business, integrity, professional
reputation, independence, wisdom, and ability to represent the
best interests of our stockholders. It is also expected that the
Nominating Committee will review and make recommendations to New
Clearwires board of directors regarding the nature,
composition and duties of the committees of New Clearwires
board of directors. It is expected that the committee will
review and consider stockholder recommended candidates for
nomination to New Clearwires board of directors; however,
the Nominating Committee initially will only be responsible for
selecting one nominee to New Clearwires board of
directors, which will initially have 13 seats. It is
expected that New Clearwires board of directors will
establish a policy whereby stockholders may propose nominees for
consideration by the Nominating Committee by submitting the
names and other relevant information to the Corporate Secretary
at the following address: New Clearwire Corporation,
4400 Carillon Point, Kirkland, WA 98033.
Pursuant to the Equityholders Agreement and subject to
certain limitations and qualifications, it is expected that New
Clearwires Nominating Committee will consist of five
members, including two of Sprints
238
designated directors, Eagle Rivers designated director,
one of the Strategic Investors designated directors and
Intels designated director.
Transactions
Committee
Pursuant to the Equityholders Agreement, New Clearwire is
expected to establish a special committee known as the
Transactions Committee. Under the Equityholders Agreement,
if New Clearwire proposes to incur indebtedness or take any
other action that could violate the terms of Sprints debt
agreements, and if Sprint is unable to timely deliver to New
Clearwire a Compliance Certificate certifying that the proposed
indebtedness or other action does not violate Sprints debt
agreements and the accompanying legal opinion from a nationally
recognized law firm, it is expected that the Transactions
Committee will determine whether to proceed with the proposed
indebtedness or other action and whether Sprint must take
certain actions to ensure that it can deliver a Compliance
Certificate and the accompanying legal opinion. In addition, it
is expected that the Transactions Committee will determine the
appropriate course of action to avoid any possible restriction
or limitation on the operations of New Clearwire and its
subsidiaries arising out of any litigation or liabilities
related to Sprint and its subsidiaries and subject to
indemnification by Sprint under the Transaction Agreement.
Pursuant to the Equityholders Agreement, it is expected
that the Transactions Committee will consist of all directors
other than those directors designated by Sprint who are
employees or directors of Sprint or any of its affiliates or who
would not be independent directors of Sprint if they were to sit
on the board of directors of Sprint or any of its affiliates.
Clearwire
Director Compensation
Clearwire currently has four independent directors who qualify
for compensation. Employee directors, and directors appointed
pursuant to agreements with Intel and Bell, do not receive any
compensation for their board positions. Mr. Kauser was an
employee director until his resignation as Chief Technology
Officer on August 1, 2007, and accordingly, he received no
compensation in 2007 for his service as a director. Independent
directors receive an initial stock option grant and follow-on
annual stock option grants. In addition, committee chairpersons
receive annual cash compensation of $15,000 and other
independent directors receive annual cash compensation of
$12,000, plus additional cash compensation of $1,000 per
meeting, for meetings attended in person, and $500 for
telephonic meetings. Directors are also reimbursed for actual
out-of-pocket
expenses. Compensation is paid out approximately two to three
times a year, depending on the number of meetings being held.
Mr. McCaw received $300,000 for his service as Chairman for
2007.
The following table sets forth a summary of the compensation we
paid to our non-employee directors in 2007:
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Fees Earned or
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Paid in
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Stock
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Option
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Name
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Cash ($)
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Awards ($)
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Awards(2) ($)
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Total ($)
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Peter L.S. Currie
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40,500
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(1)
|
|
|
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(3)
|
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125,941
|
(4)(5)
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166,441
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Richard P. Emerson
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|
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33,500
|
(1)
|
|
|
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(6)
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|
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39,123
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(5)(7)
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72,623
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Stuart M. Sloan
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32,500
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(1)
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|
|
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(8)
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39,123
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(5)(9)
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71,623
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Michelangelo A. Volpi
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13,533
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59,490
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(10)(11)(16)
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73,023
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Nicolas Kauser(12)
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(14)
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David Perlmutter(12)
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Michael J. Sabia (12)(13)
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Arvind Sodhani(12)(15)
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(1) |
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Amounts shown represent compensation earned in 2006 and 2007,
all of which was paid in 2007. |
239
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(2) |
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Amounts shown reflect the dollar amount of such option award
recognized for financial statement purposes in the year ended
December 31, 2007, in accordance with
SFAS No. 123(R). |
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(3) |
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As of the end of fiscal year 2007, Mr. Currie held an
aggregate of 266,972 shares of Clearwire Class A
Common Stock. |
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(4) |
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As of the end of fiscal year 2007, Mr. Currie held stock
options to purchase an aggregate of 30,832 shares of
Clearwire Class A Common Stock. |
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(5) |
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The grant date fair value of each 2007 stock option grant
computed in accordance with SFAS No. 123(R) is $79,750. |
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(6) |
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As of the end of fiscal year 2007, Mr. Emerson held an
aggregate of 85,655 shares of Clearwire Class A Common
Stock. |
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(7) |
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As of the end of fiscal year 2007, Mr. Emerson held stock
options to purchase an aggregate of 21,249 shares of
Clearwire Class A Common Stock. |
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(8) |
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As of the end of fiscal year 2007, Mr. Sloan held an
aggregate of 268,496 shares of Clearwire Class A
Common Stock. |
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(9) |
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As of the end of fiscal year 2007, Mr. Sloan held stock
options to purchase an aggregate of 19,583 shares of
Clearwire Class A Common Stock. |
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(10) |
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The grant date fair value of such award computed in accordance
with SFAS No. 123(R) is $132,911. |
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(11) |
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As of the end of fiscal year 2007, Mr. Volpi held stock
options to purchase an aggregate of 8,333 shares of
Clearwire Class A Common Stock. |
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(12) |
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Messrs. Kauser, Perlmutter, Sabia and Sodhani did not
receive any compensation for service on the Clearwire board of
directors. |
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(13) |
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Mr. Sabia is the Chief Executive Officer of Bell.
Accordingly, the reporting person may be deemed to share the
power to vote or direct the vote of and dispose or direct the
disposition of the shares beneficially owned by Bell. As of the
end of fiscal year 2007, Bell held an aggregate of
12,989,039 shares of Clearwire Class A Common Stock. |
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(14) |
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As of the end of fiscal year 2007, Mr. Kauser held an
aggregate of (1) 10,000 shares of Clearwire
Class A Common Stock, and (2) stock options to
purchase an aggregate of 909,998 shares of Clearwire
Class A Common Stock. |
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(15) |
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Mr. Sodhani resigned from the Clearwire board of directors
effective December 23, 2007. |
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(16) |
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As of the end of fiscal year 2007, Mr. Volpi held an
aggregate of 4,000 shares of Clearwire Class A Common
Stock. |
New
Clearwire Director Compensation
The board of directors of New Clearwire has not set a policy for
compensation of New Clearwires directors, but it is
expected that one will be set shortly after the Closing and
disclosed in New Clearwires future public filings.
Indemnification
of Officers and Directors
The New Clearwire Charter and the New Clearwire Bylaws allow us
to indemnify our officers and directors to the fullest extent
permitted by the DGCL. It also contains provisions that provide
for the indemnification of directors of the Company for third
party actions and actions by or in the right of the Company that
mirror Section 145 of the DGCL.
In addition, the New Clearwire Charter states that it shall have
power to purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of New
Clearwire, or is or was serving at the request of New Clearwire
as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, including service with respect to an employee
benefit plan,
240
against any liability asserted against that person or incurred
by that person in any such capacity, or arising out of that
persons status as such, and related expenses, whether or
not the corporation would have the power to indemnify that
person against such liability under the DGCL. We also have and
intend to maintain director and officer liability insurance, if
available on reasonable terms.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or
persons controlling us under the foregoing provisions, we have
been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
241
EXECUTIVE
OFFICERS AND EXECUTIVE COMPENSATION
Executive
Officers of Clearwire
The following sets forth certain information as of
August 15, 2008, about Clearwires executive officers,
other than Mr. McCaw, whose biography is included under the
section Directors of New Clearwire, with respect to
their service as executive officers of Clearwire before the
completion of the Transactions. We expect that our policies and
procedures with respect to executive and director compensation
will initially remain unchanged following completion of the
Transactions.
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Name
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Age
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Position
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Craig O. McCaw
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59
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Chairman
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Benjamin G. Wolff
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39
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Chief Executive Officer
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Perry S. Satterlee
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48
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Chief Operating Officer
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John A. Butler
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46
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Chief Financial Officer and Executive Vice President
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R. Gerard Salemme
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54
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Executive Vice President Strategy, Policy, and
External Affairs
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Scott Richardson
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42
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Chief Strategy Officer and Executive Vice President
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John Saw, PhD
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46
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Chief Technology Officer and Vice President
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Hope F. Cochran
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37
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Senior Vice President, Finance and Treasurer
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Broady R. Hodder
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36
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Vice President, General Counsel and Secretary
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Robert M. DeLucia
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44
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Chief Accounting Officer
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Benjamin G. Wolff Chief Executive Officer.
Mr. Wolff has served as Clearwires Chief Executive
Officer and as a director since January 2007. Mr. Wolff
previously served as Co-President and Chief Strategy Officer
from October 2005 to January 2007, and as Clearwires
Co-Chief Executive Officer from May 2006 to January 2007.
Previously, Mr. Wolff served as our Executive Vice
President from April 2004 to October 2005. In addition to his
positions with Clearwire, Mr. Wolff is a principal of Eagle
River, the President of Eagle River and ERI, and a director of
ICO and ICO North America. Mr. Wolff also serves on the
board of CTIA the Wireless
Association®
and on the board of the Woodland Park Zoo in Seattle,
Washington. From August 1994 until April 2004, Mr. Wolff
was a lawyer with Davis Wright Tremaine LLP, where he became a
partner in January 1998. Mr. Wolffs practice focused
on mergers and acquisitions, corporate finance and strategic
alliance transactions. While with Davis Wright Tremaine LLP, he
co-chaired the firms Business Transactions Department and
served on the firms Executive Committee.
Perry S. Satterlee Chief Operating Officer.
Mr. Satterlee has served as Clearwires President
since January 2007, Chief Operating Officer since July 2004 and
as the President and Chief Executive Officer of Clearwire US LLC
since May 2006. Mr. Satterlee served as Clearwires
Co-President from October 2005 to January 2007. Previously,
Mr. Satterlee was Clearwires Chief Operating Officer
from July 2002 to July 2004, and Vice President-Sales and
Marketing, from August 1998 to July 2004, of Nextel Partners
Inc. Before joining Nextel Partners, Mr. Satterlee was the
President-Pacific Northwest Area of Nextel Communications, Inc.
Before joining Nextel, Mr. Satterlee served from 1992 to
1996 as Vice President and General Manager of Central California
District of AT&T Wireless Services, formerly McCaw
Cellular. From 1990 to 1992, he was General Manager of McCaw
Cellulars Ventura/Santa Barbara market. From 1988 to
1990, Mr. Satterlee was Director of Planning for McCaw
Cellular, where he led the companys planning and budgeting
processes.
John A. Butler Chief Financial Officer and
Executive Vice President. Mr. Butler has served as
Clearwires Chief Financial Officer since March 2005.
Previously, Mr. Butler served as Executive Vice President
and Chief Financial Officer of Valor Communications Group, Inc.
from 2000 to 2005. From 1998 to 2000, Mr. Butler served as
Executive Vice President and Chief Financial Officer of
Commonwealth Telephone Enterprises, Inc. Before 1998, he was a
director at First Union Capital Markets (Wachovia) in the Media
and Communications Group. Mr. Butler has been employed by a
number of financial institutions, and began his career at Arthur
Andersen & Co.
242
Mr. Butler has informed Clearwire that he will be leaving
Clearwire effective at the Closing. As of the date of this proxy
statement/prospectus, Clearwire has not determined who will hold
the position of Chief Financial Officer of New Clearwire, and is
in the process of searching for a suitable candidate.
R. Gerard Salemme Executive Vice
President Strategy, Policy, and External Affairs.
Mr. Salemme has served as a director since November 2003
and Executive Vice President Strategy, Policy, and
External Affairs of Clearwire since April 2004 and currently is
a principal of Eagle River, a Vice President of ERI, and a
director of and consultant to ICO and ICO North America.
Previously, Mr. Salemme served as Clearwires Vice
President and Secretary from November 2003 to April 2004. Before
joining Clearwire, Mr. Salemme was Senior Vice President,
External Affairs of XO Communications, Inc. from May 1997 to
June 2003. Before joining XO Communications, Inc.,
Mr. Salemme served as AT&T Corp.s Vice President
of Government Affairs, directing AT&T Corp.s federal
regulatory public policy organization, including participation
in the FCCs narrowband and broadband PCS auctions. Before
AT&T Corp., Mr. Salemme served as Senior Vice
President, External Affairs for McCaw Cellular. Previously,
Mr. Salemme was the Senior Telecommunications Policy
Analyst for the United States House of Representatives
Subcommittee on Telecommunications and Finance. Before joining
the subcommittee, he was a Regional Manager at GTE
Corporation/Sprint Corporation and supervised the companys
government relations in the New York/New England region.
Mr. Salemme has also served as Chief of Staff to
Congressman Ed Markey of Massachusetts and was a lecturer of
economics at the University of Massachusetts at Salem.
Scott Richardson Chief Strategy Officer and
Executive Vice President. Mr. Richardson has served as
Clearwires Chief Strategy officer since January 2007. From
2002 to 2006 Mr. Richardson led Intels broadband
wireless business and most recently served as vice president of
Intels Mobility Group and general manager of the
companys Service Provider Business Group. In these roles,
Mr. Richardson was responsible for creating the IEEE 802.16
standard and delivering the companys silicon products for
WiMAX Certified wireless equipment and access devices. From 1998
to 2002 Mr. Richardson served as general manager of
Intels OEM communication systems business serving the
networking and communications market. From 1988 to 1998
Mr. Richardson led software efforts within Intels
Enterprise Server Group and held various staff roles in
communications businesses.
John Saw, PhD. Chief Technology Officer
and Vice President. Dr. Saw has served as Clearwires
Chief Technology Officer since July 2007. From October 2003 to
July 2007 Dr. Saw served as Clearwires vice president
of Engineering for Clearwire. Before joining Clearwire, from
2002 to 2003 Dr. Saw was senior vice president and general
manager of Fixed Wireless Access at Netro Corp (now SR Telecom)
where he initiated the rollout of Netros broadband
wireless product in Europe. From 1997 to 2002 Dr. Saw
served as chief engineer and vice president of Engineering at
AT&T Wireless (now AT&T). At AT&T Wireless,
Dr. Saw was instrumental in the development and rollout of
the companys digital broadband wireless service, one of
the earliest OFDM-based wireless systems deployed and
foreshadowed the subsequent development of the WiMAX 802.16
standards. Before joining AT&T Wireless, Dr. Saw spent
nine years in various leadership positions at Nortel where he
was involved in the development of TDMA, GSM, CDMA and fixed
wireless cellular infrastructure and microwave radio products.
Hope F. Cochran Senior Vice President,
Finance and Treasurer. Ms. Cochran has served as
Clearwires Senior Vice President, Finance since August
2008 and as Treasurer since June 2006. From November 2005 to
August 2008, Ms. Cochran was our Vice President, Finance.
Previously, from May 2003 to August 2005, Ms. Cochran
served as the Chief Financial Officer of Evant Incorporated, a
planning and logistics software developer. From May 2001 to May
2003, Ms. Cochran served as the Controller of the
Americas Sales Operations for PeopleSoft, Inc.
Before 2001, Ms. Cochran was a founder and served as the
Chief Financial Officer of SkillsVillage, a contractor supply
chain management software provider, until its sale to
PeopleSoft, Inc. In both chief financial officer positions,
Ms. Cochran managed corporate finance, accounting, human
resources, legal and facilities. Ms. Cochran began her
career as an auditor at Deloitte & Touche LLP.
Broady R. Hodder Vice President, General
Counsel and Secretary. Mr. Hodder has served as
Clearwires Vice President and General Counsel since May
2006 and has been Clearwires Secretary since June 2006.
Previously, Mr. Hodder served as Clearwires Corporate
Counsel and Assistant Secretary from
243
November 2004 to November 2005 and Vice President Legal, Finance
and Corporate Development from November 2005 to May 2006. Before
joining the Company, from April 2001 to November 2004,
Mr. Hodder was a lawyer with Davis Wright Tremaine LLP,
where he became a partner in January 2004. Before joining Davis
Wright Tremaine LLP, Mr. Hodder was a lawyer with Gray Cary
Ware & Freidenrich LLP and Lionel Sawyer and
Collins Ltd.
Robert M. DeLucia Chief Accounting Officer.
Mr. DeLucia has served as Clearwires Chief Accounting
Officer since May 2007. Before coming to Clearwire,
Mr. DeLucia served in a variety of positions with Adelphia
Communications Corporation from August 2002 to March 2007 as
part of that companys restructuring team, including most
recently Vice President and Controller and previously Vice
President of Reporting and Vice President and Assistant
Controller. Before working for Adelphia, Mr. DeLucia worked
for Public Interactive, Inc. as its interim Chief Financial
Officer.
Executive
Officers of XOHM
The following sets forth certain information about the executive
officers of XOHM, with respect to their service as executive
officers of XOHM before the completion of the Transactions.
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|
|
|
|
Name
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|
Age
|
|
Position
|
|
Barry West
|
|
|
63
|
|
|
President
|
Atish Gude
|
|
|
44
|
|
|
Senior Vice President, Business Operations/Mobile Brand
Operations
|
Douglas Smith
|
|
|
40
|
|
|
Chief Technical Operations Officer
|
Rebecca Hanson
|
|
|
43
|
|
|
Vice President, Strategy
|
Ross D. Vincenti
|
|
|
47
|
|
|
Senior Counsel
|
|
|
|
|
|
|
|
Barry West President, XOHM business unit.
Sprint Chief Technology Officer and President
4G Mobile Broadband. Mr. West was appointed
President 4G Mobile Broadband effective August 2006.
Mr. West was appointed Chief Technology Officer at the time
of the Sprint-Nextel merger in August 2005. He served as
Executive Vice President and Chief Technology Officer of Nextel
Communications, Inc. from March 1996 until August 2005.
Atish Gude Senior Vice President of Business
Operations/Mobile Broadband Operations, XOHM business unit.
Mr. Gude has served as Senior Vice President of Business
Operations/Mobile Broadband Operations for XOHM since August
2006. Prior to this role, from August 2005 to August 2006, he
served as the Senior Vice President of Corporate Strategy for
Sprint. From July 2000 to August 2005, Mr. Gude was the
Vice President of Strategic Planning for Nextel Communications,
Inc., where he was responsible for a number of aspects of
corporate strategy as well as building the financial operating
plan for Nextel Communications, Inc. during those years.
Mr. Gudes team drove Nextel Communications,
Inc.s efforts into wireless broadband, which involved
launching and managing the Flarion/Raleigh-Durham market trial
and efforts that ultimately led to the acquisition of the
2.5 GHz spectrum.
Douglas Smith Chief Technical Operations
Officer, XOHM business unit. Mr. Smith has served as the
Chief Technical Operations Officer for XOHM since June 2007. He
is responsible for the design, deployment and operation of
Sprints WiMAX network. Prior to his current role, from
March 2006 to June 2007, he served as Sprints Vice
President of Network Engineering, where he led a team
responsible for the engineering of Sprints wireless and
wireline networks worldwide. From August 2005 to March 2006, he
was Vice President of Strategy and Standards for Sprint, where
he was responsible for field engineering and operations for the
Sprint Nextel combined networks (iDEN and CDMA). From April 2003
to August 2005, Mr. Smith was Vice President of National
Technical Operations for Nextel Communications, Inc. (before the
merger with Sprint), where he was responsible for network
operations, RF engineers and site development for the Nextel
Communications, Inc. network. Mr. Smith joined Nextel
Communications, Inc. in 1993.
Rebecca Hanson Vice President of Strategy,
XOHM business unit. Ms. Hanson has served as the Vice
President of Strategy for XOHM since August 2007, where she
oversees a team of strategy, corporate development, planning and
finance professionals responsible for long-term growth strategy.
From July 2006 to
244
July 2007, Ms. Hanson was a consultant to multiple national
media companies in the areas of internet radio and related
digital entertainment. From July 2000 to July 2006,
Ms. Hanson was Senior Vice President, Business Affairs for
XM Satellite Radio Inc., where she was the lead negotiator for
key strategic alliances and partnerships in the areas of
programming, marketing, distribution, acquisitions/joint
ventures and product development. Previously, Ms. Hanson
practiced law with a focus on technology and venture capital.
Ross D. Vincenti Senior Counsel, XOHM
business unit. Mr. Vincenti has served as Senior Counsel
for XOHM since May 2006. Prior to this role, from November 2003
to May 2006, he served as Senior Counsel for Sprint. From
January 2001 to November 2003, Mr. Vincenti worked for the
North American mobile wireless communications division of
Siemens AG, an international electronics and electrical
engineering company, operating in the industry, energy and
healthcare sectors, as its Vice President/General Counsel and
Corporate Secretary. Previously, Mr. Vincenti held a
variety of executive level legal positions, primarily in the
telecommunications, technology and financial services industries.
Executive
Officers of New Clearwire
The following sets forth certain information about the persons
expected to be appointed as New Clearwires executive
officers following the completion of the Transactions. The
biographical information for each of Messrs. Wolff,
Satterlee Hodder, Salemme, Saw and Richardson is set forth in
the subsection titled Executive Officers of
Clearwire and the biographical information for each of
Messrs. West and Gude is set forth in the subsection titled
Executive Officers of XOHM. The
remainder of New Clearwires management information,
policies and procedures will be determined before or after the
Closing.
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Name
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Age
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Position
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Benjamin G. Wolff
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|
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39
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Chief Executive Officer
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Barry West
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63
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President and Chief Architect
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Perry S. Satterlee
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48
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Chief Operating Officer
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Atish Gude
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44
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|
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Senior Vice President Chief Marketing Officer
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Broady Hodder
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36
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Senior Vice President General Counsel
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R. Gerard Salemme
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54
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Executive Vice President Strategy, Policy &
External Affairs
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John Saw
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|
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46
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|
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Senior Vice President Chief Technology Officer
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Scott Richardson
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|
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42
|
|
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Senior Vice President Chief Strategy Officer
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Scott Hopper
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|
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46
|
|
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Senior Vice President Corporate Development
|
Scott Hopper Vice President
Corporate Development for Clearwire. Mr. Hopper has served in
this role since November 15, 2005. Before joining
Clearwire, Mr. Hopper served as Vice President
Corporate Development for Western Wireless Corporation from 1999
until Western Wireless Corporations sale to Alltel
Corporation in 2005. In that role, Mr. Hopper was
responsible for all of Western Wireless Corporations
corporate and business development activities.
We expect additional executive officers of New Clearwire to be
determined before the Closing.
Procedures
for Determining Clearwires Compensation Awards
The Compensation Committee evaluates individual executive
performance with a goal of setting compensation at levels the
Compensation Committee believes are comparable with the levels
of compensation provided to executives in other companies with
whom we compete for executive talent or that are of similar
industry profile, while taking into account our relative
performance and our own strategic goals. The Compensation
Committee acknowledges that it is challenging to compare the
company to other companies for this purpose because few other
companies are similarly situated.
We have periodically retained compensation consultants to review
our policies and procedures with respect to executive
compensation. To assist the Compensation Committee in its review
of executive compensation, we compile data and participate in
compensation surveys conducted by independent third parties,
such as Culpepper, Thobe, Equilar and Economic Research
Institute. We have a high confidence level in the accuracy and
confidentiality standards applied to the data provided in these
surveys. We also gather data
245
from annual reports and proxy statements of companies that the
Compensation Committee selects as a peer group. We
believe that the companies in the peer group are representative
of the companies with which we compete for executive talent and
share similar industry profiles. In 2007, this peer group we
considered consisted of the following companies:
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Akamai Technologies, Inc
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LSI Logic Corporation
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Amazon.com, Inc.
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MetroPCS Communications, Inc.
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Ciena Corporation
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Motorola, Inc.
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Cymer, Inc.
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Novellus Systems, Inc.
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Digital River, Inc
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RealNetworks, Inc.
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Drugstore.Com, Inc.
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Sirius Satellite Radio, Inc.
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F5 Networks, Inc.
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Sprint Nextel Corporation
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Google Inc.
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Time Warner Telecom Corporation
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Hologic, Inc.
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US Cellular Corporation
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Infospace, Inc.
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Varian Semiconductor Equipment
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Intel
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Western Digital Corporation
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Lam Research Corporation
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Xilinx, Inc.
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Leap Wireless International, Inc.
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XM Satellite Radio Holdings, Inc.
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In establishing executive compensation, we compare both the
aggregate total and the individual elements of compensation of
the executive officers. In the first quarter of each year, the
Compensation Committee establishes base salaries and sets the
baseline incentive targets for executive officers. Following the
end of the year, the Compensation Committee reviews executive
performance and determines annual bonus payments to be paid to
executives. Equity grants are generally made bi-annually in the
first and third quarter of each year.
Elements
of Clearwires Compensation
Executive compensation consists of following elements:
Base
Salary
We set base salaries for our executives at levels which we
believe are competitive based on the scope of their
responsibilities, taking into account competitive market
compensation paid by other companies for similar positions.
Executive base salaries generally are targeted near the median
or 50th percentile of salaries paid by comparable companies
for comparable positions. In certain cases, we set base salaries
higher or lower than the median based on level of
responsibility, span of control and experience. Base salaries
are reviewed annually and at the time of hire, promotion or
changes in responsibility. Base salaries may also be adjusted
from time to time to realign salaries with market levels. For
2007, this review occurred in the first quarter. Base salary
changes also impact target bonus amounts and actual bonus
payouts, which are based on a percentage of base salary.
Discretionary
Annual Bonus
The Compensation Committee has the authority to award
discretionary annual bonuses to our executive officers under the
terms of our 2007 Annual Performance Bonus Plan. Our 2007 Annual
Performance Bonus Plan governs our procedures for granting
annual bonus awards to our executive officers. The Compensation
Committee will continue to have the authority to award bonuses,
set the terms and conditions of those bonuses and take all other
actions necessary for the plans administration. These
awards are intended to compensate officers for achieving
financial and operational goals and for achieving individual
annual performance objectives. These objectives vary depending
on the individual executive, but relate generally to strategic
factors such as network deployment and performance, new service
implementation and subscriber acquisition, and to financial
factors such as raising capital, managing capital and operating
expenses, and improving our results from operations.
246
Under our 2007 Annual Performance Bonus Plan, for each fiscal
year, the Compensation Committee will select, in its discretion,
the executive officers of the Company or its subsidiaries who
are to participate in the plan. The Compensation Committee will
establish the terms and conditions applicable to any award
granted under the plan and a participant will be eligible to
receive an award under the plan in accordance with such terms
and conditions. Bonuses are paid annually in the first quarter
following completion of a given fiscal year. The actual amount
of discretionary bonus will be determined based on the
attainment of the specific company objectives. However, the
Compensation Committee, at its discretion may increase or
decrease the discretionary annual bonus amount based on each
executives individual performance and contribution to our
strategic goals. The plan does not fix a maximum payout for any
officers annual discretionary bonus.
Performance
Measures for 2007
For the 2007 fiscal year, management established quarterly
performance goals with respect to each of the following domestic
performance measures: total revenue, cash outlay, customer churn
and days on air. With respect to each calendar quarter,
executives banked a portion of their annual bonus
target based on the degree to which these quarterly performance
goals were achieved. An executives actual annual bonus
(subject to the Compensation Committees discretion to
increase or decrease an executives bonus) was the sum of
the bonuses banked through the year.
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Portion of Annual Bonus Target Eligible to Be Earned
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Q1
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Q2
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Q3
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Q4
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Total
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Total Revenue
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6.25%
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6.25%
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6.25%
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6.25%
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25%
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Cash Outlay
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6.25%
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6.25%
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6.25%
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6.25%
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25%
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Customer Churn
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6.25%
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6.25%
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6.25%
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6.25%
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25%
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Days on Air
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6.25%
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6.25%
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6.25%
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6.25%
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|
|
|
25%
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Total
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25%
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25%
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25%
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25%
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|
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100%
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For the 2007 fiscal year, the domestic performance goals
established by management were as follows (dollars in millions):
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Fiscal Year 2007 Performance Goals
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Q1
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Q2
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Q3
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Q4
|
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Domestic Performance Goals
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Actual
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Target
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Actual
|
|
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Target
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Actual
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|
Target
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Actual
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Target
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Total Revenue
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$
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21.3
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$
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22.0
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|
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$
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27.2
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|
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$
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27.7
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|
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$
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31.1
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|
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$
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34.6
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|
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$
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34.9
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|
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$
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43.3
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Cash Outlay
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$
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132.9
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|
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$
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134.5
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$
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169.8
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|
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$
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164.8
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|
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$
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197.8
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|
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$
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222.3
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$
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120.4
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$
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149.3
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Customer Churn
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1.54
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%
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1.70
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%
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1.72
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%
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1.70
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%
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|
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2.07
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%
|
|
|
1.70
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%
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|
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2.13
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%
|
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1.70
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%
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Days on Air
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|
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116,400
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|
|
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119,000
|
|
|
|
137,500
|
|
|
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143,600
|
|
|
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166,200
|
|
|
|
206,000
|
|
|
|
197,900
|
|
|
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212,100
|
|
For the 2007 fiscal year, the percentage of executives
annual bonus target earned based on the foregoing bonus plan was
approximately 84%. Other than with respect to Scott Richardson,
the Compensation Committee did not exercise discretion to
increase or decrease the percentage of any executives
annual bonus target earned. The Compensation Committee exercised
discretion to increase Mr. Richardsons bonus to an
amount equal to 80% of his base salary (for 2007 only) to
reflect additional responsibilities assumed by
Mr. Richardson and his superior performance for Clearwire.
247
Pursuant to either an employment agreement or offer letter, each
executive officer is eligible for a discretionary annual bonus
which is based on a specified percentage of such
executives base salary. The table below shows the fiscal
2007 target bonus as compared to the actual bonus paid for each
of the named executive officers.
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Annual Discretionary
|
|
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Bonus Target as a %
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|
|
Annual Discretionary
|
|
|
Actual Discretionary
|
|
|
Actual Payout as a
|
|
Name
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of Base Salary
|
|
|
Bonus Target(2) ($)
|
|
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Bonus Payout ($)
|
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% of Base Salary
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|
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Benjamin G. Wolff
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|
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100
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750,000
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630,000
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|
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84
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Perry S. Satterlee
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|
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100
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|
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500,000
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|
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420,000
|
|
|
|
84
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|
John A. Butler
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|
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50
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|
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170,000
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|
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142,800
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42
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Scott Richardson(1)
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|
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50
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182,500
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245,280
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67
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|
R. Gerard Salemme
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50
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170,000
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142,800
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42
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(1) |
|
Mr. Richardsons 2007 bonus was paid out based on 80%
of his base salary in recognition of added responsibilities and
superior performance. |
|
(2) |
|
Based on salary at 2007 year end. |
Mr. McCaw is not an employee, and accordingly, does not
receive a discretionary bonus.
Long-Term
Incentive Program
We believe that strong long-term performance is best achieved
through fostering an ownership mentality among our employees, or
partners. We primarily rely on the use of stock and stock-based
awards to create an ownership culture among our partners that is
aligned with our stockholders. We have not adopted stock
ownership guidelines, and our stock compensation plans have
provided the principal method for our executive officers to
acquire equity or equity-linked interests in our company. We
used a combination of methodologies in reviewing peer data,
including comparable industry, maturity of organization and
company size to establish an appropriate balance of cash
compensation and equity ownership. However, due to the early
stage of our business, we expect to provide a greater portion of
total compensation to our executives through our stock
compensation plans rather than through cash-based compensation.
Given the maturity of our organization and volatility of our
stock, the Company chose to implement a blended equity offering,
including stock options, restricted stock awards and restricted
stock units. The Company believes this diversified offering
provides greater potential for retention and incentive purposes
and we will continue to evaluate our equity awards to achieve an
optimal balance.
Stock
Options
Our 2003 Stock Option Plan authorized us to grant options to
purchase shares of common stock to our partners, directors and
consultants. Our Compensation Committee was the administrator of
this stock option plan. Stock option grants were initially made
at the commencement of employment and, occasionally, following a
significant change in job responsibilities or to meet other
special retention or performance objectives. The Compensation
Committee reviewed and approved stock option awards to executive
officers based on a review of competitive compensation data, its
assessment of individual performance, a review of each
executives existing long-term incentives, and retention
considerations. Periodic stock option grants were made at the
discretion of the Compensation Committee to eligible partners
and, in appropriate circumstances, the Compensation Committee
considers the recommendations of members of management, such as
Mr. Wolff, our Chief Executive Officer, Mr. Satterlee,
our President, and Mark Fanning, our Vice President, People
Development. In 2007, certain named executive officers were
awarded stock options in the amounts indicated in the section
titled Grants of Plan Based Awards. The last grant
made under the 2003 Stock Option Plan was on January 19,
2007. We are no longer making grants from the 2003 Stock Option
Plan. The Compensation Committee approved the acceleration of
options on a change in control for certain officers under the
2003 Stock Option Plan.
248
Our 2007 Stock Compensation Plan, adopted on January 19,
2007, authorizes us to grant incentive stock options,
non-qualified stock options, stock appreciation rights,
restricted stock, restricted stock units and other stock awards
to our partners, directors and consultants. Our Compensation
Committee is also the administrator of this plan. Similar to our
2003 Stock Option Plan, stock option awards have been made on a
bi-annual basis, at the commencement of employment and,
occasionally, following a significant change in job
responsibilities or to meet other special retention or
performance objectives. The Compensation Committee reviews and
approves stock option awards to executive officers based on a
review of competitive compensation data, its assessment of
individual performance, a review of each executives
existing long-term incentives, and retention considerations.
Periodic stock option awards are likely to continue to be made
at the discretion of the Compensation Committee to eligible
partners and, in appropriate circumstances, the Compensation
Committee will consider the recommendations of members of
management, as discussed above. Following the adoption of our
2007 Stock Compensation Plan, we ceased to grant additional
stock options under our 2003 Stock Option Plan. In 2007, certain
named executive officers were awarded stock options in the
amounts indicated in the section titled Grants of Plan
Based Awards. The Compensation Committee did not use a set
formula or targets to determine the amount of stock options to
be granted to each executive. In determining the pool of options
to be granted to the executives as a group, the Compensation
Committee evaluated industry trends, including the size and
value of stock awards being granted by comparable companies. The
primary source for this information in 2007 was data derived
from Equilar Inc. When deciding the amount of stock options to
be awarded to each executive on an individual basis, the
Compensation Committee took a number of factors into
consideration, including each executives scope of
responsibility and overall job performance, as well as the value
of the past grants made to the executive. The goal of the
Compensation Committee in making these awards is to retain our
key executives and to motivate them to perform at high levels
while ensuring that compensation expense and dilution levels
remain within appropriate levels relative to those of comparable
companies. Additionally, in February 2008, the named executive
officers were awarded additional stock options. These awards are
made for retention purposes for 2008 and beyond and are not
considered to be part of the officers 2007 compensation,
and as such are not included in the Summary Compensation
Table below.
Our stock option grants made under both plans have an exercise
price equal to the fair market value of our common stock on the
date of grant (closing price on date of grant), typically vest
25% per annum based on continued employment over a four-year
period, and expire ten years after the date of grant; provided,
however, options granted in February 2008 expire seven years
after the date of grant. Incentive stock options also include
certain other terms necessary to assure compliance with the Code.
On September 14, 2007, the Compensation Committee approved
the accelerated vesting of both options and restricted stock
units under the 2007 Stock Compensation Plan on a change in
control to certain of our executive officers.
Restricted
Stock Awards
Our Compensation Committee has made and may in the future elect
to make grants of restricted stock to our executive officers. We
granted Mr. Satterlee restricted stock pursuant to a Stock
Grant Agreement dated July 12, 2004. 50% of the shares
vested on August 16, 2005 and the remainder vested on
August 16, 2006. We granted Mr. Wolff restricted stock
pursuant to a Stock Grant Agreement dated April 17, 2006.
50% of the shares vested on March 1, 2007 and the remainder
vested on March 1, 2008. On February 12, 2007, the
Compensation Committee awarded a grant of restricted stock to
Mr. Richardson as part of his compensation for joining
Clearwire in the position of Chief Strategy Officer. The grant
vests 25% per year on the anniversary of the grant date and
accelerates on a change in control. Other executive officers
have not typically received restricted stock as part of their
employment offers, but Mr. Richardson has extensive
experience in our industry and was viewed by management as a key
addition to our executive leadership team. The one-time grant
was made to Mr. Richardson due to the unique strategic,
technical and marketing skills he possesses that relate to our
emerging industry. Mr. Richardsons stock awards,
along with his options award granted at hire, were designed to
compensate him for the higher compensation and benefits levels
at his previous employer as well as future benefits and
opportunities he was foregoing by joining Clearwire. By
structuring part of this payment
249
in the form of restricted stock that vests over time, Clearwire
also established a retention incentive for Mr. Richardson
to remain with Clearwire.
Introduction
of Restricted Stock Units
In September 2007, we began granting restricted stock units to
certain key partners and executive officers under the 2007 Stock
Compensation Plan for a number of reasons, including retention
purposes, because they are less dilutive than restricted stock
awards and offer additional diversification of executives
equity holdings. Restricted stock units granted to key partners
and executive officers in 2007 vest 25% per year on the
anniversary of the grant, as detailed in the Grants of
Plan Based Awards table below. We will continue to
evaluate which equity award vehicles achieve the best balance
between rewarding key contributors, retention and creating and
maintaining long-term stockholder value. Additionally, in
February 2008, the named executive officers were awarded
additional restricted stock units. These awards were made for
retention purposes for 2008 and beyond and are not considered to
be part of the officers 2007 compensation, and as such are
not included in the Summary Compensation Table below.
Adoption
of Grant Policy
The Clearwire board of directors recognizes the importance of
adhering to specific practices and procedures in the granting of
equity awards. In June 2007, the Board approved a Stock Option
Grant Policy to ensure that the timing of grants is done on a
consistent schedule and that the terms of the grants are
standard across the company. All stock option grants have an
exercise price equal to the fair market value of our common
stock on the grant date.
Employment
Agreements
Our executive officers who are parties to employment agreements
will continue to be parties to those employment agreements in
their current form until such time as the Compensation Committee
determines in its discretion that revisions to the employment
agreements are advisable.
Perquisites
and Benefits
Our goal is to promote and maintain an egalitarian culture. We
do not have programs to provide personal perquisites or
executive benefits to executive officers. Our executive officers
participate in the same benefit programs as all other partners.
These benefits include the following: medical and dental care
plans; flexible spending accounts for healthcare and dependent
care spending; life, accidental death and dismemberment and
disability insurance; employee assistance programs (confidential
counseling); benefit advocacy counseling; a 401(k) plan; and
paid time off. Consistent with our compensation philosophy, we
intend to maintain our current benefits for our executive
officers; however, the Compensation Committee in its discretion
may revise, amend or add to the officers benefits if it
deems it advisable. We believe benefits offered to our
executives are currently lower than median competitive levels
for comparable companies.
Retirement
Plan
Our executive officers are eligible to participate in our 401(k)
plan, on the same basis as other eligible employees. Effective
January 1, 2007, we made a company match of 50% of
partners contributions on the first 6% of eligible pay, up
to 3% of partners eligible compensation. These company
match contributions will vest over a three year period
commencing on the partners hire dates. Partner deferral
contributions are always 100% vested. The company does not offer
a defined benefit pension plan, or any other qualified
retirement plan arrangements. None of our named executives
participate in or have account balances in any other qualified
or non-qualified defined benefit plans sponsored by us.
Nonqualified
Deferred Compensation
None of our named executives participate in or have account
balances in any deferred compensation plans maintained by us.
The Compensation Committee, which is comprised solely of
outside directors as defined
250
for purposes of Section 162(m) of the Code, may elect to
provide our officers and other partners with non-qualified
defined contribution or deferred compensation benefits if the
Compensation Committee determines that doing so is in our best
interests.
Change
in Control Severance Plan
On March 25, 2008, we implemented the Change in Control
Severance Plan for our employees, including named executive
officers. We established the Change in Control Severance Plan to
pay benefits under certain circumstances to our employees as
compensation for certain types of terminations in connection
with a change in control as defined in the Change in
Control Severance Plan. The Change in Control Severance Plan
provides for severance pay and benefits to a named executive
officer if a named executive officers employment is
involuntarily terminated or the named executive officer
voluntarily terminates his or her employment under certain
circumstances and during certain specified time periods. The
severance pay and benefits for each named executive officer
consist of a cash payment in the amount of a specified
percentage of the named executive officers target annual
compensation, continuing health care coverage for a certain
period of time, acceleration of any unvested outstanding equity
awards with a maximum one year exercise period from termination,
and payment of excise taxes that might be imposed under
Section 4999 of the Code, including applicable
gross-up
amounts, should the value of the named executive officers
payments or benefits under the Change in Control Severance Plan
or otherwise, exceed their safe harbor amounts under
Section 280G of the Code. Completion of the Transactions
will constitute a change in control under the Change in Control
Severance Plan. For additional information, including the
potential payments to be made, please see the section titled
Executive Officers and Executive Compensation
Potential Payments on Termination or Change in Control.
Summary
Compensation Table
The following table sets forth information regarding
compensation earned by Clearwires Chief Executive Officer,
former Co-Chief Executive Officer, Chief Financial Officer and
three other most highly compensated executive officers during
2005, 2006 and 2007:
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|
|
|
|
|
|
|
|
Non-Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Option
|
|
|
Incentive Plan
|
|
|
All Other
|
|
|
|
|
|
|
Principal
|
|
|
|
|
Salary
|
|
|
Awards(1)
|
|
|
Awards(2)
|
|
|
Compensation
|
|
|
Compensation
|
|
|
Total
|
|
Name
|
|
Position
|
|
Year
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Benjamin G. Wolff
|
|
Chief Executive Officer
|
|
|
2007
|
|
|
|
705,462
|
|
|
|
475,440
|
|
|
|
6,908,982
|
|
|
|
630,000
|
|
|
|
190,012
|
(3),(4)
|
|
|
8,909,896
|
|
|
|
|
|
|
2006
|
|
|
|
361,308
|
|
|
|
781,250
|
|
|
|
1,678,566
|
|
|
|
900,000
|
|
|
|
717,225
|
(5)
|
|
|
4,438,349
|
|
|
|
|
|
|
2005
|
|
|
|
350,000
|
|
|
|
|
|
|
|
126,667
|
|
|
|
350,000
|
|
|
|
270
|
(7)
|
|
|
826,937
|
|
John A. Butler
|
|
Chief Financial Officer
|
|
|
2007
|
|
|
|
334,231
|
|
|
|
71,681
|
|
|
|
1,340,614
|
|
|
|
142,800
|
|
|
|
9,262
|
(6)
|
|
|
1,898,588
|
|
|
|
|
|
|
2006
|
|
|
|
306,885
|
|
|
|
|
|
|
|
425,900
|
|
|
|
200,000
|
|
|
|
300
|
(7)
|
|
|
933,085
|
|
|
|
|
|
|
2005
|
|
|
|
215,769
|
|
|
|
|
|
|
|
846,000
|
|
|
|
300,000
|
|
|
|
12,166
|
(8)
|
|
|
1,373,935
|
|
Craig O. McCaw
|
|
Chairman and Former
Co-CEO(9)
|
|
|
2007
|
|
|
|
261,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
346,141
|
(10)
|
|
|
608,064
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,749,000
|
(11)
|
|
|
1,749,000
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,096,000
|
(11)
|
|
|
1,096,000
|
|
Perry S. Satterlee
|
|
President and Chief
Operating Officer
|
|
|
2007
|
|
|
|
485,560
|
|
|
|
71,681
|
|
|
|
2,148,050
|
|
|
|
420,000
|
|
|
|
9,325
|
(12)
|
|
|
3,134,616
|
|
|
|
|
|
|
2006
|
|
|
|
371,417
|
|
|
|
250,000
|
|
|
|
822,019
|
|
|
|
350,000
|
|
|
|
450
|
(7)
|
|
|
1,793,886
|
|
|
|
|
|
|
2005
|
|
|
|
355,654
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
350,000
|
|
|
|
450
|
(7)
|
|
|
1,706,104
|
|
R. Gerard Salemme
|
|
EVP Strategy, Policy and
External Affairs
|
|
|
2007
|
|
|
|
336,812
|
|
|
|
53,761
|
|
|
|
2,429,997
|
|
|
|
142,800
|
|
|
|
241,815
|
(3),(13)
|
|
|
3,205,185
|
|
|
|
|
|
|
2006
|
|
|
|
320,647
|
|
|
|
|
|
|
|
752,576
|
|
|
|
200,000
|
|
|
|
690
|
(7)
|
|
|
1,273,913
|
|
|
|
|
|
|
2005
|
|
|
|
307,267
|
|
|
|
|
|
|
|
61,849
|
|
|
|
155,000
|
|
|
|
690
|
(7)
|
|
|
524,806
|
|
Scott Richardson
|
|
Chief Strategy Officer
|
|
|
2007
|
|
|
|
304,231
|
|
|
|
431,082
|
|
|
|
2,474,993
|
|
|
|
245,280
|
|
|
|
645,584
|
(14)
|
|
|
4,101,170
|
|
|
|
|
(1) |
|
The dollar amounts reported in this column represent the
compensation expense recognized on stock awards for financial
statement reporting purposes with respect to the fiscal years
ended December 31 in accordance with SFAS No. 123(R).
For a description of the assumptions used in calculating the
fair value of equity awards under SFAS No. 123(R), see
Note 13 of our consolidated financial statements for the
year ended December 31, 2007, included elsewhere in this
proxy statement/prospectus. |
251
|
|
|
(2) |
|
The dollar amounts reported in this column represent the
compensation expense recognized on stock options for financial
statement reporting purposes for the fiscal years ended
December 31, in accordance with SFAS No. 123(R) using
the Black-Scholes stock option valuation model. The amounts
shown include amounts recognized in 2007 for any stock option
awards issued in years 2004 through 2007. For a description of
the assumptions used in calculating the fair value of equity
awards under SFAS No. 123(R), see Note 13 of our
financial statements in our consolidated financial statements
for the year ended December 31, 2007, included elsewhere in
this proxy statement/prospectus. These amounts reflect our
accounting expense for these awards, and do not represent the
actual value that may be realized by the named executives. As of
December 31, 2007, the value of these option awards to
recipients was significantly below the amounts recognized for
financial reporting purposes due to stock price volatility. |
|
(3) |
|
The Other Compensation for Messrs. Wolff and
Salemme includes amounts paid to them relating to a loss of
equity value as a result of the modification of certain existing
stock option grants. Messrs. Wolff and Salemme had options
that were repriced with higher exercise prices, to ensure that
such grants were in accordance with regulations under Section
409A of the Code. To make up for the corresponding value loss,
they were paid the equivalent of such loss in cash.
Mr. Wolff received $187,500 and Mr. Salemme received
$234,375. |
|
(4) |
|
Consists of $270 in imputed income related to the value of
company-paid group term life insurance in excess of $50,000 and
$2,242 related to travel and entertainment for family
members attendance at the Companys annual
recognition event. |
|
(5) |
|
Represents $716,955 tax
gross-up
related to the grant of restricted stock on April 17, 2006
and $270 in imputed income related to the value of company-paid
group term life insurance in excess of $50,000. |
|
(6) |
|
Consists of $450 in imputed income related to the value of
company-paid group term life insurance in excess of $50,000 and
$2,062 related to travel and entertainment for family
members attendance at the Companys annual
recognition event, and $6,750 in 401(k) plan company match
contributions. |
|
(7) |
|
Reflects imputed income related to the value of company-paid
group term life insurance in excess of $50,000. |
|
(8) |
|
Reflects relocation expenses in the amount of $11,947 paid to
Mr. Butler and $219 in imputed income related to the value
of company-paid group term life insurance in excess of $50,000. |
|
(9) |
|
Mr. McCaw stepped down as Co-Chief Executive Officer in
January 2007, but continued in his role as Chairman of the
Board. The salary paid to him for 2007 represents the
compensation paid to him for his services as Chairman. We also
reimburse Mr. McCaw for out of pocket expenses he incurs on
our behalf. |
|
(10) |
|
Includes $1,141 in imputed income related to the value of
company-paid group term life insurance in excess of $50,000 and
payment to ERI for management fees of $67,000 and reimbursement
of certain expenses of $278,000. |
|
(11) |
|
Includes payment to ERI for management fees and reimbursement of
certain expenses pursuant to the advisory services agreement
between Clearwire and ERI, dated November 13, 2003, which
we refer to as the Advisory Services Agreement, which the
parties terminated effective January 31, 2007.
Mr. McCaw owns 100% of the outstanding capital stock of
ERI. We paid ERI management fees of $800,000 in each of 2005 and
2006, and reimbursed expenses of $296,000 and $949,000
respectively in 2005 and 2006. |
|
(12) |
|
Consists of $450 in imputed income related to the value of
company-paid group term life insurance in excess of $50,000 and
$2,124 related to travel and entertainment for family
members attendance at the Companys annual
recognition event, and $6,750 in 401(k) plan company match
contributions. |
|
(13) |
|
Consists of $690 in imputed income related to the value of
company-paid group term life insurance in excess of $50,000 and
$6,750 in 401(k) plan company match contributions. |
|
(14) |
|
Represents a tax
gross-up of
$640,066 relating to the grant to Mr. Richardson of shares
of restricted stock on February 12, 2007, plus $254 in
imputed income related to the value of company-paid group term
life insurance in excess of $50,000 and 401(k) plan company
match contributions of $5,264. |
252
The option awards and stock awards are revised from what we
originally disclosed in our Registration Statements on
Form S-1
filed last year to reflect the change in disclosure requirements
from disclosure of grant date fair value of full equity grants
to disclosure of the SFAS No. 123(R) expense of the
grants.
Advisory
Services Agreement
We were parties to an Advisory Services Agreement dated
November 13, 2003 with ERI, a corporation of which
Mr. McCaw is the sole stockholder, pursuant to which we
paid ERI an annual fee for services rendered amounting to
$800,000 and reimbursed ERI for certain out of pocket expenses.
The parties terminated this agreement effective January 31,
2007. Previously, we have not compensated Mr. McCaw for his
services other than directly in the form of stock based
compensation and indirectly in cash through payments to ERI
under the Advisory Services Agreement. However, after
February 1, 2007, we began paying Mr. McCaw annual
compensation of $300,000 directly for his services as our
Chairman, and we expect to continue to reimburse Mr. McCaw
and ERI for out of pocket expenses he incurs on our behalf. See
Certain Relationships and Related Transactions for
additional information about this Advisory Services Agreement
and the related payments.
In addition, although Messrs. Wolff and Salemme receive a
salary from us, they are also compensated by ERI. ERI is the
manager of Eagle River, our largest stockholder. We believe that
the compensation paid by ERI to these executives relates to such
executives services to ERI and not to those
executives services to us or to the advisory services ERI
previously provided to us. Consequently, our Compensation
Committee does not take into account the compensation ERI pays
to these executives when determining our executive compensation
policies, programs or awards for these individuals.
Employment-Related
Agreements
Benjamin
G. Wolff
Effective April 1, 2004, we entered into a letter agreement
with Benjamin G. Wolff providing for his employment. Under his
letter agreement, Mr. Wolff is entitled to receive an
annual base salary and an annual discretionary
performance-related bonus. In addition, we granted
Mr. Wolff options to purchase 333,333 shares of
Clearwire Class A Common Stock at an exercise price of
$2.25 (subsequently amended to $3.00) per share, which options
vested over a four year period. Mr. Wolff is also entitled
to take a three month paid sabbatical on request. As a condition
of employment, Mr. Wolff has entered into an agreement not
to compete with us for a period of one year after termination of
his employment relationship with us.
John
A. Butler
Effective March 8, 2005, we entered into a letter agreement
with John A. Butler providing for his employment as Chief
Financial Officer beginning on March 14, 2005. Under his
letter agreement, Mr. Butler is entitled to receive an
annual base salary and an annual discretionary
performance-related bonus. In addition, we granted
Mr. Butler options to purchase 300,000 shares of
Clearwire Class A Common Stock at an exercise price of
$12.00 per share. Mr. Butler has entered into an agreement
not to compete with us for a period of one year after
termination of his employment relationship with us.
Perry
S. Satterlee
We entered into an employment agreement with Perry S. Satterlee,
our President and Chief Operating Officer on June 28, 2004.
The agreement contained an initial term of one year, with
automatic renewal terms of one year, unless we or
Mr. Satterlee give prior notice of termination at least
30 days before the renewal date. The employment agreement
established the initial annual base salary and a discretionary
performance-related bonus for Mr. Satterlee, and provided
for an initial restricted stock award of 333,333 shares and
an initial grant of options to purchase 333,333 shares of
Clearwire Class A Common Stock at an exercise price of
$6.00 per share. The agreement also prohibits
Mr. Satterlee from competing with us for a period of one
year after termination of his employment relationship with our
company, unless we terminate him without cause.
253
Scott
Richardson
Effective January 26, 2007, we entered into an employment
agreement with Scott Richardson in connection with his
employment as Chief Strategy Officer of the Company beginning on
February 12, 2007. Under this agreement,
Mr. Richardson is entitled to receive an annual base salary
of $325,000 and an annual discretionary performance-related
bonus for the first 12 months of employment in the amount
of $162,500. Subsequent to the execution of this letter
agreement, Mr. Richardsons salary was increased to
$365,000. In addition, we granted Mr. Richardson options to
purchase 283,333 shares of Clearwire Class A Common
Stock at an exercise price of $24.00 per share and a Restricted
Stock Award of 33,333 shares. Mr. Richardson has
entered into an agreement not to compete with us for a period of
one year after termination of his employment relationship with
us.
R.
Gerard Salemme
Effective April 30, 2004, we entered into a letter
agreement with R. Gerard Salemme providing for his employment as
Executive Vice President, External Affairs of Clearwire,
beginning April 1, 2004. Under his letter agreement,
Mr. Salemme is entitled to receive an annual base salary
and an annual discretionary performance-related bonus. As a
condition of employment, Mr. Salemme has entered into an
agreement not to compete with us for a period of one year after
termination of his employment relationship with us.
The Compensation Committee, which is comprised solely of
outside directors as defined for purposes of
Section 162(m) of the Code, may elect to adopt plans or
programs providing for additional benefits if the Compensation
Committee determines that doing so is in our best interests.
Our employment letters or agreements with Messrs. Wolff,
Butler, Satterlee and Salemme provide for a lump sum cash
payment if we terminate their employment without cause. The
agreement with Mr. Richardson provides for payments over a
one year period in accordance with our payroll process. For a
complete description and quantification of benefits payable to
our named officers on and following termination of employment
under plans and programs currently in effect, please see the
section titled Executive Officers and Executive
Compensation Potential Payments on Termination or
Change in Control.
Barry
West
Effective April 1, 2004, Sprint, as successor to Nextel
Communications, Inc., entered into a letter agreement with Barry
West providing for his employment. The agreement contained an
initial term of 36 months, with automatic renewal terms of
one year, unless Sprint or Mr. West give prior notice of
termination not less than 12 months before the renewal
date. Under his letter agreement, Mr. West is entitled to
receive an annual base salary and an annual discretionary
performance-related bonus. Pursuant to the letter agreement, as
amended, in 2008 Mr. West will not be eligible to
participate in Sprints equity incentive plans. Subject to
Mr. West remaining employed by Sprint, Mr. West is
entitled to receive two separate lump sum payments during 2008,
$250,000 payable on June 30, 2008 and $250,000 payable on
December 31, 2008.
254
Grants of
Plan Based Awards
The Compensation Committee approved stock option and restricted
stock awards under our 2003 Stock Option Plan and 2007 Stock
Compensation Plan to certain of our named executives in 2007.
Set forth below is information regarding the awards granted
during fiscal year 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
Option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Awards:
|
|
|
|
|
|
|
|
|
Estimated Future Payouts
|
|
Awards:
|
|
Number of
|
|
Exercise or
|
|
|
|
|
|
|
Under Non-Equity Incentive
|
|
Number of
|
|
Securities
|
|
Base Price
|
|
Grant Date Fair
|
|
|
|
|
Plan Awards(1)
|
|
Shares of
|
|
Underlying
|
|
of Option
|
|
Value of Stock and
|
|
|
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Stock or
|
|
Options
|
|
Award
|
|
Option Awards
|
Name
|
|
Grant Date
|
|
($)
|
|
($)
|
|
($)
|
|
Units (#)
|
|
(#)
|
|
$/Share(2)
|
|
($)(3)
|
|
Benjamin G. Wolff
|
|
|
3/1/2007
|
(4)
|
|
|
0
|
|
|
|
750,000
|
|
|
|
825,000
|
|
|
|
|
|
|
|
500,000
|
|
|
|
25.00
|
|
|
|
7,975,000
|
|
|
|
|
9/14/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
|
|
23.30
|
|
|
|
4,170,870
|
|
|
|
|
9/14/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,000
|
(5)
|
|
|
|
|
|
|
|
|
|
|
1,398,000
|
|
|
|
|
11/20/2007
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
333,333
|
|
|
|
3.00
|
|
|
|
0
|
(6)
|
John A. Butler
|
|
|
3/1/2007
|
(4)
|
|
|
0
|
|
|
|
170,000
|
|
|
|
187,000
|
|
|
|
|
|
|
|
83,333
|
|
|
|
25.00
|
|
|
|
1,329,161
|
|
|
|
|
9/14/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
23.30
|
|
|
|
1,042,718
|
|
|
|
|
9/14/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
(5)
|
|
|
|
|
|
|
|
|
|
|
466,000
|
|
Craig O. McCaw
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perry S. Satterlee
|
|
|
3/1/2007
|
(4)
|
|
|
0
|
|
|
|
500,000
|
|
|
|
550,000
|
|
|
|
|
|
|
|
166,666
|
|
|
|
25.00
|
|
|
|
2,658,323
|
|
|
|
|
9/14/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
23.30
|
|
|
|
1,390,290
|
|
|
|
|
9/14/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
(5)
|
|
|
|
|
|
|
|
|
|
|
466,000
|
|
R. Gerard Salemme
|
|
|
3/1/2007
|
(4)
|
|
|
0
|
|
|
|
170,000
|
|
|
|
187,000
|
|
|
|
|
|
|
|
150,000
|
|
|
|
25.00
|
|
|
|
2,392,500
|
|
|
|
|
9/14/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
23.30
|
|
|
|
1,042,718
|
|
|
|
|
9/14/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
(5)
|
|
|
|
|
|
|
|
|
|
|
349,500
|
|
|
|
|
11/20/2007
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
312,500
|
|
|
|
3.00
|
|
|
|
0
|
(7)
|
Scott Richardson
|
|
|
1/19/2007
|
(8)
|
|
|
0
|
|
|
|
182,500
|
|
|
|
200,750
|
|
|
|
|
|
|
|
283,333
|
|
|
|
24.00
|
|
|
|
4,601,328
|
|
|
|
|
6/27/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
25.01
|
|
|
|
746,000
|
|
|
|
|
9/14/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
23.30
|
|
|
|
695,145
|
|
|
|
|
2/12/2007
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,333
|
(10)
|
|
|
|
|
|
|
|
|
|
|
833,325
|
|
|
|
|
9/14/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
(5)
|
|
|
|
|
|
|
|
|
|
|
349,500
|
|
|
|
|
(1) |
|
This portion of the table reflects the annual bonus targets for
the 2007 fiscal year. The 2007 bonus was earned in 2007 and paid
out in the first quarter of 2008. Subject to the Compensation
Committees discretion to increase or decrease actual bonus
payments, the threshold annual bonus was equal to 0% of an
executives target bonus and the maximum annual bonus was
equal to 110% of an executives target bonus. The annual
bonuses actually earned for 2007 were approximately 84% of each
executives target bonus. As described on page 247,
the Compensation Committee increased Mr. Richardsons
actual target bonus to 80% of his base salary (for 2007 only) to
reflect increased responsibilities assumed by
Mr. Richardson and his superior performance for Clearwire. |
|
|
|
(2) |
|
Exercise price for option awards is the fair market value per
share of Clearwire Class A Common Stock, defined as the
closing price of such stock on the grant date. |
|
(3) |
|
Represents the full grant date fair value of each individual
equity award (on a
grant-by-grant
basis) as computed under SFAS No. 123(R) using the
Black-Scholes stock option valuation model. The stock options
vest in four equal annual installments. These amounts reflect
our accounting expense for these awards, and do not represent
the actual value that may be realized by the named executives.
The share price of our stock must appreciate 70% from the year
end 2007 closing price before 2007 stock option awards will
represent any realizable value for recipients. |
|
(4) |
|
This grant was approved by the board of directors on
February 17, 2007. |
|
(5) |
|
Represents an award of restricted stock units. |
|
(6) |
|
This stock option was previously granted to Mr. Wolff under
the 2003 Stock Option Plan on April 1, 2004, and was
amended on November 20, 2007 to increase the exercise price
of the portion of the option vesting after December 31,
2004 from $2.25 per share to $3.00 per share. Such adjustment
was approved by the Compensation Committee on September 14,
2007 and was intended to resolve any question as to whether
Section 409A of the Code applied to such option. All other
terms of such stock option remain as previously agreed. |
255
|
|
|
(7) |
|
This stock option was previously granted to Mr. Salemme
under the 2003 Stock Option Plan on December 2, 2003, and
was amended on November 20, 2007 to increase the exercise
price of the portion of the option vesting after
December 31, 2004 from $2.25 per share to $3.00 per share.
Such adjustment was approved by the Compensation Committee on
September 14, 2007 and was intended to resolve any question
as to whether Section 409A of the Code applied to such
option. All other terms of such stock option remain as
previously agreed. |
|
(8) |
|
This option award was granted under our 2003 Stock Option Plan. |
|
(9) |
|
This grant was approved by the board of directors of Clearwire
on January 19, 2007. |
|
(10) |
|
Represents an award of restricted stock. |
2003
Stock Option Plan
Our 2003 Stock Option Plan is administered by our Compensation
Committee. The objectives of the plan included attracting and
retaining key personnel and promoting our success by linking the
interests of our partners, directors and consultants with our
success.
Options
Available for Issuance
There are 16,666,666 shares of Clearwire Class A
Common Stock authorized for option grants under the 2003 Stock
Option Plan. With the adoption of our 2007 Stock Compensation
Plan, under which 15 million shares of Clearwire
Class A Common Stock are authorized for option grants, we
ceased granting stock options under the 2003 Stock Option Plan
after January 19, 2007.
Term
of Options
The term of each option is ten years from the date of the grant
of the option, unless a shorter period is established for
incentive stock options or the administrator of the 2003 Stock
Option Plan establishes a shorter period.
Vesting
Schedule
Options granted under our 2003 Stock Option Plan, unless waived
or modified in a particular option agreement or by action of the
Compensation Committee, vest according to the following schedule:
|
|
|
|
|
|
|
Portion of
|
|
From the Grant Date
|
|
Grant Vested
|
|
|
Less than 1 year
|
|
|
0
|
%
|
1 year
|
|
|
25
|
%
|
2 years
|
|
|
50
|
%
|
3 years
|
|
|
75
|
%
|
After 4 Years
|
|
|
100
|
%
|
Options granted under the 2003 Stock Option Plan require that
the recipient of a grant be continuously employed or otherwise
provide services to us or our subsidiaries. Failure to be
continuously employed or in another service relationship
generally results in the forfeiture of options not vested at the
time the employment or other service relationship ends.
Termination of a recipients employment or other service
relationship for cause generally results in the forfeiture of
all of the recipients options. In certain circumstances
the Compensation Committee has, and may in the future, provide
accelerated vesting of options on a change of control.
Adjustments,
Changes in Our Capital Structure
Any outstanding options under the 2003 Stock Option Plan,
including the exercise price of outstanding options, will be
subject to adjustment by the Compensation Committee in the event
of any merger, consolidation, reorganization, stock split, stock
dividend or other event causing a capital adjustment affecting
256
the number of outstanding shares of common stock. In the event
of a capital adjustment, the Compensation Committee may change
the number and kind of shares granted under the plan. In the
event of an adjustment to our capital structure, the
Compensation Committee may change the number and kind of shares
granted under the plan. In the event of a business combination
or in the event of a sale of all or substantially all of our
assets, the Compensation Committee may cash out some or all of
the unexercised, vested options under the plan, or allow some or
all of the options to remain outstanding, subject to certain
conditions. Unless otherwise provided in individual option
agreements, the vesting of outstanding options will not
accelerate in connection with a business combination or in the
event of a sale of all or substantially all of our assets.
Administration
The Compensation Committee has full discretionary authority to
determine all matters relating to options granted under the
plan, including the authority to determine the persons eligible
to receive options, the number of shares subject to each option,
the exercise price of each option, any vesting schedule, any
acceleration of the vesting schedule and any extension of the
exercise period.
Amendment
and Termination
Our board of directors has authority to suspend, amend or
terminate the plan, except as would adversely affect
participants rights to outstanding awards without their
consent. As the plan administrator, our Compensation Committee
has the authority to interpret the plan and options granted
under the plan and to make all other determinations necessary or
advisable for plan administration.
In connection with the amendment of the Clearwire Charter to
effectuate a one for three reverse stock split, and the adoption
of the 2007 Stock Compensation Plan, our board of directors
provided that no additional option grants would be made under
the 2003 Stock Option Plan.
2007
Stock Compensation Plan
Our 2007 Stock Compensation Plan is administered by our
Compensation Committee. The objectives of the plan include
attracting, motivating and retaining key personnel and promoting
our success by linking the interests of our partners, directors
and consultants with our success. The plan permits the grant of
incentive stock options, non-qualified stock options, stock
appreciation rights, restricted stock, restricted stock units
and other stock awards. Each award must be evidenced by an award
agreement.
Shares
Available for Issuance
There are 15 million shares of Clearwire Class A
Common Stock authorized for issuance under the 2007 Stock
Compensation Plan. As of December 31, 2007, there were
8,558,574 shares of Clearwire Class A Common Stock
available for grants under the plan. Shares to be awarded under
the plan will be made available, at the discretion of the
Compensation Committee, from authorized but unissued shares,
authorized and issued shares reacquired and held as treasury
shares, or a combination thereof.
Stock
Options
An award of options may include incentive stock options,
non-qualified stock options or a combination thereof. Each
option will have a term of no longer than ten years and each
incentive stock option granted to a 10% holder will have a term
of no longer than five years. Beginning in February 2008, the
Compensation Committee approved a seven year term for all future
stock option grants.
Stock
Awards
Each restricted stock or restricted stock unit award will be
accompanied by a restricted stock award or restricted stock unit
award agreement, which will specify the number of shares or
share units granted, the price, if any, to be paid for the
shares or share units and the period of restriction applicable
to the award. Shares subject to an award of restricted stock may
not be sold, transferred, pledged, assigned, or otherwise
257
alienated or hypothecated during the applicable period of
restriction. For stock unit awards, the proportionate number of
shares will be issued on the completion of each vesting period
of the award. The Compensation Committee, in its sole
discretion, may impose such other restrictions on shares subject
to an award of restricted stock or restricted stock units as it
may deem advisable or appropriate.
Stock
Appreciation Rights
The terms and conditions of SARs granted under the plan will be
determined by the Compensation Committee. A stock award
agreement will specify the base price, the term and the
conditions of exercise. Each SAR will have a term no longer than
ten years from the grant date, unless a shorter period is
provided in the award agreement. As of the date of this proxy
statement/prospectus, we have not awarded any SARs under the
2007 Stock Compensation Plan.
Vesting
Schedule
Options and other stock awards may be made subject to vesting at
the discretion of our Compensation Committee over such term as
it shall determine. All awards made to date under the 2007 Stock
Compensation Plan vest according to the following schedule,
unless waived or modified in a particular option agreement or by
action of the Compensation Committee:
|
|
|
|
|
|
|
Portion of
|
|
From the Grant Date
|
|
Grant Vested
|
|
|
Less than 1 year
|
|
|
0
|
%
|
1 year
|
|
|
25
|
%
|
2 years
|
|
|
50
|
%
|
3 years
|
|
|
75
|
%
|
After 4 years
|
|
|
100
|
%
|
Adjustments
The number and kind of shares available for grants under our
2007 Stock Compensation Plan and any outstanding shares under
the plan, as well as the exercise price or base price of
outstanding shares, will be subject to adjustment by our board
of directors in the event of any merger, consolidation,
reorganization, stock split, stock dividend or other event
causing a capital adjustment affecting the number of outstanding
shares of common stock. In the event of a capital adjustment,
the board of directors may change the number and kind of shares
granted under the plan. In the event of an adjustment to our
capital structure, our board of directors may replace awards
with substitute awards in respect of shares, other securities or
other property of the surviving corporation or its affiliates,
which shall substantially preserve the value, rights and
benefits of any affected awards granted under the plan. In
addition, we have the right, but not the obligation, to cancel
each participants awards immediately before such an event
and to pay to each affected participant in connection with the
cancellation an amount that the Compensation Committee, in its
sole discretion, in good faith determines to be the equivalent
value of such award.
Administration
The Compensation Committee has full discretionary authority to
determine all matters relating to options granted under the
plan, including the authority to determine the persons eligible
to receive awards, the number of shares subject to each award,
the base price or exercise price of the award, in certain
circumstances, any vesting schedule, any acceleration of the
vesting schedule and any extension of the exercise period.
Amendment
and Termination
Our board of directors has authority to suspend, amend or
terminate the plan, except as would adversely affect
participants rights to outstanding awards without their
consent. As the plan administrator, our Compensation Committee
has the authority to interpret the plan and awards granted under
the plan and to make all other determinations necessary or
advisable for plan administration.
258
Stock
Appreciation Rights Plan
Our Stock Appreciation Rights Plan is administered by the
Compensation Committee and provides for the granting of awards
of SARs. The objectives of this plan include attracting,
motivating and retaining the best personnel and promoting our
success by linking the interests of our partners, directors and
consultants with our companys success. We do not typically
make awards under this plan to our executive officers. We
adopted this plan in January 2006 and, as of December 31,
2007, we did not have any SARs outstanding. On October 1,
2007, all outstanding SARs were converted to non-qualified stock
options under the 2007 Stock Option Plan. We have no plans to
award any more SARs from this Stock Appreciation Rights Plan.
Any additional SARs that we might award in the future would be
granted under the 2007 Stock Compensation Plan.
Outstanding
Equity Awards At Fiscal Year-End
The following table summarizes the equity awards held by our
named executive officers at December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Market Value of
|
|
|
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
Shares or
|
|
|
Shares or Units
|
|
|
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Option
|
|
|
Option
|
|
|
Units of Stock
|
|
|
of Stock
|
|
|
|
|
|
|
Options (#)
|
|
|
Options (#)
|
|
|
Exercise
|
|
|
Expiration
|
|
|
That Have Not
|
|
|
That Have Not
|
|
Name
|
|
Grant Date
|
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Price ($)
|
|
|
Date
|
|
|
Vested (#)
|
|
|
Vested ($)(2)
|
|
|
Benjamin G. Wolff
|
|
|
4/1/2004
|
|
|
|
249,999
|
|
|
|
83,334
|
(3)
|
|
|
3.00
|
|
|
|
4/1/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
12/15/2004
|
|
|
|
249,999
|
|
|
|
83,334
|
|
|
|
6.00
|
|
|
|
12/15/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
1/26/2006
|
|
|
|
33,333
|
|
|
|
100,000
|
|
|
|
15.00
|
|
|
|
1/26/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
8/30/2006
|
|
|
|
83,333
|
|
|
|
250,000
|
|
|
|
18.00
|
|
|
|
8/30/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
9/15/2006
|
|
|
|
30,000
|
|
|
|
90,000
|
|
|
|
18.00
|
|
|
|
9/15/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
3/1/2007
|
|
|
|
|
|
|
|
500,000
|
|
|
|
25.00
|
|
|
|
3/1/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
9/14/2007
|
|
|
|
|
|
|
|
300,000
|
|
|
|
23.30
|
|
|
|
9/14/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
9/14/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,000
|
|
|
|
822,600
|
|
|
|
|
4/17/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,666
|
|
|
|
571,241
|
|
John A. Butler
|
|
|
3/31/2005
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
12.00
|
|
|
|
3/31/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
1/26/2006
|
|
|
|
12,500
|
|
|
|
37,500
|
|
|
|
15.00
|
|
|
|
1/26/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
8/30/2006
|
|
|
|
8,333
|
|
|
|
25,000
|
|
|
|
18.00
|
|
|
|
8/30/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
9/15/2006
|
|
|
|
13,125
|
|
|
|
39,375
|
|
|
|
18.00
|
|
|
|
9/15/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
3/1/2007
|
|
|
|
|
|
|
|
83,333
|
|
|
|
25.00
|
|
|
|
3/1/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
9/14/2007
|
|
|
|
|
|
|
|
75,000
|
|
|
|
23.30
|
|
|
|
9/14/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
9/14/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
274,200
|
|
Craig O. McCaw
|
|
|
12/15/2004
|
|
|
|
1,249,999
|
|
|
|
416,667
|
|
|
|
6.00
|
|
|
|
12/15/2014
|
|
|
|
|
|
|
|
|
|
Perry S. Satterlee
|
|
|
6/28/2004
|
|
|
|
249,999
|
|
|
|
83,334
|
|
|
|
6.00
|
|
|
|
6/28/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
1/26/2006
|
|
|
|
33,333
|
|
|
|
100,000
|
|
|
|
15.00
|
|
|
|
1/26/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
9/15/2006
|
|
|
|
17,500
|
|
|
|
52,500
|
|
|
|
18.00
|
|
|
|
9/15/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
3/1/2007
|
|
|
|
|
|
|
|
166,666
|
|
|
|
25.00
|
|
|
|
3/1/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
9/14/2007
|
|
|
|
|
|
|
|
100,000
|
|
|
|
23.30
|
|
|
|
9/14/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
9/14/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
274,200
|
|
R. Gerard Salemme
|
|
|
12/2/2003
|
|
|
|
104,166
|
|
|
|
|
(4)
|
|
|
2.25
|
|
|
|
12/2/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
12/2/2003
|
|
|
|
312,500
|
|
|
|
|
(3)(4)
|
|
|
3.00
|
|
|
|
12/2/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
12/15/2004
|
|
|
|
187,500
|
|
|
|
62,500
|
|
|
|
6.00
|
|
|
|
12/15/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
1/26/2006
|
|
|
|
16,666
|
|
|
|
50,000
|
|
|
|
15.00
|
|
|
|
1/26/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
8/30/2006
|
|
|
|
20,833
|
|
|
|
62,500
|
|
|
|
18.00
|
|
|
|
8/30/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
9/15/2006
|
|
|
|
27,500
|
|
|
|
82,500
|
|
|
|
18.00
|
|
|
|
9/15/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
3/1/2007
|
|
|
|
|
|
|
|
150,000
|
|
|
|
25.00
|
|
|
|
3/1/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
9/14/2007
|
|
|
|
|
|
|
|
75,000
|
|
|
|
23.30
|
|
|
|
9/14/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
9/14/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
205,650
|
|
Scott Richardson
|
|
|
1/19/2007
|
|
|
|
|
|
|
|
283,333
|
(5)
|
|
|
24.00
|
|
|
|
1/19/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
6/27/2007
|
|
|
|
|
|
|
|
50,000
|
|
|
|
25.01
|
|
|
|
6/27/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
9/14/2007
|
|
|
|
|
|
|
|
50,000
|
|
|
|
23.30
|
|
|
|
9/14/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
2/12/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,333
|
|
|
|
456,995
|
|
|
|
|
9/14/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
205,650
|
|
259
|
|
|
(1) |
|
Except as otherwise noted, each award listed in this table vests
one-quarter annually, beginning on the first anniversary of the
grant date. |
|
(2) |
|
Amount is based on the closing price of Clearwire Class A
Common Stock of $13.71 on December 31, 2007, as reported by
NASDAQ. |
|
(3) |
|
This option award was amended on November 20, 2007 to raise
the exercise price per share from $2.25 to $3.00. |
|
(4) |
|
This option award vests one-quarter annually beginning on
May 26, 2003. |
|
(5) |
|
This option award vests one-quarter annually, beginning on
February 12, 2008. |
Option
Exercises and Stock Vested
There have been no exercises of stock options, SARs or similar
instruments by our named executive officers during the last
fiscal year. The following table provides information with
respect to all restricted stock and restricted stock units that
vested during 2007.
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
Value Realized
|
|
Name
|
|
Acquired on Vesting (#)
|
|
|
on Vesting
|
|
|
Benjamin G. Wolff
|
|
|
41,667
|
(1)
|
|
$
|
1,041,675
|
(2)
|
|
|
|
(1) |
|
Shares of restricted stock. |
|
(2) |
|
Value based on fair value of Clearwire Class A Common
Stock, which was $25.00 on the vesting date of March 1,
2007. |
Pension
Benefits
None of our named executives participate in or have account
balances in qualified or non-qualified defined benefit plans
sponsored by us.
Non-qualified
Deferred Compensation
None of our named executives participate in or have account
balances in non-qualified defined contribution plans or other
deferred compensation plans maintained by us. The Compensation
Committee may elect to provide our officers and other employees
with non-qualified defined contribution or deferred compensation
benefits if the Compensation Committee determines that doing so
is in our best interests.
Potential
Payments on Termination or Change in Control
Potential
Payments on Termination Relating to a Change in
Control
Pursuant to the Change in Control Severance Plan, if
Mr. Wolff is terminated by Clearwire without cause or he
terminates his employment with Clearwire for good reason
(1) within 24 months following a change in control of
Clearwire, or (2) in the period between the commencement of
a change in control transaction and the closing of such
transaction, if the termination event occurred due to the
request or instruction of a third party attempting to effect a
change in control, he would be entitled to receive a lump-sum
cash severance payment equal to 300% of his targeted annual
compensation. All other named executive officers would be
entitled to receive a lump-sum cash severance payment equal to
200% of targeted annual compensation if terminated by Clearwire
without cause or by the executive for good reason
(1) within 24 months following a change in control of
Clearwire or (2) in the period between the commencement of
a change in control transaction and the closing of such
transaction, if the termination event occurred due to the
request or instruction of a third party attempting to effect a
change in control. Targeted annual compensation means the sum of
the greater of the executives annual base salary in effect
immediately before the change in control date or on the date of
the executives termination, plus target annual commission,
if any, and the greater of the executives target annual
bonus in effect immediately prior to the change in control date
or on the date of the executives termination. In addition,
these named executive officers would be entitled to receive
continuation
260
of health care coverage, at no increased cost, for
24 months following termination, unless and until such time
as the executive is otherwise eligible for healthcare coverage
that is substantially similar in cost and in level of benefits
provided, from a successor employer or otherwise, and a
gross-up
for any golden parachute excise taxes under the Code. Completion
of the Transactions will be a change in control for purposes of
the Change in Control Severance Plan. Assuming the Change in
Control Severance Plan was in place, a change in control took
place and the employment of our executive officers were to be
terminated without cause or for good reason, on
December 31, 2007, the following individuals would have
been entitled to payments in the amounts set forth opposite
their name in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Accelerated
|
|
|
Cash Severance
|
|
|
Continued
|
|
|
Gross-Up
|
|
|
|
|
Officer
|
|
Equity(1) ($)
|
|
|
($)
|
|
|
Health Care ($)
|
|
|
($)
|
|
|
|
|
|
Benjamin G. Wolff
|
|
|
2,928,839
|
|
|
|
4,500,000
|
|
|
|
|
|
|
|
2,092,377
|
|
|
|
|
|
John A. Butler
|
|
|
530,700
|
|
|
|
1,020,000
|
|
|
|
14,243
|
|
|
|
613,610
|
|
|
|
|
|
Craig O. McCaw
|
|
|
3,212,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perry S. Satterlee
|
|
|
916,699
|
|
|
|
2,000,000
|
|
|
|
22,354
|
|
|
|
|
|
|
|
|
|
R. Gerard Salemme
|
|
|
687,525
|
|
|
|
1,020,000
|
|
|
|
|
|
|
|
576,084
|
|
|
|
|
|
Scott Richardson
|
|
|
662,645
|
|
|
|
1,095,000
|
|
|
|
22,354
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Assumes the unvested equity would vest on a change in control as
provided in the stock plan agreements to executives and the
Change in Control Severance Plan. Amounts represent the
intrinsic value of the equity, based on the closing price of
Clearwire Class A Common Stock of $13.71 on
December 31, 2007. |
We are not obligated to make any cash payment to these
executives if their employment is terminated by us for cause or
by the executive without good reason. Cause and good reason have
the correlative meaning set forth in the executives
employment agreement with Clearwire or, in the absence of any
such agreement or in the absence of any similar definitions in
such agreement, the cause and good reason definitions in the
Clearwire Change in Control Severance Plan will apply. For the
definitions of cause and good reason in
the Change in Control Severance Plan, see the section titled
Additional Interests of Clearwires Directors and
Officers in the Transactions.
Potential
Payments on a Change in Control
Messrs. Wolff, Butler, McCaw, Satterlee, Salemme and
Richardson hold options and restricted stock or restricted stock
unit awards that would vest on any change in control, and the
exercise period for the options would extend to 12 months
from their date of termination. In addition, pursuant to the
Change in Control Severance Plan, each of Messrs. Wolff,
Butler, Satterlee, Salemme and Richardson is entitled to a
gross-up
for any golden parachute excise taxes under the Code. Completion
of the Transactions will be a change in control for purposes of
the Change in Control Severance Plan and the equity vesting
described above. Assuming the Change in Control Severance Plan
was in place and a change in control took place on
December 31, 2007, the named executives would have been
entitled to the benefits described below, with values in the
amounts set forth opposite their names:
|
|
|
|
|
|
|
|
|
|
|
Value of Accelerated
|
|
|
Gross-Up
|
|
Officer
|
|
Equity(1) ($)
|
|
|
($)
|
|
|
Benjamin G. Wolff
|
|
|
2,928,839
|
|
|
|
|
|
John A. Butler
|
|
|
530,700
|
|
|
|
|
|
Craig O. McCaw
|
|
|
3,212,503
|
|
|
|
|
|
Perry S. Satterlee
|
|
|
916,699
|
|
|
|
|
|
R. Gerard Salemme
|
|
|
687,525
|
|
|
|
|
|
Scott Richardson
|
|
|
662,645
|
|
|
|
|
|
|
|
|
(1) |
|
Assumes the unvested equity would vest on a change in control as
provided in the stock plan agreements to executives. Amounts
represent the intrinsic value of the equity, based on the
closing price of Clearwire Class A Common Stock of $13.71
on December 31, 2007. |
261
Potential
Payments on Termination Not Relating to a Change in
Control
Pursuant to his letter agreement dated April 27, 2004, if
Mr. Salemme is terminated without cause (whether through
constructive termination or otherwise), he is entitled to a
lump-sum severance payment in an amount equal to six months of
his salary. Pursuant to a letter agreement dated April 1,
2004, if Mr. Wolff is terminated without cause (whether
through constructive termination or otherwise), he is entitled
to a lump-sum severance payment in an amount equal to his annual
salary. We have an informal written agreement with
Mr. Butler to make a lump-sum severance payment to him
equal to his annual salary if his employment is terminated
without cause. Pursuant to Mr. Satterlees employment
agreement, if Mr. Satterlees employment is terminated
by us without cause, he is entitled to a lump sum payment in the
amount of his annual base salary plus an amount equal to the
most recent annual bonus payment he received.
Pursuant to a letter agreement with Mr. Richardson dated
January 26, 2007, if Mr. Richardsons employment
is terminated without cause (whether through constructive
termination or otherwise) or for good reason,
Mr. Richardson would be entitled to receive severance equal
to 12 months base salary. Assuming the employment of our
executive officers were terminated without cause (whether
through constructive termination or otherwise) on
December 31, 2007, they would be entitled to payments in
the amounts set forth opposite their names in the below table.
|
|
|
|
|
Officer
|
|
Cash Severance ($)
|
|
|
Benjamin G. Wolff
|
|
|
750,000
|
|
John A. Butler
|
|
|
340,000
|
|
Craig O. McCaw
|
|
|
|
|
Perry S. Satterlee
|
|
|
850,000
|
|
R. Gerard Salemme
|
|
|
170,000
|
|
Scott Richardson
|
|
|
527,500
|
|
Clearwire is not obligated to make any cash payment to these
executives if their employment is terminated by Clearwire for
cause or by the executive without cause, or to any other
executive officer on the termination of employment for any
reason, except in the case of termination for good reason by
Mr. Richardson. In addition, Clearwire does not provide any
medical continuation or death or disability benefits for any of
its executive officers that are not also available to its
partners.
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As of June 30, 2008, the Clearwire Compensation Committee
is comprised of Messrs. McCaw and Sloan. During fiscal
2007, Mr. McCaw also served as Clearwires Co-Chief
Executive Officer until January 2007. During fiscal 2007,
Mr. Wolff, Clearwires Chief Executive Officer, served
as a director of ICO, while Mr. McCaw served as ICOs
Chairman and served as a member of our Compensation Committee.
For additional information please see the section below entitled
Certain Relationships and Related Transactions. The
composition of the Compensation Committee of New Clearwire will
be determined shortly after the Closing.
262
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Related
Person Transactions Policy and Procedures
The Audit Committee reviews and approves or ratifies or refers
to a special committee all significant related party
transactions and potential conflict of interest situations. A
related person is any executive officer, nominee for director,
or more than 5% stockholder of Clearwire, including any of their
immediate family members, and any entity owned or controlled by
such persons. We submit all transactions involving a commitment
of $10 million or more that we contemplate entering into,
including related person transactions, to the board of directors
for approval. Each of the related party transactions listed
below that were submitted to our board were approved by a
disinterested majority of our board of directors after full
disclosure of the interest of the related party in the
transaction.
Clearwire has a number of strategic and commercial relationships
with third-parties that have had a significant impact on
Clearwires business, operations and financial results.
These relationships have been with Eagle River, Motorola, Intel,
and Bell, all of which are related parties, due to their stock
ownership of more than 5% of Clearwire Common Stock.
Relationships
among Certain Stockholders, Directors, and Officers of
Clearwire
As of September 30, 2008, Eagle River was the holder of
approximately 65% of the outstanding Clearwire Class B
Common Stock and approximately 13% of the outstanding Clearwire
Class A Common Stock. ERI is the manager of Eagle River.
Each entity is controlled by Craig McCaw, our Chairman.
Clearwire retired all senior secured notes (including notes held
by Eagle River) on August 15, 2007. The notes held by Eagle
River had a $23.0 million face value, or $19.3 million
net of discounts for warrants. In the year ended
December 31, 2007, Eagle River earned interest relating to
the notes in the amount of $1.6 million. Eagle River
received payments in the amount of $2.5 million for accrued
interest during the year ended December 31, 2007.
Relationships
among Certain Stockholders, Directors, and Officers of New
Clearwire
New Clearwire has agreed to cause Clearwire Communications to
enter into the 4G MVNO Agreement, the 4G ASR Agreement, the
Intellectual Property Agreement, the Intel Market Development
Agreement, the Google Products and Services Agreement, the
Google Spectrum Agreement, the Master Site Agreement, the Master
Agreement for Network Services and the IT Master Services
Agreement. See the section titled Certain Agreements
Related to the Transactions Commercial Agreements
among New Clearwire, Clearwire Communications, Sprint, Intel and
the Strategic Investors beginning on page 126 of this
proxy statement/prospectus.
Voting
Agreements
For a discussion of voting agreements between Clearwire, Eagle
River and Intel, see the section titled Certain Agreements
Related to the Transactions Voting Agreements
beginning on page 119 of this proxy statement/prospectus.
Advisory
Services Agreement
Clearwire and ERI were parties to the Advisory Services
Agreement. The parties terminated this agreement effective
January 31, 2007. During the year ended December 31,
2007, Clearwire paid ERI fees of $67,000 and expense
reimbursements of $278,000, under this agreement.
Motorola
Agreements
Simultaneously with the sale of its subsidiary NextNet to
Motorola, Clearwire and Motorola entered into commercial
agreements pursuant to which Clearwire agreed to purchase
certain infrastructure and supply inventory from Motorola. Under
these agreements, Clearwire is committed to purchase no less
than
263
$150.0 million of network infrastructure equipment, modems,
PC cards and other products from Motorola on or before
August 29, 2008, subject to Motorola continuing to satisfy
certain performance requirements and other conditions. Clearwire
is also committed to purchase certain types of network
infrastructure products, modems and PC cards it provides to its
subscribers exclusively from Motorola for a period of five years
and, thereafter, 51% until the term of the agreement is
completed on August 29, 2014, as long as certain conditions
are satisfied. For the year ended December 30, 2007, total
purchases from Motorola under these agreements were
$73.0 million. The remaining commitment was
$51.6 million at December 31, 2007.
Agreements
with Bell
In March 2005, Bell, a Canadian telecommunications company which
is a subsidiary of BCE, purchased 8,333,333 shares of
Clearwire Class A Common Stock for $100.0 million. At
the time of the investment, Bell and BCE Nexxia
Corporation, an affiliate of Bell, entered into a Master Supply
Agreement, dated March 16, 2005 with Clearwire. Under the
Master Supply Agreement, Bell and BCE Nexxia Corporation provide
or arrange for the provision of hardware, software, procurement
services, management services and other components necessary for
Clearwire to provide VoIP services to their subscribers in the
United States and provide day-to-day management and operation of
the components and services necessary for Clearwire to provide
these VoIP services. Clearwire will pay to Bell or BCE Nexxia
Corporation a flat fee for each new subscriber of its VoIP
telephony services. Clearwire has agreed to use Bell and BCE
Nexxia Corporation exclusively to provide such service unless
such agreement violates the rights of third parties under its
existing agreements. Total fees paid for new subscribers under
the Master Supply Agreement were $112,000 for the year ended
December 31, 2007. Amounts paid for supplies, equipment and
other services purchased through Bell or BCE were
$6.0 million for the year ended December 31, 2007. The
Master Supply Agreement can be terminated for convenience on
12 months notice by either party at any time beginning on
or after October 1, 2007. On October 29, 2007,
Clearwire delivered a notice of termination of the Master Supply
Agreement to BCE Nexxia Corporation and the agreement should
terminate on October 29, 2008 unless it is extended by the
parties.
Davis
Wright Tremaine LLP
The law firm of Davis Wright Tremaine LLP billed Clearwire
approximately $5.3 million for legal services it performed
for Clearwire in 2007. The firm serves as Clearwires
primary outside counsel, and handles a variety of corporate,
transactional, tax and litigation matters. The firm has
continued to perform legal services for Clearwire during 2008.
Mr. Wolff, Clearwires Chief Executive Officer and a
former partner of Davis Wright Tremaine LLP, is married to a
partner at Davis Wright Tremaine LLP. As a partner,
Mr. Wolffs spouse is entitled to share in a portion
of the firms total profits, although she has not received
any compensation directly from Clearwire.
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors
and executive officers, and persons who own more than 10% of a
registered class of our equity securities to file with the SEC
initial reports of ownership and reports of changes in ownership
of our common stock and other equity securities. Our employees
prepare these reports for certain of our directors and all of
our executive officers on the basis of information obtained from
Clearwires records. Based on information available to us
during fiscal year 2007, we believe that all applicable
Section 16(a) filing requirements were met, except that,
due to administrative errors, Mr. Sabia and
Mr. Emerson were late in filing their initial Form 3
and Mr. Richardson was late in filing a report of a stock
option grant to purchase 50,000 shares of Clearwire
Class A Common Stock.
264
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF CLEARWIRE
The following table shows information regarding the beneficial
ownership of shares of Clearwire Class A Common Stock and
Clearwire Class B Common Stock as of September 30,
2008 and shows the number of and percentage owned by:
|
|
|
|
|
each person who is known by us to own beneficially more than 5%
of Clearwire Class A Common Stock or Clearwire Class B
Common Stock;
|
|
|
|
each member of Clearwires board of directors;
|
|
|
|
each of Clearwires named executive officers; and
|
|
|
|
all members of our board of directors and our executive officers
as a group.
|
Except as indicated in the footnotes to this table (1) each
person has sole voting and investment power with respect to all
shares attributable to such person and (2) each
persons address is
c/o Clearwire
Corporation, 4400 Carillon Point, Kirkland, Washington 98033.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A(1)
|
|
|
% of Class A
|
|
|
Class B
|
|
|
% of Class B
|
|
|
% Voting
|
|
|
5% Stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eagle River(2)
|
|
|
36,911,291
|
|
|
|
23.7
|
|
|
|
18,690,953
|
|
|
|
65.4
|
|
|
|
48.4
|
|
Intel(3)
|
|
|
36,759,999
|
|
|
|
25.2
|
|
|
|
9,905,732
|
|
|
|
34.6
|
|
|
|
29.8
|
|
Motorola(4)
|
|
|
16,666,666
|
|
|
|
12.3
|
|
|
|
|
|
|
|
|
|
|
|
4.0
|
|
Bell(5)
|
|
|
12,989,039
|
|
|
|
9.6
|
|
|
|
|
|
|
|
|
|
|
|
3.1
|
|
Named Executive Officers and Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Craig O. McCaw(6)
|
|
|
38,272,956
|
|
|
|
24.4
|
|
|
|
18,690,953
|
|
|
|
65.4
|
|
|
|
48.4
|
|
Benjamin G. Wolff(7)
|
|
|
38,086,288
|
|
|
|
24.3
|
|
|
|
18,690,953
|
|
|
|
65.4
|
|
|
|
48.4
|
|
Perry S. Satterlee(8)
|
|
|
839,998
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
John A. Butler(9)
|
|
|
337,449
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
R. Gerard Salemme(10)
|
|
|
794,165
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Scott Richardson(11)
|
|
|
133,916
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Peter L.S. Currie(12)
|
|
|
333,220
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Richard Emerson(13)
|
|
|
99,925
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Nicolas Kauser(14)
|
|
|
688,331
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
David Perlmutter(15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael J. Sabia(16)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stuart M. Sloan(17)
|
|
|
281,516
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Michelangelo A. Volpi(18)
|
|
|
6,083
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
All directors and executive officers as a group (17 persons)
|
|
|
43,330,557
|
|
|
|
26.4
|
|
|
|
18,690,953
|
|
|
|
65.4
|
|
|
|
48.7
|
|
|
|
|
(1) |
|
Shares of Clearwire Class A Common Stock beneficially owned
and the respective percentages of beneficial ownership of
Clearwire Class A Common Stock assumes the conversion of
all shares of Clearwire Class B Common Stock beneficially owned
by such person or entity into Clearwire Class A Common
Stock, and the exercise of all options, warrants and other
securities convertible into common stock beneficially owned by
such person or entity currently exercisable or exercisable
within 60 days of September 30, 2008. Shares issuable
pursuant to the conversion of Clearwire Class B Common
Stock or the exercise of stock options and warrants exercisable
within 60 days are deemed outstanding and held by the
holder of such shares of Clearwire Class B Common Stock,
options or warrants for computing the percentage of |
265
|
|
|
|
|
outstanding common stock beneficially owned by such person, but
are not deemed outstanding for computing the percentage of
outstanding common stock beneficially owned by any other person.
The respective percentages of beneficial ownership of Clearwire
Class A Common Stock beneficially owned is based on
135,806,518 shares of Clearwire Class A Common Stock
outstanding as of September 30, 2008. |
|
|
|
(2) |
|
Includes 17,232,005 shares of Clearwire Class A Common
Stock, 18,690,953 shares of Clearwire Class B Common
Stock, 375,000 shares of Clearwire Class A Common
Stock issuable on exercise of warrants and 613,333 shares
of Clearwire Class A Common Stock issuable on exercise of
warrants. Eagle River may be deemed to beneficially own
23,427,601 shares of Clearwire Class A Common Stock
and 9,905,732 shares of Clearwire Class B Common Stock
beneficially owned by Intel Capital Corporation,
3,333,333 shares of Clearwire Class A Common Stock
beneficially owned by Intel Capital (Cayman) Corporation and
93,333 shares of Clearwire Class A Common Stock
issuable on exercise of warrants beneficially owned by
Middlefield Ventures, Inc., a wholly-owned subsidiary of Intel,
pursuant to an existing voting agreement among Eagle River,
Intel Capital Corporation and Intel Capital (Cayman) Corporation
regarding the election of directors. Eagle River is controlled
by Mr. McCaw. The manager of Eagle River is ERI, an entity
controlled by and wholly-owned by Mr. McCaw. The address of
such stockholder is 2300 Carillon Point, Kirkland, Washington
98033. |
|
(3) |
|
Includes 3,333,333 shares of Clearwire Class A Common
Stock issued to Intel Capital (Cayman) Corporation and
23,427,601 shares of Clearwire Class A Common Stock
and 9,905,732 shares of Clearwire Class B Common Stock
issued to Intel Capital Corporation, a subsidiary of Intel, and
93,333 shares of Clearwire Class A Common Stock
issuable on exercise of warrants issued to Middlefield Ventures,
Inc., a wholly-owned subsidiary of Intel. Intel Capital (Cayman)
Corporation and Intel Capital Corporation may be deemed to
beneficially own 17,232,005 shares of Clearwire
Class A Common Stock and 18,690,953 shares of
Clearwire Class B Common Stock beneficially owned by Eagle
River, 375,000 shares of Clearwire Class A Common
Stock issuable on exercise of warrants issued to Eagle River,
and 613,333 shares of Clearwire Class A Common Stock
issuable on exercise of warrants issued to Eagle River. Intel
Capital (Cayman) Corporation, Intel Capital Corporation and
Eagle River are parties to an existing voting agreement under
which such stockholders and their affiliates share the ability
to elect a majority of our directors before the termination of
the voting agreement in connection with the Transactions. The
stockholder disclaims beneficial ownership of the shares of
capital stock held by Eagle River. The address of such
stockholder is 2200 Mission College Boulevard, Santa Clara,
California
95054-1549. |
|
(4) |
|
The address of such stockholder is 1303 E. Algonquin
Road, Schaumburg, Illinois 60196. |
|
(5) |
|
The address of such stockholder is 100 de la Gauchetiere
West, Suite 3700, Montreal, Quebec, Canada. |
|
|
|
(6) |
|
Includes options to purchase 1,249,999 shares of Clearwire
Class A Common Stock, 111,666 shares of Clearwire
Class A Common Stock held by CWCI LLC, an entity
wholly-owned by Mr. McCaw, 17,232,005 shares of
Clearwire Class A Common Stock and 18,690,953 shares of
Clearwire Class B Common Stock issued to Eagle River, and
988,333 shares of Clearwire Class A Common Stock
issuable on exercise of warrants issued to Eagle River.
Mr. McCaw owns all of the voting membership interests in
Eagle River and also controls and wholly-owns ERI, the manager
of Eagle River. Mr. McCaw may be deemed to beneficially own
23,427,601 shares of Clearwire Class A Common Stock
and 9,905,732 shares of Clearwire Class B Common Stock
issued to Intel Capital Corporation, 3,333,333 shares of
Clearwire Class A Common Stock issued to Intel Capital
(Cayman) Corporation and 93,333 shares of Clearwire
Class A Common Stock issuable on exercise of warrants
issued to Middlefield Ventures, Inc., a wholly-owned subsidiary
of Intel, pursuant to an existing voting agreement among Eagle
River, Intel Capital Corporation and Intel Capital (Cayman)
Corporation regarding the election of directors. |
|
|
|
(7) |
|
Includes options to purchase 1,076,664 shares of Clearwire
Class A Common Stock, 15,000 shares of Clearwire
Class A Common Stock issuable upon vesting of restricted
stock units and 83,333 shares of Clearwire Class A
Common Stock granted in the form of restricted stock on
April 17, 2006 held directly, and 17,232,005 shares of
Clearwire Class A Common Stock, 988,333 shares of
Clearwire Class A Common Stock issuable on exercise of
warrants issued to Eagle River and 18,690,953 shares of
Clearwire Class B Common Stock held by Eagle River.
Mr. Wolff is the President of Eagle River and ERI, the |
266
|
|
|
|
|
manager of Eagle River. Mr. Wolff may be deemed to
beneficially own 23,427,601 shares of Clearwire
Class A Common Stock, 9,905,732 shares of Clearwire
Class B Common Stock issued to Intel Capital Corporation
and 3,333,333 shares of Clearwire Class A Common Stock
issued to Intel Capital (Cayman) Corporation and 93,333 shares
of Clearwire Class A Common Stock issuable on exercise of
warrants issued to Middlefield Ventures, Inc., a wholly-owned
subsidiary of Intel, pursuant to an existing voting agreement
among Eagle River, Intel Capital Corporation and Intel Capital
(Cayman) Corporation regarding the election of directors. |
|
|
|
(8) |
|
Includes options to purchase 501,665 shares of Clearwire
Class A Common Stock, 5,000 shares of Clearwire
Class A Common Stock issuable upon vesting of restricted
stock units and 333,333 shares of Clearwire Class A
Common Stock granted in the form of restricted stock on
August 16, 2004, which includes 50,000 shares of
Clearwire Class A Common Stock issued in the name of
PSS-MSS Limited Partnership. Mr. Satterlee is the General
Partner of PSS-MSS Limited Partnership. |
|
(9) |
|
Includes options to purchase 332,499 shares of Clearwire
Class A Common Stock and 5,000 shares of Clearwire
Class A Common Stock issuable upon vesting of restricted
stock units. |
|
(10) |
|
Includes options to purchase 790,415 shares of Clearwire
Class A Common Stock and 3,750 shares of Clearwire
Class A Common Stock issuable upon vesting of restricted
stock units. |
|
|
|
(11) |
|
Includes options to purchase 95,833 shares of Clearwire
Class A Common Stock, 3,750 shares of Clearwire
Class A Common Stock issuable upon vesting of restricted
stock units and 33,333 shares of Clearwire Class A
Common Stock granted in the form of restricted stock on
February 12, 2007. |
|
|
|
(12) |
|
Includes options to purchase 14,165 shares of Clearwire
Class A Common Stock. |
|
|
|
(13) |
|
Includes options to purchase 14,270 shares of Clearwire
Class A Common Stock. |
|
(14) |
|
Includes options to purchase 688,331 shares of Clearwire
Class A Common Stock. |
|
(15) |
|
The address of such stockholder is 2200 Mission College
Boulevard, Santa Clara, California
95054-1549. |
|
(16) |
|
Mr. Sabia is no longer the Chief Executive Officer of Bell.
The address of such stockholder is 1050 Beaver Hall Hill,
Floor 19, Montreal, Quebec H2Z 1S4 Canada. |
|
(17) |
|
Includes options to purchase 13,020 shares of Clearwire
Class A Common Stock. Includes 266,666 shares of
Clearwire Class A Common Stock issued in the name of SMS
Trust. Mr. Sloan is the Trustee of SMS Trust. |
|
(18) |
|
Includes options to purchase 2,083 shares of Clearwire
Class A Common Stock. The address of such stockholder is
170 W. Tasman Drive, San Jose, California 95134. |
267
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF NEW CLEARWIRE
The following table shows pro forma information regarding the
beneficial ownership of shares of New Clearwire
Class A Common Stock and New Clearwire Class B Common
Stock as of the Closing of the Transactions, based on known
ownership, if any, of Clearwire Class A Common Stock and
Clearwire Class B Common Stock as of September 30,
2008 and shows the number of and percentage owned by:
|
|
|
|
|
each person who is expected to own beneficially more than 5% of
New Clearwire Class A Common Stock or New Clearwire
Class B Common Stock;
|
|
|
|
each member of New Clearwires board of directors;
|
|
|
|
each of New Clearwires executive officers; and
|
|
|
|
all members of New Clearwires board of directors and New
Clearwires executive officers as a group.
|
Except as indicated in the footnotes to this table (1) each
person has sole voting and investment power with respect to all
shares attributable to such person and (2) each
persons address is
c/o Clearwire
Corporation, 4400 Carillon Point, Kirkland, Washington 98033.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A(1)
|
|
|
% of Class A
|
|
|
Class B
|
|
|
% of Class B
|
|
|
% Voting
|
|
|
5% Stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sprint(2)
|
|
|
370,000,000
|
|
|
|
66.1
|
%
|
|
|
370,000,000
|
|
|
|
73.3
|
%
|
|
|
53.3
|
%
|
Intel(3)
|
|
|
86,759,999
|
|
|
|
36.2
|
%
|
|
|
50,000,000
|
|
|
|
9.9
|
%
|
|
|
12.5
|
%
|
Comcast(4)
|
|
|
52,500,000
|
|
|
|
21.7
|
%
|
|
|
52,500,000
|
|
|
|
10.4
|
%
|
|
|
7.6
|
%
|
Eagle River(5)
|
|
|
36,911,291
|
|
|
|
19.4
|
%
|
|
|
|
|
|
|
|
|
|
|
5.2
|
%
|
Google(6)
|
|
|
25,000,000
|
|
|
|
13.2
|
%
|
|
|
|
|
|
|
|
|
|
|
3.6
|
%
|
Time Warner Cable(7)
|
|
|
27,500,000
|
|
|
|
12.7
|
%
|
|
|
27,500,000
|
|
|
|
5.4
|
%
|
|
|
4.0
|
%
|
Motorola(8)
|
|
|
16,666,666
|
|
|
|
8.8
|
%
|
|
|
|
|
|
|
|
|
|
|
2.4
|
%
|
Bell(9)
|
|
|
12,989,039
|
|
|
|
6.9
|
%
|
|
|
|
|
|
|
|
|
|
|
1.9
|
%
|
Executive Officers and Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Craig O. McCaw(10)
|
|
|
38,689,623
|
|
|
|
20.1
|
%
|
|
|
|
|
|
|
|
|
|
|
5.2
|
%
|
Daniel R. Hesse(11)
|
|
|
370,000,000
|
|
|
|
66.1
|
%
|
|
|
370,000,000
|
|
|
|
73.3
|
%
|
|
|
53.3
|
%
|
Benjamin G. Wolff(12)
|
|
|
39,607,956
|
|
|
|
20.5
|
%
|
|
|
|
|
|
|
|
|
|
|
5.2
|
%
|
All directors and executive officers as a group (13 persons)
|
|
|
412,692,953
|
|
|
|
73.0
|
%
|
|
|
370,000,000
|
|
|
|
73.3
|
%
|
|
|
58.5
|
%
|
|
|
|
|
|
It is assumed that the number of shares of New Clearwire
Class A Common Stock and New Clearwire Class B Common
Stock purchased in the Transactions will be based on a purchase
price of $20.00 per share, and not subject to a post-closing
adjustment. See the section titled The Transaction
Agreement Post-Closing Adjustment beginning on
page 98 of this proxy statement/prospectus. |
|
|
|
(1) |
|
Shares of New Clearwire Class A Common Stock beneficially
owned and the respective percentages of beneficial ownership of
New Clearwire Class A Common Stock assumes the conversion
of all shares of New Clearwire Class B Common Stock
beneficially owned by such person or entity into Clearwire
Class A Common Stock, and the exercise of all options,
warrants and other securities convertible into common stock
beneficially owned by such person or entity currently
exercisable or exercisable within 60 days of
September 30, 2008, including any shares that will be
issued and options that become exercisable on the Closing of the
Transactions. Shares issuable pursuant to the conversion of New
Clearwire Class B Common Stock or the exercise of stock
options and warrants exercisable within 60 days are deemed
outstanding and held by the holder of such shares of New
Clearwire Class B Common Stock, options or warrants for
computing the percentage of outstanding common stock
beneficially owned by such person, but are not deemed
outstanding for computing the percentage of outstanding common
stock beneficially owned by any other person. The respective
percentages of beneficial ownership of New Clearwire
Class A Common Stock beneficially owned is based on
135,806,518 shares of Clearwire |
268
|
|
|
|
|
Class A Common Stock and 28,596,685 shares of
Clearwire Class B Common Stock outstanding as of
September 30, 2008, plus 25,000,000 shares of New
Clearwire Class A Common Stock to be issued at the closing
of the Transactions. |
|
|
|
(2) |
|
Includes 370,000,000 shares of New Clearwire Class B
Common Stock to be issued to Sprint upon closing of the
Transactions. By virtue of the Equityholders Agreement to
be entered into at the Closing, Sprint may be deemed to
beneficially own 3,333,333 shares of New Clearwire
Class A Common Stock beneficially owned by Intel Capital
(Cayman) Corporation, 33,333,333 shares of New Clearwire
Class A Common Stock beneficially owned by Intel Capital
Corporation, a subsidiary of Intel, 50,000,000 shares of
New Clearwire Class B Common Stock beneficially owned by
Intel, 93,333 shares of New Clearwire Class A Common
Stock issuable on exercise of warrants issued to Middlefield
Ventures, Inc., a wholly-owned subsidiary of Intel,
52,500,000 shares of New Clearwire Class B Common
Stock beneficially owned by Comcast, 36,911,291 shares of
New Clearwire Class A Common Stock beneficially owned by
Eagle River, 375,000 shares of New Clearwire Class A
Common Stock issuable on exercise of warrants issued to Eagle
River, 613,333 shares of New Clearwire Class A Common
Stock issuable on exercise of warrants issued to Eagle River,
25,000,000 shares of New Clearwire Class A Common
stock beneficially owned by Google, 27,500,000 shares of
Class B Common Stock beneficially owned by Time Warner
Cable and 5,000,000 shares of Clearwire Class B Common
Stock beneficially owned by Bright House Networks. As more fully
described in the section titled Certain Agreements Related
to the Transactions Equityholders
Agreement, beginning on page 114 of this proxy
statement/prospectus, Sprint, Intel, Comcast, Eagle River,
Google, Time Warner Cable and Bright House Networks have agreed
to execute the Equityholders Agreement in connection with
the completion of the Transactions which includes a voting
agreement under which such stockholders and their respective
affiliates share the ability to elect a majority of New
Clearwire directors. The stockholder disclaims beneficial
ownership of the shares of capital stock held by such other
stockholders. The address of such stockholder is
6200 Sprint Parkway, Overland Park, Kansas 66251. |
|
|
|
(3) |
|
Includes 3,333,333 shares of New Clearwire Class A
Common Stock to be issued to Intel Capital (Cayman) Corporation,
33,333,333 shares of New Clearwire Class A Common
Stock to be issued to Intel Capital Corporation, a subsidiary of
Intel, 50,000,000 shares of New Clearwire Class B
Common Stock to be issued to Intel, 93,333 shares of New
Clearwire Class A Common Stock issuable on exercise of
warrants issued to Middlefield Ventures, Inc., a wholly-owned
subsidiary of Intel. By virtue of the Equityholders
Agreement to be entered into at the Closing, Intel,
Intel Capital (Cayman) Corporation and Intel Capital
Corporation may be deemed to beneficially own
370,000,000 shares of New Clearwire Class B Common
Stock beneficially owned by Sprint, 52,500,000 shares of
New Clearwire Class B Common Stock beneficially owned by
Comcast, 36,911,291 shares of New Clearwire Class A
Common Stock beneficially owned by Eagle River,
375,000 shares of New Clearwire Class A Common Stock
issuable on exercise of warrants issued to Eagle River,
613,333 shares of New Clearwire Class A Common Stock
issuable on exercise of warrants issued to Eagle River,
25,000,000 shares of New Clearwire Class A Common
stock beneficially owned by Google, 27,500,000 shares of
Class B Common Stock beneficially owned by Time Warner
Cable and 5,000,000 shares of Clearwire Class B Common
Stock beneficially owned by Bright House Networks. As more fully
described in the section titled Certain Agreements Related
to the Transactions Equityholders
Agreement, beginning on page 114 of this proxy
statement/prospectus, Sprint, Intel, Comcast, Eagle River,
Google, Time Warner Cable and Bright House Networks have agreed
to execute the Equityholders Agreement in connection with
the completion of the Transactions which includes a voting
agreement under which such stockholders and their respective
affiliates share the ability to elect a majority of New
Clearwire directors. The stockholder disclaims beneficial
ownership of the shares of capital stock held by such other
stockholders. The address of such stockholder is 2200 Mission
College Boulevard, Santa Clara, California
95054-1549. |
|
|
|
(4) |
|
Includes 52,500,000 shares of New Clearwire Class B
Common Stock to be issued to Comcast upon closing of the
Transactions. By virtue of the Equityholders Agreement to
be entered into at the Closing, Comcast may be deemed to
beneficially own 370,000,000 shares of New Clearwire
Class B Common Stock beneficially owned by Sprint,
3,333,333 shares of New Clearwire Class A Common Stock
beneficially owned by Intel Capital (Cayman) Corporation,
33,333,333 shares of New Clearwire Class A Common
Stock beneficially |
269
|
|
|
|
|
owned by Intel Capital Corporation, a subsidiary of Intel,
50,000,000 shares of New Clearwire Class B Common
Stock beneficially owned by Intel, 93,333 shares of New
Clearwire Class A Common Stock issuable on exercise of
warrants issued to Middlefield Ventures, Inc., a wholly-owned
subsidiary of Intel, 36,911,291 shares of New Clearwire
Class A Common Stock beneficially owned by Eagle River,
375,000 shares of New Clearwire Class A Common Stock
issuable on exercise of warrants issued to Eagle River,
613,333 shares of New Clearwire Class A Common Stock
issuable on exercise of warrants issued to Eagle River,
25,000,000 shares of New Clearwire Class A Common
stock beneficially owned by Google, 27,500,000 shares of
Class B Common Stock beneficially owned by Time Warner
Cable and 5,000,000 shares of Clearwire Class B Common
Stock beneficially owned by Bright House Networks. As more fully
described in the section titled Certain Agreements Related
to the Transactions Equityholders
Agreement, beginning on page 114 of this proxy
statement/prospectus, Sprint, Intel, Comcast, Eagle River,
Google, Time Warner Cable and Bright House Networks have agreed
to execute the Equityholders Agreement in connection with
the completion of the Transactions which includes a voting
agreement under which such stockholders and their respective
affiliates share the ability to elect a majority of New
Clearwire directors. The stockholder disclaims beneficial
ownership of the shares of capital stock held by such other
stockholders. The address of such stockholder is One Comcast
Center, 1701 John F. Kennedy Boulevard, Philadelphia,
Pennsylvania 19103. |
|
|
|
(5) |
|
Includes 36,911,211 shares of New Clearwire Class A
Common Stock, 375,000 shares of New Clearwire Class A
Common Stock issuable on exercise of warrants and
613,333 shares of New Clearwire Class A Common Stock
issuable on exercise of warrants. Eagle River is controlled by
Mr. McCaw. The manager of Eagle River is ERI, an entity
controlled by and wholly-owned by Mr. McCaw. By virtue of
the Equityholders Agreement to be entered into at the
Closing, Eagle River may be deemed to beneficially own
370,000,000 shares of New Clearwire Class B Common
Stock beneficially owned by Sprint, 3,333,333 shares of New
Clearwire Class A Common Stock beneficially owned by Intel
Capital (Cayman) Corporation, 33,333,333 shares of New
Clearwire Class A Common Stock beneficially owned by Intel
Capital Corporation, a subsidiary of Intel,
50,000,000 shares of New Clearwire Class B Common
Stock beneficially owned by Intel, 93,333 shares of New
Clearwire Class A Common Stock issuable on exercise of
warrants issued to Middlefield Ventures, Inc., a wholly-owned
subsidiary of Intel, 52,500,000 shares of New Clearwire
Class B Common Stock beneficially owned by Comcast,
25,000,000 shares of New Clearwire Class A Common
stock beneficially owned by Google, 27,500,000 shares of
Class B Common Stock beneficially owned by Time Warner
Cable and 5,000,000 shares of Clearwire Class B Common
Stock beneficially owned by Bright House Networks. As more fully
described in the section titled Certain Agreements Related
to the Transactions Equityholders
Agreement, beginning on page 114 of this proxy
statement/prospectus, Sprint, Intel, Comcast, Eagle River,
Google, Time Warner Cable and Bright House Networks have agreed
to execute the Equityholders Agreement in connection with
the completion of the Transactions which includes a voting
agreement under which such stockholders and their respective
affiliates share the ability to elect a majority of New
Clearwire directors. The stockholder disclaims beneficial
ownership of the shares of capital stock held by such other
stockholders. The address of such stockholder is
2300 Carillon Point, Kirkland, Washington 98033. |
|
|
|
(6) |
|
Includes 25,000,000 shares of New Clearwire Class A
Common Stock to be issued to Google upon closing of the
Transactions. By virtue of the Equityholders Agreement to
be entered into at the Closing, Google may be deemed to
beneficially own 370,000,000 shares of New Clearwire
Class B Common Stock beneficially owned by Sprint,
3,333,333 shares of New Clearwire Class A Common Stock
beneficially owned by Intel Capital (Cayman) Corporation,
33,333,333 shares of New Clearwire Class A Common
Stock beneficially owned by Intel Capital Corporation, a
subsidiary of Intel, 50,000,000 shares of New Clearwire
Class B Common Stock beneficially owned by Intel,
93,333 shares of New Clearwire Class A Common Stock
issuable on exercise of warrants issued to Middlefield Ventures,
Inc., a wholly-owned subsidiary of Intel, 52,500,000 shares
of New Clearwire Class B Common Stock beneficially owned by
Comcast, 36,911,291 shares of New Clearwire Class A
Common Stock beneficially owned by Eagle River,
375,000 shares of New Clearwire Class A Common Stock
issuable on exercise of warrants issued to Eagle River,
613,333 shares of New Clearwire Class A Common Stock
issuable on exercise of warrants issued to Eagle River,
27,500,000 shares of Class B Common Stock beneficially
owned by Time Warner Cable and |
270
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5,000,000 shares of Clearwire Class B Common Stock
beneficially owned by Bright House Networks. As more fully
described in the section titled Certain Agreements Related
to the Transactions Equityholders
Agreement, beginning on page 114 of this proxy
statement/prospectus, Sprint, Intel, Comcast, Eagle River,
Google, Time Warner Cable and Bright House Networks have agreed
to execute the Equityholders Agreement in connection with
the completion of the Transactions which includes a voting
agreement under which such stockholders and their respective
affiliates share the ability to elect a majority of
New Clearwires directors. The stockholder disclaims
beneficial ownership of the shares of capital stock held by such
other stockholders. The address of such stockholder is 1600
Amphitheatre Parkway, Mountain View, California 94043. |
|
|
|
(7) |
|
Includes 27,500,000 shares of New Clearwire Class A
Common Stock to be issued to Time Warner Cable upon closing of
the Transactions. By virtue of the Equityholders Agreement
to be entered into at the Closing, Time Warner Cable may be
deemed to beneficially own 370,000,000 shares of New
Clearwire Class B Common Stock beneficially owned by
Sprint, 3,333,333 shares of New Clearwire Class A
Common Stock beneficially owned by Intel Capital (Cayman)
Corporation, 33,333,333 shares of New Clearwire Class A
Common Stock beneficially owned by Intel Capital Corporation, a
subsidiary of Intel, 50,000,000 shares of New Clearwire
Class B Common Stock beneficially owned by Intel,
93,333 shares of New Clearwire Class A Common Stock
issuable on exercise of warrants issued to Middlefield Ventures,
Inc., a wholly-owned subsidiary of Intel, 52,500,000 shares
of New Clearwire Class B Common Stock beneficially owned by
Comcast, 36,011,291 shares of New Clearwire Class A
Common Stock beneficially owned by Eagle River,
375,000 shares of New Clearwire Class A Common Stock
issuable on exercise of warrants issued to Eagle River, and
613,333 shares of New Clearwire Class A Common Stock
issuable on exercise of warrants issued to Eagle River,
25,000,000 shares of New Clearwire Class A Common
stock beneficially owned by Google and 5,000,000 shares of
Clearwire Class B Common Stock beneficially owned by Bright
House Networks. As more fully described in the section titled
Certain Agreements Related to the Transactions
Equityholders Agreement, beginning on page 114
of this proxy statement/prospectus, Sprint, Intel, Comcast,
Eagle River, Google, Time Warner Cable and Bright House Networks
have agreed to execute the Equityholders Agreement in
connection with the completion of the Transactions which
includes a voting agreement under which such stockholders and
their respective affiliates share the ability to elect a
majority of New Clearwire directors. The stockholder disclaims
beneficial ownership of the shares of capital stock held by such
other stockholders. The address of such stockholder is One Time
Warner Center, North Tower, New York, New York 10019. |
|
|
|
(8) |
|
The address of such stockholder is 1303 E. Algonquin
Road, Schaumburg, Illinois 60196. |
|
(9) |
|
The address of such stockholder is 100 de la Gauchetiere
West, Suite 3700, Montreal, Quebec, Canada. |
|
|
|
(10) |
|
Includes options to purchase 2,654,999 shares of New
Clearwire Class A Common Stock, 111,666 shares of New
Clearwire Class A Common Stock held by CWCI LLC, an entity
wholly-owned by Mr. McCaw, 36,911,291 shares of New
Clearwire Class A Common Stock issued to Eagle River, and
988,333 shares of New Clearwire Class A Common Stock
issuable on exercise of warrants issued to Eagle River.
Mr. McCaw owns all of the voting membership interests in
Eagle River and also controls and wholly-owns ERI, the manager
of Eagle River. By virtue of the Equityholders Agreement
to be entered into at the Closing, Mr. McCaw may be deemed
to beneficially own 370,000,000 shares of New Clearwire
Class B Common Stock beneficially owned by Sprint,
3,333,333 shares of New Clearwire Class A Common Stock
beneficially owned by Intel Capital (Cayman) Corporation,
33,333,333 shares of New Clearwire Class A Common
Stock beneficially owned by Intel Capital Corporation, a
subsidiary of Intel, 50,000,000 shares of New Clearwire
Class B Common Stock beneficially owned by Intel,
93,333 shares of New Clearwire Class A Common Stock
issuable on exercise of warrants issued to Middlefield Ventures,
Inc., a wholly-owned subsidiary of Intel, 52,500,000 shares
of New Clearwire Class B Common Stock beneficially owned by
Comcast, 25,000,000 shares of New Clearwire Class A
Common stock beneficially owned by Google,
27,500,000 shares of Class B Common Stock beneficially
owned by Time Warner Cable and 5,000,000 shares of
Clearwire Class B Common Stock beneficially owned by Bright
House Networks. As more fully described in the section titled
Certain Agreements Related to the Transactions
Equityholders Agreement, beginning on page 114
of this proxy statement/prospectus, Sprint, Intel, Comcast,
Eagle River, Google, Time Warner Cable and Bright House Networks
have agreed to |
271
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|
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|
|
execute the Equityholders Agreement in connection with the
completion of the Transactions which includes a voting agreement
under which such stockholders and their respective affiliates
share the ability to elect a majority of New Clearwire
directors. The stockholder disclaims beneficial ownership of the
shares of capital stock held by such other stockholders. |
|
|
|
(11) |
|
Mr. Hesse is the Chief Executive Officer, President and
Director of Sprint. Includes 370,000,000 shares of New
Clearwire Class B Common Stock issued to Sprint.
Mr. Hesse disclaims beneficial ownership of the shares of
common stock held by Sprint, except to the extent of his
pecuniary interest therein. By virtue of the Equityholders
Agreement to be entered into at the Closing, Mr. Hesse may
be deemed to beneficially own 3,333,333 shares of New
Clearwire Class A Common Stock beneficially owned by Intel
Capital (Cayman) Corporation, 33,333,333 shares of
New Clearwire Class A Common Stock beneficially owned
by Intel Capital Corporation, a subsidiary of Intel,
50,000,000 shares of New Clearwire Class B Common
Stock beneficially owned by Intel, 93,333 shares of New
Clearwire Class A Common Stock issuable on exercise of
warrants issued to Middlefield Ventures, Inc., a wholly-owned
subsidiary of Intel, 52,500,000 shares of New Clearwire
Class B Common Stock beneficially owned by Comcast,
36,911,291 shares of New Clearwire Class A Common
Stock beneficially owned by Eagle River, 375,000 shares of
New Clearwire Class A Common Stock issuable on exercise of
warrants issued to Eagle River, 613,333 shares of New
Clearwire Class A Common Stock issuable on exercise of
warrants issued to Eagle River, 25,000,000 shares of New
Clearwire Class A Common stock beneficially owned by
Google, 27,500,000 shares of Class B Common Stock
beneficially owned by Time Warner Cable and
5,000,000 shares of Clearwire Class B Common Stock
beneficially owned by Bright House Networks. As more fully
described in the section titled Certain Agreements Related
to the Transactions Equityholders
Agreement, beginning on page 114 of this proxy
statement/prospectus, Sprint, Intel, Comcast, Eagle River,
Google, Time Warner Cable and Bright House Networks have agreed
to execute the Equityholders Agreement in connection with
the completion of the Transactions which includes a voting
agreement under which such stockholders and their respective
affiliates share the ability to elect a majority of New
Clearwire directors. The stockholder disclaims beneficial
ownership of the shares of capital stock held by such other
stockholders. The address of such stockholder is
6200 Sprint Parkway, Overland Park, Kansas 66251. |
|
|
|
(12) |
|
Includes options to purchase 3,291,665 shares of New
Clearwire Class A Common Stock, 83,333 shares of New
Clearwire Class A Common Stock granted in the form of
restricted stock on April 17, 2006 held directly,
310,000 shares of New Clearwire Class A Common Stock
to be issued on vesting of RSUs and held directly,
17,232,005 shares of New Clearwire Class A Common
Stock held by Eagle River, 988,333 shares of New Clearwire
Class A Common Stock issuable on exercise of warrants
issued to Eagle River and 18,690,953 shares of
New Clearwire Class B Common Stock held by Eagle
River. Mr. Wolff is the President of Eagle River and ERI,
the manager of Eagle River. By virtue of the Equityholders
Agreement to be entered into at the Closing, Mr. Wolff may
be deemed to beneficially own 370,000,000 shares of
New Clearwire Class B Common Stock beneficially owned
by Sprint, 3,333,333 shares of New Clearwire Class A
Common Stock beneficially owned by Intel Capital (Cayman)
Corporation, 33,333,333 shares of New Clearwire
Class A Common Stock beneficially owned by Intel Capital
Corporation, a subsidiary of Intel, 50,000,000 shares of
New Clearwire Class B Common Stock beneficially owned by
Intel, 93,333 shares of New Clearwire Class A Common
Stock issuable on exercise of warrants issued to Middlefield
Ventures, Inc., a wholly-owned subsidiary of Intel,
52,500,000 shares of New Clearwire Class B Common Stock
beneficially owned by Comcast, 25,000,000 shares of New
Clearwire Class A Common stock beneficially owned by
Google, 27,500,000 shares of Class B Common Stock
beneficially owned by Time Warner Cable and
5,000,000 shares of Clearwire Class B Common Stock
beneficially owned by Bright House Networks. As more fully
described in the section titled Certain Agreements Related
to the Transactions Equityholders
Agreement, beginning on page 114 of this proxy
statement/prospectus, Sprint, Intel, Comcast, Eagle River,
Google, Time Warner Cable and Bright House Networks have agreed
to execute the Equityholders Agreement in connection with
the completion of the Transactions which includes a voting
agreement under which such stockholders and their respective
affiliates share the ability to elect a majority of
New Clearwire directors. The stockholder disclaims
beneficial ownership of the shares of capital stock held by such
other stockholders. |
272
DEADLINE
AND PROCEDURES FOR SUBMITTING PROPOSALS FOR
THE 2009 ANNUAL MEETING OF NEW CLEARWIRE
Stockholder proposals to be considered for inclusion in the
proxy statement and form of proxy for the 2009 annual meeting
must be received no later than December 28, 2008. In
addition, the New Clearwire Bylaws provide for the timing and
content of notice that stockholders must provide to New
Clearwires secretary at 4400 Carillon Point, Kirkland,
Washington 98033, for business to be properly brought before the
annual meeting by a stockholder. Pursuant to these provisions,
notice must be received by New Clearwire not less than
60 days nor more than 90 days before the anniversary
of the preceding years annual meeting; provided, however,
that if the date of the meeting has been changed by more than
30 days from such anniversary date, notice by the
stockholder to be timely must be received no later than the
close of business on the earlier of the 7th day following
the date on which the notice of the meeting was mailed or a
public announcement of the meeting was made.
HOUSEHOLDING
Under a SEC rule concerning the delivery of annual disclosure
documents, called householding, certain brokers,
banks and other intermediaries may arrange for a single set of
our notices of special meeting, proxy statement/prospectus
and proxy card to be delivered to multiple stockholders sharing
an address unless those brokers, banks and other intermediaries
have received contrary instructions from one or more of the
stockholders. Also, you may have requested Clearwire to deliver
a single set of these materials to multiple stockholders sharing
an address. The rule applies to annual reports, proxy statements
or information statements. Each stockholder will continue to
receive a separate proxy card or voting instruction card in this
case.
Clearwire will deliver promptly on written or oral request a
separate copy of this proxy statement/prospectus or our annual
disclosure documents to a stockholder at a shared address to
which a single copy of this proxy statement/prospectus and other
disclosure documents were sent. If you would like to receive
your own set of these documents, or would like to receive your
own set of Clearwires annual disclosure documents in
future years, contact us in writing at Clearwire Corporation,
4400 Carillon Point, Kirkland, Washington 98033, Attention:
Investor Relations, or by calling
(800) 937-5449.
Two or more stockholders sharing an address can request delivery
of a single copy of annual disclosure documents if they are
receiving multiple copies by contacting Clearwire in the same
manner.
If a broker or other nominee holds your Clearwire shares, please
contact our transfer agent, American Stock Transfer and
Trust Company, and inform them of your request by calling
them at (800) 937-5449. You will need the name of your brokerage
firm and your account number.
EXPERTS
The consolidated financial statements of Clearwire Corporation
as of December 31, 2007 and 2006, and for each of the three
years in the period ended December 31, 2007, included in
this proxy statement/prospectus have been audited by
Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in their report (which report
expresses an unqualified opinion on the financial statements and
includes an explanatory paragraph referring to the adoption of
SFAS No. 123(R), Share-Based Payment)
appearing elsewhere in this proxy statement/prospectus and
have been so included in reliance upon the report of such firm
given on their authority as experts in accounting and auditing.
The financial statements of the WiMAX Operations of Sprint
Nextel Corporation (a development stage enterprise) as of and
for the year ended December 31, 2007, have been included
herein and in the registration statement in reliance upon the
report of KPMG LLP, independent registered public accounting
firm, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing. The audit report
covering the financial statements contains an emphasis of matter
paragraph that states that the WiMAX Operations of Sprint Nextel
Corporation is dependent on Sprint Nextel Corporation to fund
the acquisition and development of its network assets and that
Sprint Nextel Corporation has committed to provide the WiMAX
Operations of Sprint Nextel Corporation with the required
financial support through the earlier of the closing of the
transaction with Clearwire Corporation or August 31, 2009.
273
LEGAL
MATTERS
Certain legal matters in connection with the validity of the New
Clearwire Common Stock to be issued in the Merger will be passed
on for us by Kirkland & Ellis LLP, New York, New York.
Davis Wright Tremaine LLP has provided to Clearwire a legal
opinion regarding the material United States federal income tax
consequences of the Conversion and the Merger.
Benjamin G. Wolff, our Chief Executive Officer, was a lawyer at
Davis Wright Tremaine LLP from August 1994 until April 2004.
Mr. Wolffs spouse is a partner with Davis Wright
Tremaine LLP. Davis Wright Tremaine LLP has rendered substantial
legal services to us since our formation. Davis Wright Tremaine
LLP continues to provide legal services to us, including
services in connection with the Transactions.
WHERE YOU
CAN FIND ADDITIONAL INFORMATION
New Clearwire has filed with the SEC a registration statement on
Form S-4
under the Securities Act to register with the SEC the shares of
New Clearwire Class A Common Stock to be issued in the
Merger. This proxy statement/prospectus, which constitutes a
part of the registration statement, does not contain all of the
information set forth in the registration statement or the
exhibits and schedules filed with it. For further information
about New Clearwire and the New Clearwire Common Stock to be
issued in the Merger, reference is made to the registration
statement and the exhibits and schedules filed with it.
Statements contained in this proxy statement/prospectus
regarding the contents of any contract or any other document
that is filed as an exhibit to the registration statement are
not necessarily complete, and each such statement is qualified
in all respects by reference to the full text of such contract
or other document filed as an exhibit to the registration
statement.
Clearwire and Sprint file, and New Clearwire will file, annual,
quarterly and current reports, proxy and registration statements
and other information with the SEC. You may read and copy any
reports, statements, or other information that Clearwire, Sprint
or New Clearwire file, including the registration statement, of
which this proxy statement/prospectus forms a part, and the
exhibits and schedules filed with it, without charge at the
public reference room maintained by the SEC, located at
100 F Street, NE, Washington, D.C. 20549, and
copies of all or any part of the registration statement may be
obtained from the SEC on the payment of the fees prescribed by
the SEC. Please call the SEC at
1-800-SEC-0330
for further information about the public reference room. The SEC
also maintains an Internet website that contains reports, proxy
and information statements and other information regarding
registrants that file electronically with the SEC. The address
of the site is www.sec.gov.
CLEARWIRE HAS NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR
MAKE ANY REPRESENTATION ABOUT THE TRANSACTIONS THAT IS DIFFERENT
FROM, OR IN ADDITION TO, THAT CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS OR IN ANY OF THE MATERIALS THAT ARE
INCORPORATED INTO THIS PROXY STATEMENT/PROSPECTUS. THEREFORE, IF
ANYONE DOES GIVE YOU INFORMATION OF THIS SORT, YOU SHOULD NOT
RELY ON IT. IF YOU ARE IN A JURISDICTION WHERE OFFERS TO
EXCHANGE OR SELL, OR SOLICITATIONS OF OFFERS TO EXCHANGE OR
PURCHASE, THE SECURITIES OFFERED BY THIS PROXY
STATEMENT/PROSPECTUS ARE UNLAWFUL, OR IF YOU ARE A PERSON TO
WHOM IT IS UNLAWFUL TO DIRECT THESE TYPES OF ACTIVITIES, THEN
THE OFFER PRESENTED IN THIS PROXY STATEMENT/PROSPECTUS DOES NOT
EXTEND TO YOU.
YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS
PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS AND NEITHER THE
MAILING OF THIS PROXY
STATEMENT/PROSPECTUS
NOR THE ISSUANCE OF NEW CLEARWIRE COMMON STOCK PURSUANT TO THE
TRANSACTIONS SHALL CREATE AN IMPLICATION TO THE CONTRARY.
ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS
WITH RESPECT TO SPRINT AND ITS SUBSIDIARIES AND ASSETS HAS BEEN
PROVIDED BY SPRINT. ALL INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS WITH RESPECT TO ANY INVESTOR AND ITS
SUBSIDIARIES AND ASSETS HAS BEEN PROVIDED BY SUCH INVESTOR.
CLEARWIRE DOES NOT WARRANT THE ACCURACY OF THE INFORMATION
PROVIDED BY SPRINT OR ANY INVESTOR.
274
INDEX TO
FINANCIAL STATEMENTS
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Page
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|
Clearwire Consolidated Financial Statements
|
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CF-2
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CF-3
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|
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CF-4
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|
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CF-5
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|
|
|
|
CF-6
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|
|
|
|
CF-7
|
|
|
|
|
CF-46
|
|
|
|
|
CF-47
|
|
|
|
|
CF-48
|
|
|
|
|
CF-49
|
|
|
|
|
CF-50
|
|
WiMAX Operations of Sprint Nextel Corporation Financial
Statements
|
|
|
|
|
|
|
|
WF-1
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WF-2
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WF-3
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WF-4
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WF-5
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WF-6
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|
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WF-18
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WF-19
|
|
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WF-20
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WF-21
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|
WF-22
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|
CF-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Clearwire
Corporation
Kirkland, Washington
We have audited the accompanying consolidated balance sheets of
Clearwire Corporation and subsidiaries (the Company)
as of December 31, 2007 and 2006, and the related
consolidated statements of operations, stockholders
equity, and cash flows for each of the three years in the period
ended December 31, 2007. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also 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, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Clearwire Corporation and subsidiaries as of December 31,
2007 and 2006, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 2007, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 2 to the consolidated financial
statements, the Company changed its method of accounting for
stock-based compensation upon adoption of Financial Accounting
Standards Board Statement No. 123(R), Share-Based
Payment.
/s/ Deloitte &
Touche LLP
Seattle, Washington
March 11, 2008
CF-2
CLEARWIRE
CORPORATION AND SUBSIDIARIES
|
|
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|
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December 31,
|
|
|
December 31,
|
|
|
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2007
|
|
|
2006
|
|
|
|
(In thousands, except share and per share data)
|
|
|
ASSETS
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
876,752
|
|
|
$
|
438,030
|
|
Short-term investments
|
|
|
67,012
|
|
|
|
663,644
|
|
Restricted cash
|
|
|
1,077
|
|
|
|
10,727
|
|
Restricted investments
|
|
|
|
|
|
|
69,401
|
|
Accounts receivable, net of allowance of $787 and $753
|
|
|
3,677
|
|
|
|
2,774
|
|
Notes receivable short-term, related party
|
|
|
2,134
|
|
|
|
4,409
|
|
Inventory
|
|
|
2,312
|
|
|
|
1,398
|
|
Prepaids and other assets
|
|
|
36,748
|
|
|
|
19,219
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
989,712
|
|
|
|
1,209,602
|
|
Property, plant and equipment, net
|
|
|
572,329
|
|
|
|
302,798
|
|
Restricted cash
|
|
|
11,603
|
|
|
|
117
|
|
Restricted investments
|
|
|
|
|
|
|
16,269
|
|
Long-term investments
|
|
|
88,632
|
|
|
|
|
|
Notes receivable long-term, related party
|
|
|
4,700
|
|
|
|
|
|
Prepaid spectrum license fees
|
|
|
457,741
|
|
|
|
241,151
|
|
Spectrum licenses and other intangible assets, net
|
|
|
480,003
|
|
|
|
222,980
|
|
Goodwill
|
|
|
35,666
|
|
|
|
30,908
|
|
Investments in equity investees
|
|
|
14,602
|
|
|
|
14,983
|
|
Other assets
|
|
|
30,981
|
|
|
|
29,565
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
2,685,969
|
|
|
$
|
2,068,373
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses (includes related party
balances of $4,521 and $6,799)
|
|
$
|
102,447
|
|
|
$
|
108,216
|
|
Deferred rent
|
|
|
24,805
|
|
|
|
6,986
|
|
Deferred revenue
|
|
|
10,010
|
|
|
|
5,599
|
|
Due to affiliate
|
|
|
2
|
|
|
|
532
|
|
Current portion of long-term debt
|
|
|
22,500
|
|
|
|
1,250
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
159,764
|
|
|
|
122,583
|
|
Long-term debt, net of discount of $0 and $110,007
|
|
|
1,234,375
|
|
|
|
644,438
|
|
Other long-term liabilities
|
|
|
114,492
|
|
|
|
42,385
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,508,631
|
|
|
|
809,406
|
|
MINORITY INTEREST
|
|
|
13,506
|
|
|
|
1,358
|
|
COMMITMENTS AND CONTINGENCIES (NOTE 11)
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.0001, 5,000,000 shares
authorized; no shares issued or outstanding
|
|
|
|
|
|
|
|
|
Common stock, par value $0.0001, and additional paid-in capital,
350,000,000 shares authorized; Class A, 135,567,269
and 109,325,236 shares issued and outstanding
|
|
|
2,098,155
|
|
|
|
1,474,759
|
|
Class B, 28,596,685 shares issued and outstanding
|
|
|
234,376
|
|
|
|
234,376
|
|
Common stock and warrants payable
|
|
|
|
|
|
|
166
|
|
Deferred compensation
|
|
|
|
|
|
|
(116
|
)
|
Accumulated other comprehensive income
|
|
|
17,333
|
|
|
|
6,990
|
|
Accumulated deficit
|
|
|
(1,186,032
|
)
|
|
|
(458,566
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,163,832
|
|
|
|
1,257,609
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
2,685,969
|
|
|
$
|
2,068,373
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
CF-3
CLEARWIRE
CORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except per share data)
|
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
$
|
151,440
|
|
|
$
|
67,598
|
|
|
$
|
8,451
|
|
Equipment and other (includes related party sales of $0, $15,546
and $9,728)
|
|
|
|
|
|
|
32,583
|
|
|
|
25,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
151,440
|
|
|
|
100,181
|
|
|
|
33,454
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods and services (exclusive of a portion of
depreciation and amortization shown below):
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (includes related party costs of $2,877, $606
and $0)
|
|
|
107,281
|
|
|
|
50,438
|
|
|
|
13,086
|
|
Cost of equipment (includes related party costs of $0, $8,914
and $1,853)
|
|
|
|
|
|
|
19,674
|
|
|
|
10,483
|
|
Selling, general and administrative expense
|
|
|
360,666
|
|
|
|
214,669
|
|
|
|
106,211
|
|
Research and development
|
|
|
1,397
|
|
|
|
8,890
|
|
|
|
9,639
|
|
Depreciation and amortization
|
|
|
84,694
|
|
|
|
40,902
|
|
|
|
11,913
|
|
Spectrum lease expense
|
|
|
96,417
|
|
|
|
23,516
|
|
|
|
9,356
|
|
Gain on sale of NextNet
|
|
|
|
|
|
|
(19,793
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
650,455
|
|
|
|
338,296
|
|
|
|
160,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING LOSS
|
|
|
(499,015
|
)
|
|
|
(238,115
|
)
|
|
|
(127,234
|
)
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
65,736
|
|
|
|
30,429
|
|
|
|
6,605
|
|
Interest expense
|
|
|
(96,279
|
)
|
|
|
(72,280
|
)
|
|
|
(14,623
|
)
|
Foreign currency gains, net
|
|
|
363
|
|
|
|
235
|
|
|
|
20
|
|
Loss on extinguishment of debt
|
|
|
(159,193
|
)
|
|
|
|
|
|
|
|
|
Other-than-temporary impairment loss and realized loss on
investments
|
|
|
(35,020
|
)
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
1,801
|
|
|
|
2,150
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(222,592
|
)
|
|
|
(39,466
|
)
|
|
|
(7,698
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES, MINORITY INTEREST AND LOSSES FROM
EQUITY INVESTEES
|
|
|
(721,607
|
)
|
|
|
(277,581
|
)
|
|
|
(134,932
|
)
|
Income tax provision
|
|
|
(5,427
|
)
|
|
|
(2,981
|
)
|
|
|
(1,459
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE MINORITY INTEREST AND LOSSES FROM EQUITY INVESTEES
|
|
|
(727,034
|
)
|
|
|
(280,562
|
)
|
|
|
(136,391
|
)
|
Minority interest in net loss of consolidated subsidiaries
|
|
|
4,244
|
|
|
|
1,503
|
|
|
|
387
|
|
Losses from equity investees
|
|
|
(4,676
|
)
|
|
|
(5,144
|
)
|
|
|
(3,946
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(727,466
|
)
|
|
$
|
(284,203
|
)
|
|
$
|
(139,950
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share, basic and diluted
|
|
$
|
(4.58
|
)
|
|
$
|
(2.93
|
)
|
|
$
|
(1.97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic and diluted
|
|
|
158,737
|
|
|
|
97,085
|
|
|
|
71,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
CF-4
CLEARWIRE
CORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Class B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock,
|
|
|
Common
|
|
|
Common
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants and
|
|
|
Stock and
|
|
|
Stock
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Additional
|
|
|
Additional
|
|
|
and
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
Total
|
|
|
Comprehensive
|
|
|
|
Paid in Capital
|
|
|
Paid in Capital
|
|
|
Warrants
|
|
|
Deferred
|
|
|
Income
|
|
|
Accumulated
|
|
|
Stockholders
|
|
|
Income
|
|
|
|
Shares
|
|
|
Amounts
|
|
|
Shares
|
|
|
Amounts
|
|
|
Payable
|
|
|
Compensation
|
|
|
(Loss)
|
|
|
Deficit
|
|
|
Equity
|
|
|
(Loss)
|
|
|
|
(In thousands)
|
|
|
Balances at January 1, 2005
|
|
|
43,053
|
|
|
$
|
218,411
|
|
|
|
18,691
|
|
|
$
|
56,073
|
|
|
$
|
3,354
|
|
|
$
|
(2,320
|
)
|
|
$
|
265
|
|
|
$
|
(34,413
|
)
|
|
$
|
241,370
|
|
|
$
|
(32,777
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(139,950
|
)
|
|
|
(139,950
|
)
|
|
|
(139,950
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(636
|
)
|
|
|
|
|
|
|
(636
|
)
|
|
|
(636
|
)
|
Unrealized loss on short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(111
|
)
|
|
|
|
|
|
|
(111
|
)
|
|
|
(111
|
)
|
Common stock issued, net of costs
|
|
|
13,133
|
|
|
|
157,600
|
|
|
|
|
|
|
|
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157,678
|
|
|
|
|
|
Warrants issued
|
|
|
|
|
|
|
59,563
|
|
|
|
|
|
|
|
|
|
|
|
2,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,104
|
|
|
|
|
|
Common stock and warrants payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,305
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,305
|
)
|
|
|
|
|
Deferred stock-based compensation
|
|
|
|
|
|
|
881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(881
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,542
|
|
|
|
|
|
|
|
|
|
|
|
2,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2005
|
|
|
56,186
|
|
|
|
436,455
|
|
|
|
18,691
|
|
|
|
56,073
|
|
|
|
1,668
|
|
|
|
(659
|
)
|
|
|
(482
|
)
|
|
|
(174,363
|
)
|
|
|
318,692
|
|
|
|
(140,697
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(284,203
|
)
|
|
|
(284,203
|
)
|
|
|
(284,203
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,522
|
|
|
|
|
|
|
|
7,522
|
|
|
|
7,522
|
|
Unrealized loss on short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
(50
|
)
|
|
|
(50
|
)
|
Common stock issued, net of costs
|
|
|
53,056
|
|
|
|
946,766
|
|
|
|
9,906
|
|
|
|
178,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,125,069
|
|
|
|
|
|
Warrants issued
|
|
|
|
|
|
|
77,261
|
|
|
|
|
|
|
|
|
|
|
|
(1,851
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,410
|
|
|
|
|
|
Common stock and warrants payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
349
|
|
|
|
|
|
Deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
543
|
|
|
|
|
|
|
|
|
|
|
|
543
|
|
|
|
|
|
Stock-based compensation
|
|
|
83
|
|
|
|
14,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2006
|
|
|
109,325
|
|
|
|
1,474,759
|
|
|
|
28,597
|
|
|
|
234,376
|
|
|
|
166
|
|
|
|
(116
|
)
|
|
|
6,990
|
|
|
|
(458,566
|
)
|
|
|
1,257,609
|
|
|
|
(276,731
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(727,466
|
)
|
|
|
(727,466
|
)
|
|
|
(727,466
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,561
|
|
|
|
|
|
|
|
17,561
|
|
|
|
17,561
|
|
Unrealized loss on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42,238
|
)
|
|
|
|
|
|
|
(42,238
|
)
|
|
|
(42,238
|
)
|
Reclassification adjustment for other-than- temporary impairment
loss and realized loss on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,020
|
|
|
|
|
|
|
|
35,020
|
|
|
|
35,020
|
|
Common stock issued from IPO, net
|
|
|
24,000
|
|
|
|
556,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
556,005
|
|
|
|
|
|
Common stock issued for spectrum
|
|
|
233
|
|
|
|
4,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,200
|
|
|
|
|
|
Warrants issued
|
|
|
|
|
|
|
17,194
|
|
|
|
|
|
|
|
|
|
|
|
(166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,028
|
|
|
|
|
|
Options and warrants exercised
|
|
|
1,937
|
|
|
|
4,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,849
|
|
|
|
|
|
Cashless option exercises and other stock transactions
|
|
|
39
|
|
|
|
(618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(618
|
)
|
|
|
|
|
Deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
116
|
|
|
|
|
|
Restricted stock compensation
|
|
|
33
|
|
|
|
286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
286
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
41,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2007
|
|
|
135,567
|
|
|
$
|
2,098,155
|
|
|
|
28,597
|
|
|
$
|
234,376
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
17,333
|
|
|
$
|
(1,186,032
|
)
|
|
$
|
1,163,832
|
|
|
$
|
(717,123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
CF-5
CLEARWIRE
CORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(727,466
|
)
|
|
$
|
(284,203
|
)
|
|
$
|
(139,950
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for uncollectible accounts
|
|
|
4,915
|
|
|
|
885
|
|
|
|
368
|
|
Depreciation and amortization
|
|
|
84,694
|
|
|
|
40,902
|
|
|
|
11,913
|
|
Amortization of prepaid license fees
|
|
|
37,884
|
|
|
|
6,273
|
|
|
|
2,914
|
|
Amortization of deferred financing costs and accretion of debt
discount
|
|
|
20,707
|
|
|
|
19,754
|
|
|
|
5,279
|
|
Deferred income taxes
|
|
|
5,412
|
|
|
|
2,960
|
|
|
|
1,459
|
|
Share-based compensation
|
|
|
42,771
|
|
|
|
14,246
|
|
|
|
2,542
|
|
Minority interest
|
|
|
(4,244
|
)
|
|
|
(1,503
|
)
|
|
|
(387
|
)
|
Losses from equity investees, net
|
|
|
4,676
|
|
|
|
5,144
|
|
|
|
3,946
|
|
Loss on extinguishment of debt
|
|
|
159,193
|
|
|
|
|
|
|
|
|
|
Other-than-temporary impairment loss and realized loss on
investments
|
|
|
35,020
|
|
|
|
|
|
|
|
|
|
Loss (gain) on other asset disposals
|
|
|
850
|
|
|
|
(1,915
|
)
|
|
|
841
|
|
Gain on sale of equity investment
|
|
|
(2,213
|
)
|
|
|
|
|
|
|
|
|
Gain on sale of business, net of cash
|
|
|
|
|
|
|
(19,793
|
)
|
|
|
|
|
Changes in assets and liabilities, net of effects from
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid spectrum license fees
|
|
|
(235,479
|
)
|
|
|
(64,638
|
)
|
|
|
(25,040
|
)
|
Inventory
|
|
|
(914
|
)
|
|
|
(1,913
|
)
|
|
|
6,005
|
|
Accounts receivable
|
|
|
(5,387
|
)
|
|
|
(686
|
)
|
|
|
(4,306
|
)
|
Prepaids and other assets
|
|
|
(17,841
|
)
|
|
|
(10,687
|
)
|
|
|
(4,445
|
)
|
Accounts payable
|
|
|
11,198
|
|
|
|
389
|
|
|
|
14,027
|
|
Accrued expenses and other liabilities
|
|
|
64,619
|
|
|
|
61,447
|
|
|
|
35,309
|
|
Due to affiliate
|
|
|
(530
|
)
|
|
|
184
|
|
|
|
(7,130
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(522,135
|
)
|
|
|
(233,154
|
)
|
|
|
(96,655
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(361,861
|
)
|
|
|
(191,747
|
)
|
|
|
(132,724
|
)
|
Payments for acquisitions of spectrum licenses and other
|
|
|
(222,920
|
)
|
|
|
(67,665
|
)
|
|
|
(24,279
|
)
|
Purchases of available-for-sale investments
|
|
|
(1,294,484
|
)
|
|
|
(1,143,079
|
)
|
|
|
(368,160
|
)
|
Sales or maturities of available-for-sale investments
|
|
|
1,760,246
|
|
|
|
575,845
|
|
|
|
350,429
|
|
Investments in equity investees
|
|
|
(5,293
|
)
|
|
|
(2,161
|
)
|
|
|
(13,737
|
)
|
Issuance of notes receivable, related party
|
|
|
(2,000
|
)
|
|
|
(4,105
|
)
|
|
|
|
|
Restricted cash
|
|
|
(1,836
|
)
|
|
|
(1,830
|
)
|
|
|
(3,704
|
)
|
Restricted investments
|
|
|
85,670
|
|
|
|
(30,324
|
)
|
|
|
(55,346
|
)
|
Business acquisitions, net of cash acquired
|
|
|
(7,066
|
)
|
|
|
(49,576
|
)
|
|
|
(27,779
|
)
|
Proceeds from sale of business, net of cash
|
|
|
|
|
|
|
47,085
|
|
|
|
|
|
Proceeds from sale of equity investment and other assets
|
|
|
3,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(46,294
|
)
|
|
|
(867,557
|
)
|
|
|
(275,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock for IPO and other, net
|
|
|
556,005
|
|
|
|
1,030,683
|
|
|
|
139,609
|
|
Proceeds from issuance of common stock for option and warrant
exercises
|
|
|
4,849
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt
|
|
|
1,250,000
|
|
|
|
495,350
|
|
|
|
260,346
|
|
Financing fees
|
|
|
(69,462
|
)
|
|
|
(21,820
|
)
|
|
|
(10,774
|
)
|
Principal payments on long-term debt
|
|
|
(748,821
|
)
|
|
|
|
|
|
|
|
|
Contributions from minority interests
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
1,007,571
|
|
|
|
1,504,213
|
|
|
|
389,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange rates on cash and cash
equivalents
|
|
|
(420
|
)
|
|
|
5,340
|
|
|
|
(636
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
438,722
|
|
|
|
408,842
|
|
|
|
16,590
|
|
CASH AND CASH EQUIVALENTS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
438,030
|
|
|
|
29,188
|
|
|
|
12,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
876,752
|
|
|
$
|
438,030
|
|
|
$
|
29,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW DISCLOSURES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock and warrants issued for spectrum licenses
|
|
$
|
21,379
|
|
|
$
|
63,891
|
|
|
$
|
22,137
|
|
Common stock and warrants issued for business acquisitions
|
|
|
15
|
|
|
|
32,013
|
|
|
|
428
|
|
Cash paid for taxes
|
|
|
15
|
|
|
|
21
|
|
|
|
|
|
Cash paid for interest
|
|
|
119,793
|
|
|
|
53,541
|
|
|
|
|
|
Notes receivable exchanged for spectrum licenses
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
Fixed asset purchases in accounts payable
|
|
|
17,449
|
|
|
|
3,327
|
|
|
|
11,044
|
|
Non-cash dividends to related party
|
|
|
1,465
|
|
|
|
2,384
|
|
|
|
34
|
|
See notes to consolidated financial statements.
CF-6
CLEARWIRE
CORPORATION AND SUBSIDIARIES
|
|
1.
|
Description
of Business
|
The
Business
The consolidated financial statements include the accounts of
Clearwire Corporation, a Delaware corporation, and its
wholly-owned and majority-owned or controlled subsidiaries
(collectively, the Company or
Clearwire). Clearwire was formed on October 27,
2003 and is an international provider of wireless broadband
services. Clearwire delivers high-speed wireless broadband
services to individuals, small businesses, public safety
organizations, and others in a growing number of markets through
its advanced network. As of December 31, 2007, the Company
offered its services in 46 markets throughout the United States
and four markets internationally. Prior to August 29, 2006,
Clearwire, through its wholly-owned subsidiary, NextNet
Wireless, Inc. (NextNet), developed, manufactured,
and sold equipment that enabled the deployment of broadband
wireless networks. NextNet is currently the sole supplier of
base station and customer premise equipment that Clearwire uses
to provide its services. On August 29, 2006, Clearwire sold
NextNet to Motorola, Inc. (Motorola). As part of the
agreement with Motorola, the Company agreed to use Motorola as
an exclusive supplier of certain infrastructure and subscriber
equipment for a specified period of time, subject to Motorola
continuing to satisfy certain requirements and other conditions.
See Note 3, Significant Transactions, for additional
information.
On January 19, 2007, the Companys Board of Directors
approved a reverse stock split, which was approved by the
Companys stockholders on February 16, 2007. The
reverse stock split became effective March 1, 2007. Upon
the effectiveness of the reverse stock split, each three shares
of Class A common stock were combined into one share of
Class A common stock and each three shares of Class B
common stock were combined into one share of Class B common
stock. All share and per share amounts in the consolidated
financial statements have been retroactively adjusted for all
periods presented to give effect to the reverse stock split.
Business
Segments
The Company complies with the requirements of Statement of
Financial Accounting Standards
(SFAS) No. 131, Disclosures about
Segments of an Enterprise and Related Information
(SFAS No. 131), which establishes
annual and interim reporting standards for an enterprises
operating segments and related disclosures about its products,
services, geographic areas and major customers. Operating
segments are defined as components of an enterprise for which
separate financial information is available that is evaluated
regularly by the chief operating decision makers in deciding how
to allocate resources and in assessing performance. Operating
segments can be aggregated for segment reporting purposes so
long as certain aggregation criteria are met. The Company
defines the chief operating decision makers as our Chief
Executive Officer, Chief Operating Officer and the Chief
Financial Officer. As its business continues to mature, the
Company assesses how it views and operates the business. As a
result, in the fourth quarter of 2007 the Company changed how
its chief operating decision makers assess the business and the
Company is now organized into two reportable business segments:
the United States and the International business. See
Note 16, Business Segments, for additional discussion.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Basis
of Presentation
The accompanying financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States of America and pursuant to the rules and
regulations of the Securities and Exchange Commission (the
SEC).
Principles of Consolidation The consolidated
financial statements include all of the assets, liabilities and
results of operations of the Companys wholly-owned and
majority-owned or controlled subsidiaries.
CF-7
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Investments in entities that the Company does not control, but
for which it has the ability to exercise significant influence
over operating and financial policies, are accounted for under
the equity method. All intercompany transactions are eliminated
in consolidation.
Use of Estimates The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States of America (GAAP)
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 consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Due to the
inherent uncertainty involved in making those estimates, actual
results could materially differ.
Significant estimates inherent in the preparation of the
accompanying financial statements include the application of
purchase accounting including the valuation of acquired assets
and liabilities, valuation of investments, the valuation of the
Companys common stock, the amortization period of prepaid
spectrum license fees, allowance for doubtful accounts,
depreciation and equity granted to third parties and employees.
Cash and Cash Equivalents Cash and cash
equivalents consist of time deposits and highly liquid
short-term investments with original maturities of three months
or less. Cash and cash equivalents exclude cash that is
contractually restricted for operational purposes. The Company
maintains cash and cash equivalent balances with financial
institutions that exceed federally insured limits. The Company
has not experienced any losses related to these balances, and
management believes its credit risk related to these balances to
be minimal.
Restricted Cash Restricted cash is classified
as a current or noncurrent asset based on its designated
purpose. As of December 31, 2007, the Company had
restricted cash of $12.7 million. The majority of this
restricted cash related primarily to the Companys
outstanding letters of credit.
Investments SFAS No. 115,
Accounting for Certain Investments in Debt and Equity
Securities, and Staff Accounting Bulletin (SAB)
No. 59, Accounting for Non-current Marketable Equity
Securities, provide guidance on determining when an
investment is other-than-temporarily impaired. The Company
classifies marketable debt and equity securities that are
available for current operations as short-term
available-for-sale investments, and these securities are stated
at fair value. Unrealized gains and losses are recorded as a
separate component of accumulated other comprehensive income
(loss). Losses are recognized when a decline in fair value is
determined to be other-than-temporary. Realized gains and losses
are determined on the basis of the specific identification
method. The Company reviews its short-term and long-term
investments on an ongoing basis for indicators of
other-than-temporary impairment, and this determination requires
significant judgment.
The Company has an investment portfolio comprised of marketable
debt and equity securities including commercial paper, corporate
bonds, municipal bonds, auction rate securities and other
securities. The value of these securities is subject to market
volatility during the period the investments are held and until
their sale or maturity. The Company recognizes realized losses
when declines in the fair value of our investments below their
cost basis are judged to be other-than-temporary. In determining
whether a decline in fair value is other-than-temporary, the
Company considers various factors including market price (when
available), investment ratings, the financial condition and
near-term prospects of the issuer, the length of time and the
extent to which the fair value has been less than the cost
basis, and the Companys intent and ability to hold the
investment until maturity or for a period of time sufficient to
allow for any anticipated recovery in market value. The Company
makes significant judgments in considering these factors. If it
is judged that a decline in fair value is other-than-temporary,
the investment is valued at the current estimated fair value and
a realized loss equal to the decline is reflected in the
consolidated statement of operations.
In determining fair value, the Company uses quoted prices in
active markets where such prices are available, or models to
estimate the fair value using various methods including the
market, income and cost approaches. For investments where models
are used to estimate fair value in the absence of quoted market
prices, the Company often utilizes certain assumptions that
market participants would use in pricing the
CF-8
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
investment, including assumptions about risk and or the risks
inherent in the inputs to the valuation technique. These inputs
are readily observable, market corroborated, or unobservable
Company inputs.
The Company estimates the fair value of securities without
quoted market prices using internally generated pricing models
that require various inputs and assumptions. The Company
believes that its pricing models, inputs and assumptions are
what market participants would use in pricing the securities.
The Company maximizes the use of observable inputs to the
pricing models where quoted market prices from securities and
derivatives exchanges are available and reliable. The Company
typically receives external valuation information for
U.S. Treasuries, other U.S. Government and Agency
securities, as well as certain corporate debt securities, money
market funds and certificates of deposit. The Company also uses
certain unobservable inputs that cannot be validated by
reference to a readily observable market or exchange data and
relies, to a certain extent, on managements own
assumptions about the assumptions that market participants would
use in pricing the security. The Companys internally
generated pricing models may include its own data and require
the Company to use its judgment in interpreting relevant market
data, matters of uncertainty and matters that are inherently
subjective in nature. The Company uses many factors that are
necessary to estimate market values, including, interest rates,
market risks, market spreads, and timing of cash flows, market
liquidity, and review of underlying collateral and principal,
interest and dividend payments. The use of different judgments
and assumptions could result in different presentations of
pricing and security prices could change significantly based on
market conditions.
Restricted Investments Restricted investments
consist of U.S. government securities. At December 31,
2006, restricted investments represented securities held as
collateral for the interest payments through November 15,
2007 related to the Companys long-term debt. These
securities are classified as
held-to-maturity
and are stated at amortized cost. Gross unrealized losses on
these investments were $244,000 at December 31, 2006. There
were no gross unrealized gains as of December 31, 2006. As
a result of repayment of long-term debt, there is no remaining
collateral requirement and no balance in restricted investments
at December 31, 2007.
Fair Value of Financial Instruments The
Company has determined the estimated fair value of financial
instruments using available market information and management
judgment. Accordingly, these estimates are not necessarily
indicative of the amounts that could be realized in a current
market exchange. The carrying amounts of cash and cash
equivalents, accounts and notes receivable, accounts payable,
accrued expenses and due to affiliates are reasonable estimates
of their fair values based on the liquidity of these financial
instruments and their short-term nature. The Company does not
hold or issue any financial instruments for trading purposes.
See Note 10, Long-Term Debt, for the fair value of
long-term debt.
Accounts Receivable Accounts receivable are
stated at amounts due from customers net of an allowance for
doubtful accounts. The Company specifically provides allowances
for customers with known disputes or collectibility issues. The
remaining reserve recorded in the allowance for doubtful
accounts is the Companys best estimate of the amount of
probable losses in the remaining accounts receivable based upon
an evaluation of the age of receivables and historical
experience. The allowance for doubtful accounts was
approximately $787,000 and $753,000 as of December 31, 2007
and 2006, respectively.
Inventory Inventory primarily consists of
finished goods and is stated at the lower of cost or net
realizable value. Cost is determined under the
first-in,
first-out inventory method. The Company records inventory
write-downs for obsolete and slow-moving items based on
inventory turnover trends and historical experience.
Property, Plant and Equipment Property, plant
and equipment and improvements that extend the useful life of an
asset are stated at cost, net of accumulated depreciation.
Depreciation is calculated on a straight-line basis over the
estimated useful lives of the assets. The Company capitalizes
costs of additions and improvements, including direct costs of
constructing property, plant and equipment and interest costs
related to
CF-9
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
construction. The estimated useful life of property, plant and
equipment are determined based on historical usage of that or
similar equipment, with consideration given to technological
changes and industry trends that could impact the network
architecture and asset utilization. Leasehold improvements are
recorded at cost and amortized over the lesser of their
estimated useful lives or the related lease term. Maintenance
and repairs are expensed as incurred.
Internally Developed Software Clearwire
capitalizes costs related to computer software developed or
obtained for internal use in accordance with Statement of
Position (SOP)
No. 98-1,
Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. Software obtained for internal
use has generally been enterprise-level business and finance
software customized to meet specific operational needs. Costs
incurred in the application development phase are capitalized
and amortized over the useful life of the software, which is
generally three years. Costs recognized in the preliminary
project phase and the post-implementation phase are expensed as
incurred.
Intangible Assets Intangible assets consist
primarily of Federal Communications Commission (FCC)
spectrum licenses and other intangible assets related to
Clearwires acquisition of NextNet in March 2004, which was
subsequently disposed in August 2006, and Banda Ancha S.A.
(BASA) in December 2005 and February 2006. As
further described in Note 7, Spectrum Licenses, Goodwill
and Other Intangible Assets, the Company accounts for its
spectrum licenses and other intangible assets in accordance with
the provisions of SFAS No. 142, Goodwill and Other
Intangible Assets (SFAS No. 142). In
accordance with SFAS No. 142, intangible assets with
indefinite useful lives are not amortized but must be assessed
for impairment annually or more frequently if an event indicates
that the asset might be impaired. The Company performed its
annual impairment test of indefinite lived intangible assets on
October 1, 2007 and concluded that there was no impairment
of these intangible assets.
Goodwill Goodwill represents the excess of
the purchase price over the estimated fair value of net assets
acquired from Clearwires acquisitions. In accordance with
SFAS No. 142, the Company completes a two-step process
to determine the amount of goodwill impairment. The first step
involves comparison of the fair value of the reporting unit to
its carrying value to determine if any impairment exists. If the
fair value of the reporting unit is less than the carrying
value, goodwill is considered to be impaired and the second step
is performed. The second step involves comparison of the implied
fair value of goodwill to its carrying value. The implied fair
value of goodwill is determined by allocating fair value to the
various assets and liabilities within the reporting unit in the
same manner goodwill is recognized in a business combination. In
calculating an impairment charge, the fair value of the impaired
reporting units are estimated using a discounted cash flow
valuation methodology or by reference to recent comparable
transactions. In making this assessment, the Company relies on a
number of factors, including operating results, business plans,
economic projections, and anticipated future cash flows. There
are inherent uncertainties related to these factors and judgment
in applying these factors to the goodwill impairment test. The
Company performed its annual impairment tests of goodwill as of
October 1, 2007, and concluded that there was no impairment
of goodwill.
Long-Lived Assets Long-lived assets to be
held and used, including property, plant and equipment and
intangible assets with definite useful lives, are assessed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If
the total of the expected undiscounted future cash flows is less
than the carrying amount of the asset, a loss, if any, is
recognized for the difference between the fair value and
carrying value of the assets. Impairment analyses, when
performed, are based on the Companys business and
technology strategy, managements views of growth rates for
its business, anticipated future economic and regulatory
conditions and expected technological availability. For purposes
of recognition and measurement, the Company groups its
long-lived assets at the lowest level for which there are
identifiable cash flows which are largely independent of other
assets and liabilities.
Deferred Financing Costs Deferred financing
costs consists primarily of investment banking fees, legal,
accounting and printing costs associated with the issuance of
the Companys long-term debt. Deferred
CF-10
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
financing fees are amortized over the life of the corresponding
debt facility. In relation to the issuances of the long-term
debt discussed in Note 10, Long-Term Debt, the Company
incurred $30.2 million of deferred financing costs in 2007
for its $1.25 billion senior term loan facility entered
into during 2007 and an additional $39.3 million related to
the repayment of its $125.0 million term loan and the
retirement of its $620.7 million senior secured notes due
2010, compared to $21.8 million in 2006. For the years
ended December 31, 2007 and 2006, $6.7 million and
$3.9 million, respectively, of total deferred financing
costs were amortized using the effective interest method and
included in interest expense, net.
Interest Capitalization The Company follows
the provisions of SFAS No. 34, Capitalization of
Interest Cost (SFAS No. 34), with
respect to its FCC licenses and the related construction of its
network infrastructure assets. Capitalization commences with
pre-construction period administrative and technical activities,
which includes obtaining leases, zoning approvals and building
permits, and ceases when the construction is substantially
complete and available for use (generally when a market is
launched). Interest is capitalized on property, plant and
equipment, improvements under construction, and FCC spectrum
licenses accounted for as intangible assets with indefinite
useful lives. Interest capitalization is based on rates
applicable to borrowings outstanding during the period and the
weighted average balance of qualified assets under construction
during the period. Capitalized interest is reported as a cost of
the network assets and amortized over the useful life of those
assets.
Comprehensive Loss Comprehensive loss
consists of two components, net loss and other comprehensive
income (loss). Other comprehensive income (loss) refers to
revenue, expenses, gains and losses that under generally
accepted accounting principles are recorded as an element of
stockholders equity but are excluded from net loss. The
Companys other comprehensive income (loss) is comprised of
foreign currency translation adjustments from its subsidiaries
not using the U.S. dollar as their functional currency and
unrealized gains and losses on marketable securities categorized
as available-for-sale.
Income Taxes The Company accounts for income
taxes in accordance with the provisions of
SFAS No. 109, Accounting for Income Taxes,
which requires that deferred income taxes be determined based on
the estimated future tax effects of differences between the
financial statement and tax basis of assets and liabilities
using the tax rates expected to be in effect when the temporary
differences reverse. Valuation allowances, if any, are recorded
to reduce deferred tax assets to the amount considered more
likely than not to be realized. We also apply FASB
Interpretation Number 48 (FIN 48) which
prescribes a recognition threshold that a tax position is
required to meet before being recognized in the financial
statements.
Revenue Recognition The Company primarily
earns service revenue by providing access to its high-speed
wireless network. Also included in service revenue are equipment
rentals and optional services, including personal and business
email and static Internet Protocol. Service revenue from
customers are billed in advance and recognized ratably over the
service period. Revenues associated with the shipment of
customer premise equipment (CPE) and other equipment
to customers are recognized when title and risk of loss are
transferred to the customer. Shipping and handling costs billed
to customers are recorded to service revenue.
The Company recognizes revenues in accordance with SAB 104,
Revenue Recognition, and Emerging Issues Task Force
(EITF) Issue
No. 00-21,
Accounting for Revenue Arrangements with Multiple
Deliverables. EITF Issue
No. 00-21
addresses how to account for arrangements that may involve the
delivery or performance of multiple products, services
and/or
rights to use assets. Revenue arrangements with multiple
deliverables are required to be divided into separate units of
accounting based on the deliverables relative fair value if the
deliverables in the arrangement meet certain criteria.
Activation fees charged to the customer are deferred and
recognized as service revenues on a straight-line basis over the
average expected life of the customer relationship of
3.5 years.
Revenue is deferred for any undelivered elements and revenue is
recognized when the product is delivered or over the period in
which the service is performed. If the Company cannot
objectively determine the fair
CF-11
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
value of any undelivered element included in the bundled product
and software maintenance arrangements, revenue is deferred until
all elements are delivered and services have been performed, or
until fair value can objectively be determined for any remaining
undelivered elements.
Through August 2006, the Company earned equipment revenue
primarily from sales of CPE and related infrastructure, system
services and software maintenance contracts by the
Companys formerly wholly-owned subsidiary, NextNet (See
Note 3, Significant Transactions). In arrangements that
included multiple elements, including software, such as the sale
of a NextNet base station with a software maintenance contract,
the Company applied the accounting guidance in accordance with
SOP No. 97-2,
Software Revenue Recognition. Revenue was allocated to
each element of the transaction based upon its fair value as
determined by vendor specific objective evidence
(VSOE). VSOE of fair value for all elements of an
arrangement was based upon the normal pricing and discounting
practices for those products and services when sold separately.
Software maintenance services included technical support and the
right to receive unspecified upgrades and enhancements on a
when-and-if
available basis. Fees for software maintenance services were
typically billed annually in advance of performance of the
services with provisions for subsequent annual renewals. The
related revenues were deferred and recognized ratably over the
respective maintenance terms, which typically were one to two
years.
Product Warranty NextNet, a wholly-owned
subsidiary until sold in August 2006, sold base station
equipment and CPE to third parties. NextNet generally warranted
new technology equipment sold to the purchaser to be free from
defects in material and workmanship for two years for system
infrastructure and one year for CPE. A warranty provision was
made for estimated product repair at the time of the sale based
upon the Companys historical trends. In connection with
the sale of NextNet to Motorola, the Company retained
responsibility for a portion of the warranty costs on equipment
sold during the period that NextNet was a wholly-owned
subsidiary of the Company, and therefore, maintained a liability
related to this obligation through August 2007. Information
about warranty cost and warranty liability is as follows (in
thousands):
|
|
|
|
|
Balance January 1, 2006
|
|
$
|
234
|
|
Provision
|
|
|
1,636
|
|
Costs incurred
|
|
|
(522
|
)
|
Liability transferred upon sale of NextNet
|
|
|
(338
|
)
|
|
|
|
|
|
Balance December 31, 2006
|
|
|
1,010
|
|
Provision
|
|
|
|
|
Costs incurred
|
|
|
(408
|
)
|
Write-off of remaining liability transferred upon sale of NextNet
|
|
|
(602
|
)
|
|
|
|
|
|
Balance December 31, 2007
|
|
$
|
|
|
|
|
|
|
|
Advertising Costs Advertising costs are
expensed as incurred. Advertising expense was
$49.2 million, $38.4 million and $13.8 million
for the years ended December 31, 2007, 2006 and 2005,
respectively.
Research and Development Research and
development costs are expensed as incurred.
Net Loss per Share The Company calculates net
loss per share in accordance with SFAS No. 128,
Earnings Per Share (SFAS No. 128).
Under the provisions of SFAS No. 128, basic net loss
per common share is computed by dividing income or loss
available to common stockholders by the weighted-average number
of common shares outstanding during the period. Diluted net loss
per common share is computed by dividing income or loss
available to common stockholders by the weighted-average number
of common and dilutive common stock equivalents outstanding
during the period. Common stock equivalents typically consist of
the common stock issuable upon the exercise of outstanding stock
options, warrants and restricted stock
CF-12
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
using the treasury stock method. The effects of potentially
dilutive common stock equivalents are excluded from the
calculation of diluted loss per share if their effect is
antidilutive.
Accounting Change: Share-Based Compensation
On January 1, 2006, the Company adopted
SFAS No. 123(R), Share-Based Payment
(SFAS No. 123(R)), which requires the
measurement and recognition of compensation expense for all
share-based awards made to employees and directors based on
estimated fair values.
As the Company was considered a nonpublic entity at the date of
adoption and used the minimum value method for pro forma
disclosures under SFAS No. 123, Accounting for
Stock-Based Compensation
(SFAS No. 123), the Company is
required to apply the prospective transition method and has
estimated the fair value of options granted on or after
January 1, 2006 using the Black-Scholes option pricing
model. The Company has applied the provisions of
SFAS No. 123(R) to employee stock options granted,
modified, repurchased, cancelled or settled on or after
January 1, 2006. The estimate of compensation expense
requires complex and subjective assumptions, including the
Companys stock price volatility, employee exercise
patterns (expected life of the options), future forfeitures, and
related tax effects.
Prior to the adoption of SFAS No. 123(R), the Company
accounted for share-based compensation expense in accordance
with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB
No. 25), and related Interpretations, as permitted by
SFAS No. 123.
Total share-based compensation expense recorded during the year
ended December 31, 2007 was $42.8 million compared to
$14.2 million during December 31, 2006. Of these
amounts, $42.7 million and $12.5 million for the years
ended December 31, 2007 and 2006, respectively, related to
option grants recorded under SFAS No. 123(R) and
$113,000 and $1.7 million under APB No. 25 for grants
before January 1, 2006 for which the requisite service was
not fully satisfied as of January 1, 2006.
Operating Leases The Company has operating
leases for certain facilities, equipment and spectrum licenses
for use in its operations. Certain of the Companys
spectrum licenses are leased from third-party holders of
Educational Broadband Service (EBS) spectrum
licenses granted by the FCC. EBS licenses authorize the
provision of certain communications services on the EBS channels
in certain markets throughout the United States. The Company
accounts for these spectrum leases as executory contracts which
are similar to operating leases. Leases that are pending FCC
approval are not amortized until final approval is received and
are included in prepaid spectrum license fees in the
accompanying consolidated balance sheets. The Company accounts
for its leases in accordance with SFAS No. 13,
Accounting for Leases, and Financial Accounting Standards
Board (FASB) Technical
Bulletin 85-3,
Accounting for Operating Leases with Scheduled Rent Increases
(as amended). For leases containing scheduled rent
escalation clauses the Company records minimum rental payments
on a straight-line basis over the terms of the leases, including
the renewal periods as appropriate. For leases containing tenant
improvement allowances and rent incentives, the Company records
deferred rent, which is a liability, and that deferred rent is
amortized over the term of the lease, including the renewal
periods as appropriate, as a reduction to rent expense.
Foreign Currency The Companys
international subsidiaries generally use their local currency as
their functional currency. Assets and liabilities are translated
at exchange rates in effect at the balance sheet date. Resulting
translation adjustments are recorded as a separate component of
accumulated other comprehensive (loss) income. Income and
expense accounts are translated at the average monthly exchange
rates. The effects of changes in exchange rates between the
designated functional currency and the currency in which a
transaction is denominated are recorded as foreign currency
transaction gains (losses) and recorded in the consolidated
statement of operations.
Concentration of Risk The Company believes
that the geographic diversity of its customer base and retail
nature of its product minimizes the risk of incurring material
losses due to concentrations of credit risk.
CF-13
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NextNet, the Companys previously wholly-owned subsidiary,
purchased by Motorola on August 29, 2006, is currently the
sole supplier of the base stations and CPE the Company uses to
provide services to its customers. If NextNet is unable to
continue to develop or provide the equipment on a timely
cost-effective basis, the Company may not be able to adequately
service existing customers or add new customers and offer
competitive pricing.
Recent
Accounting Pronouncements
SFAS No. 141(R) In December 2007,
the FASB issued SFAS No. 141 (revised 2007), Business
Combinations (SFAS No. 141(R)). In
SFAS No. 141(R), the FASB retained the fundamental
requirements of SFAS No. 141 to account for all
business combinations using the acquisition method (formerly the
purchase method) and for an acquiring entity to be identified in
all business combinations. However, the new standard requires
the acquiring entity in a business combination to recognize all
(and only) the assets acquired and liabilities assumed in the
transaction; establishes the acquisition-date fair value as the
measurement objective for all assets acquired and liabilities
assumed; requires transaction costs to be expensed as incurred;
and requires the acquirer to disclose to investors and other
users all of the information they need to evaluate and
understand the nature and financial effect of the business
combination. SFAS No. 141(R) is effective for annual
periods beginning on or after December 15, 2008.
Accordingly, any business combinations will be recorded and
disclosed following existing GAAP until January 1, 2009.
The Company expects that SFAS No. 141(R) will have an
impact on its consolidated financial statements when effective,
but the nature and magnitude of the specific effects will depend
upon the nature, terms and size of the acquisitions consummated
after the effective date.
SFAS No. 160 In December 2007, the
FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements
(SFAS No. 160). SFAS No. 160
amends Accounting Research Bulletin No. 51,
Consolidated Financial Statements, and requires all
entities to report noncontrolling (minority) interests in
subsidiaries within equity in the consolidated financial
statements, but separate from the parent shareholders
equity. SFAS No. 160 also requires any acquisitions or
dispositions of noncontrolling interests that do not result in a
change of control to be accounted for as equity transactions.
Further, SFAS No. 160 requires that a parent recognize
a gain or loss in net income when a subsidiary is
deconsolidated. SFAS No. 160 is effective for annual
periods beginning on or after December 15, 2008. The
Company is currently evaluating whether the adoption of
SFAS No. 160 will have a material impact on its
consolidated financial statements.
SFAS No. 159 In February 2007, the
FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities
(SFAS No. 159). SFAS No. 159
permits entities to choose, at specified election dates, to
measure eligible items at fair value (fair value
option) and to report in earnings unrealized gains and
losses on those items for which the fair value option has been
elected. SFAS No. 159 also requires entities to
display the fair value of those assets and liabilities on the
face of the balance sheet. SFAS No. 159 establishes
presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement
attributes for similar types of assets and liabilities.
SFAS No. 159 is effective as of the beginning of an
entitys first fiscal year beginning after
November 15, 2007. The Company does not believe the
adoption of this pronouncement will have a material impact on
its consolidated financial statements.
SFAS No. 157 In September 2006, the
FASB issued SFAS No. 157, Fair Value Measurements
(SFAS No. 157). SFAS No. 157
defines fair value, establishes a framework for measuring fair
value and expands disclosure of fair value measurements.
SFAS No. 157 applies under other accounting
pronouncements that require or permit fair value measurements
and accordingly, does not require any new fair value
measurements. SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after
November 15, 2007. In February 2008, the effective date of
SFAS No. 157 was delayed for one year by Final FASB
Staff Position
No. FAS 157-2,
Effective Date of FASB Statement No. 157, for
certain non-financial
CF-14
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
assets and non-financial liabilities, except those that are
recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). The Company
is currently evaluating the impact of this pronouncement on its
financial statements.
|
|
3.
|
Significant
Transactions
|
Acquisitions
During the year ended December 31, 2007, the Company
acquired 100% of the interests of RiverCity Software Solutions,
LLC and RiverCity IntraISP, LLC from RiverCity Internet Group,
for an aggregate purchase price of $7.6 million, net of
cash acquired of $361,000, comprised of $7.4 million in
cash, of which $500,000 is remaining to be paid, and $178,000 of
transaction related costs. RiverCity Software Solutions, LLC and
RiverCity IntraISP, LLC specialize in providing billing, online
support services and customer relationship management software
solutions to the communications and services industry.
For the year ended December 31, 2006, the Company purchased
various companies through both asset and share purchase
agreements. The total aggregate purchase price was approximately
$81.6 million comprised of $49.1 million in cash,
common stock valued at $32.0 million and $520,000 of
transaction related costs. The assets purchased were primarily
spectrum licenses and other minor assets and liabilities and
included the assumption of spectrum and tower lease agreements.
Purchase transactions are subject to purchase price allocation
adjustments due to contingency resolution and final
determination of fair values for up to one year after close.
Although the total amount ultimately settled and paid could
change, the Company does not believe that any change would be
material to its consolidated financial statements or results of
operations. The Company accounts for its acquisitions using the
purchase method in accordance with SFAS No. 141,
Business Combinations. Pro-forma information is not included for
acquisitions completed in 2007 and 2006 as they were not
material to the consolidated financial statements of the Company.
The total aggregate consideration and purchase price allocation
for all of the Companys acquisitions, for the years ended
December 31, 2007 and 2006, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Purchase Consideration
|
|
|
|
|
|
|
|
|
Cash paid, net of cash acquired
|
|
$
|
6,888
|
|
|
$
|
49,056
|
|
Common stock and warrants issued and payable
|
|
|
|
|
|
|
32,013
|
|
Purchase price payable
|
|
|
500
|
|
|
|
|
|
Transaction-related costs
|
|
|
178
|
|
|
|
520
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,566
|
|
|
$
|
81,589
|
|
|
|
|
|
|
|
|
|
|
Purchase Price Allocation
|
|
|
|
|
|
|
|
|
Current and noncurrent assets
|
|
$
|
323
|
|
|
$
|
6,078
|
|
Prepaid spectrum license fees
|
|
|
|
|
|
|
19,288
|
|
Spectrum and intangible assets
|
|
|
8,300
|
|
|
|
47,395
|
|
Goodwill
|
|
|
1,158
|
|
|
|
20,723
|
|
Current and other long-term liabilities
|
|
|
(2,215
|
)
|
|
|
(11,895
|
)
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
7,566
|
|
|
$
|
81,589
|
|
|
|
|
|
|
|
|
|
|
CF-15
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Dispositions
NextNet On June 30, 2006 Clearwire and
Motorola executed a Stock Purchase Agreement in which Motorola
agreed to purchase 100% of the outstanding NextNet stock for a
purchase price of $50.0 million in cash. The sale of
NextNet resulted in a gain of $19.8 million, comprised of
aggregate proceeds from the sale of $47.1 million less the
book value of net assets sold of $26.1 million and
transaction related costs of $1.2 million, which consists
of legal fees and employee related termination costs. The
transaction closed on August 29, 2006.
The carrying value of the assets and liabilities sold during
2006 are as follows (in thousands):
|
|
|
|
|
Inventory
|
|
$
|
8,895
|
|
Property, plant and equipment
|
|
|
4,620
|
|
Other current and long-term assets
|
|
|
8,387
|
|
Intangible assets
|
|
|
5,211
|
|
Goodwill
|
|
|
9,352
|
|
|
|
|
|
|
Total assets
|
|
|
36,465
|
|
|
|
|
|
|
Current liabilities
|
|
|
9,888
|
|
Other long-term liabilities
|
|
|
490
|
|
|
|
|
|
|
Total liabilities
|
|
|
10,378
|
|
|
|
|
|
|
Net assets disposed
|
|
$
|
26,087
|
|
|
|
|
|
|
In connection with the sale of NextNet, Clearwire and Motorola
also entered into agreements for the purchase of certain
infrastructure and supply inventory from NextNet (Supply
Agreement). These agreements cover a number of topics,
including, but not limited to, certain technology development
projects and future Clearwire purchase commitments and a maximum
Motorola pricing schedule for network equipment from NextNet.
The aggregate price paid by Clearwire in any calendar year will
be no less favorable than the aggregate price paid by other
customers contemporaneously buying similar or lesser aggregate
purchases. Clearwire is committed to purchase no less than
$150.0 million of equipment products from Motorola in the
first two years after the effective date of the Supply
Agreement. Clearwire is also committed to purchase no less than
25.0% of its Worldwide Interoperability for Microwave Access
(WiMAX) subscriber handsets from Motorola as long as
the capabilities and costs of the handsets (and the availability
of such handsets) are equal for a given product in similar
quantities or service offered by Motorola and another supplier
or suppliers. These commitments are effective for an initial
term of eight years and will be automatically renewed for
consecutive one year terms unless either party notifies the
other party in writing of its intent to terminate the agreements
at least one hundred and twenty days prior to the expiration of
the initial term or any renewal thereof. Clearwire has also
committed to use Motorola as its 100.0% exclusive supplier for
specified Wireless Broad Band Infrastructure products until the
fifth anniversary date of the agreement. After the fifth
anniversary date the commitment is reduced to 51.0% until the
term ends on August 29, 2014. For the period from the
effective date of the agreement of August 29, 2006, through
December 31, 2007, total purchases from Motorola under
these agreements were $98.4 million. The remaining
commitment was $51.6 million at December 31, 2007.
Due to Clearwires continuing involvement in NextNet
through the various agreements described above, the sale of
NextNet was not classified as discontinued operations in the
financial statements as it did not meet the discontinued
operations criteria specified in SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets and EITF Issue
No. 03-13,
Applying the Conditions in Paragraph 42 of
SFAS No. 144 in Determining whether to report
Discontinued Operations.
CF-16
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Financing
In an effort to simplify its capital structure, access
incremental borrowing availability, and extend debt maturities,
on July 3, 2007, the Company entered into a senior term
loan facility providing for loans of up to $1.0 billion.
The Company borrowed $379.3 million under the senior term
loan facility on the date of closing and repaid obligations
under its existing $125.0 million term loan and fees and
costs attributable to the senior term loan facility. The
remainder is being used for capital expenditures, working
capital and general corporate purposes. On August 15, 2007,
the Company borrowed the remaining amount of approximately
$620.7 million under the senior term loan facility, and
fully retired the senior secured notes, originally due 2010, for
a price of 102.5% of the aggregate principal amount outstanding
of approximately $620.7 million plus accrued and unpaid
interest to the date of redemption and the remaining portion of
the interest escrow. The $1.0 billion senior secured term
loan facility provides for quarterly amortization payments
aggregating an annual amount equal to 1.00% of the original
principal amount of the term loans prior to the maturity date,
with the remaining balance due on July 3, 2012. In general,
borrowings under the senior term loan facility bear interest
based, at the Companys option, at either the Eurodollar
rate or an alternate base rate, in each case plus a margin. The
rate of interest for borrowings under the new senior term loan
facility is the Eurodollar rate plus 6.00% or the alternate base
rate plus 5.00%, with interest payable quarterly with respect to
alternate base rate loans, and with respect to Eurodollar loans,
interest is payable in arrears at the end of each applicable
period, but at least every three months. The weighted average
rate under this facility was 11.06% at December 31, 2007.
See Note 10, Long-Term Debt, for additional discussion.
On November 2, 2007, the Company entered into an
Incremental Facility Amendment (the Amendment) with
Morgan Stanley Senior Funding, Inc, as administrative agent,
term lender and co-lead arranger, Wachovia Bank N.A. as term
lender, and Wachovia Capital Markets, LLC, as co-lead arranger,
which amended the Credit Agreement dated July 3, 2007 (the
Credit Agreement) to provide an additional
$250.0 million in term loans. This additional funding,
which closed on the same date, increases the size of the
Companys senior secured term loan facility to
$1.25 billion. The Company will use the additional proceeds
to further support its expansion plans and for general corporate
purposes. The material terms of the incremental term loans are
the same as the terms of the loans under the original senior
secured term loan facility.
In connection with the repayment of the $125.0 million term
loan and the retirement of the $620.7 million senior
secured notes due 2010, the Company recorded a
$159.2 million loss on extinguishment of debt, which was
primarily due to the write-off of the unamortized portion of the
proceeds allocated to the warrants originally issued in
connection with the senior secured notes and the related
deferred financing costs. In connection with the
$1.0 billion senior term loan facility, the Company
recorded deferred financing cost of $27.7 million which is
being amortized over the five year term of the loan. In
connection with the Amendment, the Company recorded additional
deferred financing costs of $2.5 million which are being
amortized over the remaining term of the loan.
The senior term loan facility contains financial, affirmative
and negative covenants that the Company believes are usual and
customary for a senior secured credit agreement. The negative
covenants in the new senior secured term loan facility include,
among other things, limitations (each of which shall be subject
to standard and customary and other exceptions for financings of
this type) on its ability to: declare dividends and make other
distributions, redeem or repurchase its capital stock, prepay,
redeem or repurchase certain subordinated indebtedness, make
loans or investments (including acquisitions), incur additional
indebtedness, grant liens, enter into sale-leaseback
transactions, modify the terms of subordinated debt or certain
other material agreements, change its fiscal year, restrict
dividends from its subsidiaries or restrict liens, enter into
new lines of business, recapitalize, merge, consolidate or enter
into certain acquisitions, sell our assets, and enter into
transactions with its affiliates.
CF-17
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other
Agreements
BellSouth On May 29, 2007, the Company
closed an agreement with BellSouth Corporation to acquire for an
aggregate price of $300.0 million all interests in SFT
Spectrum, LLC and BWC Spectrum, LLC, which collectively held all
of AT&T Inc.s leases and licenses for 2.5 GHz
spectrum. These entities were wholly-owned subsidiaries of
BellSouth Corporation, which is wholly-owned by AT&T, Inc.
as a result of a merger that closed in December 2006. Based on
the terms of the agreement, the acquisition was treated as a
purchase of assets under EITF Issue
No. 98-3,
Determining Whether a Nonmonetary Transaction Involves
Receipt of Productive Assets or of a Business. The Company
finalized the allocation estimates during the third quarter and
recorded $196.8 million as purchased spectrum rights and
$103.2 million as leased spectrum based on the fair values
of the owned and leased spectrum.
Subscription Agreement Clearwire and Motorola
signed a Subscription Agreement on June 30, 2006, under
which Motorola agreed to purchase 16,666,666 shares of
Clearwires Class A common stock at $18.00 per share
for a purchase price of $300.0 million. The agreement with
Motorola includes certain limited anti-dilution features. The
transaction closed on August 29, 2006.
Common Stock Purchase Agreement Clearwire and
Intel Capital Corporation (Intel Capital), a
Delaware corporation and wholly owned subsidiary of Intel
Corporation (Intel), signed a Common Stock Purchase
Agreement on June 28, 2006, under which Intel Capital
agreed to purchase a total of 33,333,333 shares of
Clearwires Class A and Class B common stock,
23,427,601 shares and 9,905,732 shares, respectively,
at $18.00 per share for a total purchase price of
$600.0 million. The agreement includes certain limited
anti-dilution features which would terminate upon the closing of
the Companys initial public offering. The transaction
closed on August 29, 2006.
Concurrently with the Common Stock Purchase Agreement, Clearwire
and Intel entered into a mobile WiMAX network Collaboration
Agreement (Collaboration Agreement). Under the
Collaboration Agreement, Clearwire agreed to use commercially
reasonable efforts to develop and deploy a mobile WiMAX network
in the United States, and Intel agreed to use commercially
reasonable efforts to cause certain WiMAX capable end user
devices to be compatible for use on Clearwires network.
Preemptive Rights Exercises In August 2006,
in connection with the exercise of preemptive rights triggered
by the sale of common stock to Intel and Motorola described
above, Clearwire entered into subscription agreements with the
holders of its outstanding stock of the sale of an aggregate of
8,603,116 shares of Clearwires Class A Common
Stock at $18.00 per share for an aggregate purchase price of
$154.9 million. The agreements include certain limited
anti-dilution features. The transactions closed in August and
October of 2006.
Agreements with Bell Canada In March 2005,
Bell Canada (Bell), a Canadian telecommunications
company which is a subsidiary of BCE Inc. (BCE),
purchased 8,333,333 shares of Clearwires Class A
common stock for $100.0 million. At the time of Bells
investment in Clearwire, Bell, Clearwire and Eagle River
Holdings, LLC (ERH) also entered into a separate
agreement and Bell and BCE Nexxia Corporation (BCE
Nexxia), an affiliate of Bell, entered into a Master
Supply Agreement (Master Supply Agreement) dated
March 16, 2005 with Clearwire.
Under the Master Supply Agreement, Bell and BCE Nexxia provide
or arrange for the provision of hardware, software, procurement
services, management services and other components necessary for
Clearwire to provide Voice over Internet Protocol
(VoIP) services to their subscribers in the United
States and provide day-to-day management and operation of the
components and services necessary for Clearwire to provide these
VoIP services. Clearwire has agreed to use Bell Canada and BCE
Nexxia exclusively to provide such service unless such agreement
violates the rights of third parties under its existing
agreements. Bell and BCE Nexxia are Clearwires and its
affiliates preferred providers of these services and
applications in markets beyond the United States, to the extent
permitted under its existing agreements. In addition to these
services,
CF-18
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the Master Supply Agreement grants Bell and BCE Nexxia certain
rights with respect to future service offerings by Clearwire and
its affiliates. Under the Master Supply Agreement, BCE Nexxia
and Bell will be compensated by Clearwire either in shares of
Clearwires Class A common stock or cash. Total fees
paid for new subscribers under the Master Supply Agreement were
$112,000, $0 and $0 for the years ended December 31, 2007,
2006 and 2005, respectively. Amounts paid for supplies,
equipment and other services purchased through Bell Canada or
BCE were $6.0 million, $7.5 million and
$15.4 million for the years ended December 31, 2007,
2006 and 2005, respectively. The Master Supply Agreement can be
terminated for convenience on 12 months notice by either
party at any time beginning on or after October 1, 2007. On
October 29, 2007, the Company delivered a notice of
termination of the Master Supply Agreement to BCE Nexxia and the
agreement should terminate on October 29, 2008, unless it
is extended by the parties.
During 2004, the Company entered into two agreements with ITFS
Spectrum Advisors, LLC (ISA) and ITFS Spectrum
Consultants LLS (ISC). The agreements provided for
payment to ISA and ISC in the form of warrants to purchase
additional shares of Class A common stock in exchange for
ISA and ISC providing opportunities for Clearwire to purchase or
lease additional spectrum. Each of the agreements specifies a
maximum consideration available under the agreement and, in
2005, the maximum consideration under the agreement with ISA was
reached.
For the years ended December 31, 2007 and 2006, ISC earned
approximately $181,000 and $400,000, respectively. During 2007
and 2006, $181,000 and $65,000 was paid in cash, respectively,
and warrants to purchase 7,138 and 18,973 shares of
Class A common stock, valued at $116,000 and $196,000, were
issued, respectively. The maximum consideration under the
agreement with ISC was reached in 2007. As of December 31,
2007, there was no payable remaining related to these agreements.
|
|
4.
|
Investments
in Equity Investees
|
The Companys ownership interests in equity investees,
accounted for under the equity method, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2007
|
|
2006
|
|
2005
|
|
Danske Telecom A/S (Danske)
|
|
|
38.2
|
%
|
|
|
38.2
|
%
|
|
|
38.2
|
%
|
MVS Net S.A. de C.V. (MVS Net)
|
|
|
29.2
|
%
|
|
|
26.7
|
%
|
|
|
26.7
|
%
|
Denmark Danske, a public limited company in
Denmark, is a telecommunications services provider holding
spectrum licenses covering most of the major markets in Denmark.
Danske offers wireless broadband Internet services to consumers
and businesses in multiple markets in Denmark over a network
deploying NextNet equipment. Clearwire acquired an equity
interest in Danske in 2005 and has invested a total of
$12.2 million through December 31, 2007. Revenues and
related cost of goods and services sold to Danske by NextNet
through August 29, 2006 have been eliminated.
Clearwires investment in Danske has been reduced by
$6.1 million for its proportionate share of losses since
inception, of which approximately $2.6 million,
$3.3 million and $288,000 was incurred during the years
ended December 31, 2007, 2006 and 2005, respectively. Total
assets and total liabilities of Danske at December 31, 2007
were $27.5 million and $20.4 million, respectively.
Total assets and total liabilities of Danske at
December 31, 2006 were $36.8 million and
$19.0 million, respectively.
Mexico MVS Net, S.A. de C.V. (MVS
Net) is a Mexican telecommunications company in which
Clearwire acquired an equity interest in 2004 and has invested a
total of $30.3 million through December 31, 2007.
Revenues and related costs of goods and services sold to MVS Net
by NextNet through August 29, 2006 have been eliminated.
Clearwires investment in MVS Net has been reduced by
$8.7 million for its proportionate share of losses since
inception, of which approximately $2.2 million,
$1.9 million, and $3.7 million was incurred during the
years ended December 31, 2007, 2006 and 2005, respectively.
Total
CF-19
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
assets and total liabilities of MVS Net at December 31,
2007 were $25.2 million and $16.7 million,
respectively. Total assets and total liabilities of MVS Net at
December 31, 2006 were $28.1 million and
$16.7 million, respectively.
Investments as of December 31, 2007 and 2006 consist of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
Gross Unrealized
|
|
|
Gross Unrealized
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Short-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
$
|
7,500
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,500
|
|
|
$
|
90,232
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
90,232
|
|
Corporate bonds
|
|
|
7,970
|
|
|
|
15
|
|
|
|
|
|
|
|
7,985
|
|
|
|
226,316
|
|
|
|
15
|
|
|
|
(85
|
)
|
|
|
226,246
|
|
US Government and Agency Issues
|
|
|
51,544
|
|
|
|
3
|
|
|
|
(20
|
)
|
|
|
51,527
|
|
|
|
64,270
|
|
|
|
21
|
|
|
|
(26
|
)
|
|
|
64,265
|
|
Municipal bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91,975
|
|
|
|
|
|
|
|
|
|
|
|
91,975
|
|
Auction rate securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116,575
|
|
|
|
|
|
|
|
|
|
|
|
116,575
|
|
Other securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,351
|
|
|
|
|
|
|
|
|
|
|
|
74,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
67,014
|
|
|
$
|
18
|
|
|
$
|
(20
|
)
|
|
$
|
67,012
|
|
|
$
|
663,719
|
|
|
$
|
36
|
|
|
$
|
(111
|
)
|
|
$
|
663,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
|
|
95,922
|
|
|
|
|
|
|
|
(7,290
|
)
|
|
|
88,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
95,922
|
|
|
$
|
|
|
|
$
|
(7,290
|
)
|
|
$
|
88,632
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable debt and equity securities that are available for
current operations are classified as short-term
available-for-sale investments, and are stated at fair value.
Auction rate securities without readily determinable market
values are classified as long-term available-for-sale
investments and are stated at fair value. Unrealized gains and
losses are recorded as a separate component of accumulated other
comprehensive income (loss). Realized losses are recognized when
a decline in fair value is determined to be
other-than-temporary. Realized gains and losses are determined
on the basis of the specific identification method. Gross
realized losses were $5.8 million for 2007, and there were
no significant realized losses in 2006 or 2005. There were no
significant gains in 2007, 2006, or 2005.
The cost and fair value of investments at December 31,
2007, by contractual years-to-maturity, are presented below (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Due within one year
|
|
$
|
67,014
|
|
|
$
|
67,012
|
|
Due ten years or greater
|
|
|
41,280
|
|
|
|
33,990
|
|
No contractual maturities
|
|
|
54,642
|
|
|
|
54,642
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
162,936
|
|
|
$
|
155,644
|
|
|
|
|
|
|
|
|
|
|
CF-20
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes investments that have unrealized
losses as of December 31, 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
Greater Than
|
|
|
|
|
|
|
12 Months
|
|
|
12 Months
|
|
|
Total
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
US Government and Agency Issues
|
|
$
|
49,328
|
|
|
$
|
(20
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
49,328
|
|
|
$
|
(20
|
)
|
Auction rate securities
|
|
|
29,160
|
|
|
|
(7,290
|
)
|
|
|
|
|
|
|
|
|
|
|
29,160
|
|
|
|
(7,290
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
78,488
|
|
|
$
|
(7,310
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
78,488
|
|
|
$
|
(7,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007, the Company held available for sale
short-term and long-term investments with a total fair value of
$155.6 million and a cost of $162.9 million. During
the year ended December 31, 2007, the Company incurred
other-than-temporary impairment losses and realized losses of
$35.0 million related to a decline in the estimated fair
values of a number of short-term and long-term investment
securities. Included in the Companys investments were
auction rate securities with a fair value of $88.6 million
and a cost of $95.9 million. Auction rate securities are
variable rate debt instruments whose interest rates are reset
approximately every 30 or 90 days through an auction
process. The auction rate securities are classified as available
for sale and are recorded at fair value.
Beginning in August 2007, the auctions failed to attract buyers
and sell orders could not be filled. Due to current market
conditions, the Company is unable to estimate when the auctions
will resume. When an auction fails, the security resets to a
maximum rate as determined in the security documents. These
rates vary from LIBOR + 84 basis points to LIBOR +
100 basis points. While the Company continues to earn
interest on these investments at the maximum contractual rate,
until the auctions resume, the investments are not liquid and it
may not have access to these funds until a future auction on
these investments is successful. At December 31, 2007, the
estimated fair value of these auction rate securities no longer
approximates cost and the Company recorded other-than-temporary
impairment losses and realized losses on its auction rate
securities of $32.3 million for the year ended
December 31, 2007. For certain other auction rate
securities, the Company recorded an unrealized loss of
$7.3 million in other comprehensive income reflecting the
decline in the estimated fair value of these securities. The
Company considers these declines in fair value to be temporary
given its consideration of the collateral underlying these
securities and its conclusion that the declines are related to
changes in interest rates rather than any credit concerns
related to the underlying assets. Additionally, the Company has
the intent and ability to hold the investments until maturity or
for a period of time sufficient to allow for any anticipated
recovery in market value.
In addition to the above mentioned securities, the Company holds
one commercial paper security issued by a structured investment
vehicle that was placed in receivership in September 2007 for
which an insolvency event was declared by the receiver in
October 2007. The Issuer invests in residential and commercial
mortgages and other structured credits including sub-prime
mortgages. At December 31, 2007, the estimated fair value
of this security was $7.5 million based on the
Companys internally generated pricing models. During 2007
the Company recognized losses of $2.5 million related to
this commercial paper security. A restructuring plan for this
security is expected by mid 2008.
The Company estimated the fair value of these securities using
internally generated pricing models that require various inputs
and assumptions and the Company also uses various methods
including market, income and cost approaches. Based on these
approaches, the Company often utilizes certain assumptions that
market participants would use in pricing the investment,
including assumptions about risk and or the risks inherent in
the inputs to the valuation technique. These inputs are readily
observable, market corroborated, or unobservable. The Company
maximizes the use of observable inputs to the pricing models
where quoted market prices
CF-21
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
from securities and derivatives exchanges are available and
reliable. The Company typically receives external valuation
information for U.S. Treasuries, other U.S. Government
and Agency securities, as well as certain corporate debt
securities, money market funds and certificates of deposit. The
Company also uses certain unobservable inputs that cannot be
validated by reference to a readily observable market or
exchange data and relies, to a certain extent, on
managements own assumptions about the assumptions that
market participant would use in pricing the security. In these
instances, fair value is determined by analysis of historical
and forecasted cash flows, default probabilities and recovery
rates, time value of money and discount rates considered
appropriate given the level of risk in the security and
associated investor yield requirements. Extrapolation or other
methods are applied to observable market or other data to
estimate assumptions that are not observable. The internally
derived values are compared to values received from brokers for
reasonableness. The Companys internally generated pricing
models may include its own data and require us to use judgment
in interpreting relevant market data, matters of uncertainty and
matters that are inherently subjective in nature. The use of
different judgments and assumptions could result in different
presentations of pricing and security prices could change
significantly based on market conditions.
The Companys investments in auction rate securities
represent interests in collateralized debt obligations supported
by preferred equity securities of small to medium sized
insurance companies and financial institutions and asset backed
capital commitment securities supported by high grade, short
term commercial paper and a put option from a monoline insurance
company. These auction rate securities were rated
AAA/Aaa or
AA/Aa by Standard & Poors and Moodys rating
services at the time of purchase and their ratings have not
changed as of December 31, 2007. With regards to the asset
backed capital commitment securities, both rating agencies have
placed the issuers ratings under review for possible
downgrade.
As issuers and counterparties to the Companys investments
announce financial results in the coming quarters, it is
possible that the Company may record additional losses and
realize losses that are currently unrealized. The Company will
continue to monitor its investments for substantive changes in
relevant market conditions, substantive changes in the financial
condition and performance of the investments issuers and
other substantive changes in these investments.
The stated maturity of these securities is longer than
10 years; however, because we considered them to be highly
liquid and available for operations, our convention was to use
the next auction date, which occurs every 30 to 90 days, as
the effective maturity date and these securities were recorded
as short-term investments. Current market conditions do not
allow the Company to estimate when the auctions for its auction
rate securities will resume. As a result, during 2007 the
Company reclassified its auction rate securities from short-term
investments to long-term investments.
CF-22
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
6. Property,
Plant and Equipment
Property, plant and equipment as of December 31, 2007 and
2006 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Network and base station equipment
|
|
$
|
305,635
|
|
|
$
|
161,875
|
|
Customer premise equipment
|
|
|
89,120
|
|
|
|
47,700
|
|
Furniture, fixtures and equipment
|
|
|
55,548
|
|
|
|
20,546
|
|
Leasehold improvements
|
|
|
13,488
|
|
|
|
8,340
|
|
Construction in progress
|
|
|
233,120
|
|
|
|
112,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
696,911
|
|
|
|
351,130
|
|
Less: accumulated depreciation
|
|
|
(124,582
|
)
|
|
|
(48,332
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
572,329
|
|
|
$
|
302,798
|
|
|
|
|
|
|
|
|
|
|
The Company follows the provisions of SFAS No. 34 with
respect to its owned FCC licenses and the related construction
of its network infrastructure assets. Capitalization commences
with pre-construction period administrative and technical
activities, which includes obtaining leases, zoning approvals
and building permits, and ceases when the construction is
substantially complete and available for use generally when a
market is launched.
Interest capitalized for the years ended December 31, 2007
and 2006 was $29.0 million and $16.6 million,
respectively. Depreciation expense for the years ended
December 31, 2007, 2006 and 2005 was $80.3 million,
$38.5 million and $10.9 million, respectively.
CF-23
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
7.
|
Spectrum
Licenses, Goodwill, and Other Intangible Assets
|
Spectrum licenses, goodwill, and other intangible assets as of
December 31, 2007 and 2006 consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Average Life
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Goodwill
|
|
|
Indefinite
|
|
|
$
|
35,666
|
|
|
$
|
|
|
|
$
|
35,666
|
|
|
$
|
30,908
|
|
|
$
|
|
|
|
$
|
30,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spectrum licenses
|
|
|
Indefinite
|
|
|
|
397,972
|
|
|
|
|
|
|
|
397,972
|
|
|
|
157,260
|
|
|
|
|
|
|
|
157,260
|
|
Trade names and trademarks
|
|
|
Indefinite
|
|
|
|
120
|
|
|
|
|
|
|
|
120
|
|
|
|
34
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total indefinite-lived intangibles
|
|
|
|
|
|
|
398,092
|
|
|
|
|
|
|
|
398,092
|
|
|
|
157,294
|
|
|
|
|
|
|
|
157,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Definite-lived intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Existing technology
|
|
|
5 years
|
|
|
|
3,713
|
|
|
|
(371
|
)
|
|
|
3,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
5 years
|
|
|
|
5,169
|
|
|
|
(691
|
)
|
|
|
4,478
|
|
|
|
335
|
|
|
|
(74
|
)
|
|
|
261
|
|
Patents and other
|
|
|
12 years
|
|
|
|
1,466
|
|
|
|
(396
|
)
|
|
|
1,070
|
|
|
|
1,427
|
|
|
|
(193
|
)
|
|
|
1,234
|
|
Spectrum licenses
|
|
|
16 years
|
|
|
|
78,125
|
|
|
|
(5,194
|
)
|
|
|
72,931
|
|
|
|
65,814
|
|
|
|
(1,797
|
)
|
|
|
64,017
|
|
Noncompete agreements
|
|
|
3 years
|
|
|
|
250
|
|
|
|
(160
|
)
|
|
|
90
|
|
|
|
250
|
|
|
|
(76
|
)
|
|
|
174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total definite-lived intangibles
|
|
|
|
|
|
|
88,723
|
|
|
|
(6,812
|
)
|
|
|
81,911
|
|
|
|
67,826
|
|
|
|
(2,140
|
)
|
|
|
65,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total spectrum and intangibles
|
|
|
|
|
|
$
|
486,815
|
|
|
$
|
(6,812
|
)
|
|
$
|
480,003
|
|
|
$
|
225,120
|
|
|
$
|
(2,140
|
)
|
|
$
|
222,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The changes in the carrying value of goodwill for the years
ended December 31, 2007 and 2006 is as follows (in
thousands):
|
|
|
|
|
January 1, 2006
|
|
$
|
16,623
|
|
Goodwill acquired during the period including effects of foreign
currency translation of $2.9 million
|
|
|
23,637
|
|
Goodwill related to business dispositions
|
|
|
(9,352
|
)
|
|
|
|
|
|
December 31, 2006
|
|
|
30,908
|
|
Goodwill acquired during the period including effects of foreign
currency translation of $3.6 million
|
|
|
4,758
|
|
|
|
|
|
|
December 31, 2007
|
|
$
|
35,666
|
|
|
|
|
|
|
CF-24
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Based on the identified intangible assets recorded as of
December 31, 2007, future amortization of intangible
assets, not including spectrum leases pending FCC approval, is
expected to be as follows (in thousands):
|
|
|
|
|
2008
|
|
$
|
5,721
|
|
2009
|
|
|
6,846
|
|
2010
|
|
|
6,757
|
|
2011
|
|
|
6,709
|
|
2012
|
|
|
5,859
|
|
Thereafter
|
|
|
50,019
|
|
|
|
|
|
|
Total
|
|
$
|
81,911
|
|
|
|
|
|
|
Actual amortization expense to be reported in future periods
could differ from these estimates as a result of new intangible
asset acquisitions, impairments, changes in useful lives and
other relevant factors.
For the years ended December 31, 2007, 2006 and 2005, the
Company recorded amortization of $4.4 million,
$2.5 million and $964,000, respectively, on spectrum
licenses and other intangibles.
Purchased Spectrum Rights and other
intangibles Spectrum licenses, which are issued
on both a site-specific and a wide-area basis, authorize
wireless carriers to use radio frequency spectrum to provide
service to certain geographical areas in the United States and
internationally. These licenses are generally acquired by the
Company either directly from the governmental authority in the
applicable country, which in the United States is the FCC,
or through a business combination or an asset purchase, and are
considered indefinite-lived intangible assets, except for the
licenses acquired in Poland, Spain, Germany and Romania which
are considered definite-lived intangible assets due to limited
license renewal history within these countries.
During the year ended December 31, 2007, the Company paid
consideration of $226.7 million relating to purchased
spectrum rights, which was comprised of $222.5 million in
cash and $4.2 million in the form of warrants and common
stock. Of this cash paid during December 31, 2007,
$196.8 million related to the purchased spectrum rights
acquired from BellSouth Corporation (see Note 3,
Significant Transactions, for additional information regarding
BellSouth). Also, during the year ended December 31, 2007,
the Company acquired intangibles related to acquisitions of
$8.3 million, of which $4.6 million was allocated to
customer relationships and $3.7 million was allocated to
existing technology, and paid an additional $373,000 in cash
relating to other intangible assets, primarily customer
relationships.
During the year ended December 31, 2006 the Company paid
consideration of $88.5 million, comprised of
$88.2 million in cash and $300,000 in the form of warrants
and common stock, to purchase spectrum rights.
Prepaid Spectrum License Fees The Company
also leases spectrum from third parties who hold the spectrum
licenses. These leases are accounted for as executory contracts,
which are treated like operating leases. Consideration paid to
third-party holders of these leased licenses at the inception of
a lease agreement is accounted for as prepaid spectrum license
fees and is expensed over the term of the lease agreement,
including renewal terms, as applicable. Future commitments under
these leases are disclosed in Note 11.
During the year ended December 31, 2007, consideration paid
relating to prepaid spectrum license fees was
$256.5 million, which was comprised of $239.4 million
in cash and $17.1 million in the form of warrants and
common stock. Cash paid related to the purchase of leased
spectrum from BellSouth was $103.2 million. In addition,
during 2007, the Company received $6.0 million in cash
relating to the sale of spectrum licenses.
CF-25
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During the year ended December 31, 2006, cash consideration
paid relating to prepaid spectrum license fees was
$148.7 million, comprised of $85.0 million in cash and
$63.7 million in the value of warrants and common stock.
For the years ended December 31, 2007, 2006, and 2005, the
Company recorded amortization of $37.9 million,
$6.3 million and $2.9 million, respectively, of leased
spectrum.
|
|
8.
|
Accounts
Payable and Accrued Expenses
|
Accounts payable and accrued expenses as of December 31,
2007 and 2006 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Accounts payable
|
|
$
|
42,327
|
|
|
$
|
41,710
|
|
Accrued interest
|
|
|
11,643
|
|
|
|
27,272
|
|
Salaries and benefits
|
|
|
17,697
|
|
|
|
12,095
|
|
Other
|
|
|
30,780
|
|
|
|
27,139
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
102,447
|
|
|
$
|
108,216
|
|
|
|
|
|
|
|
|
|
|
Components of deferred tax assets and liabilities as of
December 31, 2007 and 2006 were as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Current deferred tax assets
|
|
$
|
6,981
|
|
|
$
|
4,233
|
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
|
430,345
|
|
|
|
184,771
|
|
Other
|
|
|
21,535
|
|
|
|
5,012
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
458,861
|
|
|
|
194,016
|
|
Valuation allowance
|
|
|
(441,432
|
)
|
|
|
(170,797
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
17,429
|
|
|
|
23,219
|
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Spectrum licenses
|
|
|
33,673
|
|
|
|
28,938
|
|
Property, equipment and other long-term assets
|
|
|
25,791
|
|
|
|
7,150
|
|
Bond issuance cost warrant valuation
|
|
|
753
|
|
|
|
4,225
|
|
Other intangibles
|
|
|
|
|
|
|
124
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
60,217
|
|
|
|
40,437
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
42,788
|
|
|
$
|
17,218
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, the Company had federal tax net
operating loss carryforwards in the United States of
approximately $969.2 million. A portion of the net
operating loss carryforward is subject to certain annual
limitations imposed under Section 382 of the Internal
Revenue Code of 1986. The net operating loss carryforwards begin
to expire in 2021. The Company had approximately
$224.2 million of tax net operating loss carryforwards in
foreign jurisdictions as of December 31, 2007. Of the
$224.2 million of tax net
CF-26
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
operating loss carryforwards in foreign jurisdictions,
$114.9 million has no statutory expiration date,
$94.5 million begins to expire in 2015, and the remainder
of $14.8 million begins to expire in 2010.
The Company has recorded a valuation allowance against a
substantial portion of the deferred tax assets. Management has
reviewed the facts and circumstances, including the limited
history and the projected future tax losses, and determined that
it is appropriate to reduce a portion of the gross deferred tax
assets. The remaining deferred tax asset will be reduced by
schedulable deferred tax liabilities. The net deferred tax
liabilities are related to certain intangible assets, including
certain spectrum assets, which are not amortized for book
purposes. The net change in the valuation allowance for the
years ended December 31, 2007, 2006 and 2005 was an
increase of $270.6 million, $103.7 million, and
$48.4 million, respectively. Net noncurrent deferred tax
liabilities of $43.1 million are included in other
long-term liabilities as of December 31, 2007.
The Company incurs significant deferred tax liabilities related
to the spectrum licenses. Since there is no amortization on
certain acquired spectrum licenses for book purposes and the
Company cannot estimate the amount, if any, of deferred tax
liabilities related to those acquired spectrum licenses which
will reverse in future periods, the valuation allowance has been
increased accordingly. The Company continues to amortize
acquired spectrum licenses for federal income tax purposes. The
ongoing difference between book and tax amortization resulted in
an additional deferred income tax provision of approximately
$5.4 million for the year ended December 31, 2007.
The income tax provision consists of the following for the year
ended December 31, 2007, 2006 and 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Current taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
$
|
107
|
|
|
$
|
21
|
|
|
$
|
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
State
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current taxes
|
|
|
208
|
|
|
|
21
|
|
|
|
|
|
Deferred taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
(121
|
)
|
|
|
|
|
|
|
|
|
Federal
|
|
|
4,985
|
|
|
|
2,582
|
|
|
|
1,389
|
|
State
|
|
|
355
|
|
|
|
378
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred taxes
|
|
|
5,219
|
|
|
|
2,960
|
|
|
|
1,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
5,427
|
|
|
$
|
2,981
|
|
|
$
|
1,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The income tax rate computed using the federal statutory rates
is reconciled to the reported effective income tax rate as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Federal statutory income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes (net of federal benefit)
|
|
|
2.4
|
|
|
|
3.0
|
|
|
|
0.3
|
|
Other, net
|
|
|
(1.2
|
)
|
|
|
(2.6
|
)
|
|
|
(2.6
|
)
|
Valuation allowance
|
|
|
(36.9
|
)
|
|
|
(36.4
|
)
|
|
|
(33.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
(0.7
|
)%
|
|
|
(1.0
|
)%
|
|
|
(1.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CF-27
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company adopted the provisions of FASB Interpretation Number
48 (FIN 48) on January 1, 2007.
FIN 48 clarifies the accounting for income taxes by
prescribing a recognition threshold that a tax position is
required to meet before being recognized in the financial
statements. FIN 48 also provides guidance or derecognition,
measurement, classification, interest and penalties, accounting
in interim periods, disclosure and transition.
As of January 1, 2007, the Company had no unrecognized tax
benefits and there was no effect on its financial condition or
results of operations as a result of implementing FIN 48.
There have been no changes to the Companys liability for
unrecognized tax benefits during the year ended
December 31, 2007.
The Company and its Subsidiaries file income tax returns in the
U.S. Federal jurisdiction and various state and foreign
jurisdictions. As of the date of adoption of FIN 48 and the
year ended December 31, 2007, the tax returns for 2003
through 2006 remain open to examination by the Internal Revenue
Service and various state tax authorities. In addition, the
Company has acquired U.S. and foreign entities which
operated prior to 2003. Most of the acquired entities generated
losses for income tax purposes and remain open to examination by
U.S. and foreign tax authorities as far back as 1998.
The Companys policy is to recognize any interest and
penalties related to unrecognized tax benefits as a component of
income tax expense. As of the date of adoption of
FIN No. 48 and the year ended December 31, 2007,
the Company had accrued no interest or penalties related to
uncertain tax positions.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
11% Senior Secured Notes due in 2010, principal at
maturity: $260.3 million
|
|
$
|
|
|
|
$
|
215,601
|
|
11% Additional Senior Secured Notes due in 2010, principal at
maturity: $360.4 million
|
|
|
|
|
|
|
295,087
|
|
Secured $125.0 million loan from Morgan Stanley Senior
Funding, Inc. due in August 2009, 1% of principal due annually;
residual at maturity
|
|
|
|
|
|
|
125,000
|
|
$1.25 billion Senior Term Loan facility, due in 2012, 1% of
principal due annually; residual at maturity
|
|
|
1,246,875
|
|
|
|
|
|
Secured $10.0 million loan from BCE Nexxia Corporation due
in July 2008, principal at maturity: $10.0 million
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,256,875
|
|
|
|
645,688
|
|
Less: current portion
|
|
|
(22,500
|
)
|
|
|
(1,250
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
1,234,375
|
|
|
$
|
644,438
|
|
|
|
|
|
|
|
|
|
|
Senior Term Loan facility In an effort to
simplify its capital structure, access incremental borrowing
availability, and extend debt maturities, on July 3, 2007,
the Company entered into a senior term loan facility providing
for loans of up to $1.0 billion. The Company borrowed
$379.3 million under the senior term loan facility on the
date of closing and repaid obligations under the
$125.0 million term loan and fees and costs attributable to
the senior term loan facility. On August 15, 2007, the
Company borrowed the remaining amount of approximately
$620.7 million under the senior term loan facility, and
fully retired its senior secured notes, originally due 2010, for
a price of 102.5% of the aggregate principal amount outstanding
of approximately $620.7 million plus accrued and unpaid
interest to the date of redemption and the remaining portion of
the interest escrow. The $1.0 billion senior secured term
loan facility provides for quarterly amortization payments
aggregating an annual amount equal to 1.00% of the original
principal amount of the term loans prior to the
CF-28
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
maturity date, with the remaining balance due on July 3,
2012. In general, borrowings under the senior term loan facility
bear interest based, at the Companys option, at either the
Eurodollar rate or an alternate base rate, in each case plus a
margin. The rate of interest for borrowings under the new senior
term loan facility is the Eurodollar rate plus 6.00% or the
alternate base rate plus 5.00%, with interest payable quarterly
with respect to alternate base rate loans, and with respect to
Eurodollar loans, interest is payable in arrears at the end of
each applicable period, but at least every three months. The
weighted average rate under this facility was 11.06% at
December 31, 2007.
In connection with the repayment of the $125.0 million term
loan and the retirement of the $620.7 million senior
secured notes due 2010, the Company recorded a
$159.2 million loss on extinguishment of debt, which was
primarily due to the write-off of the unamortized portion of the
proceeds allocated to the warrants originally issued in
connection with the senior secured notes and the related
deferred financing costs. In connection with the
$1.0 billion senior term loan facility, the Company
recorded a deferred financing cost of $27.7 million which
is being amortized over the five year term of the loan.
On November 2, 2007, the Company entered into an
Incremental Facility Amendment (the Amendment) with
Morgan Stanley Senior Funding, Inc, as administrative agent,
term lender and co-lead arranger, Wachovia Bank N.A. as
term lender, and Wachovia Capital Markets, LLC, as co-lead
arranger, which amended the Credit Agreement dated July 3,
2007 (the Credit Agreement) to provide the Company
with an additional $250.0 million in term loans. The
Company recorded a deferred financing cost of $2.5 million
related to this additional funding, which is being amortized
over the remaining term of the loan. This additional funding,
which closed on the same date, increases the size of the
Companys senior secured term loan facility to
$1.25 billion. The Company will use the additional proceeds
to further support its expansion plans and for general corporate
purposes. The material terms of the incremental term loans are
the same as the terms of the loans under the original senior
secured term loan facility.
As of December 31, 2007, $1.25 billion in aggregate
principal amount was outstanding under the senior secured term
loan facility, with an approximate fair market value of
$1.20 billion.
The senior term loan facility contains financial, affirmative
and negative covenants that the Company believes are usual and
customary for a senior secured credit agreement. The negative
covenants in the new senior secured term loan facility include,
among other things, limitations (each of which shall be subject
to standard and customary and other exceptions for financings of
this type) on its ability to: declare dividends and make other
distributions, redeem or repurchase its capital stock, prepay,
redeem or repurchase certain subordinated indebtedness, make
loans or investments (including acquisitions), incur additional
indebtedness, grant liens, enter into sale-leaseback
transactions, modify the terms of subordinated debt or certain
other material agreements, change its fiscal year, restrict
dividends from our subsidiaries or restrict liens, enter into
new lines of business, recapitalize, merge, consolidate or enter
into certain acquisitions, sell our assets, and enter into
transactions with its affiliates.
Term Loan In August 2006, Clearwire signed a
loan agreement with Morgan Stanley Senior Funding, Inc., Merrill
Lynch Capital Corporation, and JP Morgan Chase Bank, N.A. for a
term loan in the amount of $125.0 million. The loan was
secured by certain spectrum assets of Clearwire entities, as
specified in the loan agreement. The loan was set to mature in
August 2009 and the proceeds of the loan were available for
general corporate purposes. This note was repaid in July 2007
with the proceeds from the Senior-term loan facility.
BCE Nexxia Corporation Financing As required
under the Master Supply Agreement with Bell and BCE Nexxia and
in order to assist funding capital expenses and
start-up
costs associated with the deployment of VOIP services, BCE
Nexxia agreed to make available to Clearwire financing in the
amount of $10.0 million. BCE Nexxia funded the entire
amount on June 7, 2006. The loan is secured by a security
interest in the telecommunications equipment and property
related to VoIP and bears interest at 7.00% per annum and is due
and payable in full on July 19, 2008. At December 31,
2007, the Company had $1.2 million of accrued
CF-29
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
interest related to the BCE Nexxia loan. The loan balance
outstanding as of December 31, 2007 was $10.0 million,
with an approximate fair market value of $9.7 million.
11% Senior Secured Notes due 2010 In
August 2005 the Company completed the sale of
$260.3 million in principal amount of senior secured notes
(the Notes) due 2010. In connection with the sale of
the Notes, the Company also issued warrants (the
Warrants) to the purchasers of the Notes entitling
them to purchase up to 6,942,552 shares of the
Companys Class A common stock. In addition, the
Company granted the purchasers of the Notes a one-time option to
acquire up to an equivalent amount of additional Notes and
Warrants for a period of 180 days following the issuance of
the Notes. This option was exercised in February 2006 when the
Company completed the sale of $360.4 million senior secured
notes to new and existing holders. In connection with the sale
of the additional notes, the Company also issued 9,609,334
Warrants to the purchasers of the additional notes entitling
them to purchase shares of the Companys Class A
common stock. The terms of the Warrants are substantially
identical to the original warrants. In August 2007, the Company
fully retired the Senior Secured Notes.
Terms of the Warrants Holders of Warrants
issued in connection with the Notes and Additional Notes may
exercise their Warrants at any time at an exercise price of
$15.00. The Company granted the holders of the Warrants
registration rights covering the shares subject to issuance
under the Warrants. The Warrants expire on August 5, 2010.
In connection with the registration rights agreement, the
Company filed a resale registration statement, which was
effective on August 28, 2007, on
Form S-1
registering the resale of shares of Class A common stock
issuable upon the exercise of the Warrants. The Company must
maintain the registration statement in effect (subject to
certain suspension periods) for at least two years. If the
Company fails to meet its obligations to maintain that
registration statement, the Company will be required to pay to
each affected Warrant holder an amount in cash equal to 2% of
the purchase price of such holders Warrants. In the event
that the Company fails to make such payments in a timely manner,
the payments will bear interest at a rate of 1% per month until
paid in full. This registration rights agreement also provides
for incidental registration rights in connection with follow-on
offerings, other than issuances pursuant to a business
combination transaction or employee benefit plan. The Company
does not consider payment of any such penalty to be probable as
of December 31, 2007, and has therefore not recorded a
liability for this contingency.
Interest Expense, net Interest expense, net,
included in the Companys consolidated statements of
operations, consists of the following for the years ended
December 31, 2007, 2006 and 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Interest expense
|
|
$
|
104,550
|
|
|
$
|
69,116
|
|
|
$
|
11,605
|
|
Amortization of deferred financing costs
|
|
|
6,703
|
|
|
|
3,934
|
|
|
|
898
|
|
Amortization of long-term debt discount
|
|
|
14,004
|
|
|
|
15,820
|
|
|
|
4,381
|
|
Capitalized interest
|
|
|
(28,978
|
)
|
|
|
(16,590
|
)
|
|
|
(2,261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
96,279
|
|
|
$
|
72,280
|
|
|
$
|
14,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CF-30
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
11.
|
Commitments
and Contingencies
|
The Companys commitments for non-cancelable operating
leases consist mainly of leased spectrum license fees, office
space, equipment and certain of its network equipment situated
on leased sites, including land, towers and rooftop locations.
Certain of the leases provide for minimum lease payments,
additional charges and escalation clauses. Leased spectrum
agreements have initial terms of up to 30 years. Other
operating leases generally have initial terms of five years with
multiple renewal options for additional
five-year
terms totaling 20 to 25 years. Future minimum payments
under spectrum license and operating lease obligations
(including all optional renewal periods on operating leases) as
of December 31, 2007, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased
|
|
|
Operating
|
|
|
|
|
Years Ending December 31,
|
|
Spectrum
|
|
|
Lease
|
|
|
Total
|
|
|
2008
|
|
$
|
39,226
|
|
|
$
|
87,320
|
|
|
$
|
126,546
|
|
2009
|
|
|
39,253
|
|
|
|
87,030
|
|
|
|
126,283
|
|
2010
|
|
|
39,915
|
|
|
|
86,868
|
|
|
|
126,783
|
|
2011
|
|
|
40,045
|
|
|
|
85,363
|
|
|
|
125,408
|
|
2012
|
|
|
45,068
|
|
|
|
84,896
|
|
|
|
129,964
|
|
Thereafter, including all renewal periods
|
|
|
1,557,749
|
|
|
|
1,629,062
|
|
|
|
3,186,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,761,256
|
|
|
$
|
2,060,539
|
|
|
$
|
3,821,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent expense under operating leases was $77.6 million,
$35.0 million, and $10.5 million for the years ended
December 31, 2007, 2006 and 2005, respectively.
In addition to the leased spectrum commitments above, in
connection with various spectrum lease agreements the Company
has commitments to provide Clearwire services to the lessors in
launched markets, and reimbursement of capital equipment and
third-party service expenditures of the lessors over the term of
the lease. During the year ended December 31, 2007, the
Company satisfied $642,000 related to these commitments for the
year ending December 31, 2007. The maximum remaining
commitment at December 31, 2007 is $89.8 million and
is expected to be incurred over the term of the related lease
agreements, which range from
15-30 years.
Under the terms of the Supply Agreement that was entered into
between Clearwire and Motorola on August 29, 2006,
Clearwire is committed to purchase no less than
$150.0 million of infrastructure equipment and other
products from Motorola in the first two years after the
effective date of August 29, 2006, subject to Motorola
continuing to satisfy certain performance requirements and other
conditions. The Company is also committed to purchase from
Motorola, all Expedience modems and Expedience PC cards it
provides to its subscribers for a period of five years and 51%
of such products until the term of the agreement is completed on
August 29, 2014, if certain conditions are met. For the
period from the effective date of the agreement through
December 31, 2007, total purchases from Motorola under
these agreements were $98.4 million. The remaining
commitment was $51.6 million at December 31, 2007.
As of December 31, 2007, the Company has minimum purchase
agreements of approximately $57.8 million to acquire new
spectrum.
Contingencies During 2007, a cash payment of
$17.0 million was received in connection with the sale of
one of the Companys investments, which was sold at a loss
to a third party. Under certain circumstances, the Company may
be required to return all or part of the payment to the
counterparty to this transaction, and as such this amount has
been recorded as a long-term liability.
In the normal course of business, Clearwire is party to various
pending judicial and administrative proceedings. While the
outcome of the pending proceedings cannot be predicted with
certainty, Management
CF-31
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
believes that any unrecorded liability that may result will not
to have a material adverse effect on our liquidity, financial
condition or results of operations.
Indemnity Agreements Flux Fixed Wireless, LLC
(FFW), wholly owned by Mr. McCaw and ERH, and
Clearwire entered into an Indemnification Agreement, dated
November 13, 2003, pursuant to which Clearwire agreed to
indemnify, defend and hold harmless FFW and any of its
directors, officers, partners, employees, agents and spouses and
each of its and their affiliates (each, an
Indemnitee) to the fullest extent permitted by law
for any claims made against an Indemnitee by reason of the fact
that Indemnitee is, was or may be deemed a stockholder,
director, officer, employee, controlling person, agent or
fiduciary of Clearwire or any subsidiary of Clearwire.
Clearwire is obligated to pay the expenses of any Indemnitee in
connection with any claims which are subject to the agreement.
Clearwire is currently a party to, or contemplating entering
into, similar indemnification agreements with certain other of
its officers and each of the other members of its Board of
Directors. No liabilities have been recorded in the consolidated
balance sheets for any indemnification agreements.
In August 2006, Intel Capital completed its purchase from
Clearwire of 23,427,601 shares of Class A common stock
and 9,905,732 shares of Class B common stock at $18.00
per share for a total purchase price of $600.0 million,
pursuant to a Common Stock Purchase Agreement.
In August 2006, Clearwire entered into subscription agreements
with the holders of its outstanding stock for the sale of an
aggregate of 8,603,116 shares of Clearwires
Class A common stock at $18.00 per share for an aggregate
purchase price of $154.9 million. The agreements include
certain limited anti-dilution features. The transactions closed
on August 29, 2006, except for one agreement covering the
sale of 1,222,222 shares which closed in October 2006.
On March 13, 2007, the Company completed the sale of
24,000,000 shares of its Class A common stock in its
initial public offering. The shares were sold in the offering at
a price of $25.00 per share, and the Company received net
proceeds of $555.2 million, net of underwriters
discount, commissions and other fees of $44.8 million. The
Company has used these proceeds for market and network
expansion, spectrum acquisitions and general corporate purposes.
Under Clearwires Certificate of Incorporation, as amended,
it has the authority to issue 355,000,000 shares of capital
stock as follows:
|
|
|
|
|
300,000,000 shares of Class A common stock, par value
$0.0001 per share;
|
|
|
|
50,000,000 shares of Class B common stock, par value
$0.0001 per share; and
|
|
|
|
5,000,000 shares of preferred stock, par value $0.0001 per
share.
|
The following is a summary description of the Companys
common stock:
Class A common stock The holders of
Class A common stock are entitled to one vote per share, on
each matter submitted to a vote by the stockholders.
Class B common stock The holders of
Class B common stock are entitled to ten votes per share,
on each matter submitted to a vote by the stockholders.
Class B common stock is convertible at any time at the
option of its holders into shares of Class A common stock.
Each share of Class B common stock is convertible into one
share of Class A common stock.
CF-32
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Preferred stock May be divided into one or
more series. Each series will have the preferences, limitations
and relative rights as determined by the Board of Directors. No
series of preferred stock have been designated by the Board of
Directors.
Ranking With respect to rights on
liquidation, dissolution or similar events, each holder of
Class A and Class B common stock will receive the same
amount of consideration per share, except that Class B
common stock holders may receive securities in the transactions
with terms that entitle them to ten votes per share.
Common stock and warrants payable The Company
engaged several parties to obtain spectrum on its behalf in
exchange for rights to receive its common stock and warrants. As
the rights are earned over the period of an acquisition of
spectrum, these obligations can be outstanding for a period of
time until FCC approval or other milestones are met. The Company
records common stock and warrants payable to recognize the
timing difference when consideration has been received by the
Company, but it has not yet issued securities to the
counterparty.
On January 19, 2007, Clearwires Board of Directors
adopted the 2007 Stock Compensation Plan (the 2007
Plan), which authorizes the Company to grant incentive
stock options, non-qualified stock options, stock appreciation
rights, restricted stock, restricted stock units, and other
stock awards to its employees, directors and consultants. The
2007 Plan was adopted by the Companys stockholders on
February 16, 2007. There are 15,000,000 shares of
Class A common stock authorized under the 2007 Plan.
Options granted under the 2007 Plan generally vest ratably over
four years and expire no later than ten years after the date of
grant. Shares to be awarded under the 2007 Plan will be made
available at the discretion of the Compensation Committee of the
Board of Directors from authorized but unissued shares,
authorized and issued shares reacquired and held as treasury
shares, or a combination thereof. At December 31, 2007
there were 8,558,574 shares available for grant under the
2007 Stock Option Plan.
Prior to the 2007 Plan, the Company had the following
share-based arrangements: The Clearwire Corporation 2003 Stock
Option Plan (the 2003 Stock Option Plan) and The
Clearwire Corporation Stock Appreciation Rights Plan (the
SAR Plan). No additional stock options will be
granted under the Companys 2003 Stock Option Plan.
The Company applies SFAS 123(R) to new awards and to awards
modified, repurchased, or cancelled after January 1, 2006.
Share-based compensation expense is based on the estimated
grant-date fair value and is recognized net of a forfeiture rate
on those shares expected to vest over a graded vesting schedule
on a straight-line basis over the requisite service period for
each separately vesting portion of the award as if the award
was, in-substance, multiple awards.
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model using the
assumptions disclosed for the years ended December 31,
2007, 2006 and 2005. The volatility used to calculate the fair
value of non-employee stock option grants for 2007, 2006 and
2005 and employee stock option grants for 2007 and 2006 is based
on both average historical volatility from common shares of a
group of the Companys peers and the Companys own
historical volatility. There is a 0% expected dividend yield as
there are no plans to pay future dividends. The expected life of
options granted is based on the simplified calculation of
expected life, described in the Securities and Exchange
Commissions Staff Accounting Bulletin No. 107,
which we refer to as SAB No. 107, Share-Based Payment,
due to lack of option exercise history. The risk-free interest
rate is based on the zero-coupon U.S Treasury bond, with a term
equal to the expected life of the options.
CF-33
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Compensation cost recognized for these plans for the year ended
December 31, 2007, 2006 and 2005 is presented as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Cost of service
|
|
$
|
138
|
|
|
$
|
819
|
|
|
$
|
204
|
|
Selling, general and administrative
|
|
|
42,633
|
|
|
|
13,427
|
|
|
|
2,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
42,771
|
|
|
$
|
14,246
|
|
|
$
|
2,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options
Prior to January 1, 2006, the Company accounted for
share-based compensation under the recognition and measurement
provisions of APB 25. Stock options granted at prices below fair
market value at the date of grant were considered compensatory,
and compensation expense has been deferred and is being
recognized over the option vesting period using the graded
vesting method. Compensation expense is based on the excess of
the fair market value of the underlying common stock at the date
of grant over the exercise price of the option.
The Company also granted stock options to employees of entities
under common control who performed services to the Company to
purchase shares of the Companys Class A common stock.
In accordance with EITF Issue
No. 00-23,
Issues Related to the Accounting for Stock Compensation Under
APB No. 25, Accounting for Stock Issued to Employees, and
FASB Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation, and
SFAS No. 123(R), the fair value of such options was
recorded as a dividend and a charged against additional paid-in
capital on the line item, deferred share-based compensation. A
total of $1.5 million, $2.4 million, and $34,000 was
recorded, as a dividend, for the years ended December 31,
2007, 2006 and 2005, respectively.
During the year ended December 31, 2007 the Company granted
727,000 options to non-employee consultants, of which 250,000
were forfeited. These options are adjusted to current fair value
each quarter during their vesting periods as services are
rendered. During the year ended December 31, 2007, the
Company recognized $345,000 expense and had $2.3 million of
unamortized expense as of December 31, 2007 related to
these options. Expense for the year ended December 31, 2006
was $1.3 million.
CF-34
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of option activity from January 1, 2005 through
December 31, 2007 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Term
|
|
|
Value As of
|
|
|
|
Options
|
|
|
Price
|
|
|
(Years)
|
|
|
12/31/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
Options outstanding January 1, 2005
|
|
|
6,906,406
|
|
|
$
|
4.59
|
|
|
|
9.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,215,311
|
|
|
|
10.74
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(168,859
|
)
|
|
|
6.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding December 31, 2005
|
|
|
7,952,858
|
|
|
|
5.58
|
|
|
|
8.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,942,304
|
|
|
|
16.95
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(568,048
|
)
|
|
|
10.84
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(56,709
|
)
|
|
|
4.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding December 31, 2006
|
|
|
11,270,405
|
|
|
|
9.30
|
|
|
|
8.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
7,014,662
|
|
|
|
23.72
|
|
|
|
|
|
|
|
|
|
SARS converted to options
|
|
|
106,302
|
|
|
|
17.64
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(1,328,100
|
)
|
|
|
20.32
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(720,315
|
)
|
|
|
6.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding December 31, 2007
|
|
|
16,342,954
|
|
|
$
|
14.83
|
|
|
|
7.8
|
|
|
$
|
55.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable outstanding December 31, 2007
|
|
|
6,261,909
|
|
|
$
|
6.85
|
|
|
|
6.4
|
|
|
$
|
46.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest December 31, 2007
|
|
|
14,656,393
|
|
|
$
|
14.15
|
|
|
|
7.6
|
|
|
$
|
54.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of options exercised during the year ended
December 31, 2007, was $11.0 million as compared to
$760,000 during the year ended December 31, 2006. The
intrinsic value is calculated as the difference between the
estimated fair value of the Companys common stock at
December 31, 2007 or on the date of exercise and the
exercise price of the stock options on the date of grant.
CF-35
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Information regarding stock options outstanding and exercisable
as of December 31, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Life
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Remaining
|
|
|
Exercise
|
|
|
Number of
|
|
|
Exercise
|
|
Exercise Price
|
|
Options
|
|
|
(Years)
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
$2.25
|
|
|
312,498
|
|
|
|
5.9
|
|
|
$
|
2.25
|
|
|
|
312,498
|
|
|
$
|
2.25
|
|
$3.00
|
|
|
1,865,112
|
|
|
|
4.9
|
|
|
|
3.00
|
|
|
|
1,760,359
|
|
|
|
3.00
|
|
$6.00
|
|
|
4,019,909
|
|
|
|
6.8
|
|
|
|
6.00
|
|
|
|
3,006,050
|
|
|
|
6.00
|
|
$12.00 $15.00
|
|
|
1,726,315
|
|
|
|
7.5
|
|
|
|
14.28
|
|
|
|
609,430
|
|
|
|
14.02
|
|
$16.02
|
|
|
311,000
|
|
|
|
9.9
|
|
|
|
16.02
|
|
|
|
|
|
|
|
|
|
$18.00
|
|
|
2,237,341
|
|
|
|
8.4
|
|
|
|
18.00
|
|
|
|
568,616
|
|
|
|
18.00
|
|
$20.16
|
|
|
122,000
|
|
|
|
9.8
|
|
|
|
20.16
|
|
|
|
|
|
|
|
|
|
$23.30
|
|
|
2,093,300
|
|
|
|
9.4
|
|
|
|
23.30
|
|
|
|
|
|
|
|
|
|
$23.52
|
|
|
808,164
|
|
|
|
9.3
|
|
|
|
24.24
|
|
|
|
4,956
|
|
|
|
24.00
|
|
$25.00 $25.33
|
|
|
2,847,315
|
|
|
|
8.8
|
|
|
|
25.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
16,342,954
|
|
|
|
7.8
|
|
|
$
|
14.83
|
|
|
|
6,261,909
|
|
|
$
|
6.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model using the
following assumptions for the years ended December 31,
2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
Employee
|
|
Non-Employee
|
|
|
2007
|
|
2006
|
|
2005
|
|
Expected volatility
|
|
57.07% - 64.68%
|
|
66.15% - 78.62%
|
|
80.31%
|
Expected dividend yield
|
|
|
|
|
|
|
Contractual life (in years)
|
|
6.25
|
|
6.25
|
|
10
|
Risk-free interest rate
|
|
4.26% - 5.00%
|
|
4.45% - 4.92%
|
|
4.20% - 4.23%
|
Weighted average fair value per option at grant date
|
|
$14.59
|
|
$11.53
|
|
$15.36
|
During the third and fourth quarters of 2007, an estimate of
7.5% was used for the annual forfeiture rate based on the
Companys historical experience since inception. Prior to
third quarter 2007, the estimated annual forfeiture rate was
6.4%. During the year ended 2006, an estimate of 3% was used for
the annual forfeiture rate.
Expense recorded related to stock options in the year ended
December 31, 2007 was $40.1 million compared to
$11.8 million for the year ended December 31, 2006.
The total unrecognized share-based compensation costs related to
non-vested stock options outstanding at December 31, 2007
was $77.8 million and is expected to be recognized over a
weighted average period of approximately 2 years.
Restricted
Stock Awards
In the year ended December 31, 2007 and 2006, the Company
issued 33,333 shares and 83,333 shares of restricted
stock, respectively, with a weighted average grant date fair
value of $25.00 and $15.00, respectively, to certain senior
officers which vest in equal annual installments over a two-year
period. The Company also agreed to reimburse the officers for
the personal income tax liability associated with the restricted
stock. Compensation expense related to these restricted stock
grants was $750,000, $1.0 million and $1.0 million for
the years ended December 31, 2007, 2006 and 2005,
respectively.
CF-36
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of the restricted stock activity for the year ended
December 31, 2006 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Grant-Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Restricted stock outstanding January 1, 2005
|
|
|
333,333
|
|
|
$
|
6.00
|
|
Granted
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock outstanding December 31, 2005
|
|
|
333,333
|
|
|
|
6.00
|
|
Granted
|
|
|
83,333
|
|
|
|
15.00
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock outstanding December 31, 2006
|
|
|
416,666
|
|
|
|
7.80
|
|
Granted
|
|
|
33,333
|
|
|
|
25.00
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock outstanding December 31, 2007
|
|
|
449,999
|
|
|
$
|
9.07
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, the number of restricted shares
outstanding was 449,999 shares and there was $543,000 of
total unrecognized compensation cost related to the unvested
restricted stock, which is expected to be recognized over a
weighted-average period of approximately 1 year. During the
year ended December 31, 2007, 41,667 restricted shares
vested, with a fair value of approximately $625,000.
Restricted
Stock Units
During the year ended December 31, 2007, the Company
granted 400,000 restricted stock units to certain officers and
employees under the 2007 Plan. All restricted stock units vest
over a four-year period. Under SFAS 123(R), the fair value
of the Companys restricted stock units is based on the
grant-date fair market value of the common stock, which equals
the grant date market price.
A summary of the restricted stock unit activity for the year
ended December 31, 2007 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Grant-Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Restricted stock units outstanding January 1,
2007
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
400,000
|
|
|
|
23.30
|
|
Forfeited
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units outstanding December 31,
2007
|
|
|
395,000
|
|
|
$
|
23.30
|
|
|
|
|
|
|
|
|
|
|
The total fair value of grants during 2007 was
$9.3 million. Compensation expense related to the
restricted stock units during the year ended December 31,
2007 was $1.1 million, net of forfeitures. As of
December 31, 2007, there were 395,000 units
outstanding and total unrecognized compensation cost of
$8.0 million, which is expected to be recognized over a
weighted-average period of approximately two years. At
December 31, 2007, none of these units were vested.
SAR
Plan
The SAR Plan was adopted in January 2006 and provides for the
granting of up to 166,666 stock appreciation rights. The stock
appreciation rights generally vest ratably over four years and
expire no later than ten years after the date of grant. The SAR
Plan allows holders of these rights to share in the appreciation
CF-37
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of the fair value of the Companys Class A common
stock. Settlement of these rights will be in cash, but these
rights may be replaced at the Companys discretion with an
equivalent number of nonqualified options.
The Company accounts for the SAR Plan grants under
SFAS No. 123(R) and records these grants as liability
awards, as settlement is anticipated to be in cash. The SARs are
remeasured at fair value each reporting period until the awards
are settled in accordance with SFAS No. 123(R). The
fair value is determined in the same manner as a stock option
granted under the Stock Option Plan using the same assumptions
and option-pricing model to estimate the fair value.
Compensation expense for each period until settlement is based
on the change (or a portion of the change, depending on the
percentage of the requisite service that has been rendered at
the reporting date) in the fair value for each reporting period.
During the year ended December 31, 2007, no SARs were
granted, 39,652 SARs were forfeited and 600 were exercised. For
the year ended December 31, 2006, 167,685 SARs were granted
between $15.00 and $18.00 and 21,131 were forfeited. The Company
recorded $398,000 and $178,000, net of forfeitures, of
share-based compensation expense for SARs grants for the years
ended December 31, 2007 and 2006, respectively.
As of October 1, 2007, all outstanding SARs were converted
to non-qualified stock options under the 2007 Plan. The SARs
were converted to options at the fourth quarter remeasured fair
value.
Warrants
During the year ended December 31, 2007, the Company issued
1,407,139 warrants at a weighted average exercise price of
$37.99 to purchase the Companys Class A common stock
in connection with the acquisition of spectrum or assets. At
December 31, 2007 there were 17,806,220 warrants
outstanding and exercisable with a weighted average exercise
price of $16.57.
A summary of warrant activity from January 1, 2005 to
December 31, 2007 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Term
|
|
|
|
Warrants
|
|
|
Price
|
|
|
(Years)
|
|
|
Warrants outstanding January 1, 2005
|
|
|
1,099,508
|
|
|
$
|
7.80
|
|
|
|
8.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
7,811,105
|
|
|
|
13.74
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding December 31, 2005
|
|
|
8,910,613
|
|
|
|
13.02
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
9,892,022
|
|
|
|
14.94
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding December 31, 2006
|
|
|
18,802,635
|
|
|
|
14.02
|
|
|
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,407,139
|
|
|
|
37.99
|
|
|
|
|
|
Exercised
|
|
|
(1,882,887
|
)
|
|
|
7.59
|
|
|
|
|
|
Cancelled
|
|
|
(520,667
|
)
|
|
|
15.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding December 31, 2007
|
|
|
17,806,220
|
|
|
$
|
16.57
|
|
|
|
3.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable outstanding December 31, 2007
|
|
|
17,806,220
|
|
|
$
|
16.57
|
|
|
|
3.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CF-38
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair value of warrants granted is estimated on the date of
grant using the Black-Scholes option pricing model using the
following average assumptions for the years ended
December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2007
|
|
2006
|
|
2005
|
|
Expected volatility
|
|
64.68% - 88.54%
|
|
73.76% - 88.54%
|
|
78.62% - 80.31%
|
Expected dividend yield
|
|
|
|
|
|
|
Contractual life (in years)
|
|
5-10
|
|
5-10
|
|
6
|
Risk-free interest rate
|
|
3.05% - 4.81%
|
|
3.05% - 5.16%
|
|
3.89% - 4.61%
|
Weighted average fair value per warrant at issuance date
|
|
$12.07
|
|
$9.84
|
|
$12.27
|
Basic and diluted loss per share has been calculated in
accordance with SFAS No. 128 for the years ended
December 31, 2007, 2006 and 2005. As the Company had a net
loss in each of the periods presented, basic and diluted net
loss per common share are the same.
The computations of diluted loss per share for the years ended
December 31, 2007, 2006 and 2005, did not include the
effects of the following options, shares of nonvested restricted
stock, restricted stock units and warrants as the inclusion of
these securities would have been antidilutive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Stock options
|
|
|
14,249,467
|
|
|
|
11,270,405
|
|
|
|
7,952,858
|
|
Nonvested restricted stock
|
|
|
62,877
|
|
|
|
83,333
|
|
|
|
166,666
|
|
Restricted Stock Units
|
|
|
101,247
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
18,064,035
|
|
|
|
18,802,635
|
|
|
|
8,910,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,477,626
|
|
|
|
30,156,373
|
|
|
|
17,030,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss consists of two components, net loss and
other comprehensive loss. Other comprehensive income refers to
revenue, expenses, gains and losses that under generally
accepted accounting principles are recorded as an element of
stockholders equity but are excluded from net loss. The
Companys other comprehensive income is comprised of
foreign currency translation adjustments from the Companys
subsidiaries not using the U.S. dollar as their functional
currency and unrealized gains and losses on marketable
securities categorized as available-for-sale.
Total comprehensive loss was $717.1 million,
$276.7 million, and $140.7 million for the years ended
December 31, 2007, 2006 and 2005, respectively. The primary
differences between net loss as reported and comprehensive loss
are foreign currency translation adjustments and net unrealized
losses from available-for-sale investments.
CF-39
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of accumulated other comprehensive income were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Net unrealized loss on available-for-sale investments
|
|
$
|
(7,292
|
)
|
|
$
|
(74
|
)
|
Cumulative foreign currency translation adjustment
|
|
|
24,625
|
|
|
|
7,064
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income
|
|
$
|
17,333
|
|
|
$
|
6,990
|
|
|
|
|
|
|
|
|
|
|
The Company complies with the requirements of
SFAS No. 131, which establishes annual and interim
reporting standards for an enterprises operating segments
and related disclosures about its products, services, geographic
areas and major customers. Operating segments are defined as
components of an enterprise for which separate financial
information is available that is evaluated regularly by the
chief operating decision makers in deciding how to allocate
resources and in assessing performance. Operating segments can
be aggregated for segment reporting purposes so long as certain
aggregation criteria are met. The Company defines the chief
operating decision makers as its Chief Executive Officer, Chief
Operating Officer and the Chief Financial Officer. As our
business continues to mature, the Company assesses how it views
and operates the business. As a result, in the fourth quarter of
2007, the Company was organized into two reportable business
segments: the United States business and the International
business.
CF-40
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company reports business segment information as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
United States
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
122,906
|
|
|
$
|
83,401
|
|
|
$
|
32,025
|
|
Cost of goods and services (exclusive of items shown separately
below)
|
|
|
94,541
|
|
|
|
61,145
|
|
|
|
22,165
|
|
Operating expenses
|
|
|
389,227
|
|
|
|
183,029
|
|
|
|
108,328
|
|
Depreciation and amortization
|
|
|
69,095
|
|
|
|
35,083
|
|
|
|
10,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
552,863
|
|
|
|
279,257
|
|
|
|
141,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(429,957
|
)
|
|
|
(195,856
|
)
|
|
|
(109,109
|
)
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
28,534
|
|
|
|
16,780
|
|
|
|
1,429
|
|
Cost of goods and services (exclusive of items shown separately
below)
|
|
|
12,740
|
|
|
|
8,967
|
|
|
|
1,404
|
|
Operating expenses
|
|
|
69,253
|
|
|
|
44,253
|
|
|
|
16,878
|
|
Depreciation and amortization
|
|
|
15,599
|
|
|
|
5,819
|
|
|
|
1,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
97,592
|
|
|
|
59,039
|
|
|
|
19,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(69,058
|
)
|
|
|
(42,259
|
)
|
|
|
(18,125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating loss
|
|
|
(499,015
|
)
|
|
|
(238,115
|
)
|
|
|
(127,234
|
)
|
Other income (expense)
|
|
|
(222,592
|
)
|
|
|
(39,466
|
)
|
|
|
(7,698
|
)
|
Income tax provision
|
|
|
(5,427
|
)
|
|
|
(2,981
|
)
|
|
|
(1,459
|
)
|
Minority interest in net loss of consolidated subsidiaries
|
|
|
4,244
|
|
|
|
1,503
|
|
|
|
387
|
|
Losses from equity investees
|
|
|
(4,676
|
)
|
|
|
(5,144
|
)
|
|
|
(3,946
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(727,466
|
)
|
|
$
|
(284,203
|
)
|
|
$
|
(139,950
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
320,134
|
|
|
$
|
168,607
|
|
|
$
|
123,249
|
|
International
|
|
|
41,727
|
|
|
|
23,140
|
|
|
|
9,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
361,861
|
|
|
$
|
191,747
|
|
|
$
|
132,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Long-lived assets(a)
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,350,418
|
|
|
$
|
661,444
|
|
International
|
|
|
150,555
|
|
|
|
103,782
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,500,973
|
|
|
$
|
765,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Consists of property, plant and equipment and prepaid spectrum
and spectrum licenses attributable to the business segment. |
CF-41
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
17.
|
Related
Party Transactions
|
Clearwire has a number of strategic and commercial relationships
with third-parties that have had a significant impact on
Clearwires business, operations and financial results.
These relationships have been with Motorola, Intel, Hispanic
Information and Telecommunications Network, Inc.
(HITN), ISA, ISC and Bell, all of which are or have
been related parties.
Relationships among Certain Stockholders, Directors, and
Officers of Clearwire As of December 31,
2007, ERH is the holder of approximately 65% of Clearwires
outstanding Class B common stock and approximately 13% of
Clearwires outstanding Class A common stock. Eagle
River Inc. (ERI) is the manager of ERH. Each entity
is controlled by Craig McCaw. Mr. McCaw and his affiliates
have significant investments in other telecommunications
businesses, some of which may compete with Clearwire currently
or in the future. Mr. McCaw and his affiliates will likely
continue to make additional investments in telecommunications
businesses.
ERH also held 0% as of December 31, 2007 and 3.1% as of
December 31, 2006 of the Companys long-term debt as a
result of the retirement of all senior secured notes on
August 15, 2007 as described in Note 3. As of
December 31, 2006, the notes held by ERH had a
$23.0 million face value, or $19.3 million net of
discounts for warrants. As of December 31, 2007 and
December 31, 2006 ERH held a warrant entitling it to
purchase 613,333 shares of the Companys Class A
common stock. The exercise price of the warrant is
$15.00 per share. The Warrants expire in 2010.
In the years ended December 31, 2007, 2006 and 2005, ERH
earned interest relating to the notes in the amount of
$1.6 million, $4.1 million and $3.1 million,
respectively. ERH received payments in the amount of
$2.5 million and $3.8 million for accrued interest
during the years ended December 31, 2007 and 2006. During
the year ended December 31, 2005, there were no interest
payments made.
Certain officers and directors of Clearwire provide additional
services to ERH, ERI and their affiliates for which they are
separately compensated by such entities. Any compensation paid
to such individuals by ERH, ERI
and/or their
affiliates for their services is in addition to the compensation
paid by Clearwire.
Advisory Services Agreement Clearwire and ERI
were parties to an Advisory Services Agreement, dated
November 13, 2003 (the Advisory Services
Agreement). Under the Advisory Services Agreement, ERI
provided Clearwire with certain advisory and consulting
services, including without limitation, advice as to the
development, ownership and operation of communications services,
advice concerning long-range planning and strategy for the
development and growth of Clearwire, advice and support in
connection with its dealings with federal, state and local
regulatory authorities, advice regarding employment, retention
and compensation of employees and assistance in short-term and
long-term financial planning. The parties terminated this
agreement effective January 31, 2007.
In exchange for the services, Clearwire historically paid ERI an
annual advisory fee of $800,000 plus any out-of-pocket expenses
incurred by ERI. The annual advisory fee covered certain
overhead expenses incurred by ERI on behalf of Clearwire,
including expenses related to providing administrative support
and office space to Messrs. McCaw, the Companys
Chairman, and Wolff, the Companys Chief Executive Officer,
and compensation for services provided to Clearwire by certain
personnel of ERI. During the years ended December 31, 2007,
2006 and 2005, the Company paid ERI fees of $67,000, $800,000
and $800,000, respectively, and expense reimbursements of
$278,000, $949,000 and $296,000, respectively, under this
agreement. Beginning February 2007, Mr. McCaw has received
annual compensation directly from Clearwire in his capacity as
the Companys Chairman of $300,000 per year, plus expense
reimbursements.
Pursuant to the origination of the Advisory Services Agreement
in 2003, Clearwire also issued to ERH warrants to purchase
375,000 shares of the Companys Class A common
stock at an exercise price of
CF-42
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$3.00 per share, which may be exercised any time
within 10 years of the issuance of the warrants. As of
December 31, 2007, the remaining life of the warrant was
5.9 years.
Nextel Undertaking Clearwire and
Mr. McCaw entered into an agreement and undertaking in
November 2003, pursuant to which Clearwire agreed to comply with
the terms of a separate agreement between Mr. McCaw and
Nextel Communications, Inc. (Nextel), so long as the
Company was a controlled affiliate of Mr. McCaw
as defined therein, certain terms of which were effective until
October 2006. Under the agreement with Mr. McCaw, Nextel
had the right to swap certain channels of owned or leased
Broadband Radio Service (BRS) or Educational
Broadband Service (EBS) spectrum with entities
controlled by Mr. McCaw, including Clearwire. While the
agreement was still effective, Nextel notified the Company of
its request to swap certain channels, which is currently
pending. There were no payments made to Nextel under this
agreement in the year ended December 31, 2007.
Intel Collaboration Agreement On
June 28, 2006, Clearwire entered into a collaboration
agreement with Intel, to develop, deploy and market a co-branded
mobile WiMAX service offering in the United States, that will
target users of certain WiMAX enabled notebook computers,
ultramobile PCs, and other mobile computing devices containing
Intel microprocessors. Both parties have committed to make
certain contributions to the development, promotion and
marketing of this service, which will be available only over the
Companys mobile WiMAX network.
The Company and Intel have agreed to share the revenues received
from subscribers using Intel mobile computing devices on the
Companys domestic mobile WiMAX network. Intel will also
receive a one time fixed payment for each new Intel mobile
computing device activated on the Companys domestic mobile
WiMAX network once the Company has successfully achieved
substantial mobile WiMAX network coverage across the United
States. Through December 31, 2007, Clearwire has not been
required to make any payments to Intel under this agreement.
Motorola Agreements Simultaneously with the
sale of NextNet to Motorola, Clearwire and Motorola entered into
commercial agreements pursuant to which the Company agreed to
purchase certain infrastructure and supply inventory from
Motorola. Under these agreements, Clearwire is committed to
purchase no less than $150.0 million of network
infrastructure equipment, modems, PC cards and other products
from Motorola on or before August 29, 2008, subject to
Motorola continuing to satisfy certain performance requirements
and other conditions. The Company is also committed to purchase
certain types of network infrastructure products, modems and PC
cards it provides to its subscribers exclusively from Motorola
for a period of five years and, thereafter, 51% until the term
of the agreement is completed on August 29, 2014, as long
as certain conditions are satisfied. For the years ended
December 30, 2007 and 2006 total purchases from Motorola
under these agreements were $73.0 million and
$25.4 million, respectively. The remaining commitment was
$51.6 million at December 31, 2007.
HITN and its Affiliates During 2004, the
Company entered into two agreements with ITFS Spectrum Advisors,
LLC (ISA) and ITFS Spectrum Consultants LLS
(ISC). The founder and president of HITN was
formerly a member of Clearwires Board of Directors and is
an owner of ISA and ISC, which are also affiliates of HITN. The
agreements provided for payment to be provided to ISA and ISC in
the form of warrants to purchase additional shares of
Class A common stock in exchange for ISA and ISC providing
opportunities for Clearwire to purchase or lease additional
spectrum. Each of the agreements specifies a maximum
consideration available under the agreement and, in 2005, the
maximum consideration under the agreement with ISA was reached.
For the years ended December 31, 2007 and 2006, ISC earned
approximately $181,000 and $400,000, respectively. During 2007
and 2006, $181,000 and $65,000 was paid in cash, respectively,
and warrants to purchase 7,138 and 18,973 shares of
Class A common stock, valued at $116,000 and $196,000, were
issued,
CF-43
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
respectively. The maximum consideration under the agreement with
ISC was reached in 2007. As of December 31, 2007 there was
no payable remaining related to these agreements.
Agreements with Bell Canada In March 2005,
Bell, a Canadian telecommunications company which is a
subsidiary of BCE purchased 8,333,333 shares of
Clearwires Class A common stock for
$100.0 million. At the time of the investment, Bell and BCE
Nexxia, an affiliate of Bell, entered into a Master Supply
Agreement (Master Supply Agreement) dated
March 16, 2005 with Clearwire. Under the Master Supply
Agreement, Bell and BCE Nexxia provide or arrange for the
provision of hardware, software, procurement services,
management services and other components necessary for Clearwire
to provide VoIP services to their subscribers in the United
States and provide day-to-day management and operation of the
components and services necessary for Clearwire to provide these
VoIP services. Clearwire will pay to Bell Canada or BCE Nexxia a
flat fee for each new subscriber of its VoIP telephony services.
Clearwire has agreed to use Bell Canada and BCE Nexxia
exclusively to provide such service unless such agreement
violates the rights of third parties under its existing
agreements. Total fees paid for new subscribers under the Master
Supply Agreement were $112,000, $0 and $0 for the years ended
December 31, 2007, 2006 and 2005, respectively. Amounts
paid for supplies, equipment and other services purchased
through Bell Canada or BCE were $6.0 million,
$7.5 million and $15.4 million for the years ended
December 31, 2007, 2006 and 2005, respectively. The Master
Supply Agreement can be terminated for convenience on twelve
months notice by either party at any time beginning on or after
October 1, 2007. On October 29, 2007, the Company
delivered a notice of termination of the Master Supply Agreement
to BCE Nexxia and the agreement should terminate on
October 29, 2008 unless it is extended by the parties.
As required under the Master Supply Agreement with Bell and BCE
Nexxia and in order to assist funding capital expenses and
start-up
costs associated with the deployment of VoIP services, BCE
agreed to make available to Clearwire financing in the amount of
$10.0 million. BCE funded the entire amount on June 7,
2006. The loan is secured by a security interest in the
telecommunications equipment and property related to VoIP and
bears interest at 7.00% per annum and is due and payable in full
on July 19, 2008.
CF-44
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
18.
|
Quarterly
Financial Information (unaudited)
|
Summarized quarterly financial information for the years ended
December 31, 2007 and 2006 is as follows (in thousands,
except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Year Ended
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter(2)
|
|
|
Quarter
|
|
|
December 31,
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
29,275
|
|
|
$
|
35,484
|
|
|
$
|
41,297
|
|
|
$
|
45,384
|
|
|
$
|
151,440
|
|
Gross profit(1)
|
|
|
12,540
|
|
|
|
12,171
|
|
|
|
12,029
|
|
|
|
7,419
|
|
|
|
44,159
|
|
Operating loss
|
|
|
(86,189
|
)
|
|
|
(110,319
|
)
|
|
|
(142,526
|
)
|
|
|
(159,981
|
)
|
|
|
(499,015
|
)
|
Net loss
|
|
|
(92,635
|
)
|
|
|
(118,085
|
)
|
|
|
(328,637
|
)
|
|
|
(188,109
|
)
|
|
|
(727,466
|
)
|
Net loss per common share, basic and diluted
|
|
$
|
(0.64
|
)
|
|
$
|
(0.72
|
)
|
|
$
|
(2.01
|
)
|
|
$
|
(1.15
|
)
|
|
$
|
(4.58
|
)
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
22,748
|
|
|
$
|
26,791
|
|
|
$
|
26,899
|
|
|
$
|
23,743
|
|
|
$
|
100,181
|
|
Gross profit(1)
|
|
|
8,886
|
|
|
|
5,683
|
|
|
|
8,196
|
|
|
|
7,304
|
|
|
|
30,069
|
|
Operating loss
|
|
|
(45,150
|
)
|
|
|
(61,336
|
)
|
|
|
(42,979
|
)
|
|
|
(88,650
|
)
|
|
|
(238,115
|
)
|
Net loss
|
|
|
(55,279
|
)
|
|
|
(76,809
|
)
|
|
|
(59,763
|
)
|
|
|
(92,352
|
)
|
|
|
(284,203
|
)
|
Net loss per common share, basic and diluted
|
|
$
|
(0.73
|
)
|
|
$
|
(1.01
|
)
|
|
$
|
(0.61
|
)
|
|
$
|
(0.67
|
)
|
|
$
|
(2.93
|
)
|
|
|
|
(1) |
|
Gross profit excludes a portion of depreciation and amortization
included in operating loss. |
|
|
|
(2) |
|
In connection with the retirement of the $620.7 million
senior secured notes due 2010 and the repayment of the
$125.0 million term loan, the Company recorded a
$159.2 million loss on extinguishment of debt, which was
primarily due to the
write-off of
the unamortized portion of the proceeds allocated to the
warrants originally issued in connection with the senior secured
notes and the related deferred financing costs. |
Interest
Rate Swaps
In January 2008, the Company entered into two interest rate
swaps to hedge its forward three-month LIBOR indexed variable
interest payments in an effort to reduce interest expense. The
first swap was entered on January 4, 2008, effective
March 5, 2008, to pay a fixed rate of 3.6225% and to
receive the three-month LIBOR on a notional value of
$300.0 million for three years. The second swap was entered
on January 7, 2008, effective March 5, 2008, to pay a
fixed rate of 3.5% and to receive the three-month LIBOR on a
notional value of $300.0 million for two years. In
accordance with SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities
(SFAS No. 133), its amendments and
related guidance, the Company will treat the interest rate swaps
as cash-flow hedges and will record the fair value
of the swaps at the end of each calendar quarter, starting
March 31, 2008.
CF-45
CLEARWIRE
CORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In thousands, except share and per share data)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
349,350
|
|
|
$
|
876,752
|
|
Short-term investments
|
|
|
178,737
|
|
|
|
67,012
|
|
Restricted cash
|
|
|
1,183
|
|
|
|
1,077
|
|
Accounts receivable, net of allowance of $1,234 and $787
|
|
|
4,818
|
|
|
|
3,677
|
|
Notes receivable, short-term
|
|
|
1,500
|
|
|
|
2,134
|
|
Inventory
|
|
|
3,258
|
|
|
|
2,312
|
|
Prepaids and other assets
|
|
|
32,117
|
|
|
|
36,748
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
570,963
|
|
|
|
989,712
|
|
Property, plant and equipment, net
|
|
|
632,766
|
|
|
|
572,329
|
|
Restricted cash
|
|
|
9,595
|
|
|
|
11,603
|
|
Long-term investments
|
|
|
64,766
|
|
|
|
88,632
|
|
Notes receivable, long-term
|
|
|
5,214
|
|
|
|
4,700
|
|
Prepaid spectrum license fees
|
|
|
519,201
|
|
|
|
457,741
|
|
Spectrum licenses and other intangible assets, net
|
|
|
495,894
|
|
|
|
480,003
|
|
Goodwill
|
|
|
38,763
|
|
|
|
35,666
|
|
Investments in equity investees
|
|
|
12,288
|
|
|
|
14,602
|
|
Other assets
|
|
|
29,239
|
|
|
|
30,981
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
2,378,689
|
|
|
$
|
2,685,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
101,359
|
|
|
$
|
102,449
|
|
Deferred rent-current
|
|
|
606
|
|
|
|
24,805
|
|
Deferred revenue
|
|
|
11,985
|
|
|
|
10,010
|
|
Current portion of long-term debt
|
|
|
22,500
|
|
|
|
22,500
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
136,450
|
|
|
|
159,764
|
|
Long-term debt
|
|
|
1,228,125
|
|
|
|
1,234,375
|
|
Deferred tax liabilities
|
|
|
45,986
|
|
|
|
43,107
|
|
Other long-term liabilities
|
|
|
124,511
|
|
|
|
71,385
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,535,072
|
|
|
|
1,508,631
|
|
MINORITY INTEREST
|
|
|
11,499
|
|
|
|
13,506
|
|
COMMITMENTS AND CONTINGENCIES (NOTE 11)
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.0001, 5,000,000 shares
authorized; no shares issued or outstanding
|
|
|
|
|
|
|
|
|
Common stock, par value $0.0001, and additional paid-in capital,
350,000,000 shares authorized; Class A, 135,676,636
and 135,567,269 shares issued and outstanding
|
|
|
2,122,660
|
|
|
|
2,098,155
|
|
Class B, 28,596,685 shares issued and outstanding
|
|
|
234,376
|
|
|
|
234,376
|
|
Accumulated other comprehensive income, net
|
|
|
36,557
|
|
|
|
17,333
|
|
Accumulated deficit
|
|
|
(1,561,475
|
)
|
|
|
(1,186,032
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
832,118
|
|
|
|
1,163,832
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
2,378,689
|
|
|
$
|
2,685,969
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to Unaudited Condensed Consolidated
Financial Statements.
CF-46
CLEARWIRE
CORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except per share data)
|
|
|
REVENUES
|
|
$
|
58,563
|
|
|
$
|
35,484
|
|
|
$
|
110,091
|
|
|
$
|
64,759
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods and services (exclusive of a portion of
depreciation and amortization shown below)
|
|
|
42,193
|
|
|
|
23,313
|
|
|
|
80,367
|
|
|
|
40,048
|
|
Selling, general and administrative expense
|
|
|
94,769
|
|
|
|
87,375
|
|
|
|
193,878
|
|
|
|
156,032
|
|
Transaction related expenses
|
|
|
10,224
|
|
|
|
|
|
|
|
10,224
|
|
|
|
|
|
Research and development
|
|
|
593
|
|
|
|
578
|
|
|
|
1,030
|
|
|
|
1,023
|
|
Depreciation and amortization
|
|
|
28,901
|
|
|
|
19,714
|
|
|
|
56,986
|
|
|
|
35,899
|
|
Spectrum lease expense
|
|
|
28,522
|
|
|
|
14,823
|
|
|
|
64,207
|
|
|
|
28,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
205,202
|
|
|
|
145,803
|
|
|
|
406,692
|
|
|
|
261,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING LOSS
|
|
|
(146,639
|
)
|
|
|
(110,319
|
)
|
|
|
(296,601
|
)
|
|
|
(196,508
|
)
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
3,829
|
|
|
|
18,820
|
|
|
|
12,298
|
|
|
|
35,410
|
|
Interest expense
|
|
|
(25,711
|
)
|
|
|
(23,511
|
)
|
|
|
(54,305
|
)
|
|
|
(47,729
|
)
|
Foreign currency gains (losses), net
|
|
|
166
|
|
|
|
(101
|
)
|
|
|
691
|
|
|
|
(68
|
)
|
Other-than-temporary impairment loss and realized loss on
investments
|
|
|
(27,918
|
)
|
|
|
|
|
|
|
(32,767
|
)
|
|
|
|
|
Other income (expense), net
|
|
|
(866
|
)
|
|
|
(734
|
)
|
|
|
(1,209
|
)
|
|
|
1,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(50,500
|
)
|
|
|
(5,526
|
)
|
|
|
(75,292
|
)
|
|
|
(10,643
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES, MINORITY INTEREST AND LOSSES FROM
EQUITY INVESTEES
|
|
|
(197,139
|
)
|
|
|
(115,845
|
)
|
|
|
(371,893
|
)
|
|
|
(207,151
|
)
|
Income tax provision
|
|
|
(1,668
|
)
|
|
|
(2,126
|
)
|
|
|
(3,584
|
)
|
|
|
(2,729
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE MINORITY INTEREST AND LOSSES FROM EQUITY INVESTEES
|
|
|
(198,807
|
)
|
|
|
(117,971
|
)
|
|
|
(375,477
|
)
|
|
|
(209,880
|
)
|
Minority interest in net loss of consolidated subsidiaries
|
|
|
1,108
|
|
|
|
1,075
|
|
|
|
2,345
|
|
|
|
1,967
|
|
Losses from equity investees
|
|
|
(1,355
|
)
|
|
|
(1,189
|
)
|
|
|
(2,311
|
)
|
|
|
(2,807
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(199,054
|
)
|
|
$
|
(118,085
|
)
|
|
$
|
(375,443
|
)
|
|
$
|
(210,720
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share, basic and diluted
|
|
$
|
(1.21
|
)
|
|
$
|
(0.72
|
)
|
|
$
|
(2.29
|
)
|
|
$
|
(1.37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic and diluted
|
|
|
164,129
|
|
|
|
163,276
|
|
|
|
164,096
|
|
|
|
153,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to Unaudited Condensed Consolidated
Financial Statements.
CF-47
CLEARWIRE
CORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(375,443
|
)
|
|
$
|
(210,720
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Provision for uncollectible accounts
|
|
|
2,968
|
|
|
|
2,120
|
|
Depreciation and amortization
|
|
|
56,985
|
|
|
|
35,899
|
|
Amortization of prepaid spectrum license fees
|
|
|
21,117
|
|
|
|
5,347
|
|
Amortization of deferred financing costs and accretion of debt
discount
|
|
|
3,186
|
|
|
|
14,409
|
|
Share-based compensation
|
|
|
23,744
|
|
|
|
18,202
|
|
Other-than-temporary impairment loss on investments
|
|
|
32,767
|
|
|
|
|
|
Deferred income taxes
|
|
|
3,582
|
|
|
|
2,702
|
|
Non-cash interest on swaps
|
|
|
1,208
|
|
|
|
|
|
Minority interest
|
|
|
(2,345
|
)
|
|
|
(1,967
|
)
|
Losses from equity investees, net
|
|
|
1,719
|
|
|
|
2,807
|
|
Loss (gain) on other asset disposals
|
|
|
5,556
|
|
|
|
(5
|
)
|
Impairment of equity investment
|
|
|
1,397
|
|
|
|
|
|
Gain on sale of equity investment
|
|
|
|
|
|
|
(2,213
|
)
|
Changes in assets and liabilities, net:
|
|
|
|
|
|
|
|
|
Prepaid spectrum license fees
|
|
|
(79,819
|
)
|
|
|
(172,272
|
)
|
Inventory
|
|
|
(1,144
|
)
|
|
|
(273
|
)
|
Accounts receivable
|
|
|
(3,945
|
)
|
|
|
(2,609
|
)
|
Prepaids and other assets
|
|
|
(5,956
|
)
|
|
|
(12,262
|
)
|
Accounts payable
|
|
|
(1,111
|
)
|
|
|
20,864
|
|
Accrued expenses and other liabilities
|
|
|
34,289
|
|
|
|
19,332
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(281,245
|
)
|
|
|
(280,639
|
)
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(115,390
|
)
|
|
|
(164,604
|
)
|
Payments for acquisitions of spectrum licenses and other
|
|
|
(13,719
|
)
|
|
|
(194,830
|
)
|
Purchases of available-for-sale investments
|
|
|
(248,792
|
)
|
|
|
(1,064,121
|
)
|
Sales or maturities of available-for-sale investments
|
|
|
137,007
|
|
|
|
1,051,358
|
|
Investments in equity investees
|
|
|
(760
|
)
|
|
|
(5,293
|
)
|
Restricted cash
|
|
|
1,902
|
|
|
|
(975
|
)
|
Restricted investments
|
|
|
|
|
|
|
33,729
|
|
Business acquisitions, net of cash acquired
|
|
|
|
|
|
|
(7,067
|
)
|
Proceeds from sale of equity investment and other assets
|
|
|
|
|
|
|
2,250
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(239,752
|
)
|
|
|
(349,553
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock for IPO and other, net
|
|
|
|
|
|
|
556,005
|
|
Proceeds from issuance of common stock for option and warrant
exercises
|
|
|
785
|
|
|
|
2,182
|
|
Principal payments on long-term debt
|
|
|
(6,250
|
)
|
|
|
(937
|
)
|
Contributions from minority interests
|
|
|
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(5,465
|
)
|
|
|
572,250
|
|
Effect of foreign currency exchange rates on cash and cash
equivalents
|
|
|
(940
|
)
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(527,402
|
)
|
|
|
(57,992
|
)
|
CASH AND CASH EQUIVALENTS:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
876,752
|
|
|
|
438,030
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
349,350
|
|
|
$
|
380,038
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW DISCLOSURES:
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
|
|
|
$
|
26
|
|
Cash paid for interest
|
|
|
61,082
|
|
|
|
42,961
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Common stock and warrants issued for spectrum licenses
|
|
$
|
|
|
|
$
|
21,379
|
|
Common stock and warrants issued for business acquisitions
|
|
|
|
|
|
|
15
|
|
Cashless option exercises
|
|
|
|
|
|
|
503
|
|
Fixed asset purchases in accounts payable
|
|
|
1,376
|
|
|
|
6,930
|
|
Non-cash dividends to related party
|
|
|
|
|
|
|
1,063
|
|
See accompanying notes to Unaudited Condensed Consolidated
Financial Statements.
CF-48
CLEARWIRE
CORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common Stock, Warrants and
|
|
|
Common Stock and
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Additional Paid in Capital
|
|
|
Additional Paid in Capital
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amounts
|
|
|
Shares
|
|
|
Amounts
|
|
|
Income
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Balances at January 1, 2008
|
|
|
135,567
|
|
|
$
|
2,098,155
|
|
|
|
28,597
|
|
|
$
|
234,376
|
|
|
$
|
17,333
|
|
|
$
|
(1,186,032
|
)
|
|
$
|
1,163,832
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(375,443
|
)
|
|
|
(375,443
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,559
|
|
|
|
|
|
|
|
12,559
|
|
Unrealized loss on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,431
|
)
|
|
|
|
|
|
|
(25,431
|
)
|
Reclassification adjustment for other-than- temporary impairment
loss on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,767
|
|
|
|
|
|
|
|
32,767
|
|
Unrealized loss on hedge activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(671
|
)
|
|
|
|
|
|
|
(671
|
)
|
Options and warrants exercised
|
|
|
110
|
|
|
|
785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
785
|
|
Share-based compensation
|
|
|
|
|
|
|
23,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2008
|
|
|
135,677
|
|
|
$
|
2,122,660
|
|
|
|
28,597
|
|
|
$
|
234,376
|
|
|
$
|
36,557
|
|
|
$
|
(1,561,475
|
)
|
|
$
|
832,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to Unaudited Condensed Consolidated
Financial Statements.
CF-49
CLEARWIRE
CORPORATION AND SUBSIDIARIES
|
|
1.
|
Description
of Business and Basis of Presentation
|
The
Business
The condensed consolidated financial statements include the
accounts of Clearwire Corporation, a Delaware corporation, and
our wholly-owned and majority-owned or controlled subsidiaries
(collectively Clearwire). We were formed on
October 27, 2003. We are an international provider of high
speed wireless broadband services to individuals, small
businesses, and others in a number of markets through our
advanced network. As of June 30, 2008, we offered our
services in 46 markets throughout the United States and four
markets internationally.
Business
Segments
We comply with the requirements of Statement of Financial
Accounting Standards (SFAS) No. 131,
Disclosures about Segments of an Enterprise and Related
Information (SFAS No. 131), which
establishes annual and interim reporting standards for an
enterprises operating segments and related disclosures
about its products, services, geographic areas and major
customers. Operating segments are defined as components of an
enterprise for which separate financial information is available
that is evaluated regularly by the chief operating decision
makers in deciding how to allocate resources and in assessing
performance. Operating segments can be aggregated for segment
reporting purposes so long as certain aggregation criteria are
met. We define the chief operating decision makers as our Chief
Executive Officer, Chief Operating Officer and
Chief Financial Officer. See Note 15, Business
Segments, for additional discussion.
Basis
of Presentation
The accompanying condensed consolidated financial statements
have been prepared in accordance with accounting principles
generally accepted in the United States of America
(U.S. GAAP) and pursuant to the rules and
regulations of the Securities and Exchange Commission (the
SEC). Certain information and note disclosures
normally included in annual financial statements have been
condensed or omitted for interim financial information in
accordance with the instructions to
Form 10-Q
and
Rule 10-01
of
Regulation S-X.
These unaudited condensed consolidated financial statements
should be read in conjunction with the financial statements
contained in our Annual Report on
Form 10-K
for the year ended December 31, 2007
(Form 10-K).
In the opinion of management, these unaudited condensed
consolidated financial statements reflect all adjustments,
consisting of normal and recurring adjustments and accruals,
necessary for a fair presentation of our financial condition,
results of operations and cash flows for the periods presented.
Principles of Consolidation The condensed
consolidated financial statements include all of the assets,
liabilities and results of operations of our wholly-owned and
majority-owned or controlled subsidiaries. Investments in
entities that we do not control, but for which we have the
ability to exercise significant influence over operating and
financial policies, are accounted for under the equity method.
All intercompany transactions are eliminated in consolidation.
Use of Estimates The preparation of financial
statements in conformity with U.S. GAAP 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. The estimates are based on historical
experience, current conditions and various other assumptions
believed to be reasonable under the circumstances. The estimates
form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources, as well as identifying and assessing appropriate
accrual and disclosure treatment with respect to commitments and
contingencies. Actual results may differ materially from these
estimates. To
CF-50
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the extent that there are material differences between these
estimates and actual results, the presentation of the financial
condition or results of operations may be affected.
Significant estimates inherent in the preparation of the
accompanying financial statements include the valuation of
investments, the valuation of derivative instruments, allowance
for doubtful accounts, depreciation, long-lived assets, goodwill
and intangible assets, including spectrum, share-based
compensation, and our deferred tax asset valuation allowance.
|
|
2.
|
Significant
Accounting Policies
|
Significant Accounting Policies Other than
the adoption of SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities
(SFAS No. 133) and
SFAS No. 157, Fair Value Measurements
(SFAS No. 157), discussed below, there
have been no significant changes in our significant accounting
policies during the six months ended June 30, 2008 as
compared to the significant accounting policies described in our
Annual Report on
Form 10-K
for the year ended December 31, 2007.
Derivative
Instruments
During the first quarter of 2008 we adopted
SFAS No. 133 when we began hedging the LIBOR rate.
SFAS No. 133, as amended and interpreted, establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other
contracts, and for hedging activities. As required by
SFAS No. 133, we record all derivatives on the balance
sheet at fair value. The accounting for changes in the fair
value of derivatives depends on the intended use of the
derivative and the resulting designation. Derivatives used to
hedge the exposure to changes in the fair value of an asset,
liability, or firm commitment attributable to a particular risk,
such as interest rate risk, are considered fair value hedges.
Derivatives used to hedge the exposure to variability in
expected future cash flows, or other types of forecasted
transactions, are considered cash flow hedges. To qualify for
hedge accounting, we must comply with the detailed rules and
strict documentation requirements at the inception of the hedge,
and hedge effectiveness is assessed at inception and
periodically throughout the life of each hedging relationship.
Hedge ineffectiveness, if any, is also measured periodically
throughout the life of the hedging relationship.
In the normal course of business, we are exposed to the effect
of interest rate changes. We have limited our exposure by
adopting established risk management policies and procedures
including the use of derivatives. It is our policy that
derivative transactions are executed only to manage exposures
arising in the normal course of business and not for the purpose
of creating speculative positions or trading.
All derivatives are recorded at fair value on the balance sheet
as either assets or liabilities. Each derivative is designated
as either a cash flow hedge or a fair value hedge, or remains
undesignated. Currently, we only have derivatives that are
designated as cash flow hedges and which are effective. Changes
in the fair value of derivatives that are designated and
effective as cash flow hedges are recorded in other
comprehensive income and reclassified to the statement of
operations when the effects of the item being hedged are
recognized.
All designated hedges are formally documented as to the
relationship with the hedged item as well as the risk management
strategy. Both at inception and on an ongoing basis, the hedging
instrument is assessed as to its effectiveness. If and when a
derivative is determined not to be highly effective as a hedge,
or the underlying hedged transaction is no longer likely to
occur, or the derivative is terminated, any changes in the
derivatives fair value, that will not be effective as an
offset to the income effects of the item being hedged, will be
recognized currently in the statement of operations.
To determine the fair value of derivative instruments, we use a
method with various assumptions that are based on market
conditions and risks existing at each balance sheet date. For
the majority of financial instruments, including most
derivatives, standard market conventions and techniques such as
discounted cash flow analysis, option pricing models,
replacement cost and termination cost are used to determine fair
value.
CF-51
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
All methods of assessing fair value result in a general
approximation of value, and such value may never actually be
realized. See Note 9, Derivative Instruments and Hedging
Activities, for additional information regarding our derivative
transactions.
Financial
Instruments
We adopted SFAS No. 157 on January 1, 2008 for
our financial assets and liabilities. SFAS No. 157
clarifies the definition of fair value, prescribes methods for
measuring fair value, establishes a fair value hierarchy based
on the inputs used to measure fair value and expands disclosures
about the use of fair value measurements. In accordance with
Financial Accounting Standards Board Staff Position
No. FAS 157-2,
Effective Date of FASB Statement No. 157
(FSP 157-2),
we will defer the adoption of SFAS No. 157 for our
nonfinancial assets and nonfinancial liabilities, except those
items recognized or disclosed at fair value on an annual or more
frequently recurring basis, until January 1, 2009.
As defined in SFAS No. 157, fair value is the price
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants
at the measurement date. In determining fair value, we use
various methods including market, income and cost approaches.
Based on these approaches, we utilize certain inputs and
assumptions that market participants would use in pricing the
asset or liability, including assumptions about risk. These
inputs can be readily observable, market corroborated, or
generally unobservable inputs. We utilize valuation techniques
that maximize the use of observable inputs and minimize the use
of unobservable inputs. Based on the observability of the inputs
used in the valuation techniques we are required to provide the
following information according to the fair value hierarchy. The
fair value hierarchy ranks the quality and reliability of the
information used to determine fair values. Financial assets and
liabilities carried at fair value will be classified and
disclosed in one of the following three categories:
Level 1: Quoted market prices in active
markets for identical assets or liabilities.
Level 2: Observable market based inputs
or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not
corroborated by market data.
See Note 10, Fair Value Measurements, for further
information regarding fair value measurements and our adoption
of the provisions of SFAS No. 157.
Recent
Accounting Pronouncements
SFAS No. 141(R) In December 2007,
the FASB issued SFAS No. 141 (revised 2007),
Business Combinations
(SFAS No. 141(R)). In
SFAS No. 141(R), the FASB retained the fundamental
requirements of SFAS No. 141 to account for all
business combinations using the acquisition method (formerly the
purchase method) and for an acquiring entity to be identified in
all business combinations. The new standard requires the
acquiring entity in a business combination to recognize all (and
only) the assets acquired and liabilities assumed in the
transaction; establishes the acquisition-date fair value as the
measurement objective for all assets acquired and liabilities
assumed; requires transaction costs to be expensed as incurred;
and requires the acquirer to disclose to investors and other
users all of the information they need to evaluate and
understand the nature and financial effect of the business
combination. SFAS No. 141(R) is effective for annual
periods beginning on or after December 15, 2008.
Accordingly, any business combinations we engage in will be
recorded and disclosed following existing GAAP until
January 1, 2009. We expect SFAS No. 141(R) will
have an impact on our consolidated financial statements when
effective, but the nature and magnitude of the specific effects
will depend upon the nature, terms and size of the acquisitions
we consummate after the effective date.
SFAS No. 159 In February 2007, the
Financial Accounting Standards Board (FASB) issued
SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities
(SFAS No. 159).
CF-52
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
SFAS No. 159 permits entities to choose, at specified
election dates, to measure eligible items at fair value
(fair value option) and to report in earnings
unrealized gains and losses on those items for which the fair
value option has been elected. SFAS No. 159 also
requires entities to display the fair value of those financial
assets and liabilities on the face of the balance sheet and
establishes presentation and disclosure requirements designed to
facilitate comparisons between entities that choose different
measurement attributes for similar types of financial assets and
liabilities. SFAS No. 159 is effective as of the
beginning of an entitys first fiscal year beginning after
November 15, 2007. We have not adopted the fair value
option for any financial assets or liabilities and, accordingly,
the adoption of SFAS No. 159 did not have an impact on
our condensed consolidated financial statements.
SFAS No. 160 In December 2007, the
FASB issued SFAS No. 160, Noncontrolling Interests
in Consolidated Financial Statements
(SFAS No. 160). SFAS No. 160
amends Accounting Research Bulletin No. 51,
Consolidated Financial Statements, and requires all entities to
report noncontrolling (minority) interests in subsidiaries
within equity in the consolidated financial statements, but
separate from the parent shareholders equity.
SFAS No. 160 also requires any acquisitions or
dispositions of noncontrolling interests that do not result in a
change of control to be accounted for as equity transactions.
Further, SFAS No. 160 requires that a parent recognize
a gain or loss in net income when a subsidiary is
deconsolidated. SFAS No. 160 is effective for annual
periods beginning on or after December 15, 2008. We are
currently evaluating the impact of this pronouncement on our
financial statements.
SFAS No. 161 In March 2008,
the FASB issued SFAS No. 161, Disclosures about
Derivative Instruments and Hedging Activities
(SFAS No. 161). SFAS No. 161
is intended to improve financial reporting about derivative
instruments and hedging activities by requiring enhanced
disclosures to enable investors to better understand their
effects on an entitys financial position, financial
performance, and cash flows. It is effective for financial
statements issued for fiscal years and interim periods beginning
after November 15, 2008. We are currently evaluating the
impact of this pronouncement on our financial statements.
FSP
No. 142-3 In
April 2008, the FASB issued FSP
No. 142-3,
Determination of the Useful Life of Intangible Assets
(FSP
No. 142-3).
FSP
No. 142-3
amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under
SFAS No. 142, Goodwill and Other Intangible Assets
(SFAS No. 142). The FSP is intended to
improve the consistency between the useful life of an intangible
asset determined under SFAS No. 142 and the period of
expected cash flows used to measure the fair value of the asset
under SFAS No. 141, Business Combinations
(SFAS No. 141), and other US GAAP. FSP
No. 142-3
is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those fiscal years. We are currently assessing whether
the adoption of FSP
No. 142-3
will have a material impact on our financial statements.
On May 7, 2008, we entered into a Transaction Agreement and
Plan of Merger (the Transaction Agreement) with
Sprint Nextel Corporation (Sprint) to form a new
public wireless communications company (New
Clearwire). Under the Transaction Agreement, we will merge
with and into a wholly owned subsidiary of a newly formed LLC
(Clearwire Communications) that will consolidate
into New Clearwire. Sprint will contribute its spectrum and
certain other assets associated with its WiMAX operations (the
Sprint Assets), preliminarily valued at
approximately $7.4 billion based on the target price of $20
per share, into a separate wholly owned subsidiary of Clearwire
Communications. Following the merger and contribution of the
Sprint Assets, Intel Corporation, (Intel), Google
Inc., (Google), Comcast Corporation,
(Comcast), Time Warner Cable Inc., (Time
Warner Cable), and Bright House Networks, LLC,
(Bright House) will invest a
CF-53
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
total of $3.2 billion into New Clearwire or Clearwire
Communications, as applicable. We refer to Intel, Google,
Comcast, Time Warner Cable and Bright House as the
Investors.
In the merger, each share of our Class A Common Stock will
be converted into the right to receive one share of Class A
Common Stock of New Clearwire, which shares are entitled to one
vote per share and each option and warrant to purchase shares of
our Class A Common Stock will be converted into one option
or warrant, as applicable, to purchase the same number of shares
of the Class A Common Stock of New Clearwire.
The Investors will initially receive Class A or
Class B stock in New Clearwire and non-voting equity
interests in Clearwire Communications, as applicable, based upon
a $20 per share purchase price, that is subject to post-closing
adjustment based upon the trading prices of New Clearwire
Class A common stock on the NASDAQ Stock Market over 15
randomly selected trading days during the 30-trading day period
ending on the 90th day after the closing date. The final
price per share will be based upon the volume weighted average
price on such days and is subject to a cap of $23.00 per share
and a floor of $17.00 per share. The aggregate number of shares
and/or
non-voting equity interests each Investor receives from its
investment in New Clearwire and Clearwire Communications,
respectively, will be equal to its investment amount divided by
such price per share. In a separate transaction to occur
90 days after closing, CW Investment Holdings will
invest $10 million in the purchase of shares of
Class A common stock on the same pricing terms as the other
investors. Upon completion of the proposed transaction, Sprint
will own the largest stake in the new company with approximately
51% equity ownership on a fully diluted basis assuming an
investment price of $20.00 per share. The existing Clearwire
stockholders will own approximately 27% and the new strategic
investors, as a group, will be acquiring approximately 22% for
their investment of $3.2 billion, both on a fully diluted
basis assuming an investment price of $20.00 per share.
In connection with our entering into the Transaction Agreement,
we also expect to enter into several commercial agreements with
Sprint and the Investors relating to, among other things,
(i) the bundling and reselling of New Clearwires
WiMAX service and Sprints third generation wireless
services, (ii) the embedding of WiMAX chips into various
devices, and (iii) the development of Internet services and
protocols.
Consummation of the Transactions are subject to various
conditions, including the approval and adoption of the
Transaction Agreement by our stockholders, the maintenance by
Sprint and us of a minimum number of MHz-POPs coverage from our
combined spectrum holdings, the effectiveness of a registration
statement relating to the registration of the Class A
Common Stock of New Clearwire, the receipt of the consent of the
Federal Communications Commission to certain of the
Transactions, the expiration or termination of applicable
waiting periods under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (HSR) (which
expired on July 11, 2008), and other customary closing
conditions. The parties expect the Transaction Agreement to
close during the fourth quarter of 2008.
The Transaction Agreement contains certain termination rights
for Sprint, the Investors and us. In the event the Transaction
Agreement is terminated due to an adverse change in our
Boards recommendation to our stockholders to approve the
Transactions in order to allow us to proceed with an alternative
acquisition, as a result of our failure to close the
Transactions within 12 months of the date of the
Transaction Agreement if an alternative acquisition proposal is
made prior to our stockholders meeting to vote on the
Transactions and we enter into an alternative acquisition within
12 months following the termination or solely due to our
material breach of a covenant in the Transaction Agreement, we
would be required to pay Sprint a termination fee of
$60.0 million.
For the three and six months ended June 30, 2008, we
expensed $10.2 million of costs associated with the
Transaction Agreement.
CF-54
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Investments consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
|
December 31, 2007
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
Fair
|
|
|
|
|
|
Gross Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Short-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper in structured investment vehicles
|
|
$
|
4,100
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,100
|
|
|
$
|
7,500
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,500
|
|
Corporate bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,970
|
|
|
|
15
|
|
|
|
|
|
|
|
7,985
|
|
US Government and Agency Issues
|
|
|
174,593
|
|
|
|
45
|
|
|
|
(1
|
)
|
|
|
174,637
|
|
|
|
51,544
|
|
|
|
3
|
|
|
|
(20
|
)
|
|
|
51,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
178,693
|
|
|
$
|
45
|
|
|
$
|
(1
|
)
|
|
$
|
178,737
|
|
|
$
|
67,014
|
|
|
$
|
18
|
|
|
$
|
(20
|
)
|
|
$
|
67,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
|
$
|
64,766
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
64,766
|
|
|
$
|
95,922
|
|
|
$
|
|
|
|
$
|
(7,290
|
)
|
|
$
|
88,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
64,766
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
64,766
|
|
|
$
|
95,922
|
|
|
$
|
|
|
|
$
|
(7,290
|
)
|
|
$
|
88,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments
|
|
$
|
243,459
|
|
|
$
|
45
|
|
|
$
|
(1
|
)
|
|
$
|
243,503
|
|
|
$
|
162,936
|
|
|
$
|
18
|
|
|
$
|
(7,310
|
)
|
|
$
|
155,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable debt securities that are available for current
operations are classified as short-term available-for-sale
investments, and are stated at fair value. Auction rate
securities without readily determinable market values are
classified as long-term available-for-sale investments and are
stated at fair value. Unrealized gains and losses that are
deemed temporary are recorded as a separate component of
accumulated other comprehensive income (loss). Realized losses
are recognized when a decline in fair value is determined to be
other-than-temporary, and both realized gains and losses are
determined on the basis of the specific identification method.
At June 30, 2008, we held available-for-sale short-term and
long-term investments with a fair value and cost of
$243.5 million. During the three and six months ended
June 30, 2008, we incurred other-than-temporary impairment
losses of $28.0 million and $32.8 million,
respectively, related to a decline in the estimated fair values
of our investment securities. There were no realized gains or
losses from sales of investments during the three and six months
ended June 30, 2008.
We estimated the fair value of securities without quoted market
values using internally generated pricing models that require
various inputs and assumptions. In estimating fair values of
these securities, we utilize certain inputs and assumptions that
market participants would use in pricing the investment,
including assumptions about risk. We maximize the use of
observable inputs to the pricing models where available and
reliable. We use certain unobservable inputs that cannot be
validated by reference to a readily observable market or
exchange data and rely, to a certain extent, on
managements own judgment about the assumptions that market
participants would use in pricing the security. In these
instances, fair value is determined by analysis of historical
and forecasted cash flows, default probabilities and recovery
rates, time value of money and discount rates considered
appropriate given the level of risk in the security and
associated investor yield requirements. Our internally generated
pricing models require us to use judgment in interpreting
relevant market data, matters of uncertainty and matters that
are inherently subjective in nature. The use of different
judgments and assumptions could result in different fair values
and security prices could change significantly based on market
conditions. These internally derived values are compared to
independent values received from brokers.
Auction rate securities are variable rate debt instruments whose
interest rates are normally reset approximately every 30 or
90 days through an auction process. The auction rate
securities are classified as available-for-sale and are recorded
at fair value. Beginning in August 2007, the auctions failed to
attract buyers and sell orders could not be filled. Current
market conditions are such that we are unable to estimate
CF-55
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
when the auctions will resume. When an auction fails, the
security resets to a maximum rate as determined in the security
documents. These rates vary from LIBOR + 84 basis points to
LIBOR + 100 basis points. Refer to
Note 10-Fair
Value Measurements-Investment Securities for more information.
While we continue to earn interest on these investments at the
maximum contractual rate, until the auctions resume, the
investments are not liquid. We may not have access to these
funds until a future auction on these investments is successful,
a secondary market develops for these securities, or the
underlying collateral matures. Certain of these securities are
perpetual securities with no maturity date and the others mature
in 2033 and 2034. The estimated fair value of these auction rate
securities no longer approximates cost and we have recorded
other-than-temporary impairment losses on our auction rate
securities of $27.8 million and $31.1 million for the
three and six months ended June 30, 2008.
Our investments in auction rate securities represent interests
in collateralized debt obligations supported by preferred equity
securities of insurance companies and financial institutions
with a stated final maturity date of 2033 and 2034. We also own
auction rate securities that are asset backed capital commitment
securities supported by high grade, short-term commercial paper
and a put option from a monoline insurance company and these
securities are perpetual and do not have a final stated
maturity. These CDO securities were rated AAA/Aaa or AA/Aa by
Standard & Poors and the equivalent at Moodys
rating services at the time of purchase and their ratings have
not changed as of June 30, 2008. With regards to the asset
backed capital commitment securities, Standard & Poors
and Moodys have downgraded these securities from AA/Aa to
A1/A3,
respectively, during the three months ended June 30, 2008.
As issuers and counterparties to our investments announce
financial results in the coming quarters and given current
market volatility, it is possible that we may record additional
other-than-temporary impairments as realized losses. We will
continue to monitor our investments for substantive changes in
relevant market conditions, substantive changes in the financial
condition and performance of the investments issuers and
other substantive changes in these investments that may impact
their valuation.
Current market conditions do not allow us to estimate when the
auctions for our auction rate securities will resume, if ever,
or if a secondary market will develop for these securities. As a
result, our auction-rate securities are classified as long-term
investments.
In addition to the above mentioned securities, we hold one
commercial paper security issued by a structured investment
vehicle that defaulted in January 2008 and was placed into
receivership. The issuer invests in residential and commercial
mortgages and other structured credits including sub-prime
mortgages. At June 30, 2008, the estimated fair value of
this security was $4.1 million based on the pending
resolution of the receivership and expected proceeds upon
completion of this process. During the three and six months
ended June 30, 2008, we recognized other-than-temporary
impairment losses of $90,000 and $1.6 million,
respectively, related to this commercial paper security. On
July 23, 2008, we received from the trustee of the
receivership approximately $3.8 million of the total amount
expected to be received.
CF-56
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
5. Property,
Plant and Equipment
Property, plant and equipment consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Network and base station equipment
|
|
$
|
342,680
|
|
|
$
|
305,635
|
|
Customer premise equipment
|
|
|
104,015
|
|
|
|
89,120
|
|
Furniture, fixtures and equipment
|
|
|
61,720
|
|
|
|
55,548
|
|
Leasehold improvements
|
|
|
14,506
|
|
|
|
13,488
|
|
Construction in progress
|
|
|
286,603
|
|
|
|
233,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
809,524
|
|
|
|
696,911
|
|
Less: accumulated depreciation and amortization
|
|
|
(176,758
|
)
|
|
|
(124,582
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
632,766
|
|
|
$
|
572,329
|
|
|
|
|
|
|
|
|
|
|
We follow the provisions of SFAS No. 34,
Capitalization of Interest Cost, with respect to our owned FCC
licenses and the related construction of our network
infrastructure assets. Interest capitalized was as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
June 30,
|
|
|
June 30,
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
$
|
5,606
|
|
|
$
|
7,586
|
|
|
$
|
11,354
|
|
|
$
|
12,590
|
|
Depreciation and amortization expense related to property, plant
and equipment was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
June 30,
|
|
|
June 30,
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
$
|
27,545
|
|
|
$
|
18,971
|
|
|
$
|
53,686
|
|
|
$
|
33,920
|
|
|
|
6.
|
Spectrum
Licenses, Goodwill, and Other Intangible Assets
|
Purchased Spectrum Rights and other
intangibles Spectrum licenses, which are issued
on both a
site-specific
and a wide-area basis, authorize wireless carriers to use radio
frequency spectrum to provide service to certain geographical
areas in the United States and internationally. These licenses
are generally acquired by us as an asset purchase or through a
business combination. In some cases, we acquire licenses
directly from the governmental authority in the applicable
country. They are considered indefinite-lived intangible assets,
except for the licenses acquired in Poland, Spain, Germany and
Romania, which are considered definite-lived intangible assets
due to limited license renewal history within these countries.
Consideration relating to purchased spectrum rights consisted of
the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Cash
|
|
$
|
608
|
|
|
$
|
184,311
|
|
|
$
|
13,719
|
|
|
$
|
194,661
|
|
Stock/Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
608
|
|
|
$
|
184,311
|
|
|
$
|
13,719
|
|
|
$
|
198,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CF-57
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Amortization relating to spectrum licenses and other intangibles
was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
June 30,
|
|
|
June 30,
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
$
|
1,275
|
|
|
$
|
742
|
|
|
$
|
3,141
|
|
|
$
|
1,979
|
|
Prepaid Spectrum License Fees We also lease
spectrum from third parties who hold the spectrum licenses.
These leases are accounted for as executory contracts, which are
treated like operating leases. Consideration paid to third-party
holders of these leased licenses at the inception of a lease
agreement is accounted for as prepaid spectrum license fees and
is expensed over the term of the lease agreement, including
expected renewal terms, as applicable.
Consideration relating to prepaid spectrum license fees
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Cash
|
|
$
|
40,005
|
|
|
$
|
127,873
|
|
|
$
|
79,819
|
|
|
$
|
171,135
|
|
Stock/Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
40,005
|
|
|
$
|
127,873
|
|
|
$
|
79,819
|
|
|
$
|
188,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization relating to prepaid spectrum license fees was as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
June 30,
|
|
|
June 30,
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
$
|
7,404
|
|
|
$
|
2,555
|
|
|
$
|
21,117
|
|
|
$
|
5,329
|
|
|
|
7.
|
Accounts
Payable and Accrued Expenses
|
Accounts payable and accrued expenses consisted of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Accounts payable
|
|
$
|
44,673
|
|
|
$
|
47,865
|
|
Accrued interest
|
|
|
11,760
|
|
|
|
11,643
|
|
Salaries and benefits
|
|
|
17,041
|
|
|
|
17,697
|
|
Business and income taxes payable
|
|
|
7,191
|
|
|
|
9,299
|
|
Other
|
|
|
20,694
|
|
|
|
15,945
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
101,359
|
|
|
$
|
102,449
|
|
|
|
|
|
|
|
|
|
|
Management has reviewed the facts and circumstances, including
the history of net operating losses and projected future tax
losses, and determined that it is appropriate to record a
valuation allowance against a substantial portion of our
deferred tax assets. The remaining deferred tax asset will be
reduced by schedulable deferred tax liabilities. The net
deferred tax liabilities are related to certain intangible
assets, including certain spectrum assets, which are not
amortized for book purposes.
CF-58
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
Derivative
Instruments and Hedging Activities
|
During the first quarter of 2008 we entered into two interest
rate swap contracts with two year and three year terms. We
currently have variable rate debt tied to
3-month
LIBOR in excess of the $600 million notional amount of
interest rate contracts outstanding and Clearwire expects this
condition to persist throughout the term of the contracts. In
accordance with SFAS No. 133, we designated the
interest rate swap agreements as cash flow hedges. At inception,
the swap agreements had a fair value of zero.
The following table sets forth information regarding our
interest rate hedge contracts as of June 30, 2008 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
|
|
|
Receive
|
|
|
Pay
|
|
|
Fair Market
|
|
Type of Hedge
|
|
Amount
|
|
|
Maturity Date
|
|
|
Index Rate
|
|
|
Fixed Rate
|
|
|
Value
|
|
|
Swap
|
|
$
|
300,000
|
|
|
|
3/5/2010
|
|
|
|
3-month LIBOR
|
|
|
|
3.50
|
%
|
|
$
|
(1,788
|
)
|
Swap
|
|
$
|
300,000
|
|
|
|
3/5/2011
|
|
|
|
3-month LIBOR
|
|
|
|
3.62
|
%
|
|
$
|
747
|
|
The fair value of one of the interest rate swaps is reported as
an other long-term asset, and one is reported as an other
long-term liability on our condensed consolidated balance sheet
at June 30, 2008. Per the guidance of
SFAS No. 157, we computed the fair value of the swaps
using observed LIBOR rates and market interest rate swap curves
which are deemed as Level 2 inputs in the fair value
hierarchy. The effective portion of changes in the fair value of
the swaps are initially reported in other comprehensive income
and subsequently reclassified to earnings (interest
expense) when the hedged transactions affect earnings.
Ineffectiveness resulting from the hedge is recorded in the
condensed consolidated statement of operations as part of other
income or expense. We also monitor the risk of counterparty
default on an ongoing basis.
As of June 30, 2008, the interest rate swaps had a fair
value loss of $1.9 million, which is included in
Other Long-Term Liabilities on our condensed
consolidated balance sheet at June 30, 2008. The change in
net unrealized gains/losses on cash flow hedges reported in
accumulated other comprehensive income was a net
$13.8 million gain and a net $671,000 loss during three and
six months ended June 30, 2008, respectively. Net
settlements made to counterparties under interest rate hedge
contracts was $839,000 during the three and six months ended
June 30, 2008.
The change in net unrealized losses on cash flow hedges reflects
reclassifications of $971,000 and $1.2 million of net
unrealized losses from accumulated other comprehensive income to
interest expense during the three and six months ended
June 30, 2008, respectively. Amounts reported in
accumulated other comprehensive income related to the interest
rate swaps will be reclassified to interest expense as interest
payments are made on the
3-month
LIBOR variable-rate financing. We expect that the effective
portion of the change in the fair value of the swaps recorded in
accumulated other comprehensive income at June 30, 2008,
which will be reclassified as interest expense within the next
12 months, will be approximately $5.4 million.
We designate all derivatives as cash flow hedges. No derivatives
were designated as fair value hedges or undesignated.
Additionally, we did not use derivatives for trading or
speculative purposes. For the three and six months ended
June 30, 2008, we had no hedge ineffectiveness which
required us to report other income or loss in the condensed
consolidated statement of operations.
|
|
10.
|
Fair
Value Measurements
|
As defined in SFAS No. 157, fair value is the price
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants
at the measurement date. In determining fair value, we use
various methods including market, income and cost approaches.
Based on these approaches, we utilize certain assumptions that
market participants would use in pricing the asset or liability,
including assumptions about risk. Based on the observability of
the inputs used in the valuation techniques we are required to
provide the following information according to the fair value
hierarchy. The fair value
CF-59
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
hierarchy ranks the quality and reliability of the information
used to determine fair values. Financial assets and debt
instruments carried at fair value will be classified and
disclosed in one of the following three categories:
Level 1: Quoted market prices in active
markets for identical assets or liabilities.
Level 2: Observable market based inputs
or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not
corroborated by market data.
In accordance with SFAS No. 157, it is our practice to
maximize the use of observable inputs and minimize the use of
unobservable inputs when developing fair value measurements.
When available, we use quoted market prices to measure fair
value. If listed prices or quotes are not available, fair value
is based upon internally developed models that primarily use, as
inputs, market-based or independently sourced market parameters,
including but not limited to interest rate yield curves,
volatilities, equity or debt prices, and credit curves. We
utilize certain assumptions that market participants would use
in pricing the financial instrument, including assumptions about
risk. The degree of management judgment involved in determining
the fair value of a financial instrument is dependent upon the
availability of quoted market prices or observable market
parameters. For financial instruments that trade actively and
have quoted market prices or observable market parameters, there
is minimal subjectivity involved in measuring fair value. When
observable market prices and parameters are not fully available,
management judgment is necessary to estimate fair value. In
addition, changes in the market conditions may reduce the
availability of quoted prices or observable data. In these
instances, we use certain unobservable inputs that cannot be
validated by reference to a readily observable market or
exchange data and rely, to a certain extent, on
managements own assumptions about the assumptions that
market participant would use in pricing the security. These
internally derived values are compared to values received from
brokers or other independent sources.
Investment
Securities
The following table is a description of the pricing assumptions
used for instruments measured at fair value, including the
general classification of such instruments pursuant to the
valuation hierarchy. A financial instruments
categorization within the valuation hierarchy is based upon the
lowest level of input that is significant to the fair value
measurement.
|
|
|
|
|
Financial Instrument
|
|
Hierarchy
|
|
Pricing Assumptions
|
|
Investment: U.S. Treasuries
|
|
Level 1
|
|
Market Quotes
|
Investment: Money Market Mutual Funds
|
|
Level 1
|
|
Market Quotes
|
Debt Instrument: Credit Agreement
|
|
Level 1
|
|
Market Quotes
|
Derivative: Interest Rate Swap
|
|
Level 2
|
|
Discount of forecasted cash flows
|
Debt Instrument: Bell Canada Loan
|
|
Level 2
|
|
Discount of forecasted cash flows
|
Investment: Commercial Paper Security
|
|
Level 2
|
|
Discount of forecasted cash flows adjusted for default/loss
probabilities and estimate of final maturity
|
Investment: Auction Rate Securities
|
|
Level 3
|
|
Discount of forecasted cash flows adjusted for default/loss
probabilities and estimate of final maturity
|
Where quoted prices for identical securities are available in an
active market, securities are classified in Level 1 of the
valuation hierarchy. Level 1 securities include
U.S. Treasuries and highly liquid government and corporate
bonds (including commercial paper) for which there are quoted
prices in active markets. In certain cases where there is
limited activity or less transparency around inputs to the
valuation, investment securities are classified within
Level 3 of the valuation hierarchy. Fair value is based
upon internally developed models that primarily use, as inputs,
market-based or independently sourced market parameters,
including but
CF-60
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
not limited to interest rate yield curves, volatilities, equity
or debt prices, and credit curves. We utilize certain
assumptions that market participants would use in pricing the
financial instrument, including assumptions about risk.
Derivatives
The two interest rate swap contracts entered into by us are
plain vanilla swaps that use as their basis readily
observable market parameters. Parameters are actively quoted and
can be validated to external sources, including industry pricing
services. These models do not contain a high level of
subjectivity as the methodologies used in the models do not
require significant judgment. The inputs include the contractual
terms of the derivatives, including the period to maturity,
payment frequency and day-count conventions, and market-based
parameters such as interest rates and the credit quality of the
counterparty.
Debt
Instruments
We have two outstanding debt instruments: a $1.25 billion
Credit Agreement dated as of July 3, 2007 and a loan from
Bell Canada (Bell). Interests in the Credit
Agreement are actively exchanged by investors and we use the
most recent price or indication of price where an investor is
willing to purchase an interest in the Credit Agreement. This
liability is classified in Level 1 of the valuation
hierarchy.
The Bell loan is a private agreement and not a traded
instrument. The critical terms of the loan are simple and are
valued using market-standard discounted cash flow models that
use as their basis readily observable market parameters.
Parameters are actively quoted and can be validated to external
sources. This loan is classified Level 2. On July 19,
2008 this loan reached maturity and we paid the outstanding
balance. See Note 17 Subsequent Events for
additional details on this transaction.
The following table summarizes our financial assets and
liabilities by level within the valuation hierarchy at
June 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Carrying
|
|
|
Total Fair
|
|
|
Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Amount
|
|
|
Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
349,350
|
|
|
$
|
349,350
|
|
|
$
|
349,350
|
|
|
$
|
|
|
|
$
|
|
|
Short-term investments
|
|
|
178,693
|
|
|
|
178,737
|
|
|
|
174,637
|
|
|
|
4,100
|
|
|
|
|
|
Long-term investments
|
|
|
64,766
|
|
|
|
64,766
|
|
|
|
|
|
|
|
|
|
|
|
64,766
|
|
Interest rate swaps
|
|
|
747
|
|
|
|
747
|
|
|
|
|
|
|
|
747
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
1,788
|
|
|
$
|
1,788
|
|
|
$
|
|
|
|
$
|
1,788
|
|
|
$
|
|
|
Debt
|
|
|
1,250,625
|
|
|
|
1,198,622
|
|
|
|
1,188,643
|
|
|
|
9,979
|
|
|
|
|
|
CF-61
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table provides a reconciliation of the beginning
and ending balances for the major classes of assets and
liabilities measured at fair value using significant
unobservable inputs (Level 3):
|
|
|
|
|
|
|
Fair Value
|
|
|
|
Measurements at
|
|
|
|
Using Significant
|
|
|
|
Unobservable Inputs
|
|
|
|
(Level 3)
|
|
|
Balance at January 1, 2008
|
|
$
|
96,132
|
|
Total losses included in:
|
|
|
|
|
Net loss
|
|
|
(4,849
|
)
|
Other comprehensive income
|
|
|
(4,272
|
)
|
Purchases, sales, issuances and settlements, net
|
|
|
|
|
Other
|
|
|
18
|
|
|
|
|
|
|
Balance at March 31, 2008
|
|
$
|
87,029
|
|
Total losses included in:
|
|
|
|
|
Net loss
|
|
|
(27,918
|
)
|
Other comprehensive income
|
|
|
11,562
|
|
Transfer to level 2
|
|
|
(4,100
|
)
|
Purchases, sales, issuances and settlements, net
|
|
|
(1,807
|
)
|
|
|
|
|
|
Balance at June 30, 2008
|
|
$
|
64,766
|
|
|
|
|
|
|
|
|
11.
|
Commitments
and Contingencies
|
Our commitments for non-cancelable operating leases consist
mainly of leased spectrum license fees, office space, equipment
and certain of our network equipment situated on leased sites,
including land, towers and rooftop locations. Certain of the
leases provide for minimum lease payments, additional charges
and escalation clauses. Leased spectrum agreements have initial
terms of up to 30 years. Tower leases generally have
initial terms of five years with multiple renewal options for
additional five-year terms totaling 20 to 25 years.
In connection with various spectrum lease agreements we have
commitments to provide Clearwire services to the lessors in
launched markets, and reimbursement of capital equipment and
third-party service expenditures by the lessors over the term of
the lease. These services to lessors for the reimbursement of
capital equipment and third party service expenditures are
accumulated and expensed evenly over the term of the lease,
including expected renewable terms, as applicable. We expect
that any remaining commitment at August 29, 2008 to not be
significant and expect any remaining commitment open at
August 29, 2008 will not have a material adverse impact on
Clearwire. During the three and six months ended June 30,
2008, we satisfied $1.3 million and $2.5 million,
respectively, related to these commitments. The maximum
remaining commitment at June 30, 2008 is $93.6 million
and is expected to be incurred over the term of the related
lease agreements, which range from
15-30 years.
As of June 30, 2008, we have signed purchase agreements of
approximately $23.5 million to acquire new spectrum,
subject to closing conditions. These transactions are expected
to be completed within the next twelve months.
Motorola Agreements In August 2006,
simultaneously with the sale of NextNet to Motorola, Clearwire
and Motorola entered into commercial agreements pursuant to
which we agreed to purchase certain infrastructure and supply
inventory from Motorola. Under these agreements, we were
committed to purchase no less than a total $150.0 million
of network infrastructure equipment, modems, PC Cards and other
products from
CF-62
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Motorola on or before August 29, 2008, subject to Motorola
continuing to satisfy certain performance requirements and other
conditions. We are also committed to purchase certain types of
network infrastructure products, modems and PC Cards exclusively
from Motorola for a period of five years, which began
August 29, 2006, and thereafter 51% until the term of the
agreement is completed on August 29, 2014, as long as
certain conditions are satisfied. For the three months ended
June 30, 2008 and 2007, total purchases from Motorola under
these agreements were $14.4 million and $21.7 million,
respectively. For the six months ended June 30, 2008 and
2007, total purchases from Motorola under these agreements were
$21.7 million and $33.7 million, respectively. For the
period from the effective date of the agreement through
June 30, 2008, total purchases from Motorola under these
agreements were $120.0 million. The remaining commitment
was $30.0 million at June 30, 2008. We expect that any
remaining commitment at August 29, 2008 not to be
significant and expect any remaining commitment open at
August 29, 2008 not to have a material adverse impact on
Clearwire.
In the normal course of business, we are party to various
pending judicial and administrative proceedings. While the
outcome of the pending proceedings cannot be predicted with
certainty, Management believes that any unrecorded liability
that may result will not have a material adverse impact on our
financial condition or results of operations.
On January 19, 2007, our Board of Directors adopted the
2007 Stock Compensation Plan (the 2007 Plan), which
authorizes us to grant incentive stock options, non-qualified
stock options, stock appreciation rights, restricted stock,
restricted stock units, and other stock awards to our employees,
directors and consultants. The 2007 Plan was adopted by our
stockholders on February 16, 2007. There are
15,000,000 shares of Class A common stock authorized
under the 2007 Plan. Options granted under the 2007 Plan
generally vest ratably over four years and expire no later than
ten years after the date of grant. In February 2008, the
expiration date of further options grants was changed from ten
to seven years. As a result, all options granted after January
2008 will expire no later than seven years from the date of
grant. Shares to be awarded under the 2007 Plan will be made
available at the discretion of the Compensation Committee of the
Board of Directors from authorized but unissued shares,
authorized and issued shares reacquired and held as treasury
shares, or a combination thereof. At June 30, 2008 there
were 5,641,020 shares available for grant under the 2007
Stock Option Plan.
Prior to the 2007 Plan, we had the following share-based
arrangements: The Clearwire Corporation 2003 Stock Option Plan
(the 2003 Stock Option Plan) and The Clearwire
Corporation Stock Appreciation Rights Plan (the SAR
Plan). No additional stock options will be granted under
our 2003 Stock Option Plan.
We apply SFAS No. 123 (revised 2004), Share-Based
Payment (SFAS No. 123(R)), to new awards
and to awards modified, repurchased, or cancelled after
January 1, 2006. Share-based compensation expense is based
on the estimated grant-date fair value and is recognized net of
a forfeiture rate on those shares expected to vest over a graded
vesting schedule on a straight-line basis over the requisite
service period for each separately vesting portion of the award
as if the award was, in-substance, multiple awards.
Compensation cost recognized related to our share-based awards
was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Cost of service
|
|
$
|
80
|
|
|
$
|
17
|
|
|
$
|
97
|
|
|
$
|
32
|
|
Selling, general and administrative
|
|
|
12,952
|
|
|
|
10,316
|
|
|
|
23,647
|
|
|
|
18,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,032
|
|
|
$
|
10,333
|
|
|
$
|
23,744
|
|
|
$
|
18,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CF-63
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock
Options
During the three and six months ended June 30, 2008, we
granted 164,900 and 3,720,850 options, respectively, at a
weighted average exercise price of $13.71 and $16.53,
respectively. During the three and six months ended
June 30, 2007, we granted 643,799 and 3,513,712 options,
respectively, at a weighted average exercise price of $25.01 and
$24.90, respectively. The fair value of each option granted
during the three and six months ended June 30, 2008 and
2007 is estimated on the date of grant using the Black-Scholes
option pricing model.
As of June 30, 2008, a total of 18,485,411 options were
outstanding at a weighted average exercise price of $14.72. We
recognized $11.1 million and $10.0 million in
stock-based compensation related to stock options in the three
months ended June 30, 2008 and 2007, respectively. For the
six months ended June 30, 2008 and 2007, we recognized
$19.8 million and $17.5 million in stock-based
compensation related to stock options, respectively. The total
unrecognized share-based compensation costs related to
non-vested stock options outstanding at June 30, 2008 was
$77.9 million and is expected to be recognized over a
weighted average period of approximately two years.
We also grant options to purchase our Class A common stock
to non-employee consultants who perform services. These options
are adjusted to current fair value each quarter during their
vesting periods as services are rendered using the Black-Scholes
option pricing model. During the three and six months ended
June 30, 2008, we recognized $129,000 and $481,000,
respectively, in expense related to these options. As of
June 30, 2008 we have $21,000 of unamortized expense
related to these options which is expected to be recognized over
approximately one year. Expense for the three and six months
ended June 30, 2007 was $77,000 and $181,000, respectively.
The following variables were used in the Black-Scholes
calculation:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Expected volatility
|
|
59.47% - 62.67%
|
|
57.07%
|
|
58.81% - 66.20%
|
|
57.07% - 64.68%
|
Expected dividend yield
|
|
|
|
|
|
|
|
|
Expected life (in years)
|
|
4.75 - 6.75
|
|
6.25
|
|
3.00-6.75
|
|
6.25
|
Risk-free interest rate
|
|
2.68% - 3.61%
|
|
5.00%
|
|
2.46% - 3.61%
|
|
4.46% - 5.00%
|
Weighted average fair value per option at grant date
|
|
$7.00
|
|
$14.92
|
|
$8.48
|
|
$15.85
|
We grant stock options to employees of entities under common
control to purchase shares of our Class A common stock. In
accordance with Emerging Issues Task Force Issue
No. 00-23,
Issues Related to the Accounting for Stock Compensation Under
APB No. 25, Accounting for Stock Issued to
Employees, and FASB Interpretation No. 44,
Accounting for Certain Transactions Involving Stock
Compensation, and SFAS No. 123(R), the fair value
of such options is recorded as a dividend. We did not grant any
stock options to employees of entities under common control in
the three and six months ended June 30, 2008. In the three
and six months ended June 30, 2007, we recorded dividends
related to such stock option grants of $0 and $1.1 million,
respectively.
Basic and diluted loss per share has been calculated in
accordance with SFAS No. 128, Earnings
Per Share, for the three and six months ended
June 30, 2008 and 2007. As we had a net loss in each of the
periods presented, basic and diluted net loss per common share
are the same.
CF-64
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The computations of diluted loss per share did not include the
effects of the following options, shares of non-vested
restricted stock, restricted stock units and warrants, as the
inclusion of these securities would have been anti-dilutive (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Stock options
|
|
|
18,727
|
|
|
|
13,369
|
|
|
|
18,213
|
|
|
|
12,521
|
|
Nonvested restricted stock
|
|
|
25
|
|
|
|
75
|
|
|
|
41
|
|
|
|
64
|
|
Restricted Stock Units
|
|
|
766
|
|
|
|
|
|
|
|
699
|
|
|
|
|
|
Warrants
|
|
|
17,806
|
|
|
|
18,446
|
|
|
|
18,517
|
|
|
|
18,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,324
|
|
|
|
31,890
|
|
|
|
37,470
|
|
|
|
30,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss consists of two components, net loss and
other comprehensive income. Other comprehensive income refers to
revenue, expenses, gains and losses that under generally
accepted accounting principles are recorded as a component of
stockholders equity but are excluded from net loss. Our
other comprehensive income is comprised of foreign currency
translation adjustments from our subsidiaries not using the
U.S. dollar as their functional currency, unrealized gains
and losses on marketable securities categorized as
available-for-sale and unrealized gains and losses related to
our cash flow hedges.
The following table sets forth the components of comprehensive
loss (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Net loss
|
|
$
|
(199,054
|
)
|
|
$
|
(118,085
|
)
|
|
$
|
(375,443
|
)
|
|
$
|
(210,720
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss on available-for-sale investments
|
|
|
(16,550
|
)
|
|
|
(104
|
)
|
|
|
(25,431
|
)
|
|
|
(141
|
)
|
Reclassification adjustment for other-than-temporary impairment
loss on investments
|
|
|
27,918
|
|
|
|
|
|
|
|
32,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain (loss) on available-for-sale investments
|
|
|
11,368
|
|
|
|
(104
|
)
|
|
|
7,336
|
|
|
|
(141
|
)
|
Derivatives designated as cash flow hedges
|
|
|
12,887
|
|
|
|
|
|
|
|
(1,879
|
)
|
|
|
|
|
Reclassification adjustment to expense
|
|
|
971
|
|
|
|
|
|
|
|
1,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain (loss) on derivative instruments
|
|
|
13,858
|
|
|
|
|
|
|
|
(671
|
)
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
67
|
|
|
|
2,274
|
|
|
|
12,559
|
|
|
|
3,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income
|
|
|
25,293
|
|
|
|
2,170
|
|
|
|
19,224
|
|
|
|
3,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
$
|
(173,761
|
)
|
|
$
|
(115,915
|
)
|
|
$
|
(356,219
|
)
|
|
$
|
(207,267
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We comply with the requirements of SFAS No. 131, which
establishes annual and interim reporting standards for an
enterprises operating segments and related disclosures
about its products, services, geographic
CF-65
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
areas and major customers. Operating segments are defined as
components of an enterprise for which separate financial
information is available that is evaluated regularly by the
chief operating decision makers in deciding how to allocate
resources and in assessing performance. Operating segments can
be aggregated for segment reporting purposes so long as certain
aggregation criteria are met. We define the chief operating
decision makers as our Chief Executive Officer, Chief Operating
Officer and Chief Financial Officer. As our business continues
to mature, we will assess how we view and operate the business.
We are organized into two reportable business segments: the
United States and the International business.
We report business segment information as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
United States
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
48,083
|
|
|
$
|
29,070
|
|
|
$
|
90,385
|
|
|
$
|
52,174
|
|
Cost of goods and services (exclusive of items shown separately
below)
|
|
|
37,226
|
|
|
|
20,534
|
|
|
|
71,921
|
|
|
|
34,604
|
|
Operating expenses
|
|
|
111,158
|
|
|
|
86,017
|
|
|
|
224,021
|
|
|
|
157,628
|
|
Depreciation and amortization
|
|
|
22,937
|
|
|
|
16,476
|
|
|
|
45,017
|
|
|
|
29,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
171,321
|
|
|
|
123,027
|
|
|
|
340,959
|
|
|
|
221,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(123,238
|
)
|
|
|
(93,957
|
)
|
|
|
(250,574
|
)
|
|
|
(169,388
|
)
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
10,480
|
|
|
|
6,414
|
|
|
|
19,706
|
|
|
|
12,585
|
|
Cost of goods and services (exclusive of items shown separately
below)
|
|
|
4,967
|
|
|
|
2,779
|
|
|
|
8,446
|
|
|
|
5,444
|
|
Operating expenses
|
|
|
22,950
|
|
|
|
16,759
|
|
|
|
45,318
|
|
|
|
27,692
|
|
Depreciation and amortization
|
|
|
5,964
|
|
|
|
3,238
|
|
|
|
11,969
|
|
|
|
6,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
33,881
|
|
|
|
22,776
|
|
|
|
65,733
|
|
|
|
39,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(23,401
|
)
|
|
|
(16,362
|
)
|
|
|
(46,027
|
)
|
|
|
(27,120
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating loss
|
|
|
(146,639
|
)
|
|
|
(110,319
|
)
|
|
|
(296,601
|
)
|
|
|
(196,508
|
)
|
Other expense, net
|
|
|
(50,500
|
)
|
|
|
(5,526
|
)
|
|
|
(75,292
|
)
|
|
|
(10,643
|
)
|
Income tax provision
|
|
|
(1,668
|
)
|
|
|
(2,126
|
)
|
|
|
(3,584
|
)
|
|
|
(2,729
|
)
|
Minority interest in net loss of consolidated subsidiaries
|
|
|
1,108
|
|
|
|
1,075
|
|
|
|
2,345
|
|
|
|
1,967
|
|
Losses from equity investees
|
|
|
(1,355
|
)
|
|
|
(1,189
|
)
|
|
|
(2,311
|
)
|
|
|
(2,807
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(199,054
|
)
|
|
$
|
(118,085
|
)
|
|
$
|
(375,443
|
)
|
|
$
|
(210,720
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
59,653
|
|
|
$
|
80,376
|
|
|
$
|
105,270
|
|
|
$
|
146,522
|
|
International
|
|
|
2,665
|
|
|
|
9,858
|
|
|
|
10,120
|
|
|
|
18,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
62,318
|
|
|
$
|
90,234
|
|
|
$
|
115,390
|
|
|
$
|
164,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CF-66
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
2,137,754
|
|
|
$
|
2,444,341
|
|
International
|
|
|
240,935
|
|
|
|
241,628
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,378,689
|
|
|
$
|
2,685,969
|
|
|
|
|
|
|
|
|
|
|
|
|
16.
|
Related
Party Transactions
|
We have strategic and commercial relationships with
third-parties that have had a significant impact on our
business, operations and financial results. These relationships
have been with Eagle River Holdings, LLC (ERH),
Motorola, Intel Corporation (Intel), Hispanic
Information and Telecommunications Network, Inc.
(HITN), ITFS Spectrum Advisors, LLC
(ISA), ITFS Spectrum Consultants LLC
(ISC), Bell, Danske Telecom A/S
(Danske), and MVS Net S.A. de C.V. (MVS
Net) all of which are or have been related parties. The
following amounts for related party transactions are included in
our condensed consolidated financial statements (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Prepaids
|
|
$
|
1,812
|
|
|
$
|
14
|
|
Notes receivable, short-term
|
|
|
1,500
|
|
|
|
2,134
|
|
Notes receivable, long-term
|
|
|
5,214
|
|
|
|
4,700
|
|
Accounts payable and accrued expenses
|
|
|
8,251
|
|
|
|
4,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Cost of service
|
|
$
|
1,018
|
|
|
$
|
662
|
|
|
$
|
1,874
|
|
|
$
|
1,390
|
|
All purchases were made in the normal course of business at
prices similar to those in transactions with third parties.
Amounts outstanding at the end of the quarter are unsecured and
will be settled in cash.
Relationships among Certain Stockholders, Directors, and
Officers of Clearwire As of June 30, 2008,
ERH is the holder of approximately 65% of our outstanding
Class B common stock and approximately 13% of our
outstanding Class A common stock. Eagle River Inc.
(ERI) is the manager of ERH. Each entity is
controlled by Craig McCaw. Mr. McCaw and his affiliates
have significant investments in other telecommunications
businesses, some of which may compete with us currently or in
the future. It is likely Mr. Mc Caw and his affiliates will
continue to make additional investments in telecommunications
businesses.
As of June 30, 2008 and December 31, 2007 ERH held
warrants entitling it to purchase 613,333 shares of our
Class A common stock. The exercise price of the warrant is
$15.00 per share.
For the three and six months ended June 30, 2007, ERH
earned interest relating to our senior secured notes, retired in
August 2007, in the amount of $633,000 and $1.3 million,
respectively. ERH received payments in the amount of $0 and
$1.3 million for accrued interest during the three and six
months ended June 30, 2007, respectively.
Certain of our officers and directors provide additional
services to ERH, ERI and their affiliates for which they are
separately compensated by such entities. Any compensation paid
to such individuals by ERH, ERI
and/or their
affiliates for their services is in addition to the compensation
paid by us.
CF-67
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Advisory Services Agreement and Other
Reimbursements Clearwire and ERI were parties to
an Advisory Services Agreement, dated November 13, 2003
(the Advisory Services Agreement). Under the
Advisory Services Agreement, ERI provided us with certain
advisory and consulting services, including without limitation,
advice as to the development, ownership and operation of
communications services, advice concerning long-range planning
and strategy for the development and growth of Clearwire, advice
and support in connection with its dealings with federal, state
and local regulatory authorities, advice regarding employment,
retention and compensation of employees and assistance in
short-term and long-term financial planning. The parties
terminated this agreement effective January 31, 2007.
During the three and six months ended June 30, 2007 we paid
ERI fees of $0 and $67,000, respectively, under the Advisory
Services Agreement. In addition, we paid ERI expense
reimbursements of $91,000 and $115,000 during the three and six
months ended June 30, 2007, respectively.
Pursuant to the origination of the Advisory Services Agreement
in 2003, we issued to ERH warrants to purchase
375,000 shares of our Class A common stock at an
exercise price of $3.00 per share, which may be exercised any
time within 10 years of the issuance of the warrants. As of
June 30, 2008, the remaining life of the warrants was
5.4 years.
Nextel Undertaking Clearwire and
Mr. McCaw entered into an agreement and undertaking in
November 2003, pursuant to which we agreed to comply with
the terms of a separate agreement between Mr. McCaw and
Nextel Communications, Inc. (Nextel), so long as we
were a controlled affiliate of Mr. McCaw as
defined therein, certain terms of which were effective until
October 2006. Under the agreement with Mr. McCaw, Nextel
had the right to swap certain channels of owned or leased
Broadband Radio Service (BRS) or Educational
Broadband Service (EBS) spectrum with entities
controlled by Mr. McCaw, including Clearwire. While the
agreement was still effective, Nextel notified us of its request
to swap certain channels, which is currently pending. There were
no payments made to Nextel under this agreement through
June 30, 2008.
Intel Collaboration Agreement On
June 28, 2006, we entered into a collaboration agreement
with Intel, to develop, deploy and market a co-branded mobile
WiMAX service offering in the United States, that will target
users of certain WiMAX enabled notebook computers, ultramobile
PCs, and other mobile computing devices containing Intel
microprocessors.
Clearwire and Intel have agreed to share the revenues received
from subscribers using Intel mobile computing devices on our
domestic mobile WiMAX network. Intel will also receive a one
time fixed payment for each new Intel mobile computing device
activated on our domestic mobile WiMAX network once we have
successfully achieved substantial mobile WiMAX network coverage
across the United States. Through June 30, 2008, we have
not been required to make any payments to Intel under this
agreement. This Agreement is scheduled to be terminated upon the
closing of our pending transaction with Sprint.
Motorola Agreements In August 2006,
simultaneously with the sale of NextNet to Motorola, Clearwire
and Motorola entered into commercial agreements pursuant to
which we agreed to purchase certain infrastructure and supply
inventory from Motorola. Refer to
Note 11-Commitments
and Contingencies-Motorola Agreements for more information.
HITN and its Affiliates In November 2003, we
entered into a Master Spectrum Agreement (MSA) with
a third-party EBS license holder, HITN. The founder and
president of HITN was formerly a member of our Board of
Directors. The MSA provides for terms under which HITN leases
excess capacity on certain of its EBS spectrum licenses to us.
The licenses covered under the MSA include all of the spectrum
rights acquired in the Clearwire Spectrum Corporation
acquisition, plus access to an additional twelve markets in the
United States. For each market leased by HITN to us under the
MSA, Clearwire and HITN entered into a separate lease agreement
which contains additional lease terms. The initial lease term is
15 years with one
CF-68
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
renewal for an additional 15 years. The MSA also provides
for additional shares of Class A common stock to be issued
to HITN upon Clearwire reaching certain financial milestones.
In March 2004, the MSA with HITN was amended to provide, among
other things, additional leased EBS spectrum capacity in an
additional major metropolitan market. Clearwire and HITN also
entered into a spectrum option agreement (the Option
Agreement) whereby we have an option to enter into leases
of spectrum for which HITN has pending EBS license applications
upon grant of those licenses by the FCC. The lease terms and
conditions would be similar to those under the MSA.
Subsequent to the MSA, we entered into two other related
agreements with ISA and ISC. The founder and president of HITN
is an owner of ISA and ISC, which are also affiliates of HITN.
The agreements provided for payment to be provided to ISA and
ISC in the form of warrants to purchase additional shares of
Class A common stock in exchange for ISA and ISC providing
opportunities for us to purchase or lease additional spectrum.
Each of the agreements specifies a maximum consideration
available under the agreement and, in 2005, the maximum
consideration under the agreement with ISA was reached. As of
December 31, 2007 the maximum consideration under the
agreement with ISC was reached.
For the three and six months ended June 30, 2007, ISC
earned no revenue, and received cash of $0 and $39,000,
respectively. As of June 30, 2007, $86,000 was payable to
ISC in warrants to purchase 5,714 shares of Class A
common stock. Cash paid to ISC for the three and six months
ended June 30, 2008 was $0 and $4,000, respectively.
Agreements with Bell Canada In March 2005,
Bell, a Canadian telecommunications company which is a
subsidiary of BCE Inc. (BCE), purchased
8,333,333 shares of our Class A common stock for
$100.0 million. At the time of the investment, Bell and BCE
Nexxia, an affiliate of Bell, entered into a Master Supply
Agreement (Master Supply Agreement) dated
March 16, 2005 with Clearwire. Under the Master Supply
Agreement, Bell and BCE Nexxia provide or arrange for the
provision of hardware, software, procurement services,
management services and other components necessary for us to
provide Voice over Internet Protocol (VoIP) services
to their subscribers in the United States and provide day-to-day
management and operation of the components and services
necessary for us to provide these VoIP services. We agreed to
pay to Bell or BCE Nexxia a flat fee for each new subscriber of
our VoIP telephony service. We have agreed to use Bell and BCE
Nexxia exclusively to provide such service unless such agreement
violates the rights of third parties under its existing
agreements. Total fees paid for new subscribers under the Master
Supply Agreement were $203,000 and $48,000 during the three
months ended June 30, 2008 and 2007, respectively. For the
six months ended June 30, 2008 and 2007, total fees paid
for new subscribers under the Master Supply Agreement were
$203,000 and $53,200, respectively. Amounts paid for supplies,
equipment and other services through Bell or BCE were
$1.5 million and $920,000 for the three months ended
June 30, 2008 and 2007, respectively. For the six months
ended June 30, 2008 and 2007, amounts paid for supplies,
equipment and other services through Bell or BCE were
$3.1 million and $4.2 million, respectively. The
Master Supply Agreement can be terminated for convenience on
twelve months notice by either party at any time beginning on or
after October 1, 2007. On October 29, 2007, we
delivered a notice of termination of the Master Supply Agreement
to BCE Nexxia and the agreement is expected to terminate on
October 29, 2008.
As required under the Master Supply Agreement with Bell and BCE
Nexxia and in order to assist funding capital expenses and
start-up
costs associated with the deployment of VoIP services, BCE
agreed to make available to us financing in the amount of
$10.0 million. BCE funded the entire amount on June 7,
2006. The loan is secured by a security interest in the
telecommunications equipment and property related to VoIP and
bears interest at 7.00% per annum, and was due and paid in full
on July 19, 2008. Interest expense recognized for this loan
for the three months ended June 30, 2008 and 2007 was
$199,000 and $186,000, respectively. Interest expense recognized
for the six months ended June 30, 2008 and 2007 was
$395,000 and $367,000, respectively.
CF-69
CLEARWIRE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Davis Wright Tremaine LLP The law firm
of Davis Wright Tremaine LLP serves as our primary outside
counsel, and handles a variety of corporate, transactional, tax
and litigation matters. Mr. Wolff, our Chief Executive
officer, is married to a partner at Davis Wright Tremaine. As a
partner, Mr. Wolffs spouse is entitled to share in a
portion of the firms total profits, although she has not
received any compensation directly from us. For the three months
ended June 30, 2008 and 2007 we paid $1.5 million and
$1.0 million, respectively, to Davis Wright Tremaine for
legal services. For the six months ended June 30, 2008 and
2007 we paid $2.6 million and $2.3 million,
respectively, to Davis Wright Tremaine for legal services.
Bell
Canada Loan Repayment
On July 19, 2008 we repaid our Bell Canada loan principal
balance of $10.0 million.
CF-70
Report of
Independent Registered Public Accounting Firm
The Board of Directors
Sprint Nextel Corporation
We have audited the accompanying balance sheet of the WiMAX
Operations of Sprint Nextel Corporation (a development stage
enterprise) as of December 31, 2007, and the related
statements of operations, cash flows and business equity for the
year then ended. These financial statements are the
responsibility of Sprint Nextel Corporations management.
Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards 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. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of the WiMAX Operations of Sprint Nextel Corporation (a
development stage enterprise) as of December 31, 2007, and
the results of its operations and its cash flows for the year
then ended, in conformity with U.S. generally accepted
accounting principles.
As discussed in Note 3, the WiMAX Operations of Sprint
Nextel Corporation is dependent upon Sprint Nextel Corporation
to fund the acquisition and development of its network assets.
Sprint Nextel Corporation has committed to provide the WiMAX
Operations of Sprint Nextel Corporation with the required
financial support through the earlier of the closing of the
transaction with Clearwire Corporation or August 31, 2009.
/s/ KPMG LLP
McLean, Virginia
August 4, 2008
WF-1
WIMAX
OPERATIONS OF SPRINT NEXTEL CORPORATION
(A Development Stage Enterprise)
BALANCE SHEET
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
Cash
|
|
$
|
|
|
Prepaid spectrum expense
|
|
|
8,399
|
|
|
|
|
|
|
Total current assets
|
|
|
8,399
|
|
Property, plant and equipment, net
|
|
|
491,896
|
|
FCC licenses and patents, net
|
|
|
2,419,519
|
|
Prepaid spectrum expense
|
|
|
180,863
|
|
Other assets
|
|
|
43,481
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,144,158
|
|
|
|
|
|
|
|
LIABILITIES AND BUSINESS EQUITY
|
Deferred tax liability, net
|
|
$
|
679,222
|
|
Commitments and contingencies
|
|
|
|
|
Business equity
|
|
|
2,464,936
|
|
|
|
|
|
|
Total liabilities and business equity
|
|
$
|
3,144,158
|
|
|
|
|
|
|
See accompanying Notes to Financial Statements
WF-2
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Net operating revenues
|
|
$
|
|
|
Direct and allocated costs and expenses
|
|
|
|
|
Spectrum expense
|
|
|
60,051
|
|
Network costs
|
|
|
48,865
|
|
General and administrative
|
|
|
99,490
|
|
Depreciation and amortization
|
|
|
3,979
|
|
|
|
|
|
|
|
|
|
212,385
|
|
|
|
|
|
|
Operating loss
|
|
|
(212,385
|
)
|
Other income
|
|
|
4,022
|
|
|
|
|
|
|
Loss from operations before income taxes
|
|
|
(208,363
|
)
|
Income tax expense
|
|
|
(16,362
|
)
|
|
|
|
|
|
Net loss
|
|
$
|
(224,725
|
)
|
|
|
|
|
|
See accompanying Notes to Financial Statements
WF-3
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities
|
|
|
|
|
Net loss
|
|
$
|
(224,725
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
Depreciation and amortization
|
|
|
3,979
|
|
Deferred income taxes
|
|
|
16,362
|
|
Changes in prepaid spectrum expense and other assets
|
|
|
(135,135
|
)
|
|
|
|
|
|
Net cash used in operating activities(1)
|
|
|
(339,519
|
)
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
Capital expenditures
|
|
|
(329,469
|
)
|
Expenditures relating to FCC licenses and patents
|
|
|
(353,611
|
)
|
|
|
|
|
|
Net cash used in investing activities(1)
|
|
|
(683,080
|
)
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
Advances from Sprint Nextel Corporation(1)
|
|
|
1,022,599
|
|
|
|
|
|
|
Net change in cash
|
|
|
|
|
Cash, beginning of year
|
|
|
|
|
|
|
|
|
|
Cash, end of year
|
|
$
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts represent cash inflows and outflows made on behalf of or
to the WiMAX Operations of Sprint Nextel Corporation by Sprint
Nextel Corporation. See Note 2 for additional information. |
See accompanying Notes to Financial Statements
WF-4
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Business equity, January 1, 2007
|
|
$
|
1,402,410
|
|
Net loss
|
|
|
(224,725
|
)
|
Contributions and advances from Sprint Nextel Corporation
|
|
|
1,287,251
|
|
|
|
|
|
|
Business equity, December 31, 2007
|
|
$
|
2,464,936
|
|
|
|
|
|
|
See accompanying Notes to Financial Statements
WF-5
|
|
Note 1.
|
Description
of Business WiMAX Operations
|
The WiMAX Operations of Sprint Nextel Corporation (WiMAX
Operations, we or our), a
development stage enterprise, represents a collection of assets,
related liabilities and activities accounted for in various
legal entities that are wholly-owned subsidiaries of Sprint
Nextel Corporation (Sprint or the
Parent) and allocations from the Parent and other
non-WiMAX entities that act on our behalf. These assets, related
liabilities and activities have been collectively utilized with
the objective of developing a next generation wireless broadband
network that will enable simple, fast, portable, reliable and
affordable Internet communications. We expect to deploy the
mobile Worldwide Interoperability of Microwave Access
(WiMAX) technology, based on the IEEE
802.16e-2005
standard, in our planned markets using 2.5 gigahertz
(GHz) Federal Communications Commission
(FCC) licenses. As mobile WiMAX is a standards-based
technology, we believe manufacturers may begin to offer a number
of handheld communications and consumer electronic devices that
will be WiMAX-enabled. We have announced our plans to launch
commercial WiMAX service in selected markets in September 2008,
and expect to serve a small number of customers by the end of
2008.
On May 7, 2008, Sprint announced that it had entered into a
definitive agreement with Clearwire Corporation
(Clearwire) to combine both of their next generation
wireless broadband businesses to form a new independent company
to be called Clearwire (New Clearwire). In addition,
five independent partners, including Intel Corporation through
Intel Capital, Google Inc., Comcast Corporation, Time Warner
Cable Inc. and Bright House Networks LLC, collectively agreed to
invest $3.2 billion in New Clearwire. Prior to closing the
transaction, the assets and activities of the WiMAX Operations,
currently accounted for in various legal entities, will be
transferred to a single legal entity that will be contributed to
New Clearwire at close in exchange for an equity interest in New
Clearwire. New Clearwire will be focused on expediting the
deployment of the first nationwide mobile WiMAX network to
provide a true mobile broadband experience for consumers, small
businesses, medium and large enterprises, public safety
organizations and educational institutions. The transaction is
expected to close in the fourth quarter of 2008.
The accompanying financial statements represent the collective
assets, related liabilities and activities of the WiMAX
Operations, including any allocations from the Parent and other
non-WiMAX entities that have acted on our behalf. The nature of
the assets held by the legal entities is primarily 2.5 GHz
FCC licenses and certain property, plant and equipment related
to the WiMAX network. The acquisition of the assets was funded
by the Parent. There is no intention of repaying this funding
and it is presented as business equity. As Sprint has acquired
significant amounts of FCC licenses on our behalf in the past,
these purchases have been presented as part of the opening
business equity as principal operations did not commence until
January 1, 2007, at which time the WiMAX Operations
qualified as a business pursuant to
Rule 11-01(d)
of
Regulation S-X.
Therefore, the statements of operations, cash flows and business
equity for the year ended December 31, 2007 also represent
the cumulative amounts from inception.
Management of Sprint has committed to provide us with the
required financial support through the earlier of the closing of
the above transaction or August 31, 2009.
|
|
Note 2.
|
Basis of
Presentation
|
We prepare our financial statements in conformity with
accounting principles generally accepted in the United States,
which require management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date
of the balance sheet as well as the reported amounts of expenses
during the reporting periods. Due to the inherent uncertainty
involved in making those estimates, actual results could differ
from those estimates. Areas in which significant estimates have
been made include, but are not limited to, tax valuation
allowances, useful lives for property, plant and equipment and
indefinite lived intangible asset impairment analyses.
WF-6
WIMAX
OPERATIONS OF SPRINT NEXTEL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
The accompanying financial statements present our balance sheet
and the related results of operations and cash flows.
Accordingly, these statements do not represent the financial
position, results of operations or cash flows of Sprint.
Further, these statements include allocations of expenses from
Sprint and therefore may not necessarily be indicative of the
financial position, results of operations and cash flows that
would have resulted had we functioned as a stand-alone
operation. Additionally, the assets and liabilities in the
financial statements herein may differ from the separated
company upon completion of the contribution to New Clearwire
based on the specific definitive agreements signed between
Sprint and Clearwire. The balance sheet does not include
Sprints assets or liabilities not separately identifiable
to us. Cash management is performed on a consolidated basis and
Sprint processes payables, payroll and other transactions on our
behalf. Assets and liabilities not specifically identifiable to
us include:
|
|
|
|
|
Cash, cash equivalents and investments, with activity in our
cash balances being recorded through business equity;
|
|
|
|
Accounts payable, which are processed centrally by Sprint and
are passed to us through intercompany accounts that are included
in business equity; and
|
|
|
|
Certain accrued liabilities, which are passed through to us
through intercompany accounts that are included in business
equity.
|
Supplemental
Cash Flow Information
A statement of cash flows has been presented for the year ended
December 31, 2007. The statement of cash flows presents the
activities that were paid by Sprint on our behalf. Financing
activities include funding advances from Sprint, presented as
business equity, since it manages our financing activities on a
centralized basis. Further, the net cash used in operating
activities and the net cash used in investing activities for
capital expenditures and acquisitions of FCC licenses and
patents represent transfers of expenses or assets paid for by
other Sprint subsidiaries. No cash payments were made by us for
income taxes or interest in 2007.
Reconciliation
of Changes in Business Equity
The following is a reconciliation of changes in business equity:
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Opening business equity, January 1, 2007
|
|
$
|
1,402,410
|
|
Contributions and advances from Sprint:
|
|
|
|
|
Advances from Sprint
|
|
|
1,022,599
|
|
Increase in Sprints accruals for our capital expenditures
|
|
|
164,652
|
|
Sprints purchase of 2.5 GHz FCC licenses with stock(1)
|
|
|
100,000
|
|
|
|
|
|
|
Total contributions and advances from Sprint
|
|
|
1,287,251
|
|
Net loss for the year ended December 31, 2007
|
|
|
(224,725
|
)
|
|
|
|
|
|
Business equity at December 31, 2007
|
|
$
|
2,464,936
|
|
|
|
|
|
|
|
|
|
(1) |
|
Sprint acquired FCC licenses on our behalf for $100 million of
Sprint common stock. |
WF-7
WIMAX
OPERATIONS OF SPRINT NEXTEL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
Allocation
of Shared Services
Sprint directly assigns, where possible, certain costs to us
based on our actual use of the shared services. These costs
include network related expenses, office facilities, treasury
services, human resources, supply chain management and other
shared services. Where direct assignment of costs is not
possible or practical, Sprint uses indirect methods, including
time studies, to estimate the assignment of its costs to us,
which are allocated to us through a management fee. The
allocations of these costs are re-evaluated periodically. Sprint
allocated $115 million of shared services costs to us in
2007.
Allocation
of Financing
Sprint manages our financing activities on a centralized basis.
Under Sprints centralized cash management program, we are
advanced funds, which represent the allocation of capital to
support our operations. The advances are included in business
equity on the balance sheet. Sprint has not charged us any
interest and there has not been any reimbursement of these funds
to date, nor are there obligations to repay these amounts at
this time.
|
|
Note 3.
|
Significant
Accounting Policies
|
Property,
Plant and Equipment
We record property, plant and equipment (PP&E),
including improvements that extend useful lives, at cost.
PP&E primarily includes network equipment, site costs,
buildings and improvements, software, office equipment and
non-network
internal use software, as well as network asset inventory and
construction in progress. PP&E is depreciated once it is
placed into service. Network equipment, site costs and software
includes switching equipment, base transceiver stations, site
development costs, other radio frequency equipment and internal
use software. Buildings and improvements principally consists of
owned general office facilities and leasehold improvements.
Non-network
internal use software, office equipment and other primarily
consists of furniture and information technology systems and
equipment. Network asset inventory and construction in progress
primarily includes materials, transmission and related
equipment, labor, engineering, site development costs and other
costs relating to the construction and development of our
network. Repair and maintenance costs and research and
development costs are expensed as incurred.
We capitalize costs for network and
non-network
software developed or obtained for internal use during the
application development stage. These costs are included in
PP&E and are depreciated over estimated useful lives of up
to five years. Costs incurred during the preliminary project and
post-implementation stages, as well as maintenance and training
costs, are expensed as incurred.
The cost of PP&E generally is depreciated on a
straight-line basis over estimated economic useful lives. We
depreciate leasehold improvements over the shorter of the lease
term or the estimated useful life of the respective assets. We
depreciate network equipment, site costs and software over
estimated useful lives of up to 30 years, with about 99% of
those assets being depreciated over lives of five to
15 years, and
non-network
internal use software, office equipment and other depreciable
property over estimated useful lives of up to seven years, with
about 97% of those assets being depreciated over lives of three
to seven years.
Sprint performs annual internal studies to confirm the
appropriateness of depreciable lives of most categories of
PP&E, since changes in technology, changes in the intended
use of these assets, as well as changes in broad economic or
industry factors may cause the estimated period of use of these
assets to change. These studies take into account actual usage,
physical wear and tear, replacement history and assumptions
about technology evolution to calculate the remaining life of
the asset base. When these factors indicate the useful lives of
PP&E are different from the previous assessment, we
depreciate the remaining book values
WF-8
WIMAX
OPERATIONS OF SPRINT NEXTEL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
prospectively over the adjusted estimated useful lives. We have
used Sprints 2007 study to support our depreciable lives.
We review our long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount
may not be recoverable. We group our long-lived assets at the
lowest level for which identifiable cash flows are largely
independent of the cash flows of other groups of assets and
liabilities. Indicators of impairment include, but are not
limited to, a sustained significant decrease in the fair value
of or the cash flows expected to be derived from the assets or a
significant change in the extent or manner in which the assets
are utilized. A significant amount of judgment is involved in
determining the occurrence of an indicator of impairment that
requires an evaluation of the recoverability of our long-lived
assets. If the total of the expected undiscounted future cash
flows is less than the carrying amount of our long-lived assets,
a loss is recognized for the difference between the fair value
and carrying value of the assets. Impairment analyses, when
performed, are based on our current business and technology
strategy, our views of growth rates for our business,
anticipated future economic and regulatory conditions and
expected technological availability.
In addition to the analyses described above, we periodically
assess certain assets that have not yet been deployed in our
business, including network equipment, cell site development
costs and software in development, to determine if an impairment
charge is required. Network equipment and cell site development
costs are impaired whenever events or changes in circumstances
cause us to abandon such assets if they are no longer needed to
meet managements strategic network plans. Software
development costs are impaired when it is no longer probable
that the software project will be deployed.
Intangible
Assets
Indefinite
Lived Intangibles
We have identified FCC licenses as indefinite lived intangible
assets after considering the expected use of the assets, the
regulatory and economic environment within which they are being
used and the effects of obsolescence on their use. We hold a
portfolio of 2.5 GHz FCC licenses, carried at historical
cost, acquired primarily through FCC auctions and prior business
combinations undertaken by Sprint.
We test our FCC licenses for impairment annually in the fourth
quarter by comparing the respective net book value to an
estimate of fair value, determined using the direct value method.
Definite
Lived Intangibles
Definite lived intangible assets consist of patent rights that
are amortized over a life of ten years on a straight-line basis.
We evaluate the remaining useful lives of our definite lived
intangible assets each reporting period to determine whether
events or circumstances warrant a revision to the remaining
periods of amortization, which would be adjusted prospectively.
We review our long-lived intangible asset groups for impairment
whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Impairment analyses,
when performed, are based on our current business and technology
strategy, our views of growth rates for our business,
anticipated future economic and regulatory conditions and
expected technological availability.
Spectrum
Expense
We enter into contracts with third parties that provide us the
right to use spectrum for a specified period of time. We account
for these contracts as executory contracts and generally
recognize expense as payments are made. For contracts with
prepayments, up-front fees or renewal fees, we recognize
expense, when such payments are made, on a straight-line basis
over the appropriate term, or 30 years, whichever is
shorter. For
WF-9
WIMAX
OPERATIONS OF SPRINT NEXTEL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
contracts with significant payments at the end of the term of
the agreement, we record expense on a straight-line basis over
the term of the agreement, or 30 years, whichever is
shorter.
Other
Income
Although we have yet to commence commercial operations, we have
been able to negotiate executory agreements with third parties
where we are paid for the use of certain of our FCC licenses or
where we subcontract our right to use such licenses. In 2007, we
recognized $4 million of other income associated with these
types of transactions.
Income
Taxes
Income taxes are accounted for using the asset/liability
approach in accordance with Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for
Income Taxes. Income taxes have been allocated to us as if
we were a separate taxpayer from Sprint. Deferred tax assets and
liabilities are determined based on the temporary differences
between the financial reporting and tax bases of assets and
liabilities, applying enacted statutory tax rates in effect for
the year in which the differences are expected to reverse.
Deferred tax assets are also recorded for net operating loss and
tax credit carryforwards. We are required to estimate the amount
of taxes payable or refundable for the current year and the
deferred tax liabilities and assets for the future tax
consequences of events that have been reflected in our financial
statements or tax returns for each taxing jurisdiction in which
we operate. This process requires management to make assessments
regarding the timing and probability of the ultimate tax impact.
We record valuation allowances on deferred tax assets if we
determine that it is more likely than not that the assets will
not be realized. Additionally, we establish reserves for
uncertain tax positions based upon our judgment regarding
potential future challenges to those positions. It has not been
necessary to recognize any interest or penalties related to
unrecognized tax benefits. Additional information regarding
uncertain tax positions can be found in Note 6.
Significant
New Accounting Pronouncements
New Fair
Value Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 157, Fair Value
Measurements. This statement changes the definition of fair
value, as defined by previous statements, to the price
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants
at the measurement date. Additionally, this statement
establishes a hierarchy that classifies the inputs used to
measure fair value. In February 2007, the FASB issued
SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities. This statement allows
entities the choice to measure certain financial instruments and
other items at fair value on specified measurement dates and
report any unrecognized gains or losses in earnings and serves
to minimize volatility in earnings that occurs when assets and
liabilities are measured differently without having to apply
complex hedge accounting provisions. Both SFAS No. 157
and SFAS No. 159 are effective for fiscal years
beginning after November 15, 2007, and interim periods
within those fiscal years; however, in February 2008, the FASB
issued FASB Staff Position (FSP)
No. 157-2,
Effective Date of FASB Statement No. 157, to
partially delay the effective date of SFAS No. 157 for
all nonfinancial assets and nonfinancial liabilities, except
those that are recognized or disclosed at fair value in the
financial statements on a recurring basis, until fiscal years
beginning after November 15, 2008.
Based on FSP
No. 157-2,
the partial adoption of SFAS No. 157 will not have a
material impact on our financial position and results of
operations in 2008. We are still assessing the impact that
SFAS No. 157 will have on our nonrecurring
measurements for nonfinancial assets and liabilities in 2009. We
are continuing to evaluate the impact of FSP
No. 157-2
as it relates to the disclosure of our nonrecurring fair value
WF-10
WIMAX
OPERATIONS OF SPRINT NEXTEL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
measurements, such as our annual impairment review of our FCC
licenses, and it will require significant disclosures related to
our key assumptions and variables used in this analysis. We did
not elect the fair value option under the provisions of
SFAS No. 159 for eligible financial assets and
liabilities held on January 1, 2008; however, we will apply
the fair value provisions of that statement for all eligible
assets and liabilities subsequently acquired or modified on or
after January 1, 2008.
Other New
Accounting Pronouncements
In April 2008, the FASB issued FSP
No. 142-3,
Determination of the Useful Life of Intangible Assets.
FSP
No. 142-3
amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under
SFAS No. 142, Goodwill and Other Intangible
Assets. The intent of FSP
No. 142-3
is to improve the consistency between the useful life of a
recognized intangible asset under SFAS No. 142 and the
period of expected cash flows used to measure the fair value of
the asset under SFAS No. 141R, Business
Combinations, and other U.S. generally accepted
accounting principles. Specifically, in developing assumptions
about renewal or extension used to determine the useful life of
a recognized intangible asset, an entity shall consider its own
historical experience in renewing or extending similar
arrangements; however, these assumptions should be adjusted for
the entity specific factors discussed in SFAS No. 142.
In the absence of that experience, an entity must consider the
assumptions that market participants would use about renewal or
extension (consistent with the highest and best use of the asset
by market participants), adjusted for the entity specific
factors discussed in SFAS No. 142. FSP
No. 142-3
is effective for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. We do not
believe the adoption of this accounting standard will have a
material impact on our financial statements.
In December 2007, the FASB issued SFAS No. 141R, which
replaces SFAS No. 141, Business Combinations,
originally issued in June 2001. SFAS No. 141R will
apply to business combinations for which the acquisition date is
on or after January 1, 2009, and this statement could have
a material impact on us with respect to business combinations
completed after the effective date. Such significant changes
include, but are not limited to, the acquirer
recording 100% of all assets and liabilities, including goodwill
of the acquired business, generally at their fair values, and
acquisition-related transaction and restructuring costs will be
expensed rather than treated as part of the cost of the
acquisition and included in the amount recorded for assets
acquired. In addition, after the effective date, reversals of
valuation allowances related to acquired deferred tax assets and
changes to acquired income tax uncertainties related to any
business combination, even those completed prior to the
statements effective date, will be recognized in earnings,
except for qualified measurement period adjustments.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements. This statement amends Accounting Research
Bulletin No. 51, Consolidated Financial
Statements, to establish accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. SFAS No. 160 is
effective for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. If we were
to enter into an arrangement after the effective date of the
statement where we are required to consolidate a noncontrolling
interest, we would report the noncontrolling interests
equity as a component of business equity in our balance sheet
and report the component of net income or loss and comprehensive
income or loss attributable to the noncontrolling interest
separately. While certain changes in ownership interests will be
treated as equity transactions under the new statement, a gain
or loss recognized upon loss of control of a subsidiary will be
recognized in the statement of operations. This practice differs
from our current policy of recognizing such gains or losses as a
component of business equity. In addition, the amount of gain or
loss is measured using the fair value of the noncontrolling
interest at the date control ceases. This also differs from
current practice as the carrying amount of a retained interest
currently is not remeasured.
WF-11
WIMAX
OPERATIONS OF SPRINT NEXTEL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
Concentrations
of Risk
Reliance
on Few Suppliers
The future development of our WiMAX wireless broadband network
is dependent upon a limited number of vendors to supply us with
the various components of our WiMAX network. Supply and service
agreements are in place with all of our vendors; however, should
our vendors encounter difficulties in delivering some or all of
the network equipment, software or network-related services
ordered, this would significantly affect our ability to serve
customers in accordance with our planned commercial launch dates.
Reliance
on Sprint for Funding
Since the WiMAX Operations are currently a collection of assets
and activities that do not generate revenue, we are dependent
upon Sprint to fund the acquisition and development of our
network assets. Sprint has committed to provide the required
financial support through the earlier of the closing of the
transaction described in Note 1 at which time future
funding will become New Clearwires obligation, or
August 31, 2009. However, should Sprint be unable to
provide the committed support, this would significantly affect
our ability to further develop the existing network.
|
|
Note 4.
|
Intangible
Assets
|
Indefinite
Lived Intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
Balance
|
|
|
|
January 1,
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
Additions
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
FCC licenses
|
|
$
|
1,840,889
|
(1)
|
|
$
|
577,357
|
|
|
$
|
2,418,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amount represents assets contributed by Sprint effective
January 1, 2007. See Notes 1 and 2 for additional
information. |
We hold a portfolio of numerous FCC licenses within the
2.5 GHz range. These licenses have been acquired primarily
through FCC auctions and prior business combinations undertaken
by Sprint, and such licenses will be used to deploy our next
generation broadband wireless services. We have identified these
FCC licenses as indefinite lived intangible assets after
considering the expected use of the assets, the regulatory and
economic environment within which they are being used and the
effects of obsolescence on their use. As long as we act within
the requirements and constraints of the regulatory authorities,
the renewal and extension of our licenses is reasonably certain
at minimal cost. FCC licenses authorize wireless carriers to use
radio frequency spectrum. That spectrum is a renewable, reusable
resource that does not deplete or exhaust over time. We are not
aware of any technology being developed that would render
spectrum obsolete. Currently, there are no changes in the
competitive or legislative environments that would put in
question the future need for spectrum licenses.
During the fourth quarter 2007, we tested our FCC licenses for
impairment by comparing the respective book value to an estimate
of fair value and concluded that no impairment was necessary for
these assets.
WF-12
WIMAX
OPERATIONS OF SPRINT NEXTEL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
Definite
Lived Intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Useful Lives
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
Patent rights
|
|
|
10 years
|
|
|
$
|
1,316
|
|
|
$
|
(43
|
)
|
|
$
|
1,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Definite lived intangible assets consist of patent rights that
are amortized over a life of ten years on a straight-line basis.
The expected amortization related to these patents rights is
$132 thousand per year.
|
|
Note 5.
|
Property,
Plant and Equipment, Net
|
Total property, plant and equipment, net as of December 31,
2007 consisted of the following:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Land
|
|
$
|
776
|
|
Network equipment, site costs and software
|
|
|
81,755
|
|
Buildings and improvements
|
|
|
1,027
|
|
Non-network
internal use software, office equipment and other
|
|
|
24,683
|
|
Less accumulated depreciation
|
|
|
(4,603
|
)
|
|
|
|
|
|
Net property, plant and equipment
|
|
|
103,638
|
|
Network asset inventory and construction in progress
|
|
|
388,258
|
|
|
|
|
|
|
Total property, plant and equipment, net
|
|
$
|
491,896
|
|
|
|
|
|
|
The legal entities that own our assets are included in the
filing of Sprints consolidated federal income tax return
and certain unitary or combined state income tax returns for the
year ended December 31, 2007. Income tax expense and
related income tax liabilities (assets) are accounted for in
accordance with SFAS No. 109, and have been presented
in these financial statements as if we were filing stand-alone
separate returns using an estimated combined federal and state
marginal tax rate of 39%.
The income tax expense allocated to operations consisted of the
following:
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Current income tax expense
|
|
|
|
|
Federal
|
|
$
|
|
|
State
|
|
|
|
|
|
|
|
|
|
Total current income tax expense
|
|
|
|
|
|
|
|
|
|
Deferred income tax expense
|
|
|
|
|
Federal
|
|
|
13,745
|
|
State
|
|
|
2,617
|
|
|
|
|
|
|
Total deferred income tax expense
|
|
|
16,362
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
16,362
|
|
|
|
|
|
|
WF-13
WIMAX
OPERATIONS OF SPRINT NEXTEL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
The loss from operations before income taxes does not include
any foreign component.
The differences that caused our effective income tax rates to
vary from the 35% federal statutory rate were as follows:
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Income tax benefit at the federal statutory rate
|
|
$
|
(72,927
|
)
|
Effect of:
|
|
|
|
|
State income taxes, net of federal income tax effect
|
|
|
1,701
|
|
Increase in federal valuation allowance
|
|
|
87,956
|
|
Other, net
|
|
|
(368
|
)
|
|
|
|
|
|
Income tax expense
|
|
$
|
16,362
|
|
|
|
|
|
|
We recognize deferred income taxes for temporary differences
between the carrying amounts of our assets and liabilities for
financial statement purposes and their tax bases. Deferred tax
assets are also recorded for net operating loss and tax credit
carryforwards. The sources of the differences that give rise to
the deferred tax assets and liabilities as of December 31,
2007, along with the income tax effect of each, were as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
118,950
|
|
Tax credit carryforwards
|
|
|
637
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
119,587
|
|
Valuation allowance
|
|
|
(98,697
|
)
|
|
|
|
|
|
Total net deferred tax assets
|
|
|
20,890
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
FCC licenses
|
|
|
679,222
|
|
Property
|
|
|
15,565
|
|
Research and experimentation expenses
|
|
|
4,559
|
|
Other
|
|
|
766
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
700,112
|
|
|
|
|
|
|
Deferred tax liability, net
|
|
$
|
679,222
|
|
|
|
|
|
|
We have recorded gross deferred tax assets of $120 million
related to net operating loss and tax credit carryforwards of
$305 million and $637 thousand, respectively, which
generally expire in 2027. We have recorded a valuation allowance
against a substantial portion of our deferred tax assets.
Management has reviewed the facts and circumstances, including
the limited history and the projected future losses, and
determined that it is more likely than not, based on the weight
of the evidence, that a substantial portion of the deferred tax
assets will not be realized. The remaining deferred tax asset
was reduced by schedulable deferred tax liabilities. The net
deferred tax liabilities are related to FCC licenses, which are
not amortized for book purposes. The net change in the valuation
allowance for the year ended December 31, 2007 was
$99 million.
WF-14
WIMAX
OPERATIONS OF SPRINT NEXTEL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
FASB
Interpretation No. 48
FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes, clarifies the accounting for uncertainty in
income taxes recognized in an enterprises financial
statements in accordance with SFAS No. 109 and
prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return.
The total unrecognized tax benefits attributable to uncertain
tax positions as of January 1, 2007 and December 31,
2007 were zero. Our policy is to recognize interest related to
unrecognized tax benefits, if applicable, in interest expense or
interest income and to recognize penalties as additional income
tax expense. As of December 31, 2007, there were no accrued
penalties or interest related to unrecognized tax benefits.
Management believes it is reasonably possible that we will have
significant increases to the liability for unrecognized tax
benefits during the next twelve months as a result of the
significant planned expansion of the business.
Management is unable to estimate the range of the reasonably
possible increase due to the expected significance of the
changes in the business.
|
|
Note 7.
|
Commitments
and Contingencies
|
Operating
Leases
We lease various switching facilities and transmitter and
receiver sites under operating leases. The non-cancelable
portion of these leases ranges from monthly up to 25 years.
These leases, with few exceptions, provide for automatic renewal
options and escalations that are either fixed or based on the
consumer price index. Any rent abatements, along with rent
escalations, are included in the computation of rent expense
calculated on a straight-line basis over the lease term. Our
lease term for most leases includes the initial non-cancelable
term plus at least one renewal period, as the exercise of the
related renewal option or options is reasonably assured. Our
cell site leases generally provide for an initial non-cancelable
term of five to seven years with up to five renewal options for
five years each.
As of December 31, 2007, our rental commitments and
in-substance rental commitments to Sprint for operating leases,
including lease renewals that are reasonably assured, consist of
leases for cell and switch sites. Our rental commitments are
subject to the terms of a Master Lease Agreement
(MLA) with Sprint. Our in-substance rental
commitments represent cell and switch sites that are co-located
with WiMAX equipment and therefore represent a true commitment;
however, they are yet to be executed under the MLA. Our
commitments in future years are as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
2008
|
|
$
|
13,885
|
|
2009
|
|
|
15,534
|
|
2010
|
|
|
15,948
|
|
2011
|
|
|
16,367
|
|
2012
|
|
|
16,797
|
|
Thereafter
|
|
|
88,986
|
|
Total rent expense was $2 million for 2007.
WF-15
WIMAX
OPERATIONS OF SPRINT NEXTEL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
Commitments
We are a party to other commitments, which primarily includes
purchases of network inventory, spectrum capacity and other
executory contracts. As of December 31, 2007, the minimum
amounts due under these commitments were as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
2008
|
|
$
|
936,326
|
|
2009
|
|
|
195,065
|
|
2010
|
|
|
76,424
|
|
2011
|
|
|
77,506
|
|
2012
|
|
|
79,515
|
|
Thereafter
|
|
|
1,956,391
|
|
Contingencies
We are currently engaged in various lawsuits regarding our
rights pertaining to certain spectrum use agreements. We have
asserted claims against the defendants who have either breached
agreements giving us a right of first offer or right of first
refusal with respect to the renewal of certain of our
2.5 GHz spectrum use agreements
and/or who
have interfered with those contractual rights. Currently, all
parties have agreed to a stay to the litigation proceedings. If
we were to lose our claims, we do not believe it would have a
material impact to our financial position or results of
operations.
We are also engaged in litigation with Sprint affiliate
iPCS Corporation (iPCS) and certain of its
subsidiaries, in which the parties seek judicial determination
of whether the management agreements between Sprint and the iPCS
entities can have any effect on the amount or nature of
Sprints investment in the proposed transaction with
Clearwire. We expect that motions will be heard on the matter in
Delaware in September 2008.
We are subject to various claims and legal actions that arise in
the ordinary course of business. Management cannot predict the
final outcome of the actions individually, or in the aggregate,
but believes they will not have a material, adverse effect on
our financial condition or results of operations.
|
|
Note 8.
|
Related
Party and Other Transactions
|
Sprint
Nextel Corporation
Sprint provides us with office facilities and management
services, including treasury services, human resources, supply
chain management and other shared services. Sprint charged us
management fees totaling $115 million in 2007 for such
services and office facilities. Additionally, we have entered
into lease agreements with Sprint for various switching
facilities and transmitter and receiver sites for which we
recorded rent expense of $2 million in 2007. We did not
make any payments to Sprint through December 31, 2007.
Our operations were included as part of Sprints
consolidated federal income tax return and certain unitary or
combined state income tax returns for the year ended
December 31, 2007. We have presented income tax expense and
related income tax liabilities as if we were filing stand-alone
separate returns. As such, we recognized $16 million of
deferred tax expense in 2007 and have recorded a deferred tax
liability of $679 million as of December 31, 2007.
WF-16
WIMAX
OPERATIONS OF SPRINT NEXTEL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
Clearwire
Corporation
In May 2008, Sprint entered into a definitive agreement with
Clearwire to combine both of their next generation wireless
broadband businesses to form a new independent company to focus
on expediting the deployment of the first nationwide mobile
WiMAX network. Prior to January 1, 2007, Sprint entered
into certain transactions with Clearwire to settle pending
lawsuits and exchange certain FCC licenses and spectrum use
rights.
Sprints policy is to record the difference between the
fair value of the items received in the transactions and the
book value of the items given up in the transactions as either a
gain or loss in its statement of operations, and to contribute
the items received at fair value to the WiMAX Operations upon
consummation of the transactions. The resulting gain related to
the FCC licenses and rights to use spectrum received in the
transactions was approximately $12 million. During 2007, we
also entered into transactions with Clearwire to
contract/subcontract certain spectrum use rights and
lease/sublease certain cell tower space.
In 2007, we recognized $3 million of other income
associated with the executory agreements where we were paid for
the use of certain of our FCC licenses or where we subcontracted
our right to use such licenses and $2 million of contra
spectrum expense where we were reimbursed for usage of other
spectrum. We received $3 million from Clearwire as an
up-front payment on a collection of subcontracts; this up-front
payment is recorded as contra prepaid spectrum expense and will
be recognized over the life of the agreement.
We also recognized $566 thousand of legal and other
reimbursements as a component of general and administrative
expenses. We are a party to certain agreements where Clearwire
subcontracts the right to use spectrum from us. Rather than
reimburse us, Clearwire pays the owners of the educational
broadband spectrum directly. In 2007, Clearwire paid
$1 million directly to these spectrum owners on our behalf.
We have also completed transactions with Clearwire to acquire
certain spectrum rights or the right to use certain spectrum
rights in certain areas of the United States and paid
$6 million in 2007 related to such transactions;
$1 million of this amount relates to the acquisition of an
FCC license while the remainder represents prepaid spectrum
expense that will be recognized as spectrum expense over the
life of the agreement. Additionally, we paid Clearwire $232
thousand for the right to use certain spectrum in 2007. As of
December 31, 2007, no amounts were due to or from Clearwire.
WF-17
WIMAX
OPERATIONS OF SPRINT NEXTEL CORPORATION
(A Development Stage Enterprise)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
|
|
|
$
|
|
|
Prepaid spectrum expense
|
|
|
7,645
|
|
|
|
8,399
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
7,645
|
|
|
|
8,399
|
|
Property, plant and equipment, net
|
|
|
822,095
|
|
|
|
491,896
|
|
FCC licenses and patents, net
|
|
|
2,517,390
|
|
|
|
2,419,519
|
|
Prepaid spectrum expense
|
|
|
200,245
|
|
|
|
180,863
|
|
Other assets
|
|
|
72,342
|
|
|
|
43,481
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,619,717
|
|
|
$
|
3,144,158
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND BUSINESS EQUITY
|
Deferred tax liability, net
|
|
$
|
692,058
|
|
|
$
|
679,222
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Business equity
|
|
|
2,927,659
|
|
|
|
2,464,936
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and business equity
|
|
$
|
3,619,717
|
|
|
$
|
3,144,158
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Financial Statements
WF-18
WIMAX
OPERATIONS OF SPRINT NEXTEL CORPORATION
(A Development Stage Enterprise)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
January 1, 2007
|
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
(Inception) to
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Net operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Direct and allocated costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Spectrum expense
|
|
|
33,093
|
|
|
|
26,004
|
|
|
|
93,144
|
|
Network costs
|
|
|
52,438
|
|
|
|
8,360
|
|
|
|
101,303
|
|
General and administrative
|
|
|
66,946
|
|
|
|
34,336
|
|
|
|
166,436
|
|
Depreciation and amortization
|
|
|
16,302
|
|
|
|
162
|
|
|
|
20,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168,779
|
|
|
|
68,862
|
|
|
|
381,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(168,779
|
)
|
|
|
(68,862
|
)
|
|
|
(381,164
|
)
|
Other income
|
|
|
2,854
|
|
|
|
1,754
|
|
|
|
6,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations before income taxes
|
|
|
(165,925
|
)
|
|
|
(67,108
|
)
|
|
|
(374,288
|
)
|
Income tax expense
|
|
|
(11,078
|
)
|
|
|
(7,265
|
)
|
|
|
(27,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(177,003
|
)
|
|
$
|
(74,373
|
)
|
|
$
|
(401,728
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Financial Statements
WF-19
WIMAX
OPERATIONS OF SPRINT NEXTEL CORPORATION
(A Development Stage Enterprise)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
January 1, 2007
|
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
(Inception) to
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(177,003
|
)
|
|
$
|
(74,373
|
)
|
|
$
|
(401,728
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
16,302
|
|
|
|
162
|
|
|
|
20,281
|
|
Deferred income taxes
|
|
|
11,078
|
|
|
|
7,265
|
|
|
|
27,440
|
|
Changes in prepaid spectrum expense and other assets
|
|
|
(47,489
|
)
|
|
|
(46,917
|
)
|
|
|
(182,624
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities(1)
|
|
|
(197,112
|
)
|
|
|
(113,863
|
)
|
|
|
(536,631
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(410,401
|
)
|
|
|
(57,644
|
)
|
|
|
(739,870
|
)
|
Expenditures relating to FCC licenses and patents
|
|
|
(91,397
|
)
|
|
|
(42,746
|
)
|
|
|
(445,008
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities(1)
|
|
|
(501,798
|
)
|
|
|
(100,390
|
)
|
|
|
(1,184,878
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances from Sprint Nextel Corporation(1)
|
|
|
698,910
|
|
|
|
214,253
|
|
|
|
1,721,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts represent cash inflows and outflows made on behalf of or
to the WiMAX Operations of Sprint Nextel Corporation by Sprint
Nextel Corporation. See Note 2 for additional information. |
See accompanying Notes to Financial Statements
WF-20
WIMAX
OPERATIONS OF SPRINT NEXTEL CORPORATION
(A Development Stage Enterprise)
(Unaudited)
|
|
|
|
|
|
|
Period from
|
|
|
|
January 1, 2007
|
|
|
|
(Inception) to
|
|
|
|
June 30, 2008
|
|
|
|
(In thousands)
|
|
|
Business equity, January 1, 2007
|
|
$
|
1,402,410
|
|
Net loss
|
|
|
(224,725
|
)
|
Contributions and advances from Sprint Nextel Corporation
|
|
|
1,287,251
|
|
|
|
|
|
|
Business equity, December 31, 2007
|
|
|
2,464,936
|
|
Net loss
|
|
|
(177,003
|
)
|
Contributions and advances from Sprint Nextel Corporation
|
|
|
639,726
|
|
|
|
|
|
|
Business equity, June 30, 2008
|
|
$
|
2,927,659
|
|
|
|
|
|
|
See accompanying Notes to Financial Statements
WF-21
WIMAX
OPERATIONS OF SPRINT NEXTEL CORPORATION
(A Development Stage Enterprise)
(Unaudited)
|
|
Note 1.
|
Description
of Business WiMAX Operations
|
The WiMAX Operations of Sprint Nextel Corporation (WiMAX
Operations, we or our), a
development stage enterprise, represent a collection of assets,
related liabilities and activities accounted for in various
legal entities that are wholly-owned subsidiaries of Sprint
Nextel Corporation (Sprint or the
Parent) and allocations from the Parent and other
non-WiMAX entities that act on our behalf. These assets, related
liabilities and activities have been collectively utilized with
the objective of developing a next generation wireless broadband
network that will enable simple, fast, portable, reliable and
affordable Internet communications. We expect to deploy the
mobile Worldwide Interoperability of Microwave Access
(WiMAX) technology, based on the IEEE
802.16e-2005
standard, in our planned markets using 2.5 gigahertz
(GHz) Federal Communications Commission
(FCC) licenses. As mobile WiMAX is a standards-based
technology, we believe manufacturers may begin to offer a number
of handheld communications and consumer electronic devices that
will be WiMAX-enabled. We have announced our plans to launch
commercial WiMAX service in selected markets in September 2008,
and expect to serve a small number of customers by the end of
2008.
On May 7, 2008, Sprint announced that it had entered into a
definitive agreement with Clearwire Corporation
(Clearwire) to combine both of their next generation
wireless broadband businesses to form a new independent company
to be called Clearwire (New Clearwire). In addition,
five independent partners, including Intel Corporation through
Intel Capital, Google Inc., Comcast Corporation, Time Warner
Cable Inc. and Bright House Networks LLC, collectively agreed to
invest $3.2 billion in New Clearwire. Prior to closing the
transaction, the assets, related liabilities and activities of
the WiMAX Operations, currently accounted for in various legal
entities, will be transferred to a single legal entity that will
be contributed to New Clearwire at close in exchange for an
equity interest in New Clearwire. New Clearwire will be focused
on expediting the deployment of the first nationwide mobile
WiMAX network to provide a true mobile broadband experience for
consumers, small businesses, medium and large enterprises,
public safety organizations and educational institutions. The
transaction is expected to close in the fourth quarter 2008.
The accompanying financial statements represent the collective
assets and activities of the WiMAX Operations, including any
allocations from the Parent and other non-WiMAX entities that
have acted on our behalf. The nature of the assets held by the
legal entities is primarily 2.5 GHz FCC licenses and
certain property, plant and equipment related to the WiMAX
network. The acquisition of the assets was funded by the Parent.
There is no intention of repaying this funding, other than
certain amounts that will be repaid on the closing of the above
transaction, and it is presented as business equity. As Sprint
has acquired significant amounts of FCC licenses on our behalf
in the past, these purchases have been presented as part of the
opening business equity as principal operations did not commence
until January 1, 2007, at which time the WiMAX Operations
qualified as a business.
Management of Sprint has committed to provide us with the
required financial support through the earlier of the closing of
the above transaction or August 31, 2009.
|
|
Note 2.
|
Basis of
Presentation
|
The information as of June 30, 2008, for the six months
ended June 30, 2008 and 2007 and for the period from
January 1, 2007 (inception) to June 30, 2008 is
unaudited, but includes all adjustments (consisting only of
normal recurring adjustments) that are necessary for a fair
presentation of the results for interim periods. Operating
results for the interim periods should not be viewed as
representative of results that may be expected for the year
ending December 31, 2008.
WF-22
WIMAX
OPERATIONS OF SPRINT NEXTEL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
(Unaudited)
We prepare our financial statements in conformity with
accounting principles generally accepted in the United States,
which require management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date
of the balance sheet as well as the reported amounts of expenses
during the reporting periods. Due to the inherent uncertainty
involved in making those estimates, actual results could differ
from those estimates. Areas in which significant estimates have
been made include, but are not limited to, tax valuation
allowances, useful lives for property, plant and equipment and
indefinite lived intangible asset impairment analyses.
The accompanying financial statements present our balance sheets
and the related results of operations and cash flows.
Accordingly, these statements do not represent the financial
position, results of operations or cash flows of Sprint.
Further, these statements include allocations of expenses from
Sprint and therefore may not necessarily be indicative of the
financial position, results of operations and cash flows that
would have resulted had we functioned as a stand-alone
operation. Additionally, the assets and liabilities in the
financial statements herein may differ from the separated
company upon completion of the contribution to
New Clearwire based on the specific definitive agreements
signed between Sprint and Clearwire. The balance sheets do not
include Sprints assets or liabilities not separately
identifiable to us. Cash management is performed on a
consolidated basis and Sprint processes payables, payroll and
other transactions on our behalf. Assets and liabilities not
specifically identifiable to us include:
|
|
|
|
|
Cash, cash equivalents and investments, with activity in our
cash balances being recorded through business equity;
|
|
|
|
Accounts payable, which are processed centrally by Sprint and
are passed to us through intercompany accounts that are included
in business equity; and
|
|
|
|
Certain accrued liabilities, which are passed through to us
through intercompany accounts that are included in business
equity.
|
Supplemental
Cash Flow Information
Statements of cash flows have been presented for the six months
ended June 30, 2008 and 2007 and the period from
January 1, 2007 (inception) to June 30, 2008. The
statements of cash flows present the activities that were paid
by Sprint on our behalf. Financing activities include funding
advances from Sprint, presented as business equity, since it
manages our financing activities on a centralized basis.
Further, the net cash used in operating activities and the net
cash used in investing activities for capital expenditures and
acquisitions of FCC licenses and patents represent transfers of
expenses or assets paid for by other Sprint subsidiaries. No
cash payments were made by us for income taxes or interest in
2007 or through June 30, 2008.
WF-23
WIMAX
OPERATIONS OF SPRINT NEXTEL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
(Unaudited)
Reconciliation
of Changes in Business Equity
The following is a reconciliation of changes in business equity:
|
|
|
|
|
|
|
Period from
|
|
|
|
January 1, 2007
|
|
|
|
(Inception) to
|
|
|
|
June 30, 2008
|
|
|
|
(In thousands)
|
|
|
Opening business equity, January 1, 2007
|
|
$
|
1,402,410
|
|
Contributions and advances from Sprint:
|
|
|
|
|
Advances from Sprint
|
|
|
1,022,599
|
|
Increase in Sprints accruals for our capital expenditures
|
|
|
164,652
|
|
Sprints purchase of 2.5 GHz FCC licenses with stock(1)
|
|
|
100,000
|
|
|
|
|
|
|
Total contributions and advances from Sprint
|
|
|
1,287,251
|
|
Net loss for the year ended December 31, 2007
|
|
|
(224,725
|
)
|
|
|
|
|
|
Business equity at December 31, 2007
|
|
|
2,464,936
|
|
Contributions and advances from Sprint:
|
|
|
|
|
Advances from Sprint
|
|
|
698,910
|
|
Decrease in Sprints accruals for our capital expenditures
|
|
|
(63,184
|
)
|
Sprints purchase of 2.5 GHz FCC licenses with stock(1)
|
|
|
4,000
|
|
|
|
|
|
|
Total contributions and advances from Sprint
|
|
|
639,726
|
|
Net loss for the six months ended June 30, 2008
|
|
|
(177,003
|
)
|
|
|
|
|
|
Business equity at June 30, 2008
|
|
$
|
2,927,659
|
|
|
|
|
|
|
|
|
|
(1) |
|
Sprint acquired FCC licenses on our behalf for $100 million
of Sprint common stock and $4 million of Sprint common
stock in 2007 and the six months ended June 30, 2008,
respectively. |
Allocation
of Shared Services
Sprint directly assigns, where possible, certain costs to us
based on our actual use of the shared services. These costs
include network related expenses, office facilities, treasury
services, human resources, supply chain management and other
shared services. Where direct assignment of costs is not
possible or practical, Sprint uses indirect methods, including
time studies, to estimate the assignment of its costs to us,
which are allocated to us through a management fee. The
allocations of these costs are re-evaluated periodically. Sprint
allocated $107 million of shared services costs to us in
the six months ended June 30, 2008, $39 million in the
six months ended June 30, 2007 and $222 million in the
period from January 1, 2007 (inception) to June 30,
2008.
Allocation
of Financing
Sprint manages our financing activities on a centralized basis.
Under Sprints centralized cash management program, we are
advanced funds, which represent the allocation of capital to
support our operations. The advances are included in business
equity on the balance sheet. Sprint has not charged us any
interest and there has not been any reimbursement of these funds
to date, nor are there obligations to repay these amounts at
this time.
WF-24
WIMAX
OPERATIONS OF SPRINT NEXTEL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
(Unaudited)
Significant
New Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 141R, Business
Combinations, which replaces SFAS No. 141,
Business Combinations, originally issued in June 2001.
SFAS No. 141R will apply to business combinations for
which the acquisition date is on or after January 1, 2009,
and this statement could have a material impact on us with
respect to business combinations completed after the effective
date. Such significant changes include, but are not limited to,
the acquirer recording 100% of all assets and
liabilities, including goodwill of the acquired business,
generally at their fair values, and acquisition-related
transaction and restructuring costs will be expensed rather than
treated as part of the cost of the acquisition and included in
the amount recorded for assets acquired. In addition, after the
effective date, reversals of valuation allowances related to
acquired deferred tax assets and changes to acquired income tax
uncertainties related to any business combination, even those
completed prior to the statements effective date, will be
recognized in earnings, except for qualified measurement period
adjustments.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements. This statement amends Accounting Research
Bulletin No. 51, Consolidated Financial
Statements, to establish accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. SFAS No. 160 is
effective for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. If we were
to enter into an arrangement after the effective date of the
statement where we are required to consolidate a noncontrolling
interest, we would report the noncontrolling interests
equity as a component of business equity in our balance sheet
and report the component of net income or loss and comprehensive
income or loss attributable to the noncontrolling interest
separately. While certain changes in ownership interests will be
treated as equity transactions under the new statement, a gain
or loss recognized upon loss of control of a subsidiary will be
recognized in the statement of operations. This practice differs
from our current policy of recognizing such gains or losses as a
component of business equity. In addition, the amount of gain or
loss is measured using the fair value of the noncontrolling
interest at the date control ceases. This also differs from
current practice as the carrying amount of a retained interest
currently is not remeasured.
In April 2008, the FASB issued FSP
No. 142-3,
Determination of the Useful Life of Intangible Assets.
FSP
No. 142-3
amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under
SFAS No. 142, Goodwill and Other Intangible
Assets. The intent of FSP
No. 142-3
is to improve the consistency between the useful life of a
recognized intangible asset under SFAS No. 142 and the
period of expected cash flows used to measure the fair value of
the asset under SFAS No. 141R and other
U.S. generally accepted accounting principles.
Specifically, in developing assumptions about renewal or
extension used to determine the useful life of a recognized
intangible asset, an entity shall consider its own historical
experience in renewing or extending similar arrangements;
however, these assumptions should be adjusted for the entity
specific factors discussed in SFAS No. 142. In the
absence of that experience, an entity must consider the
assumptions that market participants would use about renewal or
extension (consistent with the highest and best use of the asset
by market participants), adjusted for the entity specific
factors discussed in SFAS No. 142. FSP
No. 142-3
is effective for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. We do not
believe the adoption of this accounting standard will have a
material impact on our financial statements.
WF-25
WIMAX
OPERATIONS OF SPRINT NEXTEL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
(Unaudited)
Concentrations
of Risk
Reliance
on Few Suppliers
The future development of our WiMAX wireless broadband network
is dependent upon a limited number of vendors to supply us with
the various components of our WiMAX network. Supply and service
agreements are in place with all of our vendors; however, should
our vendors encounter difficulties in delivering some or all of
the network equipment, software or network-related services
ordered, this would significantly affect our ability to serve
customers in accordance with our planned commercial launch dates.
Reliance
on Sprint for Funding
Since the WiMAX Operations are currently a collection of assets
and activities that do not generate revenue, we are dependent
upon Sprint to fund the acquisition and development of our
network assets. Sprint has committed to provide the required
financial support through the earlier of the closing of the
transaction described in Note 1 at which time future
funding will become New Clearwires obligation, or
August 31, 2009. However, should Sprint be unable to
provide the committed support, this would significantly affect
our ability to further develop the existing network.
|
|
Note 3.
|
Intangible
Assets
|
Indefinite
Lived Intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
Balance
|
|
|
December 31,
|
|
|
|
June 30,
|
|
|
2007
|
|
Additions
|
|
2008
|
|
|
(In thousands)
|
|
FCC licenses
|
|
$
|
2,418,246
|
|
|
$
|
96,962
|
|
|
$
|
2,515,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We hold a portfolio of numerous FCC licenses within the
2.5 GHz range. These licenses have been acquired primarily
through FCC auctions and prior business combinations undertaken
by Sprint, and such licenses will be used to deploy our next
generation broadband wireless services. We have identified these
FCC licenses as indefinite lived intangible assets after
considering the expected use of the assets, the regulatory and
economic environment within which they are being used and the
effects of obsolescence on their use. As long as we act within
the requirements and constraints of the regulatory authorities,
the renewal and extension of our licenses is reasonably certain
at minimal cost. FCC licenses authorize wireless carriers to use
radio frequency spectrum. That spectrum is a renewable, reusable
resource that does not deplete or exhaust over time. We are not
aware of any technology being developed that would render
spectrum obsolete. Currently, there are no changes in the
competitive or legislative environments that would put in
question the future need for spectrum licenses.
Definite
Lived Intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
|
|
|
Gross
|
|
|
|
Net
|
|
|
|
|
Carrying
|
|
Accumulated
|
|
Carrying
|
|
|
Useful Lives
|
|
Value
|
|
Amortization
|
|
Value
|
|
|
|
|
(In thousands)
|
|
Patent rights
|
|
10 years
|
|
$
|
2,308
|
|
|
$
|
(126
|
)
|
|
$
|
2,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WF-26
WIMAX
OPERATIONS OF SPRINT NEXTEL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
(Unaudited)
Definite lived intangible assets consist of patent rights that
are amortized over a life of ten years on a straight-line basis.
The expected amortization related to these patents rights for
each of the next five years is $231 thousand per year.
The legal entities that own our assets are included in the
filing of Sprints consolidated federal income tax return
and certain unitary or combined state income tax returns. Income
tax expense and related income tax liabilities (assets) are
accounted for in accordance with SFAS No. 109,
Accounting for Income Taxes, and have been presented in
these financial statements as if we were filing stand-alone
separate returns using an estimated combined federal and state
marginal tax rate of 39%.
The differences that caused our effective income tax rates to
vary from the 35% federal statutory rate were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
January 1, 2007
|
|
|
|
Ended
|
|
|
Ended
|
|
|
(Inception) to
|
|
|
|
June 30, 2008
|
|
|
June 30, 2007
|
|
|
June 30, 2008
|
|
|
|
(In thousands)
|
|
|
Income tax benefit at the federal statutory rate
|
|
$
|
(58,074
|
)
|
|
$
|
(23,488
|
)
|
|
$
|
(131,001
|
)
|
Effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal income tax effect
|
|
|
1,635
|
|
|
|
745
|
|
|
|
3,336
|
|
Increase in federal valuation allowance
|
|
|
67,497
|
|
|
|
30,633
|
|
|
|
155,453
|
|
Other, net
|
|
|
20
|
|
|
|
(625
|
)
|
|
|
(348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
11,078
|
|
|
$
|
7,265
|
|
|
$
|
27,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2008, we have recorded gross deferred tax
assets of $206 million related to net operating loss and
tax credit carryforwards of $525 million and $637 thousand,
respectively, which generally expire starting in 2027. We have
recorded a valuation allowance against a substantial portion of
our deferred tax assets. Management has reviewed the facts and
circumstances, including the limited history and the projected
future losses, and determined that it is more likely than not,
based on the weight of the evidence, that a substantial portion
of the deferred tax assets will not be realized. The remaining
deferred tax asset was reduced by schedulable deferred tax
liabilities. The net deferred tax liabilities are related to FCC
licenses, which are not amortized for book purposes.
FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes, clarifies the accounting for uncertainty in
income taxes recognized in an enterprises financial
statements in accordance with SFAS No. 109 and
prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. The
total unrecognized tax benefits attributable to uncertain tax
positions as of June 30, 2008 were $1 million. Our
policy is to recognize interest related to unrecognized tax
benefits, if applicable, in interest expense or interest income
and to recognize penalties as additional income tax expense. As
of June 30, 2008, there were no accrued penalties or
interest related to unrecognized tax benefits.
Management believes it is reasonably possible that we will have
significant increases to the liability for unrecognized tax
benefits during the next twelve months as a result of the
significant planned expansion of the business. Management is
unable to estimate the range of the reasonably possible increase
due to the expected significance of the changes in the business.
WF-27
WIMAX
OPERATIONS OF SPRINT NEXTEL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
(Unaudited)
|
|
Note 5.
|
Commitments
and Contingencies
|
We are currently engaged in various lawsuits regarding our
rights pertaining to certain spectrum use agreements. We have
asserted claims against the defendants who have either breached
agreements giving us a right of first offer or right of first
refusal with respect to the renewal of certain of our
2.5 GHz spectrum use agreements
and/or who
have interfered with those contractual rights. Currently, all
parties have agreed to a stay to the litigation proceedings. If
we were to lose our claims, we do not believe it would have a
material impact to our financial position or results of
operations.
We are also engaged in litigation with Sprint affiliate
iPCS Corporation (iPCS) and certain of its
subsidiaries, in which the parties seek judicial determination
of whether the management agreements between Sprint and the iPCS
entities can have any effect on the amount or nature of
Sprints investment in the proposed transaction with
Clearwire. We expect that motions will be heard on the matter in
Delaware in September 2008.
We are subject to various claims and legal actions that arise in
the ordinary course of business. Management cannot predict the
final outcome of the actions individually, or in the aggregate,
but believes they will not have a material, adverse effect on
our financial condition or results of operations.
|
|
Note 6.
|
Related
Party and Other Transactions
|
Sprint
Nextel Corporation
Sprint provides us with office facilities and management
services, including treasury services, human resources, supply
chain management and other shared services. Sprint charged us
management fees for such services and office facilities of
$107 million in the six months ended June 30, 2008,
$39 million in the six months ended June 30, 2007 and
$222 million in the period from January 1, 2007
(inception) to June 30, 2008. Additionally, we have entered
into lease agreements with Sprint for various switching
facilities and transmitter and receiver sites for which we
recorded rent expense of $14 million in the six months
ended June 30, 2008, $50 thousand in the six months ended
June 30, 2007 and $16 million in the period from
January 1, 2007 (inception) to June 30, 2008. We did
not make any payments to Sprint through June 30, 2008.
Our operations were included as part of Sprints
consolidated federal income tax return and certain unitary or
combined state income tax returns. We have presented income tax
expense and related income tax liabilities as if we were filing
stand-alone separate returns. As such, we recognized deferred
tax expense of $11 million in the six months ended
June 30, 2008, $7 million in the six months ended
June 30, 2007 and $27 million in the period from
January 1, 2007 (inception) to June 30, 2008. We have
recorded a deferred tax liability of $692 million as of
June 30, 2008.
Clearwire
Corporation
In May 2008, Sprint entered into a definitive agreement with
Clearwire to combine both of their next generation wireless
broadband businesses to form a new independent company to focus
on expediting the deployment of the first nationwide mobile
WiMAX network. Prior to January 1, 2007, Sprint entered
into certain transactions with Clearwire to settle pending
lawsuits and exchange certain FCC licenses and spectrum use
rights.
Sprints policy is to record the difference between the
fair value of the items received in the transactions and the
book value of the items given up in the transactions as either a
gain or loss in its statement of operations, and to contribute
the items received at fair value to the WiMAX Operations upon
consummation of the transactions. The resulting gain related to
the FCC licenses and rights to use spectrum received in the
transactions was approximately $12 million. During 2007 and
the six months ended June 30, 2008, we also entered into
transactions with Clearwire to contract/subcontract certain
spectrum use rights and lease/sublease certain cell tower space.
WF-28
WIMAX
OPERATIONS OF SPRINT NEXTEL CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
(Unaudited)
In the six months ended June 30, 2008, we recognized
$1 million of other income associated with the executory
agreements where we were paid for the use of certain of our FCC
licenses or where we subcontracted our right to use such
licenses and $700 thousand of contra spectrum expense where
we were reimbursed for usage of other spectrum. We received
$4 million from Clearwire as reimbursement of an up-front
payment we had made on spectrum agreements we had subcontracted
to Clearwire; this amount was recorded as a reduction to prepaid
spectrum. We are a party to certain agreements where Clearwire
subcontracts the right to use spectrum from us. Rather than
reimburse us, Clearwire pays the owners of the educational
broadband spectrum directly. In the six months ended
June 30, 2008, Clearwire paid $1 million directly to
these spectrum owners on our behalf. Additionally, we paid
Clearwire $116 thousand for the right to use certain spectrum in
the six months ended June 30, 2008.
In the six months ended June 30, 2007, we recognized
$1 million of other income associated with the executory
agreements where we were paid for the use of certain of our FCC
licenses or where we subcontracted our right to use such
licenses and $845 thousand of contra spectrum expense where we
were reimbursed for usage of other spectrum. We are a party to
certain agreements where Clearwire subcontracts the right to use
spectrum from us. Rather than reimburse us, Clearwire pays the
owners of the educational broadband spectrum directly. In the
six months ended June 30, 2007, Clearwire paid $459
thousand directly to these spectrum owners on our behalf.
Additionally, we paid Clearwire $116 thousand for the right to
use certain spectrum in the six months ended June 30, 2007.
As of June 30, 2008, no amounts were due to or from
Clearwire.
WF-29
ANNEX A
TRANSACTION
AGREEMENT AND PLAN OF MERGER
The Transaction Agreement is included in this proxy
statement/prospectus in order to provide you with information
regarding its terms. It is not in any way intended to provide
you with factual information about the current state of affairs
of Clearwire. Such information can be found elsewhere in this
proxy statement/prospectus (including the attached annexes) and
in the other public filings that Clearwire makes with the SEC,
which are available without charge at www.sec.gov. The
Transaction Agreement contains representations, warranties,
covenants and other agreements, each as of specific dates. These
representations, warranties, covenants and other agreements are
qualified by information contained in confidential disclosure
schedules that the parties exchanged in connection with the
execution of the Transaction Agreement. The disclosure schedules
contain information that modifies, qualifies and creates
exceptions to the representations, warranties, covenants and
other agreements set forth in the Transaction Agreement.
Although some of the information contained in the disclosure
schedules may be non-public, Clearwire does not believe that
this information is required to be publicly-disclosed under the
federal securities laws. Moreover, certain of these
representations, warranties, covenants
and/or other
agreements may not be accurate or complete as of a specific date
because they are subject to a contractual standard of
materiality that may be different from the standard generally
applied under the federal securities laws
and/or were
used for the purpose of allocating risk between Clearwire rather
than establishing matters as facts. Finally, information
concerning the subject matter of these representations,
warranties, covenants and other agreements may have changed
since the date of the Transaction Agreement, which may or may
not be fully-reflected in Clearwires public disclosures.
Accordingly, you should not rely on these representations,
warranties, covenants and other agreements as statements of
fact.
Annex A
TRANSACTION
AGREEMENT
AND
PLAN OF MERGER
among
CLEARWIRE CORPORATION,
SPRINT NEXTEL CORPORATION,
COMCAST CORPORATION,
TIME WARNER CABLE INC.,
BRIGHT HOUSE NETWORKS, LLC,
GOOGLE INC.,
AND
INTEL CORPORATION
Dated as of May 7, 2008
TABLE OF
CONTENTS
|
|
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|
|
|
|
|
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|
Page
|
|
ARTICLE 1 PRECEDENT TRANSACTIONS
|
|
|
A-3
|
|
|
Section 1.1
|
|
|
The Formation Transactions
|
|
|
A-3
|
|
|
Section 1.2
|
|
|
Sprint Financing Arrangements
|
|
|
A-3
|
|
|
Section 1.3
|
|
|
NewCo Directors and Certain Other Matters
|
|
|
A-5
|
|
ARTICLE 2 THE MERGER
|
|
|
A-6
|
|
|
Section 2.1
|
|
|
The Recapitalization
|
|
|
A-6
|
|
|
Section 2.2
|
|
|
The Merger
|
|
|
A-6
|
|
|
Section 2.3
|
|
|
The Closing
|
|
|
A-6
|
|
|
Section 2.4
|
|
|
Effective Time
|
|
|
A-6
|
|
|
Section 2.5
|
|
|
Conversion of Shares; Capitalization of NewCo LLC
|
|
|
A-6
|
|
|
Section 2.6
|
|
|
Surrender and Payment
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|
|
A-7
|
|
|
Section 2.7
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|
|
Stock Options
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|
|
A-8
|
|
|
Section 2.8
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|
|
Warrants
|
|
|
A-8
|
|
|
Section 2.9
|
|
|
Withholdings
|
|
|
A-9
|
|
|
Section 2.10
|
|
|
Lost Certificates
|
|
|
A-9
|
|
ARTICLE 3 TRANSFER OF SPRINT ASSETS
|
|
|
A-9
|
|
|
Section 3.1
|
|
|
Transfer of Sprint Assets
|
|
|
A-9
|
|
|
Section 3.2
|
|
|
Contribution of the Transfer Entities
|
|
|
A-9
|
|
|
Section 3.3
|
|
|
Contribution Consideration to NewCo LLC and NewCo
|
|
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A-10
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|
|
Section 3.4
|
|
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Repayment
|
|
|
A-10
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|
|
Section 3.5
|
|
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Marketing Funds
|
|
|
A-10
|
|
ARTICLE 4 INVESTMENTS
|
|
|
A-11
|
|
|
Section 4.1
|
|
|
Contributions of Certain Investors
|
|
|
A-11
|
|
|
Section 4.2
|
|
|
Googles Purchase of Shares and NewCo Contribution to NewCo
LLC
|
|
|
A-11
|
|
|
Section 4.3
|
|
|
Post-Closing Adjustment
|
|
|
A-11
|
|
|
Section 4.4
|
|
|
NewCo and NewCo LLC Joinder
|
|
|
A-12
|
|
|
Section 4.5
|
|
|
Use of Proceeds
|
|
|
A-13
|
|
ARTICLE 5 CLOSING DELIVERABLES
|
|
|
A-13
|
|
|
Section 5.1
|
|
|
Clearwire Closing Deliverables
|
|
|
A-13
|
|
|
Section 5.2
|
|
|
Sprint Closing Deliverables
|
|
|
A-14
|
|
|
Section 5.3
|
|
|
Investor Closing Deliverables
|
|
|
A-15
|
|
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF CLEARWIRE
|
|
|
A-16
|
|
|
Section 6.1
|
|
|
Organization; Authorization
|
|
|
A-16
|
|
|
Section 6.2
|
|
|
Non-Contravention
|
|
|
A-17
|
|
|
Section 6.3
|
|
|
Clearwire Licenses
|
|
|
A-18
|
|
|
Section 6.4
|
|
|
Clearwire Leases
|
|
|
A-19
|
|
|
Section 6.5
|
|
|
Clearwire Network Assets
|
|
|
A-20
|
|
|
Section 6.6
|
|
|
Litigation
|
|
|
A-20
|
|
|
Section 6.7
|
|
|
Tax
|
|
|
A-21
|
|
|
Section 6.8
|
|
|
Clearwire Contracts
|
|
|
A-22
|
|
|
Section 6.9
|
|
|
Compliance with Law
|
|
|
A-23
|
|
|
Section 6.10
|
|
|
Required Filings and Consents
|
|
|
A-23
|
|
|
Section 6.11
|
|
|
Clearwire Non-FCC Licenses
|
|
|
A-23
|
|
|
Section 6.12
|
|
|
SEC Documents; Financial Statements
|
|
|
A-23
|
|
|
Section 6.13
|
|
|
Capitalization; Subsidiaries
|
|
|
A-24
|
|
|
Section 6.14
|
|
|
Absence of Certain Changes or Events
|
|
|
A-26
|
|
A-i
|
|
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
|
Section 6.15
|
|
|
Change of Control Agreements
|
|
|
A-26
|
|
|
Section 6.16
|
|
|
Employee Benefit Plans
|
|
|
A-26
|
|
|
Section 6.17
|
|
|
Labor and Employment Matters
|
|
|
A-27
|
|
|
Section 6.18
|
|
|
Stockholders Rights Agreement; Antitakeover Statutes
|
|
|
A-28
|
|
|
Section 6.19
|
|
|
Brokers
|
|
|
A-28
|
|
|
Section 6.20
|
|
|
Information Supplied
|
|
|
A-28
|
|
|
Section 6.21
|
|
|
Certain Ancillary Agreements
|
|
|
A-29
|
|
ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF SPRINT
|
|
|
A-29
|
|
|
Section 7.1
|
|
|
Organization; Authorization
|
|
|
A-29
|
|
|
Section 7.2
|
|
|
Non-Contravention
|
|
|
A-31
|
|
|
Section 7.3
|
|
|
Sprint Licenses
|
|
|
A-31
|
|
|
Section 7.4
|
|
|
Sprint Leases
|
|
|
A-32
|
|
|
Section 7.5
|
|
|
Sprint Network Assets
|
|
|
A-33
|
|
|
Section 7.6
|
|
|
Litigation
|
|
|
A-34
|
|
|
Section 7.7
|
|
|
Tax
|
|
|
A-34
|
|
|
Section 7.8
|
|
|
Sprint Contracts
|
|
|
A-35
|
|
|
Section 7.9
|
|
|
Compliance with Law
|
|
|
A-35
|
|
|
Section 7.10
|
|
|
Required Filings and Consents
|
|
|
A-35
|
|
|
Section 7.11
|
|
|
Sprint Non-FCC Licenses
|
|
|
A-35
|
|
|
Section 7.12
|
|
|
Absence of Certain Changes or Events
|
|
|
A-36
|
|
|
Section 7.13
|
|
|
Employee Benefit Plans; Labor and Employment Matters
|
|
|
A-36
|
|
|
Section 7.14
|
|
|
No Obligations
|
|
|
A-36
|
|
|
Section 7.15
|
|
|
Brokers
|
|
|
A-36
|
|
|
Section 7.16
|
|
|
Information Supplied
|
|
|
A-36
|
|
|
Section 7.17
|
|
|
Ownership of Clearwire Capital Stock
|
|
|
A-36
|
|
|
Section 7.18
|
|
|
Certain Ancillary Agreements
|
|
|
A-36
|
|
ARTICLE 8 REPRESENTATIONS AND WARRANTIES OF THE
INVESTORS
|
|
|
A-37
|
|
|
Section 8.1
|
|
|
Organization; Authorization
|
|
|
A-37
|
|
|
Section 8.2
|
|
|
Non-Contravention
|
|
|
A-37
|
|
|
Section 8.3
|
|
|
Securities Act; Investigation
|
|
|
A-37
|
|
|
Section 8.4
|
|
|
Availability of Funds
|
|
|
A-38
|
|
|
Section 8.5
|
|
|
Required Filings and Consents
|
|
|
A-38
|
|
|
Section 8.6
|
|
|
Brokers
|
|
|
A-38
|
|
|
Section 8.7
|
|
|
Information Supplied
|
|
|
A-38
|
|
|
Section 8.8
|
|
|
Ownership of Clearwire Capital Stock
|
|
|
A-38
|
|
|
Section 8.9
|
|
|
Certain Ancillary Agreements
|
|
|
A-38
|
|
ARTICLE 9 CONDITIONS TO CLOSING
|
|
|
A-39
|
|
|
Section 9.1
|
|
|
Conditions to Each Partys Obligations
|
|
|
A-39
|
|
|
Section 9.2
|
|
|
Conditions to Obligations of Sprint
|
|
|
A-40
|
|
|
Section 9.3
|
|
|
Conditions to Obligations of Clearwire
|
|
|
A-41
|
|
|
Section 9.4
|
|
|
Conditions to Obligations of the Investors
|
|
|
A-41
|
|
|
Section 9.5
|
|
|
Frustration of Closing Conditions
|
|
|
A-43
|
|
ARTICLE 10 COVENANTS OF THE PARTIES
|
|
|
A-43
|
|
|
Section 10.1
|
|
|
Conduct of Business
|
|
|
A-43
|
|
|
Section 10.2
|
|
|
Access; Records Confidentiality
|
|
|
A-51
|
|
|
Section 10.3
|
|
|
Further Assurances
|
|
|
A-52
|
|
|
Section 10.4
|
|
|
No Solicitation
|
|
|
A-55
|
|
|
Section 10.5
|
|
|
Stockholder Litigation
|
|
|
A-57
|
|
A-ii
|
|
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
|
Section 10.6
|
|
|
Director and Officer Indemnification
|
|
|
A-58
|
|
|
Section 10.7
|
|
|
Clearwire Stockholders Meeting
|
|
|
A-58
|
|
|
Section 10.8
|
|
|
Proxy Statement; Registration Statement
|
|
|
A-59
|
|
|
Section 10.9
|
|
|
Notices of Certain Events
|
|
|
A-60
|
|
|
Section 10.10
|
|
|
Public Announcements
|
|
|
A-61
|
|
|
Section 10.11
|
|
|
Transfer Taxes
|
|
|
A-61
|
|
|
Section 10.12
|
|
|
Consistent Tax Reporting
|
|
|
A-62
|
|
|
Section 10.13
|
|
|
No Purchase of Clearwire Capital Stock
|
|
|
A-62
|
|
|
Section 10.14
|
|
|
Transaction Related Agreements
|
|
|
A-62
|
|
|
Section 10.15
|
|
|
Pending Party Litigation
|
|
|
A-62
|
|
|
Section 10.16
|
|
|
Pre-Existing Intel Agreements
|
|
|
A-63
|
|
|
Section 10.17
|
|
|
Sprint WiMAX Inventory
|
|
|
A-63
|
|
|
Section 10.18
|
|
|
Sprint Future Credit Agreements
|
|
|
A-63
|
|
|
Section 10.19
|
|
|
Certain Financing Matters
|
|
|
A-64
|
|
|
Section 10.20
|
|
|
3G MVNO Agreement
|
|
|
A-64
|
|
ARTICLE 11 EMPLOYEES
|
|
|
A-64
|
|
|
Section 11.1
|
|
|
Transfer of Employees
|
|
|
A-64
|
|
|
Section 11.2
|
|
|
Employee Information and Employment Taxes
|
|
|
A-64
|
|
|
Section 11.3
|
|
|
Service and Other Credit
|
|
|
A-65
|
|
ARTICLE 12 TERMINATION
|
|
|
A-66
|
|
|
Section 12.1
|
|
|
Termination
|
|
|
A-66
|
|
|
Section 12.2
|
|
|
Effect of Termination
|
|
|
A-67
|
|
ARTICLE 13 INDEMNIFICATION
|
|
|
A-68
|
|
|
Section 13.1
|
|
|
Indemnification by Sprint
|
|
|
A-68
|
|
|
Section 13.2
|
|
|
Indemnification Procedures
|
|
|
A-68
|
|
|
Section 13.3
|
|
|
Limitation of Liability
|
|
|
A-69
|
|
|
Section 13.4
|
|
|
Claims Period
|
|
|
A-69
|
|
|
Section 13.5
|
|
|
Additional Indemnification by Sprint
|
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A-69
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Section 13.6
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Exclusion of Other Remedies
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ARTICLE 14 MISCELLANEOUS PROVISIONS
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Section 14.1
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Notices
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Section 14.2
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Schedules and Exhibits
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Section 14.3
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Assignment; Successors in Interest
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Section 14.4
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Controlling Law; Amendment
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Section 14.5
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Jurisdiction
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Section 14.6
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Specific Performance and Other Remedies
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Section 14.7
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Severability
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Section 14.8
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Counterparts
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Section 14.9
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Enforcement of Certain Rights
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Section 14.10
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Waiver
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Section 14.11
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Non-Survival of Representations and Warranties and Agreements
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Section 14.12
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Integration
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Section 14.13
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Cooperation Following the Closing
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Section 14.14
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Fees
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Section 14.15
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Waiver of Jury Trial
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A-75
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Section 14.16
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Investor Rights and Obligations
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Section 14.17
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Interpretation
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A-iii
EXHIBITS
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EXHIBIT A
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DEFINITIONS
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EXHIBIT B
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CERTIFICATE OF INCORPORATION OF NEWCO, INC.
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EXHIBIT C
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BYLAWS OF NEWCO, INC.
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EXHIBIT D
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INITIAL LIMITED LIABILITY COMPANY AGREEMENT OF NEWCO LLC
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EXHIBIT E
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AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF
NEWCO LLC
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EXHIBIT F
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LIMITED LIABILITY COMPANY AGREEMENT OF CLEARWIRE SUB LLC
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EXHIBIT G
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LIMITED LIABILITY COMPANY AGREEMENT OF SPRINT SUB LLC
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EXHIBIT H
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REGISTRATION RIGHTS AGREEMENT
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EXHIBIT I
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EQUITYHOLDERS AGREEMENT
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EXHIBIT J
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ASSUMED NOTE
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EXHIBIT K
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OTHER MATTERS
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EXHIBIT L
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TERMS OF SECURED NOTE
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EXHIBIT M
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REVISED STRUCTURE
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A-iv
THIS TRANSACTION AGREEMENT AND PLAN OF MERGER (this
Agreement) is made and entered into as of
May 7, 2008 (the Execution Date) by and
among Clearwire Corporation, a Delaware corporation
(Clearwire), Sprint Nextel Corporation, a
Kansas corporation (Sprint), Comcast
Corporation, a Pennsylvania corporation
(Comcast), Time Warner Cable Inc., a Delaware
corporation (TWC), Bright House Networks,
LLC, a Delaware limited liability company
(BHN), Google Inc., a Delaware corporation
(Google), and Intel Corporation, a Delaware
corporation (Intel), and together with
Comcast, TWC, BHN and Google, the Investors;
the Investors, Sprint and Clearwire are referred to herein as
the Parties). Capitalized terms not otherwise
defined in this Agreement have the meanings ascribed to those
terms in Exhibit A attached to this Agreement.
RECITALS
A. The Parties desire to (i) foster the development of
a nationwide wireless broadband network (the Wireless
Broadband Network); (ii) expedite the commercial
availability of wireless broadband services over the Wireless
Broadband Network; (iii) enable the offering of a greater
depth and breadth of wireless broadband services; and
(iv) promote wireless broadband development.
B. In order to satisfy the foregoing objectives Sprint and
Clearwire desire to combine their respective WiMAX Businesses
and the Investors desire to invest capital and enter into
certain commercial arrangements as follows:
(i) Clearwire will form a wholly owned Delaware corporation
(NewCo);
(ii) NewCo will form a wholly owned Delaware limited
liability company (NewCo LLC) that is, and at
all times prior to the Closing will have been, treated as a
disregarded entity for U.S. federal income tax purposes;
(iii) NewCo LLC in turn will form a wholly owned Delaware
limited liability company (Clearwire Sub LLC)
that is, and at all times prior to the Closing will have been,
treated as a disregarded entity for U.S. federal income tax
purposes;
(iv) the outstanding Class B common stock, par value
$0.0001 per share, of Clearwire (Clearwire Class B
Common Stock) will be converted into Class A
common stock, par value $0.0001 per share, of Clearwire
(Clearwire Class A Common Stock);
(v) Clearwire will merge with and into Clearwire Sub LLC,
pursuant to which the shareholders of Clearwire will exchange
their Clearwire Class A Common Stock for Class A
common stock, par value $0.0001 per share, in NewCo
(Class A Common Stock);
(vi) Sprint will cause to be formed a wholly owned Delaware
limited liability company (Sprint HoldCo
LLC), which in turn will form a wholly owned Delaware
limited liability company (Sprint Sub LLC),
that is, and at all times prior to the Closing will have been, a
disregarded entity for U.S. federal income tax purposes;
(vii) Sprint will cause one or more wholly owned companies
(referred to herein and as defined below, the Transfer
Entities) to hold the Sprint WiMAX Business and will
cause all the Transfer Entities to be limited liability
companies that are treated as disregarded entities for
U.S. federal income tax purposes immediately prior to and
as of the Closing in accordance with the terms of this Agreement;
(viii) Sprint and its Subsidiaries will contribute all of
the limited liability company interests in each of the Transfer
Entities to Sprint HoldCo LLC, which in turn will contribute
these interests to Sprint Sub LLC, and Sprint Sub LLC will
assume the Sprint Pre-Closing Financing in accordance with the
terms of this Agreement;
(ix) following both the completion of the merger of
Clearwire with and into Clearwire Sub LLC and the contribution
of the Transfer Entities to Sprint Sub LLC (a) Sprint will
cause Sprint HoldCo LLC to contribute all of the limited
liability company interests of Sprint Sub LLC to NewCo LLC in
exchange for non-voting membership interests in NewCo LLC and to
purchase an equal number of shares of Class B
A-1
common stock, par value $0.0001 per share, in NewCo
(Class B Common Stock) and
(b) Sprint and certain of its Subsidiaries will enter into
certain commercial agreements with NewCo LLC;
(x) following completion of the merger of Clearwire with
and into Clearwire Sub LLC and the consummation of the
transactions described in clause (ix)(a) above, Comcast, TWC,
BHN and Intel will contribute $2.7 billion in the aggregate
to NewCo LLC in exchange for voting and non-voting membership
interests in NewCo LLC and will enter into certain commercial
agreements with NewCo LLC;
(xi) following completion of the merger of Clearwire with
and into Clearwire Sub LLC and the consummation of the
transactions described in clause (ix)(a) above, Google will
contribute $500,000,000 to NewCo in exchange for Class A
Common Stock;
(xii) immediately following the purchase by Sprint HoldCo
LLC of Class B Common Stock in NewCo as described in clause
(ix)(a) above, NewCo will contribute the cash that it receives
from Sprint HoldCo LLC to NewCo LLC in exchange for voting
membership interests in NewCo LLC;
(xiii) immediately following the receipt by the Investors
of voting and non-voting membership interests in NewCo LLC as
described in clause (x) above, each of Comcast, TWC, BHN
and Intel will contribute to NewCo its voting membership
interests in NewCo LLC for Class B Common Stock in
NewCo; and
(xiv) immediately following the purchase by Google of
Class A Common Stock in NewCo as described in
clause (xi) above, NewCo will contribute the cash that it
receives from Google to NewCo LLC in exchange for voting
membership interests and nonvoting membership interests in
NewCo LLC,
in each case according to the terms set forth in this Agreement.
C. Sprint and Clearwire have entered into a voting
agreement with each of Eagle River Holdings, LLC, a Washington
limited liability company (Eagle River), and
Intel under which Eagle River and Intel have agreed, among other
things, to vote their shares of Clearwire Capital Stock in favor
of the Merger in the amounts and under the circumstances
described in the respective voting agreements.
D. NewCo and its Subsidiaries will provide broad benefits
to consumers, businesses, educators, governments and public
safety users by fostering quicker, broader and more efficient
deployment of a nationwide mobile wireless broadband network
than either Sprint or Clearwire believes it could accomplish on
its own.
E. NewCo LLC and Intel have agreed to enter into the Intel
Agreement at the Closing to, among other things, accelerate and
facilitate the development of a nationwide mobile wireless
broadband network and devices using WiMAX.
F. The Parties intend that for U.S. federal income tax
purposes, (i) the conversion of the outstanding Clearwire
Class B Common Stock into Clearwire Class A Common
Stock will qualify as a reorganization within the meaning of
Section 368(a)(1)(E) of the Internal Revenue Code of 1986,
as amended (the Code), and a transaction
governed by Section 1036 of the Code; and (ii) the
Merger of Clearwire with and into Clearwire Sub LLC in
accordance with the terms set forth in this Agreement will
qualify as a reorganization within the meaning of
Section 368(a)(1)(F) of the Code.
G. The Parties intend that for U.S. federal income tax
purposes, the contributions by NewCo, Sprint and the Investors
(other than Google) to NewCo LLC will convert NewCo LLC from a
disregarded entity into a partnership for U.S. federal
income tax purposes, to which partnership NewCo, Sprint (through
Sprint HoldCo LLC) and each such Investor will be
treated as having contributed assets in a transaction qualifying
for nonrecognition under Section 721 of the Code.
H. Sprint intends that, while the Merger of Clearwire with
and into Clearwire Sub LLC will qualify separately as a
reorganization described in Section 368(a)(1)(F) of the
Code, the Merger also will be part of a larger transaction
involving the transfers by Sprint HoldCo LLC and the Investors
to NewCo in exchange for
A-2
NewCo Capital Stock, with the result that the larger transaction
will qualify as an exchange described in Section 351 of the
Code.
NOW, THEREFORE, in consideration of the foregoing recitals and
of the mutual promises set forth in this Agreement, the Parties
to this Agreement and by this Agreement agree as follows:
ARTICLE 1
PRECEDENT TRANSACTIONS
Section 1.1 The
Formation Transactions. Before the Closing
Date, the following will have occurred:
(a) Incorporation of
NewCo. Clearwire will incorporate NewCo, and
Clearwire will take, and will cause NewCo to take, all actions
necessary so that, as of the Closing Date, NewCos
certificate of incorporation and bylaws will be in the form
attached as Exhibits B and C,
respectively; and
(b) Formation of NewCo
LLC. Clearwire will cause NewCo to
form NewCo LLC. For all periods following the formation and
until the consummation of the transactions described in
Sections 3.3 and 4.1, NewCo LLC will be governed by the
terms of the limited liability company operating agreement of
NewCo LLC in the form attached as Exhibit D (the
Initial NewCo LLC Agreement). Clearwire will
take, and will cause NewCo and NewCo LLC to take, all actions
necessary so that (i) NewCo LLC is an entity disregarded as
separate from NewCo for U.S. federal income tax purposes
until the consummation of the transactions described in
Sections 3.3 and 4.1 and (ii) as of the Closing Date
and following the Merger, NewCo LLCs limited liability
company operating agreement is amended and restated in the form
attached as Exhibit E (the NewCo LLC
Agreement).
(c) Formation of Clearwire Sub
LLC. Clearwire will cause NewCo LLC to
form Clearwire Sub LLC, and Clearwire will take, and will
cause NewCo, NewCo LLC and Clearwire Sub LLC to take, all
actions necessary so that (i) Clearwire Sub LLC at all
times since its formation will have been, and as of the Closing
will be, an entity disregarded as separate from NewCo and NewCo
LLC for U.S. federal income tax purposes and (ii) as
of the Closing Date and following the Merger, Clearwire Sub
LLCs limited liability company operating agreement will be
in the form attached as Exhibit F.
(d) Formation of Sprint HoldCo LLC and Sprint Sub
LLC. Sprint will cause the formation of
Sprint HoldCo LLC and cause Sprint HoldCo LLC to
form Sprint Sub LLC, and Sprint will take, and will cause
Sprint HoldCo LLC and Sprint Sub LLC to take, all actions
necessary so that (i) Sprint Sub LLC at all times since its
formation will have been, and immediately prior to the Closing
will be, an entity disregarded as separate from Sprint HoldCo
LLC for U.S. federal income tax purposes until the LLC
Contribution and (ii) as of the Closing Date, Sprint Sub
LLCs limited liability company operating agreement will be
in the form attached as Exhibit G.
Section 1.2 Sprint
Financing Arrangements.
(a) Sprint will, or will cause one or more of its
Subsidiaries to, finance the Sprint WiMAX Business between
April 1, 2008 and the Closing Date (the
Sprint Pre-Closing Financing), with
Sprint Sub LLC to assume the obligation to repay Sprint (or its
applicable Subsidiaries) in respect of the Sprint Pre-Closing
Financing prior to the LLC Contribution; provided that
(i) Sprint Sub LLC shall not assume, and Sprint shall
retain and be responsible for, (x) any portion of the
Sprint Pre-Closing Financing that was not incurred to fund the
Sprint WiMAX Business, (y) the principal amount of the
Sprint Pre-Closing Financing in excess of the total amounts set
forth below each month on the Sprint Budget that has elapsed
through and including the month in which the Closing occurs and
(z) any amount of the Sprint Pre-Closing Financing to the
extent such amount was incurred to fund the Sprint WiMAX
Business but was not incurred in substantial compliance in the
aggregate with the Sprint Budget (provided that, for
purposes of this clause (z), spending a lesser amount on the
Sprint WiMAX Business than is provided in the Sprint Budget will
not constitute substantial non-compliance in the aggregate with
the Sprint Budget), and (ii) the terms of the financing to
be assumed by Sprint Sub LLC shall be as set forth in
Exhibit J (the Assumed Note). For
the avoidance of doubt, interest shall accrue on any amounts of
Sprint Pre-Closing Financing in accordance with the terms of the
Assumed
A-3
Note beginning on the date that any such financing is provided
by Sprint as provided by this Section 1.2(a) through but
excluding the Sprint Pre-Closing Financing Repayment Date (as
defined below).
(b) NewCo and NewCo LLC will cause the Sprint Pre-Closing
Financing, together with any interest accrued thereon, to be
repaid on the first Business Day following the Closing (the
Sprint Pre-Closing Financing Repayment Date).
A portion of the Sprint Pre-Closing Financing will be repaid in
cash by wire transfer to Sprint in immediately available funds
(the Cash Payment) with the remaining portion
of the Sprint Pre-Closing Financing being repaid with the
issuance of a secured promissory note by Sprint Sub LLC to
Sprint (the terms of which note and related agreements shall be
substantially as set forth on Exhibit L) (the
Secured Note). Subject to the following
sentence (and subject to any changes in the following amounts as
a result of any refinancing of the Credit Agreement on or prior
to the Sprint Pre-Closing Refinancing Repayment Date, as
described in Exhibit L) and disregarding any interest
accrued on the Sprint Pre-Closing Financing, if the amount of
the Sprint Pre-Closing Financing is (i) less than or equal
to $213 million, then the Cash Payment will equal the
amount of the Sprint Pre-Closing Financing; (ii) greater
than $213 million but less than or equal to
$426 million, then the Cash Payment will equal
$213 million and the principal amount of the Secured Note
will equal the remaining amount of the Sprint Pre-Closing
Financing or (iii) greater than $426 million, then the
Cash Payment and the principal amount of the Secured Note will
each equal 50% of the Sprint Pre-Closing Financing. All interest
that has accrued on the Sprint Pre-Closing Financing in
accordance with the terms of the Assumed Note between
April 1, 2008 and the Sprint Pre-Closing Financing
Repayment Date (the Pre-Closing Accrued
Interest) will be paid to Sprint on the Sprint
Pre-Closing Financing Repayment Date in a combination of cash
and added principal to the Secured Note in the same proportion
as the Cash Payment and the Secured Note.
(c) For a period of 45 days after the Closing Date,
Sprint will, and will cause its Subsidiaries to promptly afford
NewCo, NewCo LLC and their respective employees, accountants and
legal counsel such assistance and access to the books, records,
work papers and personnel of Sprint and its Subsidiaries during
normal business hours as is reasonably requested by NewCo or
NewCo LLC, for the purposes of reviewing the Sprint Pre-Closing
Financing assumed by Sprint Sub LLC prior to the LLC
Contribution (the Post-Closing Verification
Period); provided that the Post-Closing
Verification Period will be extended as appropriate if Sprint
does not provide NewCo, NewCo LLC and such representatives such
access for such
45-day
period. In the event that NewCo or NewCo LLC in good faith
determines that any item or amount of the Sprint Pre-Closing
Financing was assumed by Sprint Sub LLC in violation of
Section 1.2(a), NewCo or NewCo LLC shall have the right to
dispute such item or amount by delivering written notice thereof
(the Objection) to Sprint on or before the
last day of the Post-Closing Verification Period, which notice
shall set forth in reasonable detail the basis for its
objection(s). Following the receipt of the Objection by Sprint,
NewCo and NewCo LLC, on the one hand, and Sprint, on the other
hand, shall seek in good faith to resolve any differences which
they may have with respect to the matters specified in the
Objection. If such Parties are not able to resolve all of the
differences specified in the Objection within 30 days after
the Objection is received by Sprint, either NewCo or
NewCo LLC, on the one hand, or Sprint, on the other hand,
may submit the remaining differences to a mutually acceptable
and nationally recognized independent accounting firm (who shall
not have any material relationship with Sprint or NewCo) (the
Accounting Referee), to review this Agreement
and the remaining disputed item(s) or amount(s) for the purpose
of determining whether such item(s) or amount(s) were assumed by
Sprint Sub LLC in violation of Section 1.2(a) (it being
understood that, to the extent appropriate, the Accounting
Referee shall utilize employees of its firm with substantial
telecommunications expertise). The Accounting Referee shall
deliver to NewCo, NewCo LLC and Sprint, as promptly as
practicable, a report setting forth its written determination of
the remaining disputed item(s) or amount(s). Such report shall
be final and binding upon NewCo, NewCo LLC and Sprint. The cost
of such review and report shall be borne by NewCo LLC. For
purposes of this Section 1.2(c), (i) all action taken
by NewCo or NewCo LLC shall be determined and directed by the
senior management of NewCo unless such action requires action on
the part of the NewCo Board of Directors, in which case such
action shall be determined and directed by the members of the
NewCo Board of Directors other than the Sprint Designees (as
such term is defined in the Equityholders Agreement) and
(ii) the Sprint Designees will recuse themselves from all
consideration of these matters.
A-4
(d) If it is determined in accordance with
Section 1.2(c), whether by agreement of NewCo, NewCo LLC
and Sprint, or in the absence of such agreement, by the
Accounting Referee, that the aggregate Sprint Pre-Closing
Financing assumed by Sprint Sub LLC prior to the LLC
Contribution is in excess of the amount that should have been so
assumed (such excess amount, the Reimbursement
Amount), then, if the Sprint Pre-Closing Financing was
less than or equal to $426 million, the principal amount of
the Secured Note (if the Secured Note has been issued pursuant
to Section 1.2(b)) will be reduced by the Reimbursement
Amount and, if the Reimbursement Amount is greater than the
principal amount of the Secured Note, or if the Secured Note has
not been issued pursuant to Section 1.2(b), Sprint shall,
promptly after the date of such determination (but in no event
later than two Business Days thereafter), pay to Sprint Sub LLC
the remaining portion of the Reimbursement Amount in cash by
wire transfer of immediately available funds to a bank account
designated by NewCo LLC. If the Sprint Pre-Closing Financing was
greater than $426 million, then Sprint will pay 50% of the
Reimbursement Amount to Sprint Sub LLC in cash in the manner
provided in the immediately preceding sentence and the principal
amount of the Secured Note will be reduced by 50% of the
Reimbursement Amount (but not below zero); provided that
in no event will such cash payment by Sprint reduce the
net Cash Payment below $213 million unless the
principal amount of the Secured Note has been reduced to zero,
in which case Sprint will pay to Sprint Sub LLC any remaining
portion of the Reimbursement Amount in cash as set forth in this
Section 1.2(d).
(e) Upon the repayment (whether in cash or in a reduction
in principal amount of the Secured Note) of the Reimbursement
Amount, if applicable, Sprint will be required to repay to
Sprint Sub LLC an amount of the Pre-Closing Accrued Interest
equal to all interest that accrued in respect of the
Reimbursement Amount from the date of incurrence through but
excluding the Sprint Pre-Closing Financing Repayment Date in
accordance with the Sprint Pre-Closing Financing. Any
Pre-Closing Accrued Interest that is required to be repaid will
be repaid in a combination of cash and reduction in principal
amount of the Secured Note in the same proportion as the
Reimbursement Amount. Any reduction in the principal amount of
the Secured Note pursuant to this Section 1.2(e) will be
effective as of the Sprint Pre-Closing Financing Repayment Date.
(f) In addition, (i) the portion of the Reimbursement
Amount that Sprint is required to repay in cash and
(ii) the interest, if any, paid by Sprint Sub LLC to Sprint
pursuant to the Secured Note with respect to the portion of the
Reimbursement Amount for which the Secured Note is reduced
pursuant to Section 1.2(e), shall bear interest for each
Interest Period from and including (x) in the case of
clause (i), the Sprint Pre-Closing Financing Repayment Date and
(y) in the case of clause (ii), the date on which any such
interest was paid, to but excluding the date of payment pursuant
to Section 1.2(d) at a rate per annum equal to LIBOR plus
250 basis points. Such interest shall be payable at the
same time as the payment to which it relates and shall be
calculated daily on the basis of a year of 360 days and the
actual number of days elapsed. Any interest that is required to
be repaid on the Reimbursement Amount will be repaid in a
combination of cash and reduction in principal amount of the
Secured Note in the same proportion as the Reimbursement Amount.
(g) If, as of December 1, 2008, it appears that the
Closing may not occur by December 31, 2008, to the extent
permitted by Law, the Parties shall work in good faith to modify
the Sprint Budget to address the period after December 31,
2008 through the anticipated Closing Date. The budget for the
post-December 31, 2008 period shall include
(i) expenditures necessary or appropriate for the
maintenance and continuation of the Sprint WiMAX Business as
operated from April 1, 2008 through December 31, 2008
and (ii) if agreed by the Parties acting in good faith,
additional expenditures for the further expansion of the Sprint
WiMAX Business (it being understood that such budget will be
developed with a view toward maintaining a cost structure that
is as low as reasonably practicable consistent with the
foregoing principles). If, 30 days prior to any date
through which the Sprint Budget has been modified in accordance
with this Section 1.2(g), it appears that the Closing may
not occur by the previous anticipated Closing Date, to the
extent permitted by Law, the parties hereto shall again work in
good faith to modify the Sprint Budget to address the period
through the then-anticipated Closing Date in accordance with the
preceding sentence. If the Sprint Budget is modified in
accordance with this Section 1.2(g), all references to the
Sprint Budget in this Agreement shall be deemed to be references
to the Sprint Budget as so modified.
Section 1.3 NewCo
Directors and Certain Other
Matters. Immediately following the Closing,
the members of the board of directors of NewCo will be
determined as set forth in the Equityholders Agreement
A-5
in substantially the form attached as Exhibit I
hereto (the Equityholders Agreement).
In addition, certain other matters with respect to NewCo after
the Closing are set forth on Exhibit K.
ARTICLE 2
THE MERGER
Section 2.1 The
Recapitalization. As soon as practicable
after satisfaction or, to the extent permitted under this
Agreement, waiver of all conditions set forth in Article 9
(the Closing Conditions) (excluding
conditions that by their nature cannot be satisfied until the
Closing), and prior to the Effective Time, all outstanding
shares of Clearwire Class B Common Stock will be converted
into and exchanged for a corresponding number of shares of
Clearwire Class A Common Stock (the
Recapitalization).
Section 2.2 The
Merger. At the Effective Time, Clearwire will
be merged (the Merger) with and into
Clearwire Sub LLC in accordance with the Delaware General
Corporation Law (DGCL) and the Delaware
Limited Liability Company Act (the DLLC and,
together with the DGCL, Delaware Law),
at which time the separate existence of Clearwire will cease,
Clearwire Sub LLC will be the surviving entity (the
Surviving Entity) and a wholly owned, direct
Subsidiary of NewCo LLC, which, in turn, will be a wholly owned,
direct Subsidiary of NewCo. From and after the Effective Time,
the Surviving Entity will possess all of the rights, powers,
privileges and franchises and be subject to all of the
obligations, liabilities, restrictions and disabilities of
Clearwire, all as provided under Delaware Law.
Section 2.3 The
Closing. Unless this Agreement has been
earlier terminated in accordance with Section 12.1, and on
the terms and subject to the next sentence and to the conditions
set forth in Article 9, the closing of the transactions
contemplated by Article 3 and Article 4 (the
Closing) will take place as soon as
practicable, but (i) in no event until after the
Recapitalization and the Merger and (ii) subject to
clause (i) above, on the last Business Day of the calendar
month in which satisfaction or waiver of the Closing Conditions
occurs (excluding conditions that by their nature cannot be
satisfied until the Closing), or another time and date that the
Parties agree to in writing. Clearwire will provide notice to
the Parties that, in its view, the Closing is reasonably likely
to occur (x) at least 10 Business Days prior to the
anticipated Closing Date if the anticipated Closing Date is
within six months of the Execution Date and (y) at least
five Business Days prior to the Closing Date if the anticipated
Closing Date is beyond six months following the Closing Date.
The Closing will be held at the New York offices of
King & Spalding LLP at 10:00 a.m. local time
unless another place is agreed to in writing by the Parties. All
actions taken at the Closing will be deemed to have been taken
contemporaneously, but in the order specified in this Agreement.
Section 2.4 Effective
Time. As soon as practicable after
satisfaction or, to the extent permitted under this Agreement,
waiver of all Closing Conditions and consummation of the
Recapitalization, Clearwire will file a certificate of merger
(the Certificate of Merger) with the Delaware
Secretary of State in the form required by and executed and
completed in accordance with the relevant provisions of Delaware
Law and make all other filings or recordings required by
Delaware Law to effect the Merger. The Merger will become
effective on the date and at the time the Certificate of Merger
is filed with the Delaware Secretary of State (or at a later
date and time specified, if any, in the Certificate of Merger).
The time when the Merger will become effective is referred to as
the Effective Time.
Section 2.5 Conversion
of Shares; Capitalization of NewCo LLC. At
the Effective Time, by virtue of the Merger and without any
other action on part of the holders of the shares:
(a) each share of Clearwire Class A Common Stock and
each Clearwire restricted stock unit will be canceled and
retired and cease to exist and will be converted into the right
to receive one share of Class A Common Stock (the
Merger Consideration); except that to
the extent that any shares of Class A Common Stock are
issued in exchange for unvested restricted Clearwire
Class A Common Stock or any unvested Clearwire restricted
stock units that were granted to Clearwire employees under
Clearwire Stock Option Plans or otherwise, those shares of
Class A Common Stock will continue to have substantially
the same terms and conditions as applied to the corresponding
restricted shares or restricted stock units immediately before
the Effective Time;
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(b) All shares of Clearwire Class A Common Stock that
are held by Clearwire as treasury stock prior to the Effective
Time will be canceled and retired and cease to exist and no
Merger Consideration will be delivered in exchange therefor;
(c) Each membership interest of Clearwire Sub LLC issued
and outstanding prior to the Effective Time shall remain
outstanding and shall constitute the only issued and outstanding
equity interests of the Surviving Entity immediately after the
Effective Time;
(d) NewCo LLC will issue to NewCo a number of Voting Units
and Class A Common Units so that NewCo holds a number of
Voting Units and Class A Common Units in NewCo LLC equal to
the number of shares of Clearwire Class A Common Stock
outstanding after the Recapitalization and immediately prior to
the Effective Time pursuant to the terms of the Initial NewCo
LLC Agreement; and
(e) The outstanding shares of common stock of NewCo held by
Clearwire immediately prior to the Effective Time will be
canceled at the Effective Time.
Section 2.6 Surrender
and Payment.
(a) Clearwire has appointed the Exchange Agent for the
purpose of exchanging the Merger Consideration for:
(i) certificates representing shares of Clearwire Capital
Stock (the Certificates) or
(ii) uncertificated shares of Clearwire Capital Stock (the
Uncertificated Shares).
Promptly after the Closing Date, NewCo will send, or will cause
the Exchange Agent to send, to each holder of shares of
Clearwire Capital Stock at the Effective Time a letter of
transmittal and instructions that will specify that the delivery
will be effected, and risk of loss and title will pass, only on
proper delivery of the Certificates or transfer of the
Uncertificated Shares to the Exchange Agent.
(b) Each holder of shares of Clearwire Capital Stock will
be entitled to receive, on
(i) surrender to the Exchange Agent of a Certificate,
together with a properly completed letter of transmittal, or
(ii) receipt of an agents message by the
Exchange Agent (or other evidence, if any, of transfer as the
Exchange Agent may reasonably request) in the case of a
book-entry transfer of Uncertificated Shares,
the aggregate Merger Consideration that the holder has a right
to receive under Section 2.5. The shares of Class A
Common Stock constituting the Merger Consideration will be in
uncertificated book-entry form, unless a physical certificate is
requested by the holder or is otherwise required under
applicable Law. As a result of the Merger, at the Effective
Time, all shares of Clearwire Capital Stock will cease to be
outstanding and each holder of Clearwire Capital Stock will
cease to have any rights with respect to the Clearwire Capital
Stock, except the right to receive the Merger Consideration
payable in respect of the Clearwire Capital Stock.
(c) If any portion of the Merger Consideration is to be
paid to a Person other than the Person in whose name the
surrendered Certificate or the transferred Uncertificated Share
is registered, it will be a condition to the payment that
(i) either the surrendered Certificate will be properly
endorsed or will otherwise be in proper form for transfer or the
applicable Uncertificated Share will be properly
transferred, and
(ii) the Person requesting the payment will pay to the
Exchange Agent any transfer or other Taxes required as a result
of the payment to a Person other than the registered holder of
the Certificate or Uncertificated Share or establish to the
satisfaction of the Exchange Agent that the Tax has been paid or
is not payable.
(d) After the Effective Time, there will be no further
registration of transfers of shares of Clearwire Capital Stock.
If, after the Effective Time, Certificates or Uncertificated
Shares are presented to NewCo, they
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will be canceled and exchanged for the Merger Consideration
payable in respect of the Clearwire Capital Stock provided for,
and in accordance with the procedures set forth, in this
Article 2.
(e) Any portion of the Merger Consideration made available
to the Exchange Agent under Section 2.6(a) that remains
unclaimed by the holders of shares of Clearwire Capital Stock
twelve months after the Closing Date will be returned to NewCo,
on demand. Any holder who has not exchanged shares of Clearwire
Capital Stock for the Merger Consideration in accordance with
this Section 2.6 before that date will look only to NewCo
for payment of the Merger Consideration, and any dividends and
distributions with respect to the Merger Consideration, in
respect of those shares without any interest thereon. Regardless
of the preceding sentence, NewCo will not be liable to any
holder of shares of Clearwire Capital Stock for any amounts
properly paid to a public official under applicable abandoned
property, escheat or similar Laws. Any amounts remaining
unclaimed by holders of shares of Clearwire Capital Stock six
years after the Closing Date (or that earlier date, immediately
before the time when the amounts would otherwise escheat to or
become property of any Governmental Authority) will become, to
the extent permitted by applicable Law, the property of NewCo,
free and clear of any claims or interest of any Person
previously entitled thereto.
Section 2.7 Stock
Options.
(a) The terms of each outstanding compensatory option under
any agreement, plan or arrangement of Clearwire (the
Clearwire Stock Option Plans) to purchase
shares of Clearwire Class A Common Stock (a
Clearwire Stock Option), whether or not
exercisable or vested, shall be adjusted as necessary to provide
that, at the Effective Time, each Clearwire Stock Option
outstanding immediately before the Effective Time will be
converted into an option to acquire, on the same terms and
conditions as were applicable under that Clearwire Stock Option,
the same number of whole shares of Class A Common Stock
(rounded down to the nearest whole share) as the holder of the
Clearwire Stock Option would have been entitled to receive under
the Merger had the holder exercised the Clearwire Stock Option
in full immediately before the Effective Time, at a price per
share (rounded up to the nearest whole cent) equal to:
(i) the aggregate exercise price for the shares of
Clearwire Class A Common Stock otherwise purchasable under
the Clearwire Stock Option divided by
(ii) the aggregate number of whole shares of Class A
Common Stock deemed purchasable under the Clearwire Stock Option
as adjusted, rounded up to the nearest whole cent;
provided, however, if the above described
conversion process fails to satisfy the requirements of
Section 409A of the Code, the conversions shall be effected
so as to comply with Section 409A of the Code.
(b) Before the Effective Time, Clearwire will make any
amendments to the terms of the Clearwire Stock Option Plans and
the Clearwire Stock Options that are necessary, and will take
any other actions that are necessary, to give effect to the
adjustments contemplated by this Section 2.7.
(c) NewCo will take whatever actions necessary for or
otherwise material to the assumption of Clearwire Stock Options
under this Section 2.7, including the reservation, issuance
and listing of NewCo Capital Stock as is necessary to effectuate
the transactions contemplated by this Section 2.7. NewCo
will prepare and file with the SEC a registration statement on
an appropriate form, or a post-effective amendment to a
registration statement previously filed under the Securities
Act, with respect to the shares of Class A Common Stock
subject to Clearwire Stock Options.
(d) Clearwire and NewCo shall take all reasonable steps as
may be required to cause the transactions contemplated by
Section 2.7 and any other acquisition of NewCo equity
securities or dispositions of Clearwire equity securities
(including derivative securities) in connection with this
Agreement by each individual who is a director or officer of
Clearwire to be exempt under
Rule 16b-3
promulgated under the Exchange Act, such steps to be taken in
accordance with the Interpretive Letter dated January 12,
1999, issued by the SEC relating to
Rule 16b-3.
Section 2.8 Warrants.
At the Effective Time, each warrant to purchase shares of
Clearwire Class A Common Stock (a Clearwire
Warrant), whether or not exercisable or vested,
outstanding immediately prior to the Effective Time under any
agreement, plan or arrangement of Clearwire (the
Clearwire Warrant
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Agreements) will be deemed to constitute a warrant
to acquire, on the same terms and conditions as were applicable
under that Clearwire Warrant, the same number of whole shares of
Class A Common Stock as the holder of the Clearwire Warrant
would have been entitled to receive under the Merger had the
holder exercised the Clearwire Warrant in full immediately
before the Effective Time, at a price per share of Class A
Common Stock equal to the exercise price set forth in the
applicable Clearwire Warrant.
Section 2.9 Withholdings. Each
of Clearwire, NewCo, NewCo LLC and Clearwire Sub LLC will be
entitled to deduct and withhold from the consideration otherwise
payable to any Person under this Article 2 any amount it is
required to deduct and withhold with respect to the making of
the payment under any provision of federal, state, local or
foreign Tax Law. If Clearwire, NewCo, NewCo LLC or Clearwire Sub
LLC withholds any amount in accordance with the immediately
preceding sentence, the amounts will be treated for all purposes
of this Agreement as having been paid to the Person in respect
of which Clearwire, NewCo, NewCo LLC or Clearwire Sub LLC made
the deduction and withholding.
Section 2.10 Lost
Certificates. If any Certificate has been
lost, stolen or destroyed, on the making of an affidavit of that
fact by the Person claiming that Certificate to be lost, stolen
or destroyed and, if required by NewCo, NewCo LLC or Clearwire
Sub LLC, delivery by that Person of an agreement in form
reasonably satisfactory to NewCo, NewCo LLC or Clearwire Sub LLC
or, as NewCo, NewCo LLC or Clearwire Sub LLC may reasonably deem
necessary, the posting by that Person of a bond, in whatever
reasonable amount NewCo, NewCo LLC or Clearwire Sub LLC may
direct, as indemnity against any claim that may be made against
it with respect to the Certificate, the Exchange Agent will
issue, in exchange for the lost, stolen or destroyed
Certificate, the Merger Consideration to be paid in respect of
the shares of Clearwire Capital Stock represented by that
Certificate, as contemplated by this Section 2.10.
ARTICLE 3
TRANSFER OF SPRINT ASSETS
Section 3.1 Transfer
of Sprint Assets. Before Closing, Sprint will
cause the Sprint Assets to be held in their entirety by one or
more of the Transfer Entities.
Section 3.2 Contribution
of the Transfer Entities.
(a) Before the Closing, Sprint will cause the Transfer
Entities to be contributed to Sprint HoldCo LLC, and Sprint
HoldCo LLC will accept Capital Stock of the Transfer Entities,
in each case, free and clear of any Encumbrance. Sprint will
then cause Sprint HoldCo LLC to contribute the Transfer Entities
to Sprint Sub LLC, and Sprint Sub LLC will accept the Capital
Stock of the Transfer Entities, free and clear of any
Encumbrance, and Sprint Sub LLC will issue to Sprint HoldCo LLC
all of the Capital Stock of Sprint Sub LLC in accordance with
the terms of the Sprint Sub LLC Agreement. The Transfer Entities
will be transferred free of cash and Indebtedness (including any
Encumbrances related thereto), other than the Sprint Pre-Closing
Financing assumed by Sprint Sub LLC in accordance with
Section 1.2(a). From and after the contributions described
in this Section 3.2(a), Sprint will cause the Transfer
Entities and Sprint Sub LLC to be entities disregarded as
separate from Sprint HoldCo LLC for U.S. federal income tax
purposes until the consummation of the transactions described in
Section 3.3.
(b) Sprint will (i) use its Reasonable Best Efforts to
transfer, or cause to be transferred, by assignment (and not by
means of merger, liquidation or any other means), prior to the
Closing, all assets owned by Sprint and its Subsidiaries that
are primarily used in the operation of the Sprint WiMAX
Business, including the Sprint Assets, and all Liabilities that
relate primarily to the Sprint WiMAX Business to one or more
newly formed single member limited liability companies that are
treated as disregarded entities for U.S. federal income tax
purposes and (ii) with respect to those assets and
Liabilities that are not assigned under clause (i), each
Transfer Entity that holds any such assets and Liabilities that
as of the Execution Date is not a limited liability company
treated as a disregarded entity for U.S. federal income tax
purposes, cause such assets and Liabilities to be held by a
limited liability company that is treated as a disregarded
entity for U.S. federal income tax purposes, whether
through a conversion, merger, liquidation or other means (each
limited liability company described in clause (i) or
(ii) above, a New Sprint LLC). For
purpose of clause (i) of the preceding
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sentence, Sprint will use its Reasonable Best Efforts with
respect to any particular assets until the earlier of
(x) the date of the receipt of the FCC Consent and
(y) the date that Sprint in its reasonable judgment
determines that the assignment cannot be made because it would
cause Sprint to incur costs (other than de minimis
amounts), including transfer Taxes, greater than those that
would be incurred under clause (ii). Each New Sprint LLC will at
the time of such transaction under clause (i) or
(ii) be deemed to be a Transfer Entity, and each entity
that no longer holds the relevant assets or Liabilities will no
longer be considered a Transfer Entity, if applicable, for all
purposes of this Agreement. Within five Business Days before the
Closing, Sprint will provide the other Parties a revised
Section 7.1(c) of the Sprint Disclosure Schedule showing
the then Transfer Entities. Sprints obligation to use its
Reasonable Best Efforts to transfer by assignment any Sprint
Lease will not require Sprint to request the consent of the
lessor or sublessor under any such Sprint Lease if Sprint
reasonably determines such consent is necessary to effectuate
such transfer by assignment, if Sprint, in its reasonable
discretion, determines that seeking such consent is not in the
best interests of facilitating the Transactions, would cause
Sprint to incur any additional out-of-pocket costs (other than
de minimis amounts), or would be reasonably likely to
damage the relationship with the lessor under the Sprint Lease.
Section 3.3 Contribution
Consideration to NewCo LLC and NewCo. At the
Closing, but following completion of the Merger,
(a) Sprint will cause Sprint HoldCo LLC to transfer all of
the Capital Stock of Sprint Sub LLC to NewCo LLC, free and clear
of any Encumbrance, and NewCo LLC will issue 370,000,000
Class B Common Units to Sprint HoldCo LLC in accordance
with the terms of the NewCo LLC Agreement (the LLC
Contribution);
(b) Sprint will cause Sprint HoldCo LLC to contribute
$37,000 in cash to NewCo in consideration for NewCos
issuance to Sprint HoldCo LLC of 370,000,000 shares of
Class B Common Stock; and
(c) NewCo will contribute the cash received from Sprint
HoldCo LLC pursuant to Section 3.3(b) to NewCo LLC in
exchange for 370,000,000 Voting Units in NewCo LLC.
Section 3.4 Repayment. NewCo
LLC will repay, or cause to be repaid, in full, in accordance
with the terms of the Assumed Note and Section 1.2(b), the
Sprint Pre-Closing Financing that was assumed by Sprint Sub LLC
prior to the LLC Contribution.
Section 3.5 Marketing
Funds. Sprint has the right (subject to the
satisfaction of the conditions set forth in the relevant
agreements) to have expended on its behalf approximately
$250 million of market development and device incentive
funds (Marketing Funds) by one or more
vendors under supply agreements relating to the Sprint WiMAX
Business. Subject to the terms of, and performance by Sprint of
its obligations under the relevant agreements (x) to be
performed prior to the Closing and (y) which relate to or
impact the availability of any of the Marketing Funds, Sprint
will have the right to retain up to $100 million of the
Marketing Funds for its own benefit and not to assign those
rights to the Transfer Entities. If the vendor or vendors
providing the Marketing Funds to be allocated to Sprint are
unwilling to allow Sprint to retain such Marketing Funds or
allocate the full $100 million of Marketing Funds for
Sprints own benefit prior to the end of 2009, NewCo will
direct such additional spending of the Marketing Funds as
directed by Sprint for the benefit of Sprint prior to
December 31, 2009, so that Sprint receives the full
$100 million benefit prior to that date. Such direction
will be made by NewCo as and when the vendors have committed to
expend any Marketing Funds after the Closing pursuant to supply
agreements entered into by Sprint and its Subsidiaries prior to
the Closing. Sprint and NewCo will discuss and cooperate with
respect to the use of such Marketing Funds for Sprints
benefit. If prior to the Closing, Sprint takes any actions to
amend the Marketing Funds provisions of the relevant agreements
or otherwise takes or fails to take any actions that adversely
affect NewCos rights to the Marketing Funds (other than
the $100 million of the Marketing Funds to be retained by
Sprint pursuant to this Section 3.5), NewCo shall be
entitled to seek monetary damages against Sprint to compensate
NewCo for the loss of such Marketing Funds. NewCo will not take
any actions to amend the Marketing Funds provisions of the
relevant agreements or otherwise adversely affect such Marketing
Funds to be allocated to Sprint until its obligations to Sprint
under this Section 3.5 have been satisfied in full.
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ARTICLE 4
INVESTMENTS
Section 4.1 Contributions
of Certain Investors.
(a) At the Closing, but following the completion of the
Merger and the LLC Contribution, Comcast will contribute
$1,050,000,000 to NewCo LLC, TWC will contribute $550,000,000 to
NewCo LLC, BHN will contribute $100,000,000 to NewCo LLC, and
Intel will contribute $1,000,000,000 to NewCo LLC.
(b) In consideration for the contribution described in
Section 4.1(a), NewCo LLC will issue in accordance with the
terms of the NewCo LLC Agreement (i) 52,500,000
Class B Common Units and 52,500,000 Voting Units to
Comcast, (ii) 27,500,000 Class B Common Units and
27,500,000 Voting Units to TWC, (iii) 5,000,000
Class B Common Units and 5,000,000 Voting Units to BHN and
(iv) 50,000,000 Class B Common Units and 50,000,000
Voting Units to Intel.
(c) Each of Comcast, TWC, BHN and Intel will transfer all
of its Voting Units to NewCo in consideration for NewCos
issuance to such Investor of an equal number of shares of
Class B Common Stock.
(d) All payments required under this Section 4.1 will
be made in cash by wire transfer of immediately available funds
to a bank account(s) of NewCo LLC designated in writing by NewCo
LLC at least three Business Days before the Closing Date.
Section 4.2 Googles
Purchase of Shares and NewCo Contribution to NewCo LLC.
(a) At the Closing, but following the completion of the
Merger and the LLC Contribution and simultaneously with the
consummation of the transactions described in Section 4.1,
Google will purchase from NewCo, and NewCo will issue to Google,
25,000,000 shares of Class A Common Stock for an
aggregate Investment of $500,000,000.
(b) After the issuance of Class A Common Stock to
Google under Section 4.2(a), NewCo will contribute
Googles Investment to NewCo LLC and NewCo LLC will issue
to NewCo 25,000,000 Voting Units and Class A Common Units.
(c) All payments required under this Section 4.2 will
be made in cash by wire transfer of immediately available funds
to a bank account(s) of NewCo designated in writing by NewCo at
least three Business Days before the Closing Date.
Section 4.3 Post-Closing
Adjustment.
(a) On the Adjustment Date:
(i) If the Adjustment Amount with respect to an Investor
who made its Investment (or the applicable portion of its
Investment) under Section 4.1(a) is a positive number:
(A) Such Investor will transfer to NewCo LLC for no
consideration a number of Class B Common Units held by such
Investor equal to such Adjustment Amount and, simultaneously
with such transfer, NewCo will transfer to NewCo LLC for no
consideration a number of Voting Units held by NewCo equal to
such Adjustment Amount and all such Class B Common Units
and Voting Units shall be immediately and automatically
canceled; and
(B) Such Investor will transfer to NewCo for no
consideration a number of shares of Class B Common Stock
held by such Investor equal to such Adjustment Amount and all
such shares of Class B Common Stock shall be immediately
and automatically canceled.
(ii) If the Adjustment Amount with respect to an Investor
who made its Investment (or the applicable portion of its
Investment) under Section 4.1(a) is a negative number:
(A) NewCo LLC will issue to such Investor for no additional
consideration a number of Class B Common Units equal to the
absolute value of such Adjustment Amount and issue to such
Investor
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for no additional consideration a number of Voting Units equal
to the absolute value of such Adjustment Amount; and
(B) Immediately thereafter, such Investor will transfer a
number of Voting Units to NewCo equal to the absolute value of
such Adjustment Amount in consideration for NewCos
issuance to such Investor of a number of shares of Class B
Common Stock equal to the absolute value of such Adjustment
Amount and NewCo will deliver to such Investor a stock
certificate or evidence of book-entry for those shares duly
executed by NewCo.
(iii) If the Adjustment Amount with respect to an Investor
who made its Investment (or the applicable portion of its
Investment) under Section 4.2(a) is a positive number:
(A) Such Investor will transfer to NewCo for no
consideration a number of shares of Class A Common Stock
held by such Investor equal to such Adjustment Amount; and
(B) Simultaneously with such transfer, NewCo will transfer
to NewCo LLC for no consideration a number of Voting Units held
by NewCo equal to such Adjustment Amount and a number of
Class A Common Units held by NewCo equal to such Adjustment
Amount and all such Voting Units and Class A Common Units
shall be immediately and automatically canceled.
(iv) If the Adjustment Amount with respect to an Investor
who made its Investment (or the applicable portion of its
Investment) under Section 4.2(a) is a negative number:
(A) NewCo will issue to such Investor for no additional
consideration a number of shares of Class A Common Stock
equal to the absolute value of such Adjustment Amount and
deliver to such Investor a stock certificate or evidence of
book-entry for those shares duly executed by NewCo; and
(B) Simultaneously with such issuance, NewCo LLC will issue
to NewCo a number of Voting Units equal to the absolute value of
such Adjustment Amount and a number of Class A Common Units
equal to the absolute value of such Adjustment Amount.
(b) NewCo, NewCo LLC and each Investor will execute any
documents necessary to effect the adjustments contemplated
pursuant to clause (a) above.
(c) During the period between the Closing and the
Adjustment Date, NewCo shall not effect any reclassification,
recapitalization, stock split (including reverse stock split),
stock dividend, merger, combination, exchange or readjustment of
shares, subdivision or other similar transaction, commit to do
so or publicly announce its intention to do so.
(d) The shares of Class A Common Stock and
Class B Common Stock and Class A Common Units,
Class B Common Units and Voting Units, if any, to be issued
in connection with any adjustment made pursuant to
clause (a) above, when issued and delivered in accordance
with the terms of this Agreement, will be duly authorized,
validly issued, fully paid and nonassessable and free of
Encumbrances, preemptive rights or other similar rights, other
than Encumbrances, preemptive rights or similar rights created
by the Equityholders Agreement or the NewCo LLC Agreement.
(e) The Parties intend that the adjustments pursuant to
this Section 4.3 be treated for U.S. federal income
tax purposes as adjustments to the purchase price paid to
(i) NewCo LLC by the Investors for their Class B
Common Units and Voting Units or (ii) NewCo by the
Investors for their Class A Common Stock, as applicable,
and as an adjustment to the purchase price paid by the Investors
for their shares of Class B Common Stock acquired from
NewCo, as applicable, and not as separate transactions for those
purposes; provided, however, that for purposes of
making such adjustments, the portion of the purchase price
allocable to Voting Units and Class B Common Stock shall in
all cases be consistent with Section 10.12.
Section 4.4 NewCo
and NewCo LLC Joinder. Clearwire shall cause
each of NewCo and NewCo LLC to enter into a written agreement at
the Closing, in a form reasonably satisfactory to the Investors
and Sprint, pursuant to which each of NewCo and NewCo LLC will
agree to be bound by the terms and provisions of this Agreement
contemplating performance by NewCo or NewCo LLC, as applicable,
after the Effective Time
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(including Section 3.5, Section 4.3, Section 10.6
and Section 10.17) and will make the representations and
warranties set forth in Section 4.3(d) to Sprint and each
Investor.
Section 4.5 Use
of Proceeds. The aggregate proceeds received
by NewCo LLC from the Total Investment on the Closing Date will
be used by NewCo LLC (a) to pay fees and expenses incurred
by NewCo (in accordance with Article 3 of the NewCo LLC
Agreement), (b) to pay fees and expenses incurred by NewCo
LLC in connection with the Transactions, including the fees and
expenses contemplated under Section 10.11 and
Section 14.14(a), (c) for capital expenditures and
operational expenditures associated with the deployment and
operation of the Wireless Broadband Network, including,
expenditures for spectrum acquisitions, site acquisition,
network construction and wireless broadband infrastructure,
(d) subject to the limitations in the Equityholders
Agreement, funding the business operations and activities of
NewCo LLCs international operations, (e) otherwise as
permitted or contemplated by this Agreement and the NewCo LLC
Agreement, including the repayment of the Sprint Pre-Closing
Financing and (f) otherwise as may be approved by the NewCo
Board of Directors in accordance with this Agreement, the
Equityholders Agreement and the NewCo LLC Agreement.
ARTICLE 5
CLOSING DELIVERABLES
Section 5.1 Clearwire
Closing Deliverables. At the Closing,
Clearwire will deliver, or cause to be delivered, to the other
Parties the following:
(a) certificates executed by an executive officer of
Clearwire and the Chief Financial Officer of Clearwire
certifying compliance by Clearwire with the conditions set forth
in Section 9.2(a), Section 9.4(a),
Section 9.2(b), Section 9.4(b), Section 9.2(d)
and Section 9.4(d), solely with respect to Clearwire and
its Subsidiaries;
(b) a certificate duly executed by the Secretary or any
Assistant Secretary of Clearwire, dated as of the Closing Date,
certifying
(i) the good standing of each of Clearwire, NewCo, NewCo
LLC and Clearwire Sub LLC in its jurisdiction of incorporation
or formation, as applicable,
(ii) the effectiveness of the resolutions of the board of
directors of Clearwire authorizing the execution, delivery and
performance of this Agreement, and
(iii) the receipt of the Clearwire Stockholder Approval;
(c) a certificate duly executed by the Secretary or any
Assistant Secretary of NewCo, dated as of the Closing Date,
certifying
(i) the good standing of NewCo in its jurisdiction of
incorporation, and
(ii) the effectiveness of the resolutions of the board of
directors of NewCo authorizing the execution, delivery and
performance of this Agreement;
(d) a certificate duly executed by the Managing Member (as
defined in the NewCo LLC Agreement) of NewCo LLC, dated as of
the Closing Date, certifying
(i) the good standing of NewCo LLC in its jurisdiction of
formation, and
(ii) the due authorization by the Managing Member of NewCo
LLC authorizing the execution, delivery and performance of this
Agreement;
(e) the NewCo LLC Agreement, duly executed by NewCo;
(f) the Registration Rights Agreement, duly executed by
NewCo;
(g) the Equityholders Agreement, duly executed by
NewCo;
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(h) to each Investor making its Investment (or the
applicable portion of its Investment) under Section 4.1(a),
an instrument (which may be evidence of book-entry) evidencing
the Voting Units to be issued at the Closing duly executed by
NewCo LLC;
(i) to each Investor making its Investment (or the
applicable portion of its Investment) under Section 4.2(a),
a stock certificate for each such Investor or evidence of
book-entry for the respective shares of Class A Common
Stock to be issued at Closing duly executed by NewCo;
(j) an instrument (which may be evidence of book-entry) for
Sprint HoldCo LLC and each Investor (other than Google)
evidencing the Class B Common Units to be issued at the
Closing duly executed by NewCo LLC;
(k) a stock certificate for Sprint HoldCo LLC and each
Investor (other than Google) or evidence of book-entry for the
respective shares of Class B Common Stock to be issued at
Closing duly executed by NewCo;
(l) all other Ancillary Agreements (other than those signed
and delivered on the Execution Date) to which Clearwire, NewCo,
NewCo LLC or Clearwire Sub LLC is a party, duly executed by
Clearwire, NewCo, NewCo LLC and Clearwire Sub LLC, as applicable;
(m) evidence in a form and substance reasonably
satisfactory to Sprint and the Investors of the receipt of the
Credit Agreement Consent or the consummation of the Credit
Agreement Refinancing;
(n) copies of the opinions to be provided under
Section 9.1(n) solely for information purposes;
(o) if the Secured Note is issued pursuant to
Section 1.2(b), the Secured Note Documentation, duly
executed by NewCo LLC
and/or one
or more of its Subsidiaries, as applicable, to be effective one
Business Day after the Closing (such documentation to be
delivered only to Sprint); and
(p) all other documents required to be entered into by
Clearwire, NewCo, NewCo LLC or Clearwire Sub LLC under this
Agreement or reasonably requested by other Parties to consummate
the Transactions.
Section 5.2 Sprint
Closing Deliverables. At Closing, Sprint will
deliver, or cause to be delivered, to the other Parties the
following:
(a) certificates executed by an executive officer of Sprint
and the Chief Financial Officer of Sprint as to compliance by
Sprint with the conditions set forth in Section 9.3(a),
Section 9.4(a), Section 9.3(b), Section 9.4(b),
Section 9.3(d) and Section 9.4(d), solely with respect
to Sprint and its Subsidiaries;
(b) (i) a certificate duly executed by the Chief
Financial Officer of Sprint, dated as of the Closing Date,
certifying that the consummation of the Transactions will not
(x) cause a breach of any covenants or obligations under
the Sprint Senior Debt Agreements or (y) increase the
magnitude of any then-existing unrelated breach of any covenants
or obligations under the Sprint Senior Debt Arrangements and
(ii) a legal opinion of King & Spalding LLP or
another law firm of nationally recognized standing to the effect
that the consummation of the Transactions will not violate,
cause a default or event of default under or cause the
imposition of a lien on the assets or property of NewCo or any
of its Subsidiaries under the Sprint Senior Debt Agreements,
which opinion shall (A) be subject to reasonable and
customary assumptions, (B) be based upon reasonable and
customary certificates from NewCo and Sprint, (C) be in
form and substance reasonably satisfactory to NewCo and
(D) provide that NewCo shall (and the lenders under the
Credit Agreement (or any replacement in accordance with
Section 10.1(a)(xv))) also be entitled to rely thereon;
provided, however, if Sprint is unable to provide
the foregoing certificate and legal opinion without taking
actions of the type described in Section 2.13 of the
Equityholders Agreement, Sprint shall be required to take,
as promptly as possible to permit the Closing to occur at the
end of the calendar month in which it otherwise would occur but
for Sprints inability to provide such certificate or legal
opinion, such actions in order to be able to deliver such
certificate and legal opinion effective as of such Closing Date,
and the rights and obligations of the Parties under
Section 2.13 of the Equityholders Agreement shall
apply with respect to such actions;
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(c) a certificate duly executed by the Secretary or any
Assistant Secretary of Sprint, dated as of the Closing Date,
certifying
(i) the good standing of Sprint, Sprint HoldCo LLC, Sprint
Sub LLC and each Transfer Entity, in its jurisdiction of
incorporation or formation, as applicable and
(ii) the effectiveness of the resolutions of the board of
directors of Sprint authorizing the execution, delivery and
performance of this Agreement;
(d) the NewCo LLC Agreement, duly executed by Sprint;
(e) the Registration Rights Agreement, duly executed by
Sprint;
(f) the Equityholders Agreement, duly executed by
Sprint;
(g) an instrument evidencing the transfer of the Capital
Stock of Sprint Sub LLC to be transferred at Closing, duly
executed by Sprint HoldCo LLC;
(h) an instrument evidencing the wire transfer of the
consideration for the Class B Common Stock to be issued to
Sprint HoldCo LLC in immediately available funds to a bank
account designated in writing by NewCo;
(i) all other Ancillary Agreements to which Sprint
and/or one
or more appropriate Subsidiaries of Sprint is a party, duly
executed by Sprint
and/or the
appropriate Subsidiary of Sprint;
(j) all organizational documents and books and records of
Sprint Sub LLC and each of the Transfer Entities (such
organizational documents and books and records to be delivered
only to NewCo);
(k) one or more instruments evidencing the conversion
and/or
transfers of assets and Liabilities contemplated by
Section 3.2 (such instruments to be delivered only to
NewCo);
(l) if the Secured Note is issued pursuant to
Section 1.2(b), the Secured Note Documentation, duly
executed by Sprint
and/or one
or more of its Subsidiaries, as applicable, to be effective one
Business Day after the Closing (such documentation to be
delivered only to NewCo); and
(m) all other documents required to be entered into by
Sprint under this Agreement or reasonably requested by the other
Parties to consummate the Transactions.
Section 5.3 Investor
Closing Deliverables. At Closing, each
Investor will deliver, or cause to be delivered, to the other
Parties the following:
(a) an instrument evidencing the wire transfer of such
Investors Investment in immediately available funds to a
bank account designated in writing by NewCo or NewCo LLC, as the
case may be;
(b) a certificate executed by an executive officer of such
Investor certifying compliance by such Investor with the
conditions set forth in Section 9.2(a),
Section 9.3(a), Section 9.2(b) and
Section 9.3(b), solely with respect to such Investor and
its Subsidiaries;
(c) a certificate duly executed by the Secretary or any
Assistant Secretary of such Investor, dated as of the Closing
Date, certifying
(i) the good standing of such Investor, in its jurisdiction
of incorporation or formation, as applicable; and
(ii) the effectiveness of the resolutions of the board of
directors of such Investor, or other evidence of authority,
authorizing the execution, delivery and performance of this
Agreement;
(d) the NewCo LLC Agreement, duly executed by such Investor
(other than Google);
(e) an instrument evidencing the transfer of the Voting
Units to be transferred at Closing, duly executed by such
Investor (other than Google);
(f) the Equityholders Agreement, duly executed by
such Investor;
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(g) all other Ancillary Agreements required to be entered
into by such Investor under this Agreement, duly executed by
such Investor
and/or one
or more appropriate Subsidiaries of such Investor; and
(h) all other documents required to be entered into by such
Investor
and/or one
or more appropriate Subsidiaries of such Investor under this
Agreement or reasonably requested by the other Parties to
consummate the Transactions.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF CLEARWIRE
Except as disclosed in the disclosure letter (the
Clearwire Disclosure Schedule)
delivered by Clearwire to Sprint and the Investors prior to the
execution of this Agreement (which letter sets forth items of
disclosure with specific reference to the particular Section or
subsection of this Agreement to which the information in the
Clearwire Disclosure Schedule relates), except:
(A) any information set forth in one section of the
Clearwire Disclosure Schedule will be deemed to apply to each
other Section or subsection of this Agreement to which its
relevance is reasonably apparent from a reasonable reading
thereof to a reasonable person without independent knowledge of
the matters so disclosed; and
(B) notwithstanding anything in this Agreement to the
contrary, the inclusion of an item in such schedule as an
exception to a representation or warranty will not be deemed an
admission that such item represents a material exception or
material fact, event or circumstance or that such item has had
or would reasonably be expected to have a Clearwire Material
Adverse Effect.
Clearwire represents and warrants to the other Parties as of the
Execution Date and the Closing Date as follows:
Section 6.1 Organization;
Authorization.
(a) Clearwire and each of its Subsidiaries is duly
organized, validly existing and in good standing under the Laws
of its jurisdiction of formation and has all corporate, limited
liability company or similar powers and all Governmental
Licenses required to carry on its business as now conducted,
except for those Governmental Licenses the absence of which
would not reasonably be expected to result, individually or in
the aggregate, in a Clearwire Material Adverse Effect. Clearwire
and each of its Subsidiaries has all requisite power and
authority to enter into this Agreement and each Ancillary
Agreement to which it is or will be a party and to perform the
obligations to be performed by it under this Agreement and each
such Ancillary Agreement. Clearwire and each of its Subsidiaries
is duly qualified to do business as a foreign entity and is in
good standing under the Laws of each state or other jurisdiction
in which the ownership of assets by it or the nature of the
activities conducted by it requires such qualification, except
where the failure to so qualify would not reasonably be expected
to result, individually or in the aggregate, in a Clearwire
Material Adverse Effect.
The affirmative (in person or by proxy) vote of the holders of a
majority of the outstanding voting power of Clearwire A Common
Stock and Clearwire Class B Common Stock, voting together
as a single class, voting to approve this Agreement and the
Transactions contemplated hereby is the only vote of the holders
of Clearwire Capital Stock necessary in connection with the
consummation of the Transactions contemplated by this Agreement
(the Clearwire Stockholder Approval). The
execution and delivery of this Agreement and the Ancillary
Agreements to which Clearwire or any Subsidiary of Clearwire is
or will be a party, and the performance by Clearwire and each of
its Subsidiaries of its obligations under this Agreement and the
Ancillary Agreements to which it is or will be a party, have
been duly authorized by all necessary actions, except for the
Clearwire Stockholder Approval, on the part of Clearwire and
each of its Subsidiaries. This Agreement has been, and the
Ancillary Agreements to which it or a Subsidiary of Clearwire
will be a party at Closing will be, duly executed and delivered
by Clearwire and such Subsidiary and constitutes, and will
constitute, a legal, valid and binding obligation of Clearwire
and such Subsidiary, as the case may be, enforceable against it
and such Subsidiary in accordance with its terms, subject to
applicable bankruptcy,
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insolvency, reorganization, moratorium, liquidation, fraudulent
conveyance and other similar Laws and principles of equity
affecting creditors rights and remedies generally (the
Bankruptcy Exception).
Clearwire has furnished or made available to Sprint and the
Investors true and complete copies of its and of each of its
material Subsidiarys organizational documents, each as
amended to date. Those organizational documents are in full
force and effect, and neither Clearwire nor any Subsidiary of
Clearwire is in violation of any provision of its respective
organizational documents, except as would not reasonably be
expected to result, individually or in the aggregate, in a
Clearwire Material Adverse Effect.
(b) At a meeting duly called and held on May 5, 2008,
Clearwires board of directors, by the affirmative vote of
all directors voting at the meeting,
(i) declared that this Agreement and the Transactions
contemplated by it, including the Merger, are advisable and in
the best interests of Clearwire and Clearwires
stockholders,
(ii) approved and adopted this Agreement and the
Transactions contemplated by it, including the Merger, and
(iii) resolved to recommend acceptance, approval and
adoption of this Agreement and the Merger by Clearwires
stockholders.
(c) Morgan Stanley & Co. Incorporated (the
Independent Advisor) has delivered to
Clearwires board of directors its written opinion, dated
the Execution Date, that, as of the Execution Date and based on
the assumptions, qualifications and limitations contained in
that written opinion, the consideration to be received by
holders of Clearwire Class A Common Stock as a result of
the Merger is fair to such Clearwire stockholders from a
financial point of view. A complete copy of such opinion will be
made available solely for information purposes to Sprint and
each Investor as soon as practicable after the Execution Date.
(d) As of Closing, each of NewCo, NewCo LLC and Clearwire
Sub LLC will be a limited liability company or corporation duly
organized, validly existing and in good standing under the Laws
of the jurisdiction of its formation or incorporation and will
have all limited liability company or corporate power and all
Governmental Licenses required to carry on its business, as then
being conducted, except for those Governmental Licenses the
absence of which would not reasonably be expected to result,
individually or in the aggregate, in a Clearwire Material
Adverse Effect. Each of NewCo, NewCo LLC and Clearwire Sub LLC
on the Closing Date will have all requisite power and authority
to enter into each Ancillary Agreement to which it will be a
party and to perform the obligations to be performed by it under
each such Ancillary Agreement. Immediately prior to the Closing,
each of NewCo, NewCo LLC and Clearwire Sub LLC will be duly
qualified to do business as a foreign entity and in good
standing under the Laws of each state or other jurisdiction in
which the ownership of assets by it or the nature of the
activities conducted by it requires such qualification, except
where the failure to be so qualified would not reasonably be
expected to result, individually or in the aggregate, in a
Clearwire Material Adverse Effect. Since the date of its
formation, each of NewCo, NewCo LLC and Clearwire Sub LLC shall
not have engaged in any activities and shall not have any
Liabilities other than in connection with, or as contemplated
by, this Agreement and the Transactions.
(e) Each of NewCo, NewCo LLC and Clearwire Sub LLC is not,
and after giving effect to the Transactions and the transactions
contemplated by the Ancillary Agreements, will not be, required
to register as an investment company as such term is
defined in the Investment Company Act of 1940, as amended.
Section 6.2 Non-Contravention. The
execution, delivery and performance of this Agreement and the
Ancillary Agreements to which it or NewCo, NewCo LLC or
Clearwire Sub LLC is a party, the consummation of the
Transactions including the Merger and the fulfillment of and
compliance with the terms and conditions of this Agreement and
the Ancillary Agreements to which it or NewCo, NewCo LLC or
Clearwire Sub LLC is or will be as of the Closing a party do not
or will not result in the imposition of any Encumbrance, and do
not or will not (as the case may be), with the passing of time
or the giving of notice or both, violate or conflict with,
constitute a breach of or default under, result in the loss of
any benefit under, permit the acceleration of any obligation
under or create in any party the right to terminate, modify or
cancel,
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(a) any term or provision of the certificate of
incorporation or bylaws of Clearwire or the organizational
documents of NewCo, NewCo LLC or Clearwire Sub LLC,
(b) any Clearwire Lease or any Clearwire License,
(c) any Clearwire Contract,
(d) any Governmental License held by Clearwire or any of
its Subsidiaries, (other than a Clearwire License),
(e) any judgment, decree or order of any Governmental
Authority to which Clearwire or any of its Subsidiaries is a
party or by which Clearwire or any of its Subsidiaries or any of
their respective properties are bound, or
(f) any Law applicable to any Clearwire Asset and in
existence as of the Execution Date,
in the case of each of clauses (b) through (f), except as
would not reasonably be expected to result in a Clearwire
Material Adverse Effect.
Section 6.3 Clearwire
Licenses.
(a) Description. Section 6.3
of the Clearwire Disclosure Schedule sets forth: (i) a true
and complete list, as of the Execution Date, of each of the
Clearwire Licenses, (ii) the lawful, beneficial and
exclusive holder of each Clearwire License, and (iii) the
BTA, call sign or other identifying information for each
Clearwire License. As of April 30, 2008, the number of
MHz-Pops covered by Clearwire Licenses and spectrum rights that
are subject to Clearwire In-Leases, less the number of MHz-Pops
covered by the spectrum rights that are subject to the Clearwire
Out-Leases, is at least 13,911,000,000.
(b) Validity.
(i) The grant, renewal or assignment of the Clearwire
Licenses to the existing licensee of the Clearwire License was
approved by the FCC by Final Order, and the Clearwire Licenses
are validly issued and in full force and effect; and
(ii) other than Proceedings of general applicability, there
is no Proceeding pending or, to the Knowledge of Clearwire,
threatened before the FCC, that, if determined as requested by
the moving party or as indicated in any document initiating the
Proceeding, could result in the revocation, modification,
restriction, cancellation, termination, suspension or
non-renewal of any Clearwire License or other action that is
adverse to holder of the License, or the imposition of a
material monetary fine, nor does Clearwire have Knowledge of any
facts which, if asserted, would be reasonably likely to result
in any such action. Timely payments have been made to the United
States Government for those of the Clearwire Licenses that are
BTA authorizations.
(iii) Neither Clearwire nor any of its Affiliates is a
party to any contract, agreement or other arrangement to assign
or otherwise dispose of, or that would adversely affect,
NewCos or its Subsidiaries ownership of, any
material Clearwire License after the Effective Time.
(c) License Facilities.
(i) The facilities subject to a Clearwire License (the
Clearwire License Facilities) were
constructed and operated within the timeframe required by
then-applicable FCC Rules (or waivers or extensions thereof) to
satisfy construction and operating requirements applicable to
each Clearwire License;
(ii) the Clearwire License Facilities since the acquisition
of the Clearwire Licenses, and to the Knowledge of Clearwire, at
all times, have been operating in material compliance with the
FCC authorizations and the FCC Rules, except where the
facilities were not required to operate under FCC Rules or by
grant of authority from the FCC;
(iii) none of the Clearwire License Facilities (A) is
authorized under an authorization that is subject to challenge
before the United States Court of Appeals or (B) is subject
to any lease, sublease or any agreement that grants to any third
Person the right, contingent or otherwise, to use, acquire or
make it available to, or for use by, a third Person;
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(iv) no Clearwire License is subject to (A) a
revocation proceeding or (B) a pending request for waiver
of Section 21.303 of the FCC Rules or any successor
provision thereto;
(v) Except as set forth in Section 6.3(c)(v) of the
Clearwire Disclosure Schedule, no Clearwire Licenses or
Clearwire License Facilities are subject to any contract or
other agreement providing for the relocation of wireless
facilities or the sharing of any costs associated with any such
relocation with respect to the Clearwire Licenses; and
(vi) no Clearwire License Facilities are operating under
special temporary or developmental authority.
(d) All reports required to be filed by Clearwire with the
FCC with respect to the Clearwire Licenses have been timely
filed except where the failure to so timely file would not
reasonably be expected to result in a Clearwire Material Adverse
Effect. To the Knowledge of Clearwire, all reports filed with
the FCC relating to the Clearwire Licenses are complete and
accurate.
(e) Clearwire has delivered or made available to Sprint and
the Investors true and complete copies of all authorizations
comprising each Clearwire License, and, except for documents
otherwise publicly available, all documents filed in and all
notices or orders issued in connection with, any Proceeding
pending at the FCC relating to Clearwire Licenses.
Section 6.4 Clearwire
Leases.
(a) Section 6.4 of the Clearwire Disclosure Schedule
sets forth: (i) a true and complete list, as of the
Execution Date, of each of the Clearwire Leases, (ii) the
lawful, beneficial and exclusive holder of each Clearwire Lease,
(iii) the licensee or sublessor, as applicable, for each
such Clearwire Lease, and (iv) the BTA, call sign or other
identifying information for each Clearwire Lease.
(b) Each Clearwire Lease is valid, binding and in full
force and effect, meets in all material respects all
requirements of Law, and is enforceable in accordance with its
terms, except as may be modified by FCC Rules and subject to the
Bankruptcy Exception. The applicable Clearwire entity is the
lessee or sublessee under each Clearwire Lease (by entry into
the Clearwire Lease, assignment of the Lease, transfer of rights
or other means) and, except with respect to any capacity of EBS
spectrum retained by the holder of the License, has the sole
right to use the spectrum under each Clearwire Lease. To the
Knowledge of Clearwire, other than the terms of each Clearwire
Lease, the FCC Rules limiting the duration of any Clearwire
Lease, the FCCs renewal of the underlying License and the
FCCs renewal of its consent to any Clearwire De Facto
Transfer Lease, there are no facts or circumstances that would
reasonably be likely to (whether with or without notice, lapse
of time or the occurrence of any other event) preclude the
renewal or extension of any Clearwire Lease in the ordinary
course of business.
(c) Clearwire and the Domestic Clearwire Subsidiaries are
not, nor to the Knowledge of Clearwire, is any other party to
any of the material Clearwire Leases in breach or default under
the material Clearwire Leases, and any material breach or
default that has been asserted by such other party has been
waived, cured or otherwise settled.
(d) Clearwire and the Domestic Clearwire Subsidiaries have
not, nor to the Knowledge of Clearwire, has any other party to
any of the material Clearwire Leases claimed in any written
statement that the counterparty is in breach or default under
the material Clearwire Leases and any past breach or default has
been waived, cured or otherwise settled. For purposes of this
Section 6.4, any breach of a payment obligation shall be
deemed material.
(e) No party to any Clearwire Lease has claimed in writing,
and to the Knowledge of Clearwire, no party has threatened, in
any written statement to Clearwire that the party has a right to
terminate any Clearwire Lease at any time or to seek damages
against any transferor for the violation, breach or default by
any transferor of any Clearwire Lease.
(f) Clearwire has delivered or made available to Sprint and
the Investors copies of all Clearwire Leases, which are true and
complete in all material respects.
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(g) Neither Clearwire nor any of its Affiliates is a party
to any contract, agreement or other arrangement to assign or
otherwise dispose of, or that would adversely affect,
NewCos or its Subsidiaries ownership of, any
material Clearwire Lease after the Effective Time.
(h) To the Knowledge of Clearwire:
(i) the grant, renewal or assignment of the FCC licenses
subject to the Clearwire Leases (the Clearwire Leased
FCC Licenses) to the existing licensee of the
Clearwire Lease was approved by the FCC by Final Order;
(ii) the Clearwire Leased FCC Licenses are validly issued
and in full force and effect;
(iii) other than Proceedings of general applicability,
there is no Proceeding pending or threatened before the FCC
that, if determined as requested by the moving party or as
indicated in any document initiating the Proceeding, could
result in the revocation, modification, restriction,
cancellation, termination, suspension or non-renewal of the
Clearwire Leased FCC Licenses or other action that is adverse to
the licensee of the Clearwire Lease, nor is Clearwire aware of
any facts which, if asserted, would be reasonably likely to
result in any such action; and
(iv) adequate facilities were constructed and operated
within the timeframe required by then-applicable FCC Rules (or
waivers or extensions thereof) to satisfy construction and
operating requirements applicable to each Clearwire Leased FCC
License.
(i) Each Clearwire De Facto Transfer Lease has been granted
by the FCC by Final Order.
Section 6.5 Clearwire
Network Assets.
(a) Except as set forth in Section 6.5 of the
Clearwire Disclosure Schedule, Clearwire or one of the Domestic
Clearwire Subsidiaries has good and marketable title to each
Clearwire Network Asset, free and clear of all Encumbrances. In
the aggregate, the Clearwire Network Assets are:
(i) in good operating condition and in a state of good
maintenance and repair, ordinary wear and tear excepted;
(ii) usable in the regular and ordinary course of business;
(iii) operating as intended in accordance with normal
industry practice; and
(iv) conform in all material respects to all applicable
Laws.
Clearwire has no Knowledge of any material defect with any of
the material Clearwire Network Assets.
(b) Each of Clearwire, the Domestic Clearwire Subsidiaries
and the Clearwire Network Assets is in compliance with
applicable Environmental Laws in all material respects. There
are no pending or, to the Knowledge of Clearwire, threatened
Proceedings alleging any material liability of, or material
noncompliance by, Clearwire or the Domestic Clearwire
Subsidiaries under applicable Environmental Laws. Clearwire or
the applicable Domestic Clearwire Subsidiary, as the case may
be, holds and is in compliance in all material respects with all
Governmental Licenses required under Environmental Laws for
their operations, including of the Clearwire Network Assets.
Solely as a result of the Clearwire Assets, the consummation of
the Merger will not require compliance with the New Jersey
Industrial Site Recovery Act or with
Sections 22a-134
through
22a-134e of
the Connecticut General Statutes (commonly known as the
Connecticut Transfer Act), each as amended. Notwithstanding
anything to the contrary in this Agreement including
Section 6.9, the representations contained in this
Section 6.5 contain all representations and warranties made
by Clearwire in this Agreement with respect to Environmental
Laws.
Section 6.6 Litigation.
(a) There is no Proceeding instituted or pending or, to the
Knowledge of Clearwire, threatened against Clearwire or its
Subsidiaries that if adversely determined would reasonably be
expected to result, individually or in the aggregate, in a
Clearwire Material Adverse Effect or that, as of the Execution
Date, in any manner challenges or seeks to prevent, enjoin,
alter or materially delay the Merger or the other Transactions
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contemplated by this Agreement. There are no judgments, orders,
injunctions, decrees, stipulations or awards (whether rendered
by a court, administrative agency, or by arbitration, as a
result of a grievance or other procedure) against or relating to
Clearwire, any of its Subsidiaries or, to the Knowledge of
Clearwire, any Person for whom Clearwire or any of its
Subsidiaries is liable for certain claims that would reasonably
be expected to result, individually or in the aggregate, in a
Clearwire Material Adverse Effect or that, as of the Execution
Date, in any manner challenges or seeks to prevent, enjoin,
alter or materially delay the Merger or the other Transactions
contemplated by this Agreement.
(b) Section 6.6(b) of the Clearwire Disclosure
Schedule lists all pending litigation and material disputes
regarding any Clearwire License or Clearwire Lease (the
Clearwire License Disputes).
Section 6.7 Tax.
(a) None of the assets of Clearwire or any of its
Subsidiaries is subject to any material Encumbrance for Taxes,
except for liens for Taxes not yet due and payable.
(b) All material Tax Returns required to be filed by
Clearwire or any of its Subsidiaries have been timely filed, and
all those Tax Returns are true, correct and complete in all
material respects.
(c) All material Taxes owed by Clearwire and its
Subsidiaries (whether or not shown on any Tax Return) have been
paid, except for those Taxes being contested in good faith and
for which adequate reserves have been established in
Clearwires Financial Statements. Except for Taxes that may
arise solely as result of actions or transactions following the
Execution Date permitted by this Agreement, neither Clearwire
nor any of its Subsidiaries has incurred any liability (whether
or not due) for material Taxes since the date of the most recent
balance sheet included in the Clearwire Financial Statements
other than in the ordinary course of business.
(d) Except as disclosed in Section 6.7(d) of the
Clearwire Disclosure Schedule, there is no currently pending
audit or administrative or judicial proceeding with respect to
Taxes of Clearwire or any of its Subsidiaries. Except as
disclosed in Section 6.7(d) of the Clearwire Disclosure
Schedule, neither Clearwire nor any of its Subsidiaries
(i) is a party to or bound by any material closing
agreement, offer in compromise, gain recognition agreement or
any other agreement with any Taxing Authority or any Tax
indemnity or Tax sharing agreement with any person, or
(ii) has entered into any waivers or extensions of the
statute of limitations with respect to material Taxes.
(e) Clearwire has no Knowledge of any proposed or
threatened Tax claims or assessments with respect to Clearwire
or any of its Subsidiaries that, if upheld, would, individually
or in the aggregate, reasonably be expected to have a Clearwire
Material Adverse Effect.
(f) Except as disclosed in Section 6.7(f) of the
Clearwire Disclosure Schedule, Clearwire and each of its
Subsidiaries have withheld and paid over to the relevant Taxing
Authorities all Taxes required to have been withheld and paid in
connection with payments to employees, independent contractors,
creditors, shareholders or other third parties.
(g) Neither Clearwire nor any of its Subsidiaries has
entered into, or otherwise participated (directly or indirectly)
in, any listed transaction, or any reportable
transaction the principal purpose of which was tax avoidance,
within the meaning of Sections 6011, 6111 or 6112 of the
Code and the Treasury Regulations thereunder or has received a
written opinion from a tax advisor that was intended to provide
protection against a tax penalty.
(h) Except as set forth in Section 6.7(h) of the
Clearwire Disclosure Schedule, each Subsidiary of Clearwire is
either (x) treated as a partnership or (y) disregarded
as an entity separate from its owner, for U.S. federal
income tax purposes. No action has been taken by Clearwire or
any of its Affiliates to treat NewCo LLC or its Subsidiaries
(including Clearwire Sub LLC) other than as described in
Section 1.1(b), Section 1.1(c) and this
Section 6.7(h).
(i) Except as set forth in Section 6.7(i) of the
Clearwire Disclosure Schedule, the Merger and other transactions
contemplated by Articles 2, 3 and 4 of this Agreement will
not result in the recognition by
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NewCo or any of its Subsidiaries of income or gain under
Section 1502 of the Code and the Regulations thereunder (or
any comparable provision under state or local income Tax law)
or, to the Knowledge of Clearwire, any other material items of
income or Tax (Clearwire Transaction Tax
Items). For the avoidance of doubt, Clearwire
Transaction Tax Items shall not include any items of income or
gain of Sprint or any of its Subsidiaries (including any income
or gain of Subsidiaries of Sprint that become Subsidiaries of
NewCo in the LLC Contribution).
(j) Section 6.7(j) of the Clearwire Disclosure sets
forth, in all material respects, the information concerning any
limitations on the ability of NewCo to utilize the net operating
losses of Clearwire for U.S. federal income Tax purposes
following the Merger.
(k) Any liabilities of Clearwire, with the possible
exception of any indebtedness issued by Clearwire between the
Execution Date and the Closing in accordance with
Sections 10.1(b)(iv)(F) or 10.1(b)(iv)(H) of this
Agreement, deemed for U.S. federal income tax purposes to
be assumed by NewCo LLC in connection with the transactions
described in Articles 3 and 4 hereof will constitute
qualified liabilities as defined in Treasury
Regulation Section 1.707-5(a)(6)(i)(D).
Section 6.8 Clearwire
Contracts.
(a) Section 6.8(a) of the Clearwire Disclosure
Schedule sets forth a true, correct and complete list of the
Specified Clearwire Contracts and true, correct and complete
copies of all Specified Clearwire Contracts and all amendments
and waivers thereunder have been made available to Sprint and
the Investors. To the extent Specified Clearwire Contracts are
not evidenced by documents, written summaries have been made
available to Sprint and the Investors. Subject to the Bankruptcy
Exception, all Specified Clearwire Contracts are in full force
and effect and are legal, valid, binding and enforceable in
accordance with their respective terms with respect to Clearwire
and its Subsidiaries and, to the Knowledge of Clearwire, each
other party to the Specified Clearwire Contracts, in each case
except as would not be reasonably likely to result in a
Clearwire Material Adverse Effect. There are no existing
defaults or breaches of Clearwire or its Subsidiaries under any
Specified Clearwire Contract (or events or conditions that, with
notice or lapse of time or both would constitute a default or
breach) and, to the Knowledge of Clearwire, there are no
defaults or breaches (or events or conditions that, with notice
or lapse of time or both, would constitute a default or breach)
with respect to any third party to any Specified Clearwire
Contract, in each case except as would not be reasonably likely
to result in a Clearwire Material Adverse Effect.
(b) Except as set forth in Section 6.8(b) of the
Clearwire Disclosure Schedule, or as contemplated by this
Agreement Clearwire and Subsidiaries have not
(i) offered, sold, provided or marketed (as a reseller,
mobile virtual network operator, wholesaler or agent) the
products and services of any mobile voice carrier other than
Sprint and its Affiliates;
(ii) permitted any of their trademarks, tradenames or
service marks to be utilized by any mobile voice carrier (other
than Sprint and its Affiliates) in the offer, sale, promotion or
marketing of any products and services; or
(iii) entered into any wholesale/resale, mobile virtual
network operator, co-branding or service bundling agreement with
any third party.
(c) Clearwire has taken all actions necessary to terminate
the Master Supply Agreement dated March 16, 2005 among
Clearwire Corporation, Clearwire LLC, Bell Canada and BCE Nexxia
Corporation in accordance with its terms, and such agreement
shall be of no further force and effect as of October 19,
2008 except for those provisions that by their terms survive
termination of such agreement.
(d) Except as set forth on Section 6.8(d) of the
Clearwire Disclosure Schedule, as of the Closing, each of the
registration rights agreements set forth on Section 6.8(d)
of the Clearwire Disclosure Schedule shall be of no further
force and effect. Clearwire is not party to any registration
rights agreements with respect to Clearwire Capital Stock other
than those set forth on Section 6.8(d) of the Clearwire
Disclosure Schedule.
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Section 6.9 Compliance
with Law. Each of Clearwire and its
Subsidiaries (since the time of formation or acquisition thereof
by Clearwire) has been operated at all times in compliance with
all Laws applicable to Clearwire or any of its Subsidiaries or
by which any property, business or asset of Clearwire or any of
its Subsidiaries is bound or affected or given written notice of
any violation of any such Laws, other than failures to comply
with or violation of such Laws that individually or in the
aggregate would not reasonably be expected to result,
individually or in the aggregate, in a Clearwire Material
Adverse Effect.
Section 6.10 Required
Filings and Consents. The execution and
delivery of this Agreement by Clearwire and the consummation by
Clearwire and its Subsidiaries of the Transactions contemplated
by this Agreement do not, and the performance of this Agreement
by Clearwire will not, require any consent, approval,
authorization or permit of, or filing with or notification to,
any Governmental Authority, except for the Governmental Consents
or where the failure to obtain those consents, approvals,
authorizations or permits, or to make those filings or
notifications, would not, individually or in the aggregate,
prevent or materially delay the performance by Clearwire of any
of its obligations under this Agreement or the performance by
Clearwire and its Subsidiaries of the Transactions contemplated
by this Agreement.
Section 6.11 Clearwire
Non-FCC Licenses. Clearwire owns or possesses
all of the Governmental Licenses (other than the Clearwire
Licenses) that are necessary to enable it to carry on the
business that relates to the Clearwire Assets except where the
failure to so possess would not reasonably be expected to result
in a Clearwire Material Adverse Effect. All Governmental
Licenses owned or possessed by Clearwire (other than the
Clearwire Licenses) are valid, binding, and in full force and
effect, except as would not reasonably be expected to result,
individually or in the aggregate, in a Clearwire Material
Adverse Effect.
Section 6.12 SEC
Documents; Financial Statements.
(a) Clearwire has filed all reports, schedules, forms,
statements and other documents (including exhibits and other
information incorporated in those documents) with the SEC
required to be filed by Clearwire in connection with and since
its initial public offering (the SEC
Documents). The SEC Documents include, without
limitation, the final prospectus filed by Clearwire under
Rule 424(b)(4) on March 8, 2007 (SEC File Number
333-139460),
the Annual Report on
Form 10-K
filed by Clearwire on March 13, 2008, the Quarterly Reports
on
Form 10-Q
filed by Clearwire on May 15, 2007, August 9, 2007 and
November 14, 2007, the Current Reports on
Form 8-K
filed by Clearwire and all of its other statements, schedules
and registration statements filed with the SEC.
(b) As of the dates of the respective filings, the SEC
Documents complied as to form with the requirements of the
Securities Act and the Exchange Act applicable to such SEC
Documents, as the case may be.
(c) Except to the extent that information contained in any
SEC Document has been revised, amended, supplemented or
superseded by a later-filed SEC Document, none of the SEC
Documents contains any untrue statement of a material fact or
omits to state any material fact required to be stated in the
SEC Documents or necessary in order to make the statements in
the SEC Documents, in light of the circumstances under which
they were made, not misleading.
(d) Each of the Financial Statements (including the related
notes) of Clearwire included in the SEC Documents complied at
the time it was filed as to form in all material respects with
the applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto, was prepared in
accordance with generally accepted accounting principles in the
United States (GAAP) (except, in the case of
unaudited statements, as permitted by the rules and regulations
of the SEC) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and
fairly presented in all material respects the consolidated
financial position of Clearwire and its consolidated
Subsidiaries as of the dates of the SEC Documents and the
consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Since
December 31, 2007, Clearwire has not made any change in the
accounting practices or policies applied in the preparation of
its financial statements, except as required by GAAP, SEC rule
or policy or applicable Law.
(e) Except as disclosed in the SEC Documents filed by
Clearwire and publicly available before the Execution Date,
neither Clearwire nor any of its Subsidiaries has any
liabilities or obligations of any nature
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(whether accrued, absolute, contingent, determined, determinable
or otherwise) that (i) as of the Execution Date, would have
been required to be included on a consolidated balance sheet (or
the footnotes thereto) of Clearwire prepared in accordance with
GAAP or (ii) individually or in the aggregate have had or
would reasonably be expected to result in a Clearwire Material
Adverse Effect.
(f) Clearwire has furnished or made available to Sprint and
the Investors a complete and correct copy of any amendments or
modifications that have not yet been filed with the SEC to
agreements, documents or other instruments that previously had
been filed by Clearwire with the SEC as exhibits to the SEC
Documents under the Securities Act and the rules and regulations
promulgated under the Securities Act or the Exchange Act.
(g) Clearwire has established and maintains disclosure
controls and procedures (as defined in
Rule 13a-15
under the Exchange Act) designed to ensure that material
information relating to Clearwire, including its consolidated
Subsidiaries, is made known to Clearwires principal
executive officer and its principal financial officer by others
within those entities. To the Knowledge of Clearwire, such
disclosure controls and procedures are effective in timely
alerting Clearwires principal executive officer and
principal financial officer to material information required to
be included in Clearwires periodic reports required under
the Exchange Act.
(h) Clearwire and its Subsidiaries have established and
maintained a system of internal control over financial reporting
(as defined in
Rule 13a-15
under the Exchange Act) that are sufficient to provide
reasonable assurance regarding the reliability of
Clearwires financial reporting and the preparation of the
Financial Statements of Clearwire for external purposes in
accordance with GAAP. Clearwire has disclosed, based on its most
recent evaluation of internal controls prior to the date hereof,
to Clearwires auditors and audit committee (i) any
significant deficiencies and material weaknesses in the design
or operation of internal controls which are reasonably likely to
adversely affect Clearwires ability to record, process,
summarize and report financial information and (ii) any
fraud, whether or not material, that involves management or
other employees who have a significant role in internal
controls. Clearwire has made available to Sprint and the
Investors a summary of any such disclosure made by management to
Clearwires auditors and audit committee.
(i) There are no outstanding loans or other extensions of
credit made by Clearwire or any of its Subsidiaries to any
executive officer (as defined in
Rule 3b-7
under the Exchange Act) or director of Clearwire. Clearwire has
not taken any action prohibited by Section 402 of the
Sarbanes-Oxley Act of 2002.
(j) As of the date of this Agreement, there are no
outstanding or unresolved comments in the comment letters
received from the SEC staff with respect to the SEC Documents.
To the Knowledge of Clearwire, none of the SEC Documents is
subject to ongoing review or outstanding SEC comment or
investigation.
(k) Since January 1, 2007, (i) neither Clearwire
nor any of its Subsidiaries nor, to the Knowledge of Clearwire,
any director, officer, employee, auditor, accountant or
representative of Clearwire or any of its Subsidiaries has
received or otherwise had or obtained knowledge of any material
complaint, allegation, assertion or claim, whether written or
oral, regarding the accounting or auditing practices,
procedures, methodologies or methods of Clearwire or any of its
Subsidiaries or their respective internal accounting controls,
which asserts that Clearwire or any of its Subsidiaries has
engaged in questionable accounting or auditing practices and
(ii) no attorney representing Clearwire or any of its
Subsidiaries, whether or not employed by Clearwire or any of its
Subsidiaries, has reported evidence of a material violation of
securities Laws, breach of fiduciary duty or similar violation
by Clearwire or any of its officers, directors, employees or
agents to Clearwires Board of Directors or any committee
thereof or to any director or officer of Clearwire.
(l) No Subsidiary of Clearwire has a class of securities
required to be registered under the Exchange Act.
Section 6.13 Capitalization;
Subsidiaries.
(a) The authorized Capital Stock of Clearwire consists of
300,000,000 shares of Clearwire Class A Common Stock,
50,000,000 shares of Clearwire Class B Common Stock
and 5,000,000 shares of preferred stock, $0.0001 par
value per share (the Preferred Stock). As of
the close of business on April 30, 2008
(i) 135,618,712 shares of Clearwire Class A
Common Stock were issued and outstanding, all of which are
validly issued, fully paid and nonassessable and free of
preemptive rights,
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(ii) 28,596,685 shares of Clearwire Class B
Common Stock were issued and outstanding, all of which are
validly issued, fully paid and nonassessable and free of
preemptive rights,
(iii) no shares of Clearwire Capital Stock were held in the
treasury of Clearwire,
(iv) 18,862,169 shares of Clearwire Class A
Common Stock were subject to outstanding Clearwire Stock
Options, 740,000 shares of Clearwire Class A Common
Stock were subject to outstanding Clearwire restricted stock
units and 5,445,317 shares of Clearwire Class A Common
Stock were authorized and reserved for future issuance under the
Clearwire Stock Option Plans,
(v) 17,806,220 shares of Clearwire Class A Common
Stock were subject to outstanding Clearwire Warrants and
17,806,220 shares of Clearwire Class A Common Stock
were authorized and reserved for future issuance under the
Clearwire Warrant Agreements, and
(vi) no shares of Preferred Stock were issued or
outstanding.
(b) Section 6.13(b) of the Clearwire Disclosure
Schedule sets forth a true and complete list of the outstanding
Clearwire Stock Options and Clearwire Warrants with the exercise
prices thereof and number of shares of Clearwire Class A
Common Stock subject thereto as of the close of business on
April 30, 2008.
(c) Except as set forth in Section 6.13(a) above or in
Section 6.13(b) of the Clearwire Disclosure Schedule and
except for changes since April 30, 2008 expressly permitted
by Section 10.1(b)(iv), or otherwise consented to in
accordance with this Agreement, there are no outstanding
(i) shares of Capital Stock of Clearwire and
(ii) options, warrants, convertible securities,
subscriptions, stock appreciation rights, phantom stock plans or
stock equivalents or other rights, agreements, arrangements or
commitments (contingent or otherwise) of any character issued or
authorized by Clearwire or any Subsidiary of Clearwire relating
to the issued or unissued Capital Stock of Clearwire or any
Subsidiary of Clearwire or obligating Clearwire or any
Subsidiary of Clearwire to issue or sell any shares of Capital
Stock of, or options, warrants, convertible securities,
subscriptions or other equity interests in, Clearwire or any
Subsidiary of Clearwire. All shares of Capital Stock of
Clearwire or any Subsidiary of Clearwire subject to issuance as
aforesaid, upon issuance on the terms and conditions specified
in the instruments under which they are issuable, will be duly
authorized, validly issued, fully paid and nonassessable. There
are no outstanding contractual obligations of Clearwire or any
Subsidiary of Clearwire to repurchase, redeem or otherwise
acquire any shares of Clearwire Capital Stock or any Capital
Stock of any Subsidiary of Clearwire or to pay any dividend or
make any other distribution in respect thereof or to provide
funds to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any Person.
(d) Immediately following the Closing and after giving
effect to the Transactions (other than the Adjustment), and
excluding changes since April 30, 2008 expressly permitted
by Section 10.1(b)(iv) or otherwise consented to in
accordance with this Agreement:
(i) with respect to NewCo, there will be outstanding
(A) a total of 189,215,397 shares of Class A
Common Stock (plus up to 740,000 shares of Class A
Common Stock issuable on the exercise of restricted stock units,
up to 18,862,169 shares of Class A Common Stock
issuable on the exercise of Clearwire Stock Options, up to
17,806,220 shares of Class A Common Stock issuable on
the exercise of Clearwire Warrants, in each case outstanding
immediately prior to the Effective Time and adjusted at the
Effective Time in accordance with Sections 2.7 and 2.8) and
(B) a total of 505,000,000 shares of Class B
Common Stock;
(ii) with respect to NewCo LLC, there will be outstanding
(A) a total of 694,215,397 Voting Units,
(B) 189,215,397 Class A Common Units and
(C) 505,000,000 Class B Common Units
outstanding; and
(iii) except as contemplated by Section 2.8 of the
Equityholders Agreement, there will be no other
outstanding (A) shares of Capital Stock of NewCo or NewCo
LLC or (B) options, warrants, convertible securities,
subscriptions, stock appreciation rights, phantom stock plans or
stock equivalents or other rights, agreements, arrangements or
commitments (contingent or otherwise) of any character issued or
authorized by NewCo, NewCo LLC or any Subsidiary of NewCo or
NewCo LLC relating to the issued or unissued Capital Stock of
NewCo or NewCo LLC or obligating NewCo or NewCo LLC to issue or
sell
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any shares of Capital Stock of, or options, warrants,
convertible securities, subscriptions or other equity interests
in, NewCo or NewCo LLC.
(e) The shares of Class A Common Stock to be issued as
Merger Consideration and the Class B Common Units, Voting
Units, Class A Common Units, shares of Class A Common
Stock
and shares
of Class B Common Stock to be issued in connection with the
formation of NewCo LLC, the Merger, the LLC Contribution and the
Investments by the Investors pursuant to Articles 1, 2, 3
and 4, respectively, when issued and delivered in accordance
with the terms of this Agreement, will have been duly
authorized, validly issued, fully paid and nonassessable and
free of Encumbrances, preemptive rights or other similar rights,
other than Encumbrances created by the Equityholders
Agreement.
(f) Section 6.13(f) of the Clearwire Disclosure
Schedule, sets forth a correct and complete list of each
Subsidiary of Clearwire. Except as set forth in
Section 6.13(f) of the Clearwire Disclosure Schedule,
Clearwire owns beneficially and of record all of the issued and
outstanding Capital Stock of each Subsidiary of Clearwire and
does not own an equity interest in any other corporation,
association, partnership, limited liability company or other
entity, other than in its Subsidiaries. Each outstanding share
of Capital Stock of each Subsidiary of Clearwire is duly
authorized, validly issued, fully paid and nonassessable and
each share of Capital Stock of each Subsidiary of Clearwire
owned by Clearwire or another Subsidiary of Clearwire is free
and clear of all Encumbrances.
Section 6.14 Absence
of Certain Changes or Events. Except as
contemplated by this Agreement or as disclosed in the SEC
Documents filed before the date hereof, since December 31,
2007, Clearwire and its Subsidiaries have conducted their
respective businesses in the ordinary course of business and
there has not been: (a) any event, occurrence or
development of any condition that has had or would reasonably be
expected to have, individually or in the aggregate, a Clearwire
Material Adverse Effect, (b) any declaration, setting aside
or payment of any dividend or any other distribution with
respect to any of the Capital Stock of Clearwire or any
Subsidiary of Clearwire, (c) any material change in
accounting methods, principles or practices employed by
Clearwire, (d) any Bankruptcy of any such Person, or
(e) any transfer to a third party of any Clearwire License
or Clearwire Lease (other than spectrum swaps in the ordinary
course of business).
Section 6.15 Change
of Control Agreements. Except as set forth in
Section 6.15 of the Clearwire Disclosure Schedule, neither
the execution and delivery of this Agreement, the Merger nor the
other Transactions contemplated by this Agreement will (either
alone or in conjunction with any other event) result in, cause
the accelerated vesting or delivery of, trigger any payment or
funding (through a grantor trust or otherwise) of, or increase
the amount or value of, any payment or benefit to any director,
officer, employee or consultant of Clearwire or any of its
Subsidiaries. Except as previously disclosed to Sprint and the
Investors in writing expressly referencing this
Section 6.15, and without limiting the generality of the
foregoing, no amount paid or payable by Clearwire or any of its
Subsidiaries in connection with the Merger or the other
Transactions contemplated by this Agreement, including
accelerated vesting of options (either solely as a result
thereof or as a result of those Transactions in conjunction with
any other event), will be an excess parachute
payment within the meaning of Section 280G of the
Code.
Section 6.16 Employee
Benefit Plans. All employee benefit plans (as
defined in Section 3(3) of ERISA), incentive plans or other
benefit arrangements of Clearwire or any of its Subsidiaries
which cover current or former officers, directors, employees or
contractors of Clearwire or any of its Subsidiaries and with
respect to which Clearwire or any of its Subsidiaries have any
material liability (the Clearwire Benefit
Plans) and all agreements providing for compensation,
severance, change in control or other benefits to any current or
former officer or director of Clearwire or any of its
Subsidiaries are listed in Section 6.16 of the Clearwire
Disclosure Schedule. True, correct and complete copies of the
following documents with respect to each of the Clearwire
Benefit Plans have been provided by Clearwire to the other
Parties:
(a) any plans and related trust documents and amendments
thereto, and
(b) summary plan descriptions and material modifications
thereto.
To the extent applicable, the Clearwire Benefit Plans comply by
their terms and in their operation with the requirements of the
Employee Retirement Income Security Act of 1974, as amended
(ERISA), and the
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Code and other applicable Law other than instances of
non-compliance that individually or in the aggregate would not
reasonably be expected to result in a Clearwire Material Adverse
Effect, and any Clearwire Benefit Plan intended to satisfy the
requirements under Section 401(a) of the Code or comparable
foreign Law has received a determination or opinion by the
proper Governmental Authority that such plan satisfies such
requirements. Neither Clearwire nor any of its Subsidiaries nor
any of their ERISA Affiliates (as defined below) has any
liabilities with respect to any benefit plan that is covered by
Title IV of ERISA or Section 412 of the Code, and
neither Clearwire nor any Subsidiaries has any liabilities under
any defined benefit plan (as defined in Section 3(35) of
ERISA) which is maintained primarily for employees who work
outside the United States and which is not subject to
Title IV of ERISA or Section 412 of the Code. Neither
any Clearwire Benefit Plan, nor Clearwire nor any Subsidiary of
Clearwire has incurred or will incur any liability or penalty
under Section 4975 of the Code or Section 502(i) of
ERISA or a comparable foreign Law that is reasonably expected to
have a Clearwire Material Adverse Effect. There is no pending
or, to the Knowledge of Clearwire, threatened or anticipated
Proceeding that is reasonably expected to have a Clearwire
Material Adverse Effect against or otherwise involving any of
the Clearwire Benefit Plans and no Proceeding that is reasonably
expected to have a Clearwire Material Adverse Effect (excluding
claims for benefits incurred in the ordinary course of Clearwire
Benefit Plan activities) has been brought against or with
respect to any Clearwire Benefit Plan. Except as required by
Law, neither Clearwire nor any of its Subsidiaries has any
liability in an amount that would reasonably be expected to have
a Clearwire Material Adverse Effect to provide life insurance or
medical or other employee welfare benefits to any employee or
former employee on his retirement or termination of employment.
Except as would not reasonably be expected to have a Clearwire
Material Adverse Effect, (i) any individual who has
performed services for Clearwire or any of its Subsidiaries
(other than through a contract with an organization other than
the individual) and who has not been treated as an employee for
tax purposes by Clearwire or its Subsidiaries is or was not an
employee for such purposes, and (ii) no individual who
performs services for Clearwire or any of its Subsidiaries has
been improperly excluded from participation in any Clearwire
Benefit Plan.
For purposes of this Agreement ERISA
Affiliate means any business or entity that is a
member of the same controlled group of corporations,
an affiliated service group or is under common
control with an entity within the meanings of
Sections 414(b), (c) or (m) of the Code, is
required to be aggregated with the entity under
Section 414(o) of the Code, or is under common
control with the entity, within the meaning of
Section 4001(a)(14) of ERISA, or any regulations
promulgated or proposed under any of the foregoing Sections.
Except as would not reasonably be expected to have a Clearwire
Material Adverse Effect, (x) no amount previously deducted
by Clearwire, and (y) no amount paid or payable with
respect to any compensation or benefit paid, awarded, or granted
prior to the date hereof, would reasonably be expected to be
disallowed under Section 162(m) of the Code. Except as
would not reasonably be expected to result in material liability
to Clearwire and its Subsidiaries, no Clearwire Benefit Plan is
currently in violation of Section 409A of the Code and any
regulations or Treasury guidance promulgated thereunder.
No Clearwire Stock Option is intended to qualify as an
incentive stock option under Section 422 of the
Code.
Section 6.17 Labor
and Employment Matters.
(a) Neither Clearwire nor any of the Domestic Clearwire
Subsidiaries is a party to, or bound by, or is currently
negotiating in connection with entering into, any collective
bargaining agreement or other contract, arrangement, agreement
or understanding with a labor union or labor organization and,
to the Knowledge of Clearwire, there has not been any activity
or proceeding of any labor organization or employee group to
organize any employees of Clearwire or any of the Domestic
Clearwire Subsidiaries.
(b) Neither Clearwire nor any of the Domestic Clearwire
Subsidiaries has taken any action that would constitute a
mass layoff or plant closing within the
meaning of the Worker Adjustment and Retraining
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Notification Act or would otherwise trigger notice requirements
or liability under any state, local or foreign plant closing
notice Law.
(c) There are no investigations, administrative
proceedings, charges or formal complaints of discrimination
(including discrimination based on sex, age, marital status,
race, national origin, sexual preference, disability, handicap
or veteran status) that are reasonably expected to have,
individually or in the aggregate, a Clearwire Material Adverse
Effect pending or, to the Knowledge of Clearwire, threatened
before the Equal Employment Opportunity Commission or any
federal, state or local agency or court against or involving
Clearwire or any of its Subsidiaries. No discrimination, sexual
harassment, retaliation or wrongful or tortious conduct claim
that is reasonably expected to have a Clearwire Material Adverse
Effect is pending or, to the Knowledge of Clearwire, threatened
against Clearwire or any of its Subsidiaries under the 1866,
1877, 1964 or 1991 Civil Rights Acts, the Equal Pay Act, the
Age Discrimination in Employment Act, as amended, the
Americans with Disabilities Act, the Family and Medical Leave
Act, the Fair Labor Standards Act, ERISA, or any other federal
Law relating to employment or any comparable state or local fair
employment practices act regulating discrimination in the
workplace, and no wrongful discharge, libel, slander, invasion
of privacy or other claim that is reasonably expected to have,
individually or in the aggregate, a Clearwire Material Adverse
Effect (including violations of the Fair Credit Reporting Act,
as amended, and any applicable whistleblower statutes) under any
state or federal Law is pending or, to the Knowledge of
Clearwire, threatened against Clearwire or any of its
Subsidiaries.
(d) If Clearwire or any of its Subsidiaries is a federal,
state or local contractor obligated to develop and maintain an
affirmative action plan, no discrimination claim, show-cause
notice, conciliation proceeding, sanction or debarment
proceeding that is reasonably expected to have, individually or
in the aggregate, a Clearwire Material Adverse Effect is pending
or, to the Knowledge of Clearwire, has been threatened against
Clearwire or any of its Subsidiaries with the Office of Federal
Contract Compliance Programs or any other federal agency or any
comparable state or local agency or court and no desk audit or
on-site
review is in progress.
Section 6.18 Stockholders
Rights Agreement; Antitakeover Statutes.
(a) Neither Clearwire nor any of its Subsidiaries has
adopted a stockholders rights agreement or any similar
plan or agreement that limits or impairs the ability to
purchase, or become the direct or indirect beneficial owner of,
Clearwire Capital Stock or any other equity or debt securities
of Clearwire or any of its Subsidiaries.
(b) Clearwire has taken all action necessary to exempt the
Merger, this Agreement and the Transactions contemplated by this
Agreement from Section 203 of the DGCL, and, accordingly,
neither such Section nor any other antitakeover or similar
statute or regulation applies to any such transactions. No other
control share acquisition, fair price,
moratorium, or other antitakeover laws enacted under
U.S. state or federal laws apply to this Agreement or any
of the Transactions contemplated by this Agreement.
Section 6.19 Brokers. Except
as set forth in Section 6.19 of the Clearwire Disclosure
Schedule, no broker, finder or investment banker is entitled to
any brokerage, finders or other fee or commission in
connection with this Agreement, the Merger or the other
Transactions contemplated by this Agreement based on
arrangements made by or on behalf of Clearwire. Clearwire has
delivered to Sprint and the Investors a complete and correct
copy of all agreements between Clearwire and the Independent
Advisor under which that firm would be entitled to any payment
relating to this Agreement, the Merger or the other Transactions
contemplated by this Agreement.
Section 6.20 Information
Supplied. None of the information supplied or
to be supplied by Clearwire or its Subsidiaries for inclusion or
incorporation by reference in the Proxy Statement to be mailed
to Clearwires stockholders in connection with the meeting
(the Stockholders Meeting) to be called
to consider the Merger (the Proxy Statement)
or the Registration Statement, or any amendments or supplements
thereto will, at the dates those documents are first published,
sent or delivered to Clearwires stockholders contain any
untrue statement of a material fact or omit to state any
material fact required to be stated in the Proxy Statement or
Registration Statement or necessary in order to make the
statements made in the Proxy Statement
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or Registration Statement, in light of the circumstances under
which they were made, not misleading. Each of the Proxy
Statement and Registration Statement at the dates those
documents are first published, sent or delivered to
Clearwires stockholders or, unless promptly corrected, at
any time during the pendency of the Stockholders Meeting
will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated in the Proxy
Statement or Registration Statement or necessary in order to
make the statements made in the Proxy Statement or Registration
Statement, in light of the circumstances under which they were
made, not misleading. Notwithstanding the foregoing, no
representation or warranty is made by any Party with respect to
statements made or incorporated by reference in the Proxy
Statement or Registration Statement based on information
supplied by the other Parties for inclusion or incorporation by
reference in any of the foregoing documents.
Section 6.21 Certain
Ancillary Agreements. As of the Execution
Date, other than (i) this Agreement, (ii) the
Ancillary Agreements, (iii) the other documents expressly
contemplated by this Agreement and (iv) any confidentiality
agreements between or among two or more of the Parties entered
into prior to the Execution Date (the agreements referred to in
clauses (i) through (iv), collectively, the
Transaction Related Agreements), neither
Clearwire nor any of its Affiliates has entered into any
contract, agreement, arrangement or other understanding, whether
written or oral, and regardless of the subject matter thereof,
with any other Party or any of their respective Affiliates, in
each case, in connection with or in consideration of the
transactions contemplated by the Transaction Related Agreements,
including, without limitation, any term sheet, letter of intent,
memorandum of understanding or agreement to agree,
in each case, whether or not such agreement purports to be
binding.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF SPRINT
Except as disclosed in the disclosure letter (the
Sprint Disclosure Schedule) delivered by
Sprint to Clearwire and the Investors prior to the execution of
this Agreement (which letter sets forth items of disclosure with
specific reference to the particular Section or subsection of
this Agreement to which the information in the Sprint Disclosure
Schedule relates), except
(A) that any information set forth in one section of the
Sprint Disclosure Schedule will be deemed to apply to each other
Section or subsection of this Agreement to which its relevance
is reasonably apparent from a reasonable reading thereof to a
reasonable person without independent knowledge of the matters
so disclosed; and
(B) notwithstanding anything in this Agreement to the
contrary, the inclusion of an item in such schedule as an
exception to a representation or warranty will not be deemed an
admission that such item represents a material exception or
material fact, event or circumstance or that such item has had
or would reasonably be expected to have a Sprint Material
Adverse Effect),
Sprint represents and warrants to the other Parties as of the
Execution Date and the Closing Date as follows:
Section 7.1 Organization;
Authorization.
(a) Sprint and each Subsidiary of Sprint that is or will be
a party to an Ancillary Agreement is duly organized, validly
existing and in good standing under the Laws of its jurisdiction
of formation and has all corporate, limited liability company or
similar powers and all Governmental Licenses required to carry
on its business as now conducted, except for those Governmental
Licenses the absence of which would not reasonably be expected
to result, individually or in the aggregate, in a Sprint
Material Adverse Effect. Sprint and each Subsidiary of Sprint
that is or will be a party to an Ancillary Agreement has all
requisite power and authority to enter into this Agreement and
each Ancillary Agreement to which it is a party and to perform
the obligations to be performed by it under this Agreement and
each such Ancillary Agreement. Sprint and each Subsidiary of
Sprint that is or will be a party to an Ancillary Agreement is
duly qualified to do business as a foreign entity and is in good
standing under the Laws of each state or other jurisdiction in
which the
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ownership of assets by it or the nature of the activities
conducted by it requires such qualification, except where the
failure to so qualify would not reasonably be expected to
result, individually or in the aggregate, in a Sprint Material
Adverse Effect.
The execution and delivery of this Agreement and the Ancillary
Agreements to which Sprint or any Subsidiary of Sprint is or
will be a party, and the performance by Sprint or such
Subsidiary of its respective obligations under this Agreement
and the Ancillary Agreements to which it is or will be a party,
have been duly authorized by all necessary actions on the part
of Sprint or such Subsidiary. This Agreement has been, and the
Ancillary Agreements to which it or a Subsidiary of Sprint will
be a party at Closing will be, duly executed and delivered by
Sprint or such Subsidiary, and constitutes, and will constitute,
a legal, valid and binding obligation of Sprint or such
Subsidiary, as the case may be, enforceable against it or such
Subsidiary in accordance with its terms, subject to the
Bankruptcy Exception.
(b) Each of the Transfer Entities is, or on the Closing
Date will be, a limited liability company duly organized,
validly existing and in good standing under the Laws of its
jurisdiction of incorporation or formation. Each of the Transfer
Entities is duly qualified to do business as a foreign entity
and is in good standing under the Laws of each state or other
jurisdiction in which the ownership of assets by it or the
nature of the activities conducted by it requires the
qualification, except where the failure to so qualify would not
reasonably be expected to result in a Sprint Material Adverse
Effect. Each of the Transfer Entities has, and Sprint Sub LLC on
the Closing Date will have, all requisite power and authority to
enter into each Ancillary Agreement to which it will be a party
and to perform the obligations to be performed by it under each
such Ancillary Agreement. Sprint has made available to Clearwire
and the Investors true and complete copies of the organizational
documents of each of the Transfer Entities, each as amended to
date, and will have made available to Clearwire and the
Investors true and complete copies of the organizational
documents of Sprint Sub LLC prior to the Closing Date. The
organizational documents of each of the Transfer Entities are,
and the organizational documents of Sprint Sub LLC will be, in
full force and effect, and no Transfer Entity is, and as of the
Closing Date Sprint Sub LLC will not be, in violation of any
provision of its organizational documents, except as would not
reasonably be expected to result in a Sprint Material Adverse
Effect.
(c) Sprint or one of its Subsidiaries owns beneficially and
of record all of the issued and outstanding Capital Stock of the
Transfer Entities, and immediately prior to the Closing, Sprint
Sub LLC. The Capital Stock of the Transfer Entities is, and the
Capital Stock of Sprint Sub LLC as of the Closing Date will be,
duly authorized, validly issued, fully paid and non-assessable,
free and clear of any Encumbrance. There are not any outstanding
securities convertible into, exchangeable for, or carrying the
right to acquire, the Capital Stock of the Transfer Entities, or
as of the Closing Date, the Capital Stock of Sprint Sub LLC, nor
are there any subscriptions, warrants, options, rights or other
arrangements or commitments that could obligate Sprint Sub LLC
and the Transfer Entities to issue any Capital Stock. The
Transfer Entities are listed in Section 7.1(c) of the
Sprint Disclosure Schedule and, except as listed in
Section 7.1(c) of the Sprint Disclosure Schedule, the
Transfer Entities do not own, and as of the Closing Date Sprint
Sub LLC will not own, directly or indirectly, any Capital Stock
of any Person.
(d) At Closing, the Transfer Entities will own all assets
owned by Sprint and its Subsidiaries that are primarily used in
the operation of the Sprint WiMAX Business, including the Sprint
Assets, free and clear of any Encumbrance. Such assets together
with those assets that are owned by Sprint and its Subsidiaries
and made available to NewCo under the Network Master Services
Agreement, the IT Master Services Agreement, the Master Site
Agreement and the Intellectual Property Rights Agreement
constitute all of the assets owned by Sprint or its Subsidiaries
that are primarily used in or otherwise material to the
operation of the Sprint WiMAX Business as currently conducted.
(e) As of the Closing, each of Sprint HoldCo LLC and Sprint
Sub LLC will be a limited liability company duly organized,
validly existing and in good standing under the Laws of the
jurisdiction of its formation and will have all limited
liability company power and all Governmental Licenses required
to carry on its business as then being conducted, except for
those Governmental Licenses the absence of which would not be
reasonably expected to result, individually or in the aggregate,
in a Sprint Material Adverse Effect. As of the Closing, each of
Sprint HoldCo LLC and Sprint Sub LLC will be as of the Closing
duly qualified to do
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business as a foreign entity and in good standing under the Laws
of each state or other jurisdiction in which the ownership of
assets by it or the nature of the activities conducted by it
requires such qualification, except where the failure to be so
qualified and in good standing, would not reasonably be expected
to result, individually or in the aggregate, in a Sprint
Material Adverse Effect. Since the date of its formation, each
of Sprint HoldCo LLC and Sprint Sub LLC will not have engaged in
any activities and will not have any Liabilities other than in
connection with, or as contemplated by, this Agreement and the
Transactions.
Section 7.2 Non-Contravention. The
execution, delivery and performance of this Agreement and the
Ancillary Agreements to which it or any Subsidiary of Sprint is
or will be at Closing a party, the consummation of the
Transactions and the fulfillment of and compliance with the
terms and conditions of this Agreement and the Ancillary
Agreements to which it or any Subsidiary of Sprint is or will be
at Closing a party do not and will not result in the imposition
of any Encumbrance and do not or will not (as the case may be),
with the passing of time or the giving of notice or both,
violate or conflict with, constitute a breach of or default
under, result in the loss of any benefit under, permit the
acceleration of any obligation under or create in any party the
right to terminate, modify or cancel,
(a) any term or provision of the certificate of
incorporation or bylaws of Sprint or the other organizational
documents of Sprint Sub LLC or any Transfer Entity,
(b) any Sprint Lease or any Sprint License,
(c) any contractual obligation (other than any Sprint
Lease) of Sprint or any of its Subsidiaries,
(d) any Governmental License (other than any Sprint
License) held by Sprint or any of its Subsidiaries in connection
with the Sprint WiMAX Business or by any Transfer Entity or any
Sprint License,
(e) any judgment, decree or order of any Governmental
Authority to which Sprint, Sprint Sub LLC or any Transfer Entity
is a party or by which Sprint, Sprint Sub LLC, any Sprint Asset,
any Transfer Entity or any of its properties are bound, or
(f) any Law applicable to any Sprint Asset and in existence
on the Execution Date,
in the case of each of clauses (b) through (f), except as
would not reasonably be expected to result in a Sprint Material
Adverse Effect.
Section 7.3 Sprint
Licenses.
(a) Description. Section 7.3
of the Sprint Disclosure Schedule sets forth: (i) a true
and complete list, as of the Execution Date, of each of the
Sprint Licenses, (ii) the lawful, beneficial and exclusive
holder of each Sprint License, and (iii) the BTA, call sign
or other identifying information for each Sprint License. As of
April 30, 2008, the number of MHz-Pops covered by Sprint
Licenses and spectrum rights that are subject to Sprint
In-Leases, less the number of MHz-Pops covered by the spectrum
rights that are subject to the Sprint Out-Leases, is at least
28,989,000,000.
(b) Validity.
(i) The grant, renewal or assignment of the Sprint Licenses
to the existing licensee of each Sprint License was approved by
the FCC by Final Order, and the Sprint Licenses are validly
issued and in full force and effect.
(ii) Other than Proceedings of general applicability, there
is no Proceeding pending or, to the Knowledge of Sprint,
threatened before the FCC, that, if determined as requested by
the moving party or as indicated in any document initiating the
Proceeding, could result in the revocation, modification,
restriction, cancellation, termination, suspension or
non-renewal of any Sprint License or other action that is
adverse to holder of the License, or the imposition of a
material monetary fine, nor does Sprint have Knowledge of any
facts or circumstances which, if asserted, would reasonably be
expected to result in any such action. Timely payments have been
made to the United States Government for those of the Sprint
Licenses that are BTA authorizations.
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(iii) Neither Sprint nor any of its Affiliates is a party
to any contract, agreement or other arrangement to assign or
otherwise dispose of, or that would adversely affect,
NewCos or its Subsidiaries ownership of, any
material Sprint License after the Effective Time.
(c) License Facilities.
(i) The facilities subject to a Sprint License as of the
Execution Date are listed in Section 7.3(c)(i) of the
Sprint Disclosure Schedule (the Sprint License
Facilities);
(ii) Adequate facilities were constructed and operated
within the timeframe required by then-applicable FCC Rules (or
waivers or extensions thereof) to satisfy construction and
operating requirements applicable to each Sprint License;
(iii) the Sprint License Facilities since the acquisition
of the Sprint Licenses, and to the Knowledge of Sprint, at all
times, have been operating in material compliance with the FCC
authorizations and the FCC Rules, except where the facilities
were not required to operate under FCC Rules or by grant of
authority from the FCC;
(iv) none of the Sprint License Facilities (A) is
authorized under an authorization that is subject to challenge
before the United States Court of Appeals or (B) is subject
to any lease, sublease or any agreement that grants to any third
Person the right, contingent or otherwise, to use, acquire or
make it available to, or for use by, a third Person;
(v) no Sprint License is subject to (A) a revocation
proceeding or (B) a pending request for waiver of
Section 21.303 of the FCC Rules or any successor provision
thereto;
(vi) Except as set forth on Section 7.3(c)(vi) of the
Sprint Disclosure Schedule, no Sprint Licenses or Sprint License
Facilities are subject to any contract or other agreement
providing for the relocation of wireless facilities or the
sharing of any costs associated with any such relocation with
respect to the Sprint Licenses; and
(vii) no Sprint License Facilities are operating under
special temporary or developmental authority.
(d) All reports required to be filed by Sprint with the FCC
with respect to the Sprint Licenses have been timely filed
except where the failure to so timely file would not reasonably
be expected to result in a Sprint Material Adverse Effect. To
the Knowledge of Sprint, all reports filed with the FCC relating
to the Sprint Licenses are complete and accurate.
(e) Sprint has delivered or made available to Clearwire and
the Investors true and complete copies of all authorizations
comprising each Sprint License, and, except for documents
otherwise publicly-available, all documents filed in, and all
notices or orders issued in connection with, any Proceeding
pending at the FCC relating to the Sprint Licenses.
Section 7.4 Sprint
Leases.
(a) Section 7.4 of the Sprint Disclosure Schedule sets
forth: (i) a true and complete list, as of the Execution
Date, of each of the Sprint Leases, (ii) the lawful,
beneficial and exclusive holder of each Sprint Lease,
(iii) the licensee or sublessor, as applicable, for each
such Sprint Lease, and (iv) the BTA, call sign or other
identifying information for each Sprint Lease.
(b) Each Sprint Lease is valid, binding and in full force
and effect, meets in all material respects all requirements of
Law, and is enforceable in accordance with its terms, except as
may be modified by FCC Rules and subject to the Bankruptcy
Exception. The applicable Sprint entity is the lessee or
sublessee under each Sprint Lease (by entry into the Sprint
Lease, assignment of the Lease, transfer of rights or other
means) and, except with respect to any capacity of EBS spectrum
retained by the holder of the License, has the sole right to use
the spectrum under each Sprint Lease. To the Knowledge of
Sprint, other than the terms of each Sprint Lease, the FCC Rules
limiting the duration of any Sprint Lease, the FCCs
renewal of the underlying License and the FCCs renewal of
its consent to any Sprint De Facto Transfer Lease, there are no
facts or circumstances that would reasonably be likely to
(whether with or without notice, lapse of time or the
A-32
occurrence of any other event) preclude the renewal or extension
of any Sprint Lease in the ordinary course of business.
(c) Sprint and its Subsidiaries are not, nor to the
Knowledge of Sprint, is any other party to any of the material
Sprint Leases in material breach or default under the Sprint
Leases and any material breach or default that has been asserted
by such other party, has been waived, cured or otherwise settled.
(d) Sprint and its Subsidiaries have not, nor to the
Knowledge of Sprint, has any other party to any of the material
Sprint Leases claimed in any written statement that the
counterparty is in material breach or default under the material
Sprint Leases and any past breach or default has been waived,
cured or otherwise settled. For purposes of this
Section 7.4, any breach of a payment obligation shall be
deemed material.
(e) No party to any Sprint Lease has claimed in writing,
and to the Knowledge of Sprint, no party has threatened, in any
written statement to Sprint that the party has a right to
terminate any Sprint Lease at any time or to seek damages
against any transferor for the violation, breach or default by
any transferor of any Sprint Lease; and
(f) Sprint has delivered or made available to Clearwire and
the Investors copies of all Sprint Leases, which are true and
complete in all material respects.
(g) Neither Sprint nor any of its Affiliates is a party to
any contract, agreement or other arrangement to assign or
otherwise dispose of, or that would adversely affect,
NewCos or it Subsidiaries ownership of, any material
Sprint Lease after the Effective Time.
(h) To the Knowledge of Sprint:
(i) the grant, renewal or assignment of the FCC licenses
subject to the Sprint Leases (the Sprint Leased FCC
Licenses) to the existing licensee of each Sprint
Lease was approved by the FCC by Final Order;
(ii) the Sprint Leased FCC Licenses are validly issued and
in full force and effect; and
(iii) other than Proceedings of general applicability,
there is no Proceeding pending or threatened before the FCC,
that, if determined as requested by the moving party or as
indicated in any document initiating the Proceeding, could
result in the revocation, modification, restriction,
cancellation, termination, suspension or non-renewal of the
Sprint Leased FCC Licenses or other action that is adverse to
the licensee of the Sprint Lease, nor is Sprint aware of any
facts which, if asserted, would be reasonably likely to result
in any such action; and
(iv) adequate facilities were constructed and operated
within the timeframe required by then-applicable FCC Rules (or
waivers or extensions thereof) to satisfy construction and
operating requirements applicable to each Sprint Leased FCC
License.
(i) Each Sprint De Facto Transfer Lease has been granted by
the FCC by Final Order.
Section 7.5 Sprint
Network Assets.
(a) Section 7.5 of the Sprint Disclosure Schedule sets
forth a complete list of the Sprint Network Assets as of the
Execution Date. Except as set forth in Section 7.5 of the
Sprint Disclosure Schedule a Transfer Entity has, or will have
at Closing, good and marketable title to each Sprint Network
Asset, free and clear of all Encumbrances. In the aggregate, the
Sprint Network Assets are:
(i) in good operating condition and in a state of good
maintenance and repair, ordinary wear and tear excepted;
(ii) usable in the regular and ordinary course of business;
(iii) operating as intended in accordance with normal
industry practice; and
(iv) conform in all material respects to all applicable
Laws.
Sprint has no Knowledge of any material defect with any of the
material Sprint Network Assets.
A-33
(b) Each of the Transfer Entities and the Sprint Network
Assets is in compliance with applicable Environmental Laws in
all material respects. There are no pending or, to the Knowledge
of Sprint, threatened Proceedings alleging any material
liability of, or material noncompliance by, the Transfer
Entities under applicable Environmental Laws. The applicable
Transfer Entity holds and is, or will hold at Closing and will
be, in compliance in all material respects with all Governmental
Licenses required under Environmental Laws for their respective
operations, including the Sprint Network Assets. Neither the
transfer of the Sprint Assets to the Transfer Entities nor the
LLC Contribution will require compliance with the New Jersey
Industrial Site Recovery Act or with
Sections 22a-134
through
22a-134e of
the Connecticut General Statutes (commonly known as the
Connecticut Transfer Act), each as amended. Notwithstanding
anything to the contrary in this Agreement including
Section 7.9, the representations contained in this
Section 7.5 contain all representations and warranties made
by Sprint in this Agreement with respect to Environmental Laws.
Section 7.6 Litigation
(a) There is no Proceeding instituted or pending, or, to
the Knowledge of Sprint, threatened against Sprint or its
Subsidiaries that, would reasonably be expected to result,
individually or in the aggregate, in a Sprint Material Adverse
Effect or that, as of the Execution Date, in any manner
challenges or seeks to prevent, enjoin, alter or materially
delay the Merger or the other Transactions contemplated by this
Agreement. There are no judgments, orders, injunctions, decrees,
stipulations or awards (whether rendered by a court,
administrative agency, or by arbitration, as a result of a
grievance or other procedure) against or relating to Sprint, any
of its Subsidiaries or, to the Knowledge of Sprint, any Person
for whom Sprint or any of its Subsidiaries is liable that would
reasonably be expected to result, individually or in the
aggregate, in a Sprint Material Adverse Effect or that, as of
the Execution Date, in any manner challenges or seeks to
prevent, enjoin, alter or materially delay the Merger or the
other Transactions contemplated by this Agreement.
(b) Section 7.6(b) of the Sprint Disclosure Schedule
lists all pending litigation and material disputes regarding any
Sprint License or Sprint Lease (the Sprint License
Disputes).
Section 7.7 Tax.
(a) None of the Sprint Assets is subject to any material
Encumbrances for Taxes except for liens for Taxes not yet due
and payable.
(b) All material Tax Returns required to be filed by Sprint
or any of its Subsidiaries with respect to the Sprint Assets and
the business in which the Sprint Assets have been used have been
timely filed and all those Tax Returns are true, complete and
correct in all material respects.
(c) All material Taxes owed by Sprint and its Subsidiaries
(whether or not shown on any Tax Return) with respect to the
Sprint Assets and the business in which the Sprint Assets have
been used have been paid, except for those Taxes being contested
in good faith and for which adequate reserves have been
established in Sprints Financial Statements.
(d) There is no currently pending audit or administrative
or judicial proceeding with respect to Taxes relating to the
Sprint Assets and the business in which the Sprint Assets have
been used. Neither Sprint Sub LLC nor any of the Transfer
Entities is or by virtue of the LLC Contribution will be
(i) a party to or bound by any material closing agreement,
offer in compromise, gain recognition agreement or any other
agreement with any Taxing Authority or any Tax indemnity or Tax
sharing agreement with any person, or (ii) a party to any
waivers or extensions of the statute of limitations with respect
to material Taxes (in each case other than with respect to Taxes
that are the subject of the indemnification provided in
Section 13.1 hereof).
(e) Sprint has no Knowledge of any proposed or threatened
Tax claims or assessments with respect to the Sprint Assets and
the business in which the Sprint Assets have been used that, if
upheld, would result in the payment of a material amount of Tax.
(f) Sprint and its Subsidiaries have withheld and paid over
to the relevant Taxing Authorities all Taxes required to have
been withheld and paid in connection with Sprint Assets and the
business in which the Sprint Assets have been used.
A-34
(g) Neither Sprint nor any of its Subsidiaries has, with
respect to the Sprint Assets and the business in which the
Sprint Assets have been used, entered into, or otherwise
participated (directly or indirectly) in, any listed
transaction or any reportable transaction the principal
purpose of which was tax avoidance within the meaning of
Sections 6011, 6111 or 6112 of the Code and the Treasury
Regulations thereunder or has received a written opinion from a
tax advisor that was intended to provide protection against a
tax penalty.
(h) Sprint Sub LLC has been since its formation and each of
the Transfer Entities will be, as of Closing, disregarded as an
entity separate from its owner for U.S. federal income tax
purposes pursuant to Treasury
Regulation Section 301.7701-2(c)(2).
No action has been taken by Sprint or any of its Affiliates to
treat Sprint Sub LLC or any of the Transfer Entities other than
as disregarded entities for U.S. federal income tax
purposes as of and following the Closing.
(i) The assumption by NewCo LLC for U.S. federal
income tax purposes of the Sprint Pre-Closing Financing will
constitute an assumption of qualified liabilities as
described in Treasury
Regulation Section 1.707-5(a)(6)(i)(D).
Section 7.8 Sprint
Contracts.
(a) Section 7.8 of the Sprint Disclosure Schedule sets
forth a true, correct and complete list of the Specified Sprint
Contracts, and true, correct and complete copies of all
Specified Sprint Contracts and all amendments and waivers
thereunder have been made available to Clearwire and the
Investors. To the extent Specified Sprint Contracts are not
evidenced by documents, written summaries have been made
available to Clearwire and the Investors. Subject to the
Bankruptcy Exception, all Specified Sprint Contracts are in full
force and effect and are legal, valid, binding and enforceable
in accordance with their respective terms with respect to Sprint
or its Subsidiaries and, to the Knowledge of Sprint, each other
party to the Specified Sprint Contracts, in each case except as
would not be reasonably likely to result in a Sprint Material
Adverse Effect. There are no existing defaults or breaches of
Sprint or its Subsidiaries under any Specified Sprint Contract
(or events or conditions that, with notice or lapse of time or
both would constitute a default or breach) and, to the Knowledge
of Sprint, there are no defaults or breaches (or events or
conditions that, with notice or lapse of time or both, would
constitute a default or breaches) with respect to any third
party to any Specified Sprint Contract, in each case except as
would not be reasonably likely to result, individually or in the
aggregate, in a Sprint Material Adverse Effect.
(b) Except as contemplated by this Agreement, Sprint and
its Subsidiaries have not entered into any wholesale/resale,
mobile virtual network operator, co-branding, or service
bundling agreement with any third party with respect to the
Sprint WiMAX Business.
Section 7.9 Compliance
with Law. The Sprint WiMAX Business, Sprint
Sub LLC and each Transfer Entity has been operated at all times
in compliance with all Laws applicable to Sprint Sub LLC, each
Transfer Entity and the Sprint WiMAX Business or by which any
property, business or asset of Sprint Sub LLC, each Transfer
Entity and the Sprint WiMAX Business is bound or affected and
has not been threatened to be charged with or given notice of
any violation of any such Laws, other than failures to comply
with or violations of such Laws that individually or in the
aggregate would not reasonably be expected to result,
individually or in the aggregate, in a Sprint Material Adverse
Effect.
Section 7.10 Required
Filings and Consents. The execution and
delivery of this Agreement by Sprint and the consummation by
Sprint and its Subsidiaries of the Transactions contemplated by
this Agreement do not, and the performance of this Agreement by
Sprint will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any Governmental
Authority, except for the Governmental Consents or where the
failure to obtain those consents, approvals, authorizations or
permits, or to make those filings or notifications, would not,
individually or in the aggregate, prevent or materially delay
the performance by Sprint of any of its obligations under this
Agreement or the performance by Sprint and its Subsidiaries of
the Transactions contemplated by this Agreement.
Section 7.11 Sprint
Non-FCC Licenses. The Transfer Entities own
or possess, or at Closing will own or possess, all of the
Governmental Licenses (other than the Sprint Licenses) that are
necessary to enable it to carry on the business that relates to
the Sprint Assets except where the failure to so possess would
not
A-35
reasonably be expected to result in a Sprint Material Adverse
Effect. All Governmental Licenses owned or possessed by the
Transfer Entities are valid, binding, and in full force and
effect, except as would not reasonably be expected to result,
individually or in the aggregate, in a Sprint Material Adverse
Effect.
Section 7.12 Absence
of Certain Changes or Events. Except as
contemplated by this Agreement since December 31, 2007,
Sprint and its Subsidiaries have conducted the Sprint WiMAX
Business in the ordinary course of business and there has not
been: (a) any event, occurrence or development of any
condition that has had or would reasonably be expected to have,
individually or in the aggregate, a Sprint Material Adverse
Effect, (b) any material change in accounting methods,
principles or practices employed by Sprint in connection with
the Sprint WiMAX Business, (c) any Bankruptcy of any such
Person, or (d) any transfer to a third party of any Sprint
License or Sprint Lease (other than spectrum swaps in the
ordinary course of business).
Section 7.13 Employee
Benefit Plans; Labor and Employment Matters.
(a) Sprint Sub LLC and the Transfer Entities do not have,
and will not as of the Closing have, any employees or any
benefit plans (as defined in Section 3(3) of ERISA). Except
as specifically set forth in this Agreement, none of NewCo,
NewCo LLC, Sprint Sub LLC or the Transfer Entities will have any
actual or contingent liability after the Closing as a result of
benefit plans, incentive plans or other material benefit
arrangements that are sponsored or contributed to by Sprint or
any of its Subsidiaries or that have ever been sponsored by or
contributed to by any of the Transfer Entities.
(b) With respect to the Sprint WiMAX Business, neither
Sprint nor any of its Subsidiaries is a party to, bound by, or
is currently negotiating in connection with entering into any
collective bargaining agreement or other contracts,
arrangements, agreements or understandings with a labor union or
labor organization and, to the Knowledge of Sprint, there has
not been any activity or proceeding of any labor organization or
employee group to organize any employees of the Sprint WiMAX
Business.
Section 7.14 No
Obligations. Except as set forth on
Section 7.14 of the Sprint Disclosure Schedule and except
for the Sprint Pre-Closing Financing to be assumed by Sprint Sub
LLC in accordance with Section 1.2 prior to the LLC
Contribution, Sprint Sub LLC, the Transfer Entities and their
respective Subsidiaries are free of all Liabilities.
Section 7.15 Brokers. Other
than Citigroup Global Markets Inc. and Lehman Brothers Inc.,
neither Sprint nor any of their respective Affiliates or agents
has incurred any obligation or liability, contingent or
otherwise, for brokerage or finders fees or agents
commissions or other similar payment in connection with this
Agreement.
Section 7.16 Information
Supplied. None of the information supplied or
to be supplied by Sprint for inclusion or incorporation by
reference in the Proxy Statement or the Registration Statement,
or any amendments or supplements thereto will, at the dates
those documents are first published, sent or delivered to
Clearwires stockholders contain any untrue statement of a
material fact or omit to state any material fact required to be
stated in the Proxy Statement or Registration Statement or
necessary in order to make the statements made in the Proxy
Statement or Registration Statement, in light of the
circumstances under which they were made, not misleading.
Section 7.17 Ownership
of Clearwire Capital Stock. Sprint and its
Subsidiaries do not own any shares of Clearwire Capital Stock,
nor does Sprint or its Subsidiaries own any options, warrants,
convertible securities, subscriptions, stock appreciation
rights, phantom stock or stock equivalents or other rights,
agreements, arrangements or commitments (contingent or
otherwise) of any character issued or authorized by Clearwire
relating to the issued or unissued Clearwire Capital Stock or
obligating Clearwire to issue or sell any shares of Clearwire
Capital Stock, or options, warrants, convertible securities,
subscriptions or other equity interests in Clearwire.
Section 7.18 Certain
Ancillary Agreements. As of the Execution
Date, other than the Transaction Related Agreements and the
Google Products and Services Agreement between Google and
Sprint, neither Sprint nor any of its Affiliates has entered
into any contract, agreement, arrangement or other
understanding,
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whether written or oral, and regardless of the subject matter
thereof, with any other Party or any of their respective
Affiliates, in each case, in connection with or in consideration
of the transactions contemplated by the Transaction Related
Agreements, including, without limitation, any term sheet,
letter of intent, memorandum of understanding or agreement
to agree, in each case, whether or not such Agreement
purports to be binding.
ARTICLE 8
REPRESENTATIONS
AND WARRANTIES OF THE INVESTORS
Each Investor, severally with respect to itself (and not jointly
or jointly and severally), represents and warrants to the
Parties as of the Execution Date and the Closing Date as follows:
Section 8.1 Organization;
Authorization. Such Investor is duly
organized, validly existing and in good standing under the Laws
of its jurisdiction of formation and has all corporate powers
and all Governmental Licenses and consents required to carry on
its business as now conducted, except for those Governmental
Licenses and consents the absence of which would not reasonably
be expected to result, individually or in the aggregate, in an
Investor Material Adverse Effect. Such Investor and each of its
Subsidiaries has all requisite power and authority to enter into
this Agreement and each Ancillary Agreement to which it is a
party and to perform the obligations to be performed by it under
this Agreement and each such Ancillary Agreement.
The execution and delivery of this Agreement and the Ancillary
Agreements to which such Investor is or will be a party, and the
performance by such Investor of its obligations under this
Agreement and the Ancillary Agreements to which it is or will be
a party, have been duly authorized by all necessary actions on
the part of such Investor. This Agreement has been, and the
Ancillary Agreements to which such Investor or a Subsidiary of
such Investor will be a party at Closing will be, duly executed
and delivered by such Investor and such Subsidiary, and
constitutes, and will constitute, a legal, valid and binding
obligation of such Investor and such Subsidiary, as the case may
be, enforceable against it and such Subsidiary in accordance
with its terms, subject to the Bankruptcy Exception.
Section 8.2 Non-Contravention. Except
for the Governmental Consents, the execution, delivery and
performance of this Agreement and the Ancillary Agreements to
which such Investor is a party, the consummation of the
Transactions and the fulfillment of and compliance with the
terms and conditions of this Agreement and the Ancillary
Agreements to which such Investor is a party do not or will not
(as the case may be), with the passing of time or the giving of
notice or both, violate or conflict with, constitute a breach of
or default under, result in the loss of any benefit under,
permit the acceleration of any obligation under or create in any
party the right to terminate, modify or cancel,
(a) any term or provision of the charter documents or
equivalent organizational documents of such Investor,
(b) any contractual obligation of such Investor or its
Subsidiaries,
(c) any judgment, decree or order of any Governmental
Authority to which such Investor is a party or by which the
Investor or any of its respective properties are bound, or
(d) any Law applicable to such Investor and in existence on
the Execution Date,
in the case of each of clauses (b) through (d), except as
would not be reasonably expected to result in an Investor
Material Adverse Effect.
Section 8.3 Securities
Act; Investigation. The Capital Stock
received by such Investor under this Agreement is being acquired
for investment only and not with a view to any public
distribution thereof in violation of any of the registration
requirements of the Securities Act or the securities Laws of any
other jurisdiction applicable to the Transactions contemplated
by this Agreement. Such Investor has the knowledge and
experience in financial and business matters as to be capable of
evaluating the merits and risks of the consideration received.
Such Investor acknowledges that before the date of this
Agreement, such Investor has had access to information and
documents of Clearwire and the Sprint WiMAX Business and has had
the
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opportunity to meet with members of senior management of
Clearwire regarding the business and operations of Clearwire and
members of senior management of the Sprint WiMAX Business,
regarding the business and operations of the Sprint WiMAX
Business; provided, however, that this
Section 8.3 does not limit or modify the representations
and warranties of Clearwire and Sprint set forth in this
Agreement or the right of each Investor to rely thereon.
Section 8.4 Availability
of Funds. On the Closing Date, such Investor
will have cash available or existing borrowing facilities that
together are sufficient to enable it to consummate the
Transactions contemplated by this Agreement.
Section 8.5 Required
Filings and Consents. The execution and
delivery of this Agreement by such Investor and the consummation
by such Investor of the Transactions contemplated by this
Agreement do not, and the performance of this Agreement by such
Investor will not, require any consent, approval, authorization
or permit of, or filing with or notification to, any
Governmental Authority, except for the Governmental Consents or
where the failure to obtain those consents, approvals,
authorizations or permits, or to make those filings or
notifications, would not, individually or in the aggregate,
prevent or materially delay the performance by such Investor of
any of its obligations under this Agreement or the performance
by such Investor of the Transactions contemplated by this
Agreement.
Section 8.6 Brokers. Except
for Merrill Lynch & Co. Incorporated in the case of
Comcast and TWC, such Investor has not incurred any obligation
or liability, contingent or otherwise, for brokerage or
finders fees or agents commissions or other similar
payment in connection with this Agreement.
Section 8.7 Information
Supplied. None of the information supplied or
to be supplied by such Investor to Clearwire in writing for
inclusion or incorporation by reference in the Proxy Statement
or the Registration Statement, or any amendments or supplements
thereto will, at the dates those documents are first published,
sent or delivered to Clearwires stockholders contain any
untrue statement of a material fact or omit to state any
material fact regarding such Investor required to be stated in
the Proxy Statement or Registration Statement or necessary in
order to make the statements made in the Proxy Statement or
Registration Statement regarding such Investor, in light of the
circumstances under which they were made, not misleading.
Section 8.8 Ownership
of Clearwire Capital Stock. Except with
respect to Intel, the ownership by Intel or its Subsidiaries
(i) as of the Execution Date of 26,760,934 shares of
Clearwire Class A Common Stock, 9,905,732 shares of
Clearwire Class B Common Stock and a warrant to purchase
93,333 shares of Clearwire Class A Common Stock and
(ii) as of the Closing Date, any of such securities that
Intel or its Subsidiaries have not sold or otherwise
transferred, such Investor and its Subsidiaries do not own any
shares of Clearwire Capital Stock, nor does such Investor or its
Subsidiaries own any options, warrants, convertible securities,
subscriptions, stock appreciation rights, phantom stock or stock
equivalents or other rights, agreements, arrangements or
commitments (contingent or otherwise) of any character issued or
authorized by Clearwire relating to the issued or unissued
Clearwire Capital Stock or obligating Clearwire to issue or sell
any shares of Clearwire Capital Stock, or options, warrants,
convertible securities, subscriptions or other equity interests
in Clearwire.
Section 8.9 Certain
Ancillary Agreements. As of the Execution
Date, other than the Transaction Related Agreements and, with
respect to Google, the Google Products and Services Agreement
between Google and Sprint, neither such Investor nor any of its
Affiliates has entered into any contract, agreement, arrangement
or other understanding, whether written or oral, and regardless
of the subject matter thereof, with any other Party or any of
their respective Affiliates, in each case, in connection with or
in consideration of the transactions contemplated by the
Transaction Related Agreements, including, without limitation,
any term sheet, letter of intent, memorandum of understanding or
agreement to agree, in each case, whether or not
such Agreement purports to be binding.
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ARTICLE 9
CONDITIONS TO CLOSING
Section 9.1 Conditions
to Each Partys Obligations. The
respective obligations of each Party at the Closing to effect
the Transactions will be subject to the following conditions
(each of which shall be determined and may be relied upon on an
independent basis):
(a) the Clearwire Stockholder Approval will have been
obtained in accordance with the DGCL and Nasdaq rules;
(b) the Registration Statement will have become effective
under the Securities Act, and no stop order suspending the
effectiveness of the Registration Statement will have been
issued and no Proceedings for that purpose will have been
initiated or be threatened by the SEC;
(c) no applicable Law will prohibit or prevent the
consummation of the Transactions;
(d) the expiration or termination of the waiting period
applicable to the consummation of the Transactions under the HSR
Act, the expiration or termination of any mandatory waiting
period applicable to the Transactions under any applicable
foreign antitrust Laws, and, if applicable, the receipt of any
Consents required under any applicable foreign antitrust Laws,
in each case, without the imposition of any Burdensome Condition
on or with respect to such Party or over which such Party has an
approval right pursuant to Section 10.3(d);
(e) the receipt of the FCC Consent for the consummation of
the Transactions without the imposition of any Burdensome
Condition on or with respect to such Party or over which such
Party has an approval right pursuant to Section 10.3(d);
(f) the receipt of any Consent required by any applicable
foreign Governmental Authorities governing telecommunications
services without the imposition of any Burdensome Condition on
or with respect to such Party or over which such Party has an
approval right pursuant to Section 10.3(d);
(g) no effective injunction, writ or preliminary
restraining order or any order of any nature will have been
issued by a Governmental Authority of competent jurisdiction
prohibiting the consummation of the Transactions as provided in
this Agreement;
(h) the Class A Common Stock required to be issued in
the Merger and to Google under this Agreement and upon
conversion of the Class B Common Stock and the Class B
Common Units will have been approved for listing on Nasdaq or
the NYSE, subject only to official notice of issuance;
(i) the Certificate of Merger will have been filed with the
Delaware Secretary of State;
(j) NewCos certificate of incorporation and bylaws
will have been amended to be in the form attached to this
Agreement as Exhibits B and C, respectively;
(k) NewCo LLCs limited liability company agreement
will have been amended to be in the form attached hereto as
Exhibit E;
(l) Clearwire Sub LLCs limited liability company
agreement will be in the form attached hereto as
Exhibit F;
(m) Sprint Sub LLCs limited liability company
agreement will be in the form attached hereto as
Exhibit G;
(n) (i) Clearwire shall have received an opinion from
Tax Counsel, in form and substance reasonably satisfactory to
the Parties, to the effect that the Recapitalization and the
Merger will qualify as tax-free reorganizations of Clearwire
within the meaning of Section 368(a) of the Code and
(ii) NewCo LLC shall have received an opinion from Tax
Counsel, in form and substance reasonably satisfactory to the
Parties (other than those Parties who make their entire
Investment into NewCo in accordance with Section 4.2) to
the effect that, following the Closing, NewCo LLC should be
treated as a partnership for U.S. federal income tax
purposes; and
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(o) Clearwire shall have received written consents of the
Required Lenders (as defined in the Credit Agreement) under the
Credit Agreement to the execution and delivery of this Agreement
and the consummation of the Transactions (the Credit
Agreement Consent) or all principal, accrued interest
and premium, if any, outstanding under such Credit Agreement
immediately prior to the Closing shall have been refinanced in
full in accordance with this Agreement (the Credit
Agreement Refinancing).
Section 9.2 Conditions
to Obligations of Sprint. The obligations of
Sprint to consummate the Transactions will be subject to the
fulfillment (or written waiver by Sprint) of each of the
following additional conditions (each of which shall be
determined and may be relied upon on an independent basis):
(a) Representations and
Warranties. The representations and
warranties of Clearwire and each Investor set forth in
Articles 6 and 8, respectively, shall have been true and
correct as of the Execution Date and will be true and correct as
of the Closing Date as though made on and as of the Closing Date
(except representations or warranties that by their terms speak
only as of an earlier date, which shall be true and correct as
of such earlier date), except where the failure of any of the
representations or warranties to be so true and correct
(individually or in the aggregate) would not have a Clearwire
Material Adverse Effect or an Investor Material Adverse Effect,
respectively (provided, that solely for purposes of this
Section 9.2(a), any representation or warranty in
Articles 6 and 8, respectively that is qualified by
materiality or Material Adverse Effect language shall be read as
if such qualifier or language were not present); provided
that the representations and warranties of Clearwire set
forth in (i) Sections 6.13(a), 6.13(b), 6.13(c),
6.13(d) and 6.13(e) shall be true and correct in all respects
except for de minimis changes and
(ii) Section 6.14(d) with respect to Clearwire shall
be true and correct in all respects, in each case, as of the
Closing Date as though made on and as of the Closing Date
(except representations or warranties that by their terms speak
only as of an earlier date, which shall be true and correct as
of such earlier date); provided, further, that any
breach of Section 6.3 or 6.4 relating to the revocation,
restriction, cancellation, termination, suspension or
non-renewal of any Clearwire License or Clearwire Lease shall
not give rise to a failure of the Closing Condition in this
Section 9.2(a) if the Closing Condition in
Section 9.2(d) has been satisfied.
(b) Performance of Obligations of Clearwire and the
Investors. Clearwire and each Investor shall have
performed in all material respects all of their respective
covenants and agreements required to be performed by each of
them under this Agreement at or before the Closing; provided
that each Investors obligation pursuant to
Sections 4.1 and 4.2, as the case may be, shall be deemed
performed solely for purposes of satisfying the condition in
this Section 9.2(b) if the condition set forth in
Section 9.2(e) is satisfied.
(c) Closing Deliveries. Clearwire
and each Investor will have delivered to Sprint each of the
closing deliveries required of them under Sections 5.1 and
Section 5.3 (other than the closing deliveries relating to
BHN, if BHN fails to consummate the Closing), respectively.
(d) Clearwire MHz-Pops. As of the
Closing Date, the number of MHz-Pops covered by the Clearwire
Licenses and spectrum rights that are subject to the Clearwire
In-Leases, less the number of MHz-Pops covered by the spectrum
rights that are subject to the Clearwire Out-Leases (the
Clearwire Closing Date MHz-Pops), shall equal
or exceed 13,215,450,000.
(e) Investments. The contribution
of Investments by the Investors at the Closing in an aggregate
amount of at least $3.1 billion.
(f) Certain Changes. There shall
not have been any action taken, or any applicable Law or
interpretation thereof proposed, enacted, enforced, promulgated
or issued, by any Governmental Authority after the Execution
Date as a result of or arising out of the Transactions that
would reasonably be expected to result in the imposition of any
Burdensome Condition, on or with respect to NewCo or any of its
Subsidiaries (assuming for purposes of this Section 9.2(f)
only that NewCo is a Party); provided, that Sprint will
not be entitled to invoke this Closing Condition unless
(i) Clearwire is invoking the Closing Condition in
Section 9.3(g) and (ii) the events giving rise to such
Burdensome Condition arise out of or relate to one or more
Investors being a Party to this Agreement or the Transactions.
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Section 9.3 Conditions
to Obligations of Clearwire. The obligations
of Clearwire to consummate the Transactions will be subject to
the fulfillment (or written waiver by Clearwire) at or before
the Closing of each of the following additional conditions (each
of which shall be determined and may be relied upon on an
independent basis):
(a) Representations and
Warranties. The representations and
warranties of Sprint and each Investor as set forth in
Article 7 and Article 8, respectively, shall have been
true and correct as of the Execution Date and will be true and
correct as of the Closing Date as though made on and as of the
Closing Date (except representations or warranties that by their
terms speak only as of an earlier date, which shall be true and
correct as of such earlier date), except where the failure of
any of the representations or warranties to be so true and
correct (individually or in the aggregate) would not have a
Sprint Material Adverse Effect or an Investor Material Adverse
Effect, respectively (provided, that solely for purposes
of this Section 9.3(a), any representation or warranty in
Articles 7 and 8, respectively that is qualified by
materiality or Material Adverse Effect language shall be read as
if such qualifier or language were not present); provided
that the representations and warranties of Sprint set forth
in (i) Section 7.1(d) shall be true and correct in all
material respects and (ii) Section 7.12(c) with
respect to Sprint shall be true and correct in all respects, in
each case as of the Closing Date as though made on and as of the
Closing Date (except representations or warranties that by their
terms speak only as of an earlier date, which shall be true and
correct as of such earlier date); provided,
further, that any breach of Section 7.3 or 7.4
relating to the revocation, restriction, cancellation,
termination, suspension or non-renewal of any Sprint License or
Sprint Lease shall not give rise to a failure of the Closing
Condition in this Section 9.3(a) if the Closing Condition
in Section 9.3(d) has been satisfied.
(b) Performance of Obligations by Sprint and the
Investors. Sprint and each Investor will have
performed in all material respects all of their respective
covenants and agreements required to be performed by each of
them under this Agreement at or before the Closing, as
applicable; provided that each Investors obligation
pursuant to Sections 4.1 and 4.2, as the case may be, shall
be deemed performed solely for purposes of satisfying the
condition in this Section 9.3(b) if the condition set forth
in Section 9.3(e) is satisfied.
(c) Closing Deliveries. Sprint and
each Investor will have delivered to Clearwire each of the
closing deliveries required of them under Sections 5.2 and
Section 5.3 (other than the closing deliveries relating to
BHN, if BHN fails to consummate the Closing), respectively.
(d) Sprint MHz-Pops. As of the
Closing Date, the number of MHz-Pops covered by the Sprint
Licenses and spectrum rights that are subject to the Sprint
In-Leases, less the number of MHz-Pops covered by the spectrum
rights that are subject to the Sprint Out-Leases (the
Sprint Closing Date
MHz-Pops),
shall equal or exceed 27,539,550,000.
(e) Investments. The contribution
of Investments by the Investors at the Closing in an aggregate
amount of at least $3.1 billion.
(f) LLC Contribution. The
consummation of the LLC Contribution at the Closing in
accordance with Article 3.
(g) Certain Changes. There shall
not have been any action taken, or any applicable Law or
interpretation thereof proposed, enacted, enforced, promulgated
or issued, by any Governmental Authority after the Execution
Date as a result of or arising out of the Transactions that
would reasonably be expected to result in the imposition of any
Burdensome Condition, on or with respect to NewCo or any of its
Subsidiaries (assuming for purposes of this Section 9.3(g)
only that NewCo is a Party); provided, that Clearwire
will not be entitled to invoke this Closing Condition unless
(i) Sprint is invoking the Closing Condition in
Section 9.2(f) and (ii) the events giving rise to such
Burdensome Condition arise out of or relate to one or more
Investors being a Party to this Agreement or the Transactions.
Section 9.4 Conditions
to Obligations of the Investors. The
obligations of each Investor to consummate the Transactions will
be subject to the fulfillment (or written waiver by such
Investor) at or before the
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Closing of each of the following additional conditions (each of
which shall be determined and may be relied upon on an
independent basis):
(a) Representations and
Warranties. The representations and
warranties of Sprint and Clearwire set forth in Article 6
and Article 7 shall have been true and correct as of the
Execution Date and will be true and correct as of the Closing
Date as though made on and as of the Closing Date (except
representations or warranties that by their terms speak only as
of an earlier date, which shall be true and correct as of such
earlier date), except where the failure of any of the
representations or warranties to be so true and correct
(individually or in the aggregate) would not have a Sprint
Material Adverse Effect or a Clearwire Material Adverse Effect,
respectively (provided, that solely for purposes of this
Section 9.4(a), any representation or warranty in
Articles 6 and 7, respectively that is qualified by
materiality or Material Adverse Effect language shall be read as
if such qualifier or language were not present); provided
that (i) the representations and warranties of Sprint
set forth in (A) Section 7.1(d) shall be true and
correct in all material respects and
(B) Section 7.12(c) with respect to Sprint shall be
true and correct in all respects and (ii) the
representations and warranties of Clearwire set forth in
(A) Sections 6.13(a), 6.13(b), 6.13(c), 6.13(d) and
6.13(e) shall be true and correct in all respects except for
de minimis changes and (B) Section 6.14(d) with
respect to Clearwire shall be true and correct in all respects,
in each case, as of the Closing Date as though made on and as of
the Closing Date (except representations or warranties that by
their terms speak only as of an earlier date, which shall be
true and correct as of such earlier date); provided,
further, that any breach of Section 6.3 or 6.4 or
Section 7.3 or 7.4 relating to the revocation, restriction,
cancellation, termination, suspension or non-renewal of any
Clearwire License or Clearwire Lease or any Sprint License or
Sprint Lease, as the case may be, shall not give rise to a
failure of the Closing Condition in this Section 9.4(a) if
the Closing Condition in Section 9.4(d) has been satisfied.
(b) Performance of Obligations by Sprint and
Clearwire. Sprint and Clearwire shall have
performed in all material respects all of their respective
covenants and agreements required to be performed by each of
them under this Agreement at or before the Closing, as
applicable.
(c) Closing Deliveries. Sprint,
Clearwire and each other Investor will have executed and
delivered to such Investor each of the closing deliveries
required of them under Section 5.1, Section 5.2 and
Section 5.3 (other than the closing deliveries relating to
BHN, if BHN fails to consummate the Closing), respectively, with
this Agreement and all Ancillary Agreements (including, for the
avoidance of doubt, all Ancillary Agreements executed prior to
the Closing Date) being in full force and effect (it being
understood that the Investors are not obligated to enter into
any of the transactions contemplated hereby unless all of the
transactions contemplated hereby are consummated).
(d) Clearwire and Sprint
MHz-Pops. As of the Closing Date,
(1) the sum of the Clearwire Closing Date MHz-Pops and the
Sprint Closing Date MHz-Pops shall equal or exceed
40,755,000,000 MHz-Pops, and (2) with respect to the
top 100 BTAs (by population) listed on Section 9.4(d) of
the Clearwire Disclosure Schedule and Section 9.4(d) of the
Sprint Disclosure Schedule, Sprint and Clearwire will
collectively hold rights to Licenses and Leases sufficient to
cover:
(i) a minimum of 33 MHz of spectrum bandwidth in the
2.5 GHz Spectrum in each such BTA, which spectrum shall be
licensed such that the GSA associated with each channel
comprising the 33 MHz substantially overlaps the GSA of all
other channels comprising the 33 MHz and such overlap area
covers at least 80 percent of the population of the BTA,
except (A) for those BTAs on Section 9.4(d) of the
Clearwire Disclosure Schedule and Section 9.4(d) of the
Sprint Disclosure Schedule marked as not meeting that threshold
on the Execution Date and (B) not more than any two
additional BTAs provided such BTAs are not in the top 10 BTAs
(by population) listed on Section 9.4(d) of the Clearwire
Disclosure Schedule and Section 9.4(d) of the Sprint
Disclosure Schedule;
(ii) a minimum of three blocks of 10 contiguous MHz of
spectrum bandwidth (for a total of at least 30 MHz of
spectrum bandwidth) in the Lower Band Segment
and/or the
Upper Band Segment (as defined in Section 27.5(i)(2)(i) and
(iii) of the FCC Rules) in each such BTA, which spectrum
shall be licensed such that the GSAs associated with each
channel comprising the 30 MHz
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substantially overlaps the GSAs of all other channels comprising
the 30 MHz and such overlap area covers at least
80 percent of the population of the BTA, except for
(A) those BTAs on Section 9.4(d) of the Clearwire
Disclosure Schedule and Section 9.4(d) of the Sprint
Disclosure Schedule marked as not meeting that threshold on the
Execution Date and (B) not more than any two additional
BTAs provided such BTAs are not in the top 10 BTAs (by
population) listed on Section 9.4(d) of the Clearwire
Disclosure Schedule and Section 9.4(d) of the Sprint
Disclosure Schedule; and
(iii) an average of at least 100 MHz of spectrum
bandwidth in the 2.5 GHz Spectrum, determined as the
aggregate MHz-Pops for all such BTAs divided by the aggregate
population for such BTAs.
(e) Investments. With respect to
each Investor, the contemporaneous contribution by each other
Investor (other than BHN) of its Investment.
(f) LLC Contribution. The
consummation of the LLC Contribution at the Closing in
accordance with Article 3.
(g) Certain Changes.
(i) There shall not have been any action taken, or any
applicable Law or interpretation thereof proposed, enacted,
enforced, promulgated or issued, by any Governmental Authority
after the Execution Date as a result of or arising out of the
Transactions that would reasonably be expected to
(A) result in the imposition of any Burdensome Condition on
or with respect to any Investor or over which such Investor has
an approval right pursuant to Section 10.3(d) or
(B) materially reduce or materially interfere with the
benefits to be recognized by that Investor in the Transactions
and the transactions contemplated by the Ancillary Agreements.
(ii) There shall not have been any action taken, or any
applicable Law or interpretation thereof proposed, enacted,
enforced, promulgated or issued, by the FCC after the Execution
Date that would reasonably be expected to (A) result in the
imposition of any Burdensome Condition with respect to any
Investor, NewCo or any Subsidiary of any of the foregoing where
such Burdensome Condition relates, in whole or in part, to a
segment of the wireless business (including wireless-related
products or services) of a type within the scope (or
contemplated to be within the scope) of this Agreement or any of
the Ancillary Agreements or any of the transactions contemplated
hereby or thereby or (B) materially reduce or materially
interfere with the benefits to be recognized by such Investor in
the Transactions and the transactions contemplated by the
Ancillary Agreements; provided, that this Closing
Condition will be deemed satisfied if such action, Law or
interpretation results from any act of such Investor that is
unrelated to such Investor being a Party to this Agreement (it
being agreed that the mere appearance before the FCC in matters
unrelated to the Transactions or any such segment of the
wireless business shall not, in and of itself, be deemed an act
for purposes of this proviso).
(h) Certain Agreements. The notice
of termination delivered by Clearwire under the Master Supply
Agreement dated March 16, 2005 among Clearwire Corporation,
Clearwire LLC, Bell Canada and BCE Nexxia Corporation shall not
have been withdrawn by Clearwire.
Section 9.5 Frustration
of Closing Conditions. No Party may rely on
the failure of any condition set forth in this Article 9 to
be satisfied if such failure was caused by the failure of such
Party to use its Reasonable Best Efforts to consummate the
Merger and the other Transactions, as required by
Section 10.3.
ARTICLE 10
COVENANTS OF THE PARTIES
Section 10.1 Conduct
of Business.
(a) Except as set forth on Section 10.1(a) of the
Clearwire Disclosure Schedule, for the period between the date
of this Agreement and the earlier of the Closing and the
termination of this Agreement in accordance
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with Section 12.1, unless it obtains the prior written
consent of Sprint and the Investor Supermajority in Interest,
which consent shall not be unreasonably withheld, Clearwire will
and will cause its Subsidiaries to:
(i) conduct its businesses in the ordinary course of
business;
(ii) use its Reasonable Best Efforts to preserve the
relationships and goodwill of its business with vendors,
distributors, suppliers, employees and other Persons having
business relations with the businesses;
(iii) comply in all material respects with all Laws
applicable to Clearwire and its Subsidiaries wherever its
business is conducted, including the timely filing of all
reports, forms or other documents with the SEC required under
the Securities Act or Exchange Act;
(iv) maintain each Clearwire License held by it in full
force and effect under all applicable Laws in the ordinary
course of business consistent with past practice;
(v) maintain each Clearwire Lease to which it is a party in
full force and effect under all applicable Laws in the ordinary
course of business consistent with past practice;
(vi) perform in all material respects all of its
obligations under, and not default or suffer to exist any event
or condition that with notice or lapse of time or both would
reasonably be likely to constitute a material default under any
Clearwire Lease or Specified Clearwire Contract to which it is a
party (except those obligations being contested in good faith or
for defaults existing on the Execution Date and disclosed in the
Clearwire Disclosure Schedule);
(vii) not enter into, assume, amend or cancel any contract
or commitment that is or would be a Specified Clearwire Contract
other than (x) in the ordinary course of business,
(y) as contemplated by this Agreement or (z) in
accordance with Section 10.1(b)(vi);
(viii) not enter into, assume, amend or cancel any contract
or commitment that is or would be a Clearwire Lease, other than
in the ordinary course of business (i.e., as if Clearwire
would be responsible for the long-term performance of the Lease);
(ix) use its Reasonable Best Efforts to preserve the terms
of each Clearwire Lease and to preserve the scope of the
Clearwire Leased FCC License, including proposed changes in
duration, geographic coverage and payments, except the foregoing
will not:
(A) require Clearwire or any of its Subsidiaries to file
any item or take any particular position with the FCC that
Clearwire does not have an independent good faith basis for the
filing,
(B) require Clearwire or any of its Subsidiaries to
commence or maintain any litigation or other legal proceedings,
(C) preclude Clearwire or any of its Subsidiaries from
making a filing or taking a position with the FCC when Clearwire
has a reasonable good faith basis for the filing, or
(D) require Clearwire or any of its Subsidiaries to renew
any terms of a Clearwire Lease unless renewal would be completed
in the ordinary course of business.
(x) not commit any act, engage in any activity or fail to
take any action that would reasonably be expected to cause the
impairment of, loss of service area authorized under, or the
revocation, cancellation or suspension of, any material
Clearwire License or Clearwire Leased FCC License, except the
foregoing will not:
(A) require Clearwire to file any item or take any
particular position with the FCC when Clearwire does not have a
reasonable good faith basis for the filing or action or
(B) preclude Clearwire from making a filing or taking a
position with the FCC when Clearwire has a reasonable good faith
basis for the filing;
(xi) use its Reasonable Best Efforts to obtain timely
receipt of
non-U.S. regulatory
approvals;
A-44
(xii) duly and timely file or cause to be filed all
material Tax Returns required to be filed by it or any of its
Subsidiaries and promptly pay or cause to be paid when due any
related material Taxes, unless diligently contested in good
faith by appropriate Proceedings;
(xiii) not take any action that would, or would reasonably
be expected to, result in any of the conditions set forth in
Article 9 not being satisfied except as otherwise permitted
pursuant to this Agreement;
(xiv) enter into any agreement, or consummate any
arrangement that would preclude Clearwire from consummating the
Transactions, except as otherwise permitted pursuant to
Section 10.4;
(xv) not create, assume or incur any indebtedness for
borrowed money or guaranty any indebtedness of another Person,
other than:
(A) as contemplated in the Clearwire Budget;
(B) any refinancing of indebtedness (including the payment
of related interest, premium and fees) existing as of the
Execution Date; and
(C) as permitted by (xvii) below or by
Section 10.1(b)(vi)(C);
(xvi) not make any loans, advances or capital contributions
to, or investments in, any other Person other than
(A) loans, advances or capital contributions between any
Subsidiaries of Clearwire or between Clearwire and any of its
Subsidiaries made in the ordinary course of business,
(B) loans or advances less than $5,000,000 in the aggregate
made in the ordinary course of business, (C) loans or
advances pursuant to spectrum acquisitions or leases made in the
ordinary course of business, or (D) loans of shares of
Capital Stock in connection with the sale of debt securities
convertible into Clearwire Class A Common Stock in
accordance with Sections 10.1(b)(iv)(F) and 10.1(b)(iv)(H);
(xvii) not mortgage or pledge any of its assets or
properties other than in connection with the indebtedness in
(xvi) above or any Permitted Encumbrance;
(xviii) except with respect to divestitures of the Capital
Stock or assets of any Subsidiary of Clearwire other than the
Domestic Clearwire Subsidiaries on an arms-length basis and
except as otherwise expressly permitted under this
Section 10.1, (A) not merge or consolidate with any
other entity in any transaction or (B) sell or acquire any
business or assets, or enter into any agreement to do any of the
foregoing (other than purchases or sales of products and
inventory in the ordinary course of business, sales of short
term and long term investments (each as defined under GAAP) in
exchange for cash or pursuant to agreements in effect on the
Execution Date or any amendment thereof permitted under this
Article 10 or acquisition of spectrum assets in the
ordinary course of business) where, in the case of clause (B),
the aggregate consideration in all such transactions is
$25,000,000 or greater;
(xix) not change its accounting policies except as required
by GAAP;
(xx) not alter, amend or create any obligations with
respect to employment terms or agreements, compensation, bonus,
severance, benefits, change of control payments equity awards
(including the vesting thereof), tax
gross-ups or
any other payments, to its directors, executives, officers,
employees or consultants of Clearwire or its Subsidiaries, it
being understood that this clause (xx) shall not prohibit
ordinary course annual compensation increases, ordinary course
merit-based compensation increases, or ordinary course hiring,
terminations and promotions;
(xxi) not make any change to the Clearwire Benefit Plans
(other than in the ordinary course of business or as required to
comply with applicable Law);
(xxii) not pay, loan or advance (other than the payment of
compensation, directors fees or reimbursement of expenses,
in each case, in the ordinary course of business) any amount to,
or sell, transfer or lease any properties or assets (real,
personal or mixed, tangible or intangible) to, or enter into any
agreement with, any of its officers or directors or any
affiliate or associate of any of its
officers
A-45
or directors, except as required under agreements in effect on
the Execution Date or any amendment thereof permitted under this
Article 10;
(xxiii) not form or begin the operations of any business or
any corporation, partnership, joint venture, business
association or other business organization or division thereof
other than NewCo, NewCo LLC and Clearwire Sub LLC or in the
ordinary course of business;
(xxiv) not make or revoke any material Tax election or
method of tax accounting (other than in the ordinary course of
business) or settle or compromise any disputed Tax liability
involving amounts in excess of $1,000,000, individually, and
$3,000,000 in the aggregate; or
(xxv) not pay, discharge, settle or satisfy any claims,
litigation, liabilities or obligations (whether absolute,
accrued, asserted or unasserted, contingent or otherwise)
involving amounts in excess of $10,000,000 individually or
$30,000,000 in the aggregate except in the ordinary course of
business other than in accordance with
Sections 10.1(a)(xv)(B) or 10.1(a)(xv)(C);
(xxvi) not cancel any Indebtedness held by Clearwire or any
of its Subsidiaries (other than Indebtedness existing solely
between Clearwire and its wholly owned Subsidiaries or between
such wholly owned Subsidiaries) or waive any other right
involving an amount in excess of $10,000,000 individually or
$30,000,000 in the aggregate;
(xxvii) not sell, lease or transfer any Clearwire License
or Clearwire Lease, other than spectrum swaps in the ordinary
course of business that do not preclude or materially alter the
Transactions or between any Clearwire Subsidiaries;
(xxviii) not offer, sell, provide or market (as a reseller,
mobile virtual network operator, wholesaler or agent) the
products and services of any mobile voice carrier other than
Sprint and its Affiliates;
(xxix) not permit any of their trademarks, tradenames or
service marks to be utilized by any mobile voice carrier (other
than Sprint and its Affiliates) in the offer, sale, promotion or
marketing of any products and services except for any of their
trademarks, tradenames or service marks that do not contain the
name Clearwire and that are used solely by the non
Domestic Clearwire Subsidiaries outside of the United States;
(xxx) solely with respect to the Domestic Clearwire
Subsidiaries not enter into any wholesale/resale, mobile virtual
network operator, co-branding or service bundling agreement with
any third party;
(xxxi) maintain existing insurance policies or comparable
replacement policies to the extent available for a reasonable
cost;
(xxxii) except as contemplated by this Agreement, not adopt
a plan or agreement of complete or partial liquidation or
dissolution, recapitalization or other similar reorganization;
(xxxiii) not enter into a new line of business; or
(xxxiv) not authorize, or commit or agree to take, any of
the foregoing actions restricted by this Section 10.1(a).
(b) Except as set forth on Section 10.1(b) of the
Clearwire Disclosure Schedule, Clearwire covenants and agrees
that between the date of this Agreement and the earlier of the
Closing and the termination of this Agreement in accordance with
Section 12.1, unless it obtains the prior written consent
of Sprint and the Investor Supermajority in Interest, Clearwire
will not, nor will Clearwire permit any of its Subsidiaries to:
(i) declare, set aside for payment or pay any dividends on
or make other distributions (whether in cash, stock or property)
in respect of any of its Capital Stock, except for
(X) dividends payable to Clearwire or a wholly owned
Subsidiary of Clearwire by another wholly owned Subsidiary of
Clearwire or (Y) mandatory distributions by Clearwire
Hawaii Partners, LLC to its members in accordance with the terms
of the applicable operating agreement;
A-46
(ii) split, combine, subdivide or reclassify any of its
Capital Stock or issue or authorize or propose the issuance of
any other securities in respect of, in lieu of or in
substitution for any class of shares of its Capital Stock;
(iii) repurchase, redeem or otherwise acquire any shares of
its Capital Stock, or any securities convertible into any shares
of its Capital Stock, or any rights, warrants or options to
acquire any shares of its Capital Stock or convertible
securities or any stock appreciation rights, phantom stock plans
or stock equivalents except for (A) any repurchase or
redemption deemed to occur upon any cashless
exercise of any outstanding Clearwire Stock Options or
Clearwire Warrants; and (B) the return of shares of Capital
Stock under the terms of any share lending facility in
connection with the sale of preferred securities or debt
securities convertible into Clearwire Class A Common Stock
in accordance with Sections 10.1(b)(iv)(F) and
10.1(b)(iv)(H);
(iv) issue, deliver, grant or sell, or authorize or propose
the issuance, delivery, grant or sale of, any shares of its
Capital Stock or any securities convertible into any shares of
its Capital Stock, or any rights, warrants or options to acquire
any shares of its Capital Stock or convertible securities or any
stock appreciation rights, phantom stock plans or stock
equivalents, other than
(A) the issuance of Class A Common Stock upon the
conversion of the shares of Class B Common Stock
outstanding on the date of this Agreement pursuant to the
Recapitalization;
(B) the issuance of Class A Common Stock on the
exercise of Clearwire Stock Options outstanding as of the date
of this Agreement,
(C) the issuance of Class A Common Stock issued with
respect to restricted stock units that vest and settle in
accordance with their terms,
(D) the issuance of Class A Common Stock on exercise
of Clearwire Warrants outstanding as of the date of this
Agreement,
(E) the issuance or granting to directors and employees of
Clearwire and its Subsidiaries of options and restricted stock
grants in accordance with the amounts in the timetable set forth
in Section 10.1(b)(iv) of the Clearwire Disclosure
Schedule, in each case in the ordinary course of business and,
in the case of options, at a per share exercise price not less
than the market closing price on the Business Day of the grant;
(F) the issuance or sale in bona fide third party
financings in an amount not to exceed $500,000,000 in the
aggregate of shares of Clearwire Class A Common Stock,
warrants exercisable for shares of Clearwire Class A Common
Stock, preferred securities (so long as the preferred securities
do not have any voting rights, rights to elect directors or
other governance rights) convertible into Class A Common
Stock, or debt securities convertible into Clearwire
Class A Common Stock, in each case at a purchase, exercise
or conversion price, as applicable, of at least $20 per share of
Clearwire Class A Common Stock,
(G) the issuance of Class A Common Stock to the
members of Clearwire Hawaii Partners, LLC in exchange for the
transfer of such members limited liability company
interests in Clearwire Hawaii Partners, LLC in accordance with
the terms of the applicable operating agreement,
(H) the issuance or sale in bona fide third party
financings of shares of Clearwire Class A Common Stock,
warrants exercisable for shares of Clearwire Class A Common
Stock or preferred securities (so long as the preferred
securities do not have any voting rights, rights to elect
directors or other governance rights) convertible into
Class A Common Stock, debt securities convertible into
Clearwire Class A Common Stock, in each case at purchase,
exercise or conversion price, as applicable, of at least $20 per
share of Clearwire Class A Common Stock, all of the net
proceeds of which are used to refinance, in whole or in part,
the principal, accrued interest and premium, if any, outstanding
under the Credit Agreement; and
A-47
(I) the loan of shares to financial institutions in
connection with share lending facilities in connection with the
sale of preferred securities or debt securities convertible into
Clearwire Class A Common Stock in accordance with
Sections 10.1(b)(iv)(F) and 10.1(b)(iv)(H); and
(v) amend its certificate of incorporation (including any
certificate of designations attached thereto) or bylaws or other
equivalent organizational documents;
(vi) issue or sell any debt securities or warrants or other
rights to acquire any debt securities of Clearwire or any of its
Subsidiaries, other than:
(A) as contemplated in the Clearwire Budget;
(B) any refinancing of indebtedness (including the payment
of related interest, premium and fees) existing as of the
Execution Date; or
(C) the issuance or sale of shares of Clearwire
Class A Common Stock, warrants exercisable for shares of
Clearwire Class A Common Stock, preferred securities (so
long as the preferred securities do not have any voting rights,
rights to elect directors or other governance rights)
convertible into Class A Common Stock, or debt securities
convertible into Clearwire Class A Common Stock pursuant to
Sections 10.1(b)(iv)(F) and 10.1(b)(iv)(H); or
(vii) authorize, or commit or agree to take, any of the
foregoing actions restricted by this Section 10.1(b).
(c) For the period between the date of this Agreement and
the earlier of the Closing and the termination of this Agreement
in accordance with Section 12.1, unless it obtains the
prior written consent of Clearwire and the Investor
Supermajority in Interest, which consent shall not be
unreasonably withheld (except with respect to clause (xiv)
and (xvi) (to the extent relating to clause (xiv)), which
consent may be unreasonably withheld), Sprint will and will
cause its Subsidiaries to:
(i) conduct its businesses insofar as it relates to Sprint
Assets held by it in the ordinary course of business;
(ii) use its Reasonable Best Efforts to preserve the
relationships and goodwill with vendors, distributors,
suppliers, employees and other Persons having business relations
with the Sprint WiMAX Business;
(iii) comply in all material respects with all Laws
applicable to the Sprint WiMAX Business wherever its business is
conducted;
(iv) maintain each Sprint License held by it in full force
and effect under all applicable Laws in the ordinary course of
business consistent with past practice;
(v) maintain each Sprint Lease to which it is a party in
full force and effect under all applicable Laws in the ordinary
course of business consistent with past practice;
(vi) perform in all material respects all of its
obligations under, and not default or suffer to exist any event
or condition that with notice or lapse of time or both would
reasonably be likely to constitute a material default under any
Sprint Lease or Specified Sprint Contract to which it is a party
(except those obligations being contested in good faith or for
defaults existing on the Execution Date and disclosed in the
Sprint Disclosure Schedule);
(vii) not enter into, assume, amend or cancel any contract
or commitment that is or would be a Specified Sprint Contract
other than a Specified Sprint Contract (x) entered into in
the ordinary course of business or as contemplated by this
Agreement and (y) that would not, after the Closing,
require NewCo or NewCo LLC to be bound by any material purchase
commitments or materially restrict NewCos or NewCo
LLCs ability to use their respective assets or operate
their respective businesses in the ordinary course of business;
A-48
(viii) not enter into, assume, amend or cancel any contract
or commitment that is or would be a Sprint Lease, other than in
the ordinary course of business (i.e., as if Sprint would
be responsible for the long-term performance of the Lease);
(ix) use its Reasonable Best Efforts to preserve the terms
of each Sprint Lease and to preserve the scope of the Sprint
Leased FCC Licenses, including proposed changes in duration,
geographic coverage and payments, except the foregoing will not:
(A) require Sprint or any of its Subsidiaries to file any
item or take any particular position with the FCC that Sprint
does not have a reasonable good faith basis for the filing,
(B) require Sprint or any of its Subsidiaries to commence
or maintain any litigation or other legal proceedings,
(C) preclude Sprint or any of its Subsidiaries from making
a filing or taking a position with the FCC when Sprint has a
reasonable good faith basis for the filing, or
(D) require Sprint or any of its Subsidiaries to renew any
terms of a Sprint Lease unless renewal would be completed in the
ordinary course of business.
(x) not commit any act, engage in any activity or fail to
take any action that would be reasonably expected to cause the
impairment of, loss of service area authorized under, or the
revocation, cancellation or suspension of, any material Sprint
License or Sprint Leased FCC License, except the foregoing will
not:
(A) require Sprint to file any item or take any particular
position with the FCC that Sprint does not have an independent
good faith basis for the filing or
(B) preclude Sprint from making a filing or taking a
position with the FCC when Sprint has a reasonable good faith
basis for the filing;
(xi) duly and timely file or cause to be filed all material
Tax Returns required to be filed with respect to Sprint Sub LLC,
the Transfer Entities and the Sprint Assets and promptly pay or
cause to be paid when due any related material Taxes, unless
diligently contested in good faith by appropriate Proceedings;
(xii) not take any action that would, or would reasonably
be expected to, result in any of the conditions set forth in
Article 9 not being satisfied;
(xiii) enter into any agreement or consummate any
arrangement that would preclude Sprint or its Subsidiaries from
consummating the Transactions;
(xiv) not expend any portion of the Sprint Pre-Closing
Financing on any other business or asset of Sprint or its
Subsidiaries other than the Sprint WiMAX Business;
(xv) with respect to the Sprint WiMAX Business, pay its
debts and obligations in the ordinary course as they become
due; and
(xvi) not authorize, or commit or agree to take, any of the
foregoing actions restricted by this Section 10.1(c).
(d) Sprint covenants and agrees that between the date of
this Agreement and the earlier of the Closing and the
termination of this Agreement in accordance with
Section 12.1, Sprint will not, nor will it permit any of
its Subsidiaries to, enter into any agreement, or consummate any
arrangement to enter into any wholesale/resale, mobile virtual
network operator, co-branding, or service bundling agreement
with any third party with respect to the Sprint WiMAX Business.
(e) Except as contemplated by Section 3.2(b) or the
Sprint Pre-Closing Financing, Sprint covenants and agrees that
between the date of this Agreement and the earlier of the
Closing and the termination of this Agreement in accordance with
Section 12.1, unless it obtains the prior written consent
of Clearwire and
A-49
Investor Supermajority in Interest, which consent will not be
unreasonably withheld, Sprint will not, nor will Sprint permit
any of its Subsidiaries to:
(i) sell, lease or transfer any Sprint License or Sprint
Lease, other than spectrum swaps in the ordinary course of
business that do not preclude or materially alter the
Transactions or between any Transfer Entities;
(ii) issue, deliver, grant or sell, or authorize or propose
the issuance, delivery, grant or sale of, any shares of the
Capital Stock of the Transfer Entities or any securities
convertible into any shares of the Capital Stock of the Transfer
Entities, or any rights, warrants or options to acquire any
shares of the Capital Stock of the Transfer Entities or
convertible securities or any stock appreciation rights, phantom
stock plans or stock equivalents of the Transfer Entities;
(iii) amend the certificate of incorporation (including any
certificate of designations attached thereto) or bylaws or other
equivalent organizational documents of Sprint Sub LLC or the
Transfer Entities;
(iv) create, assume or incur any indebtedness for borrowed
money by Sprint Sub LLC or the Transfer Entities or cause Sprint
Sub LLC or the Transfer Entities to guaranty any indebtedness of
another Person, or issue or sell any debt securities or warrants
or other rights to acquire any debt securities of Sprint Sub LLC
or any Transfer Entity other than:
(A) between any Transfer Entities
(B) any refinancing of indebtedness existing as of the
Execution Date;
(C) the Sprint Pre-Closing Financing; and
(D) as permitted by (v) below
(v) cause Sprint Sub LLC or the Transfer Entities to make
any loans or advances to, or any investments in, any other
Person other than (A) loans, advances or capital
contributions between any Transfer Entity, (B) loans or
advances less than $5,000,000 made in the ordinary course of
business or (C) loans or advances pursuant to spectrum
acquisitions or leases made in the ordinary course of business;
(vi) cause Sprint Sub LLC or the Transfer Entities to
mortgage or pledge any of its assets or properties other than in
connection with the indebtedness in (iv) above, or any
Permitted Encumbrance;
(vii) cause Sprint Sub LLC or the Transfer Entities to
(A) merge or consolidate with any other entity in any
transaction or (B) sell any business or assets, or enter
into any agreement to do any of the foregoing (other than or
between any Transfer Entities or sales of products and inventory
in the ordinary course of business, sales of short term and long
term investments (each as defined under GAAP) in exchange for
cash or pursuant to agreements in effect on the Execution Date
or any amendment thereof permitted under this Article 10 or
acquisition of spectrum assets in the ordinary course of
business), where, in the case of clause (B), the aggregate
consideration in all such transactions is $25,000,000 or greater;
(viii) with respect to the Sprint WiMAX Business, change
its accounting policies except as required by GAAP;
(ix) with respect to the Sprint WiMAX Business, make or
revoke any material Tax election or method of tax accounting
(other than in the ordinary course of business) or settle or
compromise any disputed Tax liability involving amounts in
excess of $1,000,000, individually, or $3,000,000 in the
aggregate;
(x) with respect to the Sprint WiMAX Business, pay,
discharge, settle or satisfy any claims, litigation, liabilities
or obligations (whether absolute, accrued, asserted or
unasserted, contingent or otherwise) involving amounts in excess
of $10,000,000 individually or $30,000,000 in the aggregate
except in the ordinary course of business;
A-50
(xi) with respect to the Sprint WiMAX Business, cancel any
Indebtedness or waive any other right involving an amount in
excess of $10,000,000 individually or $30,000,000 in the
aggregate;
(xii) with respect to the Sprint WiMAX Business, maintain
existing insurance policies or comparable replacement policies
to the extent available for a reasonable cost; or
(xiii) authorize, or commit or agree to take, any of the
foregoing actions restricted by this Section 10.1(e).
(f) Notwithstanding any provision of this Agreement to the
contrary, it is understood and agreed that the provisions of
this Article 10 that grant Sprint the right to take certain
actions do not alter or affect the obligations of Sprint under
Section 1.2 or Article 13 hereof.
(g) For purposes of this Section 10.1, if one or more
Partys consent is required for Clearwire or Sprint, as
applicable, to take or omit to take certain actions described in
this Section 10, unless such Party provides written notice
that it is withholding its consent within 3 Business Days from
receipt of written request for the consent, such Partys
consent will be deemed to have been given.
(h) If reasonably determined by Clearwire or any two of the
Investors (other than BHN) to be necessary to avoid possible
restrictions or limitations on the operations of NewCo and its
Subsidiaries arising out of the Indemnified Litigation,
simultaneously with the Closing, Sprint and NewCo will take,
permit and authorize the actions set forth on
Exhibit M or (if such actions are not sufficient to
avoid such restrictions or limitations) such other actions with
respect to NewCo and its Subsidiaries and the Clearwire Assets
and the Sprint Assets as are reasonably requested by Clearwire
or any two of the Investors (other than BHN). For the purposes
of determining whether such other actions (other than those on
Exhibit M) are reasonably requested, (i) the
reasonableness of any requested actions will be determined
taking into account the projected operations of NewCo and its
Subsidiaries over the following three-year period and
(ii) any such requested actions will not be
disproportionate in relation to the then-current and projected
operations of NewCo and its Subsidiaries in the territory
affected by Indemnified Litigation.
Section 10.2 Access;
Records Confidentiality.
(a) To the extent permitted by applicable Law, until the
earlier of the Closing and the termination of this Agreement in
accordance with Section 12.1, each of Sprint and Clearwire
will, and will cause its Subsidiaries to, subject to reasonable
restrictions imposed from time to time on advice of counsel
respecting the provision of privileged communications or any
applicable confidentiality agreement with any Person (except
that each Party will use its Reasonable Best Efforts to obtain
waivers under applicable confidentiality agreements or implement
requisite procedures to enable the provision of reasonable
access without violating the agreements), afford representatives
of each other Party reasonable access during normal business
hours to evaluate Clearwire, including without limitation, the
Clearwire Assets and its Liabilities, or the Sprint WiMAX
Business, including, the Sprint Assets, as the case may be
(including each Partys 2.5 GHz Spectrum portfolio),
and all related books and records.
(b) Subject to Section 10.10, prior to the Closing
Date and after any termination of this Agreement, each Party
(the Receiving Party) (i) will hold, and
will cause their respective Affiliates and Representatives to
hold, in confidence, unless compelled to disclose by any
judicial or administrative process or by other requirements of
applicable Law (after providing the other Party(ies) notice and
an opportunity to object or seek a protective order, if
applicable), all confidential documents and information
concerning any other Party or any Affiliate of another Party
that has come into the possession or knowledge of the Receiving
Party in the course of negotiating, entering into or performing
this Agreement, except to the extent that such information can
be shown to have been (A) previously known on a
nonconfidential basis by the Receiving Party, (B) in the
public domain through no fault of the Receiving Party or
(C) later lawfully acquired by the Receiving Party from
sources other than such other Party; provided that the
Receiving Party may (i) disclose such information to its
Affiliates and Representatives so long as such Persons are
informed by the Receiving Party of the confidential nature of
such information and are directed by the Receiving Party to
treat such information confidentially; and (ii) will not
use any such documents or information for any purpose other than
as reasonably necessary or appropriate to assess its prospective
investment and for the performance of its duties
A-51
pursuant to this Agreement and the Ancillary Agreements;
provided, further, that nothing contained herein
shall prevent the use (subject, to the extent possible, to a
protective order) of such information in connection with the
assertion or defense of any claim by or against any Party
relating to the Transactions or the transactions contemplated by
the Ancillary Agreements. The Receiving Party shall be
responsible for any breach of this Section 10.2(b) by its
Affiliates and Representatives. If this Agreement is terminated,
the Parties will, and will cause their respective Affiliates and
Representatives to, destroy or deliver to any other party
hereto, upon request, all documents and other materials, and all
copies thereof, obtained by one Party from another Party in
connection with this Agreement that are subject to such
confidence. Notwithstanding the foregoing, each Party will be
permitted to retain one copy of such documents and other
materials as may be necessary to document its consideration of
this Agreement and the Transactions for the purpose of
establishing its compliance with any applicable Laws and for
defending or maintaining any litigation (including any
administrative proceeding) relating to this Agreement or the
Transactions, but such retained materials will be kept only in
its record archives, and will remain subject to this Agreement
for so long as such materials are retained. The terms of this
Section 10.2(b) supersede and replace the terms of any
confidentiality, non-disclosure or similar agreements previously
entered into in connection with this Agreement or the
Transactions between or among the Parties or any of their
respective Affiliates concerning the confidentiality of such
documents and information solely as it relates to this Agreement
or the Transactions; provided that any information
protected as confidential under such agreements shall constitute
confidential information hereunder; and provided,
further, that this Agreement shall not affect the terms
of any confidentiality, non-disclosure or similar agreement
between or among the Parties or any of their respective
Affiliates as such confidentiality, non-disclosure or similar
agreement relates to other matters.
(c) No investigation or notice delivered under this
Section 10.2 or otherwise will operate as a waiver or
affect any representation, warranty or agreement in this
Agreement of any Party or any condition to the obligations of
the Parties.
Section 10.3 Further
Assurances.
(a) On the terms and subject to the conditions hereof, each
of the parties hereto will use its Reasonable Best Efforts to
take, or cause to be taken, all appropriate action, and to do,
or cause to be done, all things necessary, proper or advisable
under Law to consummate and make effective the Merger and the
other Transactions contemplated by this Agreement, including
using its Reasonable Best Efforts to obtain all licenses,
permits, consents, approvals, authorizations, qualifications and
orders of each Governmental Authority and parties to contracts
with that Party and its Subsidiaries as are necessary for the
consummation of the Merger and the other Transactions
contemplated by this Agreement and to fulfill the conditions set
forth in Article 9. If at any time after the Effective Time
any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers of each Party to
this Agreement and NewCo and NewCo LLC will use their Reasonable
Best Efforts to take all action to carry out the purposes of
this Agreement and will cooperate fully with each other and
their respective officers, directors, employees, agents,
counsel, accountants and other designees in connection with any
steps required to be taken as a part of their respective
obligations under this Agreement, including:
(b) Not later than 30 days following the Execution
Date, the Parties will file or cause to be filed with the FCC
and any other Governmental Authorities all appropriate
applications and notifications, if any, and will take all
actions necessary, proper or advisable under applicable Laws, if
any, to obtain any required approval of the FCC and any
Governmental Authority with jurisdiction over the Transactions
(it being understood that the failure of a Party to file within
the 30-day
period will not constitute a breach of this Agreement to the
extent that such Party has used its Reasonable Best Efforts to
make such filing within such
30-day
period and continues to use its Reasonable Best Efforts to make
such filing as soon thereafter as possible). Each of the Parties
will furnish all information required for any application or
other filing to be made under the rules and regulations of any
applicable Law in connection with the Transactions.
(c) In furtherance of and not in limitation of the
foregoing, not later than 30 days following the Execution
Date, each of the Parties will make an appropriate filing of a
Notification and Report Form under the HSR Act and any
applicable foreign antitrust Laws with respect to the
Transactions contemplated by this Agreement
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and to supply as promptly as practicable any additional
information and documentary material that may be requested under
the HSR Act and any applicable foreign antitrust Laws and to
take all other actions necessary to cause the expiration or
termination of the applicable waiting periods under the HSR Act
and any applicable foreign antitrust Laws as soon as practicable.
(d) Nothing in this Agreement (i) will obligate
Clearwire or Sprint to license, divest, dispose of or hold
separate any material portion of its or any of its
Affiliates assets or commit or agree to such actions
(except for Sprints obligation to effect the transfers and
contribution contemplated by Article 3 of this Agreement),
(ii) will obligate any Party or any of its Affiliates to
(A) license, divest, dispose of or hold separate any
portion of its or any of its Affiliates assets or commit
or agree to such actions, (B) accept any condition,
limitation, obligation, commitment or requirement or take any
other action imposed or proposed by any Governmental Authority
that (1) restricts or limits its or any of its
Affiliates freedom of action, or requires it or any of its
Affiliates to take any action, with respect to any of its or any
of its Affiliates assets or any portion of its or any of
its Affiliates businesses, in either case, present or
future, (2) alters the rights or obligations of NewCo or
that Party under any of the provisions or arrangements
contemplated by this Agreement or any of the Ancillary
Agreements, (3) limits its or any of its Affiliates
ability effectively to exercise full rights of ownership of any
shares of Class A or Class B Common Stock or any
Class B Common Units, (4) limits its or any of its
Affiliates ability to exercise fully its rights (including
its governance rights) under, or would require any amendment or
modification to, any Ancillary Agreement or (5) reduces or
negatively interferes with the benefits to be recognized by it
or any of its Affiliates in the Transactions or any of the
transactions contemplated by the Ancillary Agreements to which
it or any of its Affiliates is a party, (C) pay any
significant amounts in connection with seeking or obtaining any
required actions, Consents or waivers as are required to
complete the Transactions (excluding any mandatory filing fees
and reasonable and customary costs and expenses associated with
making applications for, and responding to requests for
information from Governmental Authorities with respect to, such
required actions, consents, approvals or waivers as are required
to complete the Transactions), or (D) commit or agree to
any of the foregoing, (iii) will obligate Sprint or any of
its Affiliates to (A) accept any material condition,
limitation, obligation, commitment or requirement or take any
other material action imposed or proposed by any Governmental
Authority that (1) materially restricts or materially
limits its or any of its Affiliates freedom of action, or
requires it or any of its Affiliates to take any material
action, with respect to any of its or any of its
Affiliates material assets or any material portion of its
or any of its Affiliates businesses, in either case,
present or future which condition, restriction or limitation has
a materially negative impact on Sprint and its Affiliates,
(2) materially and negatively alters the material rights or
obligations of Sprint or any of its Affiliates under any of the
provisions or arrangements contemplated by this Agreement or any
of the Ancillary Agreements to which Sprint or any of its
Affiliates is a party, (3) materially limits Sprints
or any of its Affiliates ability to exercise full rights
of ownership of any shares of Class B Common Stock or any
Class B Common Units or any shares of Class A Common
Stock issued to Sprint or its Affiliates upon the conversion of
its Class B Common Stock and Class B Common Units,
(4) materially limits Sprints or any of its
Affiliates ability to exercise fully its rights (including
its governance rights) under, or would require any material
amendment or modification to, any Ancillary Agreement to which
Sprint or its Affiliates is a party which amendment or
modification materially and negatively impacts Sprint, its
Affiliates or the benefits Sprint or its Affiliates would have
received if such amendment or modification had not been required
or (5) materially reduces or materially and negatively
interferes with the benefits to be recognized by Sprint and its
Affiliates in the Transactions and the transactions contemplated
by the Ancillary Agreements to which it or its Affiliates are a
party, (B) pay any material amounts in connection with
seeking or obtaining any required actions, Consents or waivers
as are required to complete the Transactions (excluding any
mandatory filing fees and reasonable and customary costs and
expenses associated with making applications for, and responding
to requests for information from Governmental Authorities with
respect to, such required actions, consents, approvals or
waivers as are required to complete the Transactions), or
(C) commit or agree to any of the foregoing, (iv) will
require any Party to, or, without the consent of such Party,
permit Clearwire, Sprint, NewCo or any of their respective
Affiliates to, accept the imposition of any condition,
limitation, obligation, commitment or requirement on NewCo or
any of its Subsidiaries (including Sprint Sub LLC or any
Transfer Entity) that materially reduces or materially
interferes with or would be reasonably likely to materially
reduce or materially interfere with the benefits to be
recognized by that Party
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in the Transactions and the transactions contemplated by the
Ancillary Agreements (each of clauses (i), (ii), (iii) and
(iv), a Burdensome Condition), or
(v) will require any Party to litigate or participate in
the litigation of any Proceeding, whether judicial or
administrative, brought by any Governmental Authority, FCC or
other Person or appeal any order (A) challenging or seeking
to make illegal, delay materially or otherwise directly or
indirectly restrain or prohibit the consummation of the
Transactions contemplated by this Agreement or the transactions
contemplated by any Ancillary Agreement or that questions the
validity or legality of the Transactions or seeks damages in
connection therewith or (B) seeking to impose any
Burdensome Condition on or with respect to such Party or over
which such Party has an approval right pursuant to this
Section 10.3(d), except to the extent such Party determines
in its reasonable good faith judgment that there is a reasonable
prospect of success in relation to such litigation and that the
participation by such Party in such litigation would not pose a
material risk of the imposition of a Burdensome Condition on or
with respect to such Party or over which such Party has an
approval right pursuant to this Section 10.3(d);
provided that (w) neither Clearwire nor Sprint may
invoke clause (ii) unless (A) both Clearwire and
Sprint agree to invoke clause (ii) and (B) the events
in clause (ii) arise out of or relate to one or more
Investors being a Party to this Agreement or the Transactions,
(x) Clearwire shall not take or agree to take any action
identified in clause (i) without the prior written consent
of Sprint and each Investor, (y) Sprint shall not take or
agree to take any action identified in clause (i) with
respect to the Sprint WiMAX Business without the prior written
consent of Clearwire and each Investor, in the case of
clauses (x) and (y), which consent shall not be
unreasonably withheld, conditioned or delayed and (z) any
matter referred to in clause (iv) that has the effect of
indirectly imposing a condition, limitation, obligation,
commitment or requirement of the type described in
clause (ii) on a Party or any of its Affiliates shall be
deemed to arise under clause (ii) as well as clause (iv)
(e.g., a condition imposed on NewCo that effectively requires
NewCo to limit the rights of a Party or any of its Affiliates of
the type described in clause (ii) shall be deemed to arise
under clause (ii) as well as clause (iv)).
(e) In carrying out this Agreement, the Parties will comply
at all times with applicable FCC Rules and policies.
(f) Subject to Section 10.3(d)(iv), if any Proceeding
by any Governmental Authority, the FCC or other Person is
commenced that questions the validity or legality of the
Transactions or seeks damages in connection therewith, the
Parties will cooperate and use all Reasonable Best Efforts to
defend against the Proceeding and, if an injunction or other
order is issued in the Proceeding, to use all Reasonable Best
Efforts to have the injunction or other order lifted and to
cooperate reasonably regarding any other impediment to the
consummation of the Transactions.
(g) In connection with, and without limiting the foregoing,
Clearwire will
(i) take all actions necessary to ensure that no state
antitakeover statute or similar statute or regulation is or
becomes operative with respect to this Agreement, the Merger or
any other Transactions contemplated by this Agreement, and
(ii) if any state antitakeover statute or similar statute
or regulation is or becomes operative with respect to this
Agreement, the Merger or any other Transaction contemplated by
this Agreement, take all actions necessary to ensure that this
Agreement, the Merger and any other Transactions contemplated by
this Agreement may be consummated as promptly as practicable on
the terms contemplated by this Agreement and otherwise to
minimize the effect of that statute or regulation on the Merger
and the other Transactions contemplated by this Agreement.
(h) Each of Sprint and Clearwire will cause its respective
Subsidiaries to comply with the terms of this Agreement.
(i) After the Closing, Sprint and NewCo will, and will
cause their Subsidiaries to, cooperate with each other, at
either Partys reasonable request, to determine on a timely
basis the amount of any Taxes and Tax refunds due related to the
Sprint Assets and respond to any investigation, audit or inquiry
from any Taxing Authority with respect to the Sprint Assets for
periods prior to the Closing including by providing access to
documentation and information relating to Taxes and Tax refunds
attributable to the applicable pre-Closing periods.
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(j) Clearwire will use its Reasonable Best Efforts to
deliver to Tax Counsel at Closing a certificate containing such
representations as Tax Counsel may reasonably request in support
of its delivery of the opinion referenced in
Section 9.1(n)(i). Clearwire will use its Reasonable Best
Efforts to cause NewCo to deliver to Tax Counsel at Closing a
certificate containing such representations as Tax Counsel may
reasonably request in support of its delivery of the opinion
referenced in Section 9.1(n)(ii). Each of Sprint, Comcast,
TWC, BHN and Intel will use its Reasonable Best Efforts to
deliver to Tax Counsel at Closing a certificate, in the form
agreed to by the Parties on or prior to the Execution Date
(each, a Tax Certificate), upon which Tax
Counsel may rely in connection with its delivery of the opinion
referenced in Section 9.1(n)(ii) (the Partnership
Tax Opinion). If any such Party fails to deliver the
Tax Certificate to Tax Counsel at Closing, or delivers to Tax
Counsel at Closing a tax certificate that deviates from the Tax
Certificate (a Modified Tax Certificate), and
if and to the extent that Tax Counsel reasonably determines that
the failure of such Party to timely deliver a Tax Certificate or
the delivery by such Party at Closing of a Modified Tax
Certificate would preclude Tax Counsel from delivering the
Partnership Tax Opinion at Closing, then:
(i) any Party who has failed to timely deliver a
certificate pursuant to this Section 10.3(j) to Tax Counsel
will be required to make its entire Investment directly into
NewCo in exchange for Class A Common Stock in accordance
with Section 4.2, mutatis mutandis; and
(ii) any Party who has timely delivered to Tax Counsel a
Modified Tax Certificate shall be required to make all or a
portion of its Investment directly into NewCo in exchange for
Class A Common Stock in accordance with Section 4.2,
mutatis mutandis, to the extent required by Tax Counsel
to enable Tax Counsel to deliver a Partnership Tax Opinion in
light of such Modified Tax Certificate,
in each case, in lieu of making such investment in NewCo LLC
pursuant to Section 3.3 or Section 4.1, as applicable.
In the event that a Party is required pursuant to this
Section 10.3(j) to invest in Class A Common Stock in
lieu of making such investment in NewCo LLC, the Parties will
cooperate in good faith to amend this Agreement and the
Ancillary Agreements to give effect to such modified transaction
structure.
Section 10.4 No
Solicitation.
(a) General Prohibitions. Subject
to the remainder of this Section 10.4, Clearwire and its
Subsidiaries will not authorize or permit any of its or their
officers, directors, employees, investment bankers, attorneys,
accountants, consultants or other agents or advisors to,
directly or indirectly,
(i) solicit, initiate or take any action to knowingly
facilitate or encourage the submission of any Acquisition
Proposal,
(ii) enter into or participate in any discussions or
negotiations with, furnish any non-public information relating
to Clearwire or any of its Subsidiaries or afford access to the
business, properties, assets, books or records of Clearwire or
any of its Subsidiaries to, otherwise cooperate in any way with,
or knowingly assist, participate in, knowingly facilitate or
encourage any effort by any Person that is seeking to make, or
has made, an Acquisition Proposal,
(iii) make an Adverse Recommendation Change,
(iv) grant any waiver or release under any standstill or
similar agreement with respect to any class of equity securities
of Clearwire or any of its Subsidiaries,
(v) enter into any agreement in principle, letter of
intent, term sheet or other similar instrument relating to an
Acquisition Proposal (other than a confidentiality agreement of
the sort and in the circumstances described in
Section 10.4(b)) or
(vi) propose publicly or agree to do any of the foregoing
related to any Acquisition Proposal.
(b) Exception to Permit Discussions or Due
Diligence. Notwithstanding the foregoing,
Clearwires Board of Directors, directly or indirectly
through advisors, agents or other intermediaries, may, before
the Clearwire Stockholder Approval has been received,
A-55
(i) engage in negotiations or discussions with any Person
that, subject to Clearwires compliance with
Section 10.4, has made an unsolicited bona fide
written Acquisition Proposal after the date hereof that
Clearwires Board of Directors has determined in good faith
(after consultation with its outside legal counsel and financial
advisors) constitutes or is reasonably likely to lead to a
Superior Proposal and
(ii) thereafter furnish to that Person non-public
information relating to Clearwire or any of its Subsidiaries
under a confidentiality agreement with terms no less favorable
to Clearwire than those contained in the Sprint Confidentiality
Agreement (a copy of which is provided for informational
purposes only to the other Parties),
but in each case referred to in the foregoing clauses (i)
and (ii) only if the Board of Directors of Clearwire
determines in good faith by a majority vote, after considering
advice from outside legal counsel, that failing to take that
action would be inconsistent with its fiduciary duties under
applicable Law. Nothing contained in this Agreement prevents
Clearwires Board of Directors from complying with
Rule 14d-9
or
Rule 14e-2
under the Exchange Act with regard to an Acquisition Proposal,
so long as Clearwire and its Board of Directors will not make
any statement or take any action beyond that which is required
by those rules if the statement or action would be inconsistent
with its obligations under this Section 10.4.
(c) Required
Notices. Clearwires Board of Directors
will not take any of the actions referred to in clauses (i)
and (ii) of the preceding subsection unless Clearwire will
have delivered to the other Parties a prior written notice
advising the other Parties that it intends to take the action,
and Clearwire will continue to advise the other Person after
taking the action. In addition, Clearwire will notify the other
parties promptly (but in no event later than 48 hours)
after receipt by Clearwire, or any of its advisors of any
Acquisition Proposal, any direct notification orally or in
writing that a Person is considering making an Acquisition
Proposal or of any request for information relating to Clearwire
or any of its Subsidiaries or for access to the business,
properties, assets, books or records of Clearwire or any of its
Subsidiaries by any Person that may be considering making, or
has made, an Acquisition Proposal. Clearwire will provide the
notice orally and in writing and will identify the Person
making, and the terms and conditions of, any Acquisition
Proposal, indication or request. Clearwire will keep each of the
other Parties reasonably informed, on a current basis (but in no
event later than 48 hours), of the status and details of
any Acquisition Proposal, indication or request.
(d) Ability to Change Recommendation Subject to a
Last Look. Notwithstanding
anything in this Agreement to the contrary (but subject to the
next sentence), Clearwire and its Board of Directors will be
permitted to effect an Adverse Recommendation Change if
(i) Clearwire has not received the Clearwire Stockholder
Approval,
(ii) Clearwire has received an unsolicited bona fide
written Acquisition Proposal from a Person,
(iii) its Board of Directors has determined in good faith
(after consultation with its outside legal counsel and financial
advisors) that the Acquisition Proposal constitutes a Superior
Proposal, and
(iv) its Board of Directors, after consultation with its
outside legal counsel, determines in good faith that the failure
to take that action would be inconsistent with its fiduciary
duties under applicable Law.
However, Clearwires Board of Directors will nevertheless
not make an Adverse Recommendation Change, unless,
(x) Clearwire promptly notifies each of the other Parties,
in writing at least five Business Days before taking that
action, of its intention to make an Adverse Recommendation
Change and attaching the most current version of any proposed
agreement or a detailed summary of all material terms of any
proposal and the identity of the offeror, and (y) the other
Parties do not propose, within five Business Days after their
receipt of that written notification, adjustments to the terms
and conditions of this Agreement that would enable
Clearwires Board of Directors to proceed with its
recommendation to its stockholders without an Adverse
Recommendation Change. Any material amendment to any Acquisition
Proposal will be deemed to be a new Acquisition Proposal for
purposes of re-starting the five Business Day period described
in the immediately preceding sentence.
(e) Obligation to Terminate Existing
Discussions. Clearwire will, and will cause
its Subsidiaries and its and their officers, directors,
employees, investment bankers, attorneys, accountants,
consultants, agents and
A-56
other advisors to, cease immediately and cause to be terminated
any and all existing activities, discussions or negotiations, if
any, with any Person conducted before the date of this Agreement
with respect to any Acquisition Proposal and will use all
Reasonable Best Efforts (including giving written notice within
2 Business Days following the Execution Date) to cause any
Person (or its agents or advisors) in possession of confidential
information about Clearwire that was furnished by or on behalf
of Clearwire to return or destroy all that information at the
earliest practicable time. Notwithstanding the foregoing, it is
understood and agreed for purposes of this Agreement that, so
long as no actions inconsistent with Clearwires
obligations under this Section 10.4 are taken by Clearwire,
its Subsidiaries, its or their officers, directors, employees,
investment bankers, attorneys, accountants, consultants or other
agents or advisors after the Execution Date and no such actions
are taken in violation of Clearwires obligations under its
confidentiality agreements with the other Parties, an
Acquisition Proposal shall not be considered to have been
solicited as a result of any actions taken prior to the
Execution Date.
(f) Definition of Superior
Proposal. For purposes of this Agreement,
Superior Proposal means any bona fide,
unsolicited written Acquisition Proposal (which definition will
be read, for this purpose, without the word inquiry
in the second line thereof) for at least a majority of the
outstanding shares of Clearwire Capital Stock on terms that
Clearwires Board of Directors determines in good faith by
a majority vote, after consultation with its legal and financial
advisors and taking into account those matters deemed relevant
in good faith by the Board of Directors, including among other
things, all the terms and conditions of the Acquisition
Proposal, including any
break-up
fees, expense reimbursement provisions, conditions to
consummation and long-term strategic considerations, are more
favorable from a financial point of view to the stockholders of
Clearwire than the Transactions and for which financing, if a
cash transaction (whether in whole or in part), is then fully
committed or reasonably determined to be available by the Board
of Directors of Clearwire.
(g) Sprint
Non-Solicitation. Except as permitted
pursuant to Section 10.1, neither Sprint nor any its
Subsidiaries will authorize or permit any of its or their
officers, directors, employees, investment bankers, attorneys,
accountants, consultants or other agents or advisors to,
directly or indirectly, (i) solicit, initiate or take any
action to knowingly facilitate or encourage the submission of
any proposal to acquire or invest in all or any portion of the
Sprint WiMAX Business; (ii) enter into or participate in
any discussions or negotiations with, furnish any non-public
information relating to the Sprint WiMAX Business or afford
access to the business, properties, assets, books or records of
Sprint or any of its Subsidiaries to, otherwise cooperate in any
way with, or knowingly assist, participate in, knowingly
facilitate or encourage any effort by any Person that is seeking
to make, or has made, a proposal to acquire or invest in all or
any portion of the Sprint WiMAX Business; (iii) grant any
waiver or release under any standstill or similar agreement with
respect to any assets of the Sprint WiMAX Business;
(iv) enter into any agreement in principle, letter of
intent, term sheet or other similar instrument relating to a
proposal to acquire or invest in all or any portion of the
Sprint WiMAX Business or (v) propose publicly or agree to
do any of the foregoing related to any proposal to acquire or
invest in all or any portion of the Sprint WiMAX Business;
provided that this Section 10.4(g) (x) will not
prohibit spectrum swaps or similar transactions consummated in
the ordinary course of business that do not preclude or
materially alter the Transactions and (y) will not apply to
any proposed investment in Sprint (so long as such investment is
solely a direct investment in Sprint and does not otherwise
constitute a proposal to acquire or invest in all or any portion
of the Sprint WiMAX Business). Sprint will, and will cause its
Subsidiaries and its and their Representatives to, cease
immediately and cause to be terminated any and all existing
activities, discussions or negotiations, if any, with any Person
conducted before the date of this Agreement with respect to any
potential sale or other disposition of all or substantially all
or a material portion of the Sprint Assets or the Sprint WiMAX
Business and will use all Reasonable Best Efforts (including
giving written notice within 2 Business Days following the
Execution Date) to cause any Person (or its agents or advisors)
in possession of confidential information about the Sprint
Assets or the Sprint WiMAX Business that was furnished by or on
behalf of Sprint in connection with such a potential sale or
disposition to return or destroy all that information at the
earliest practicable time.
Section 10.5 Stockholder
Litigation. Clearwire will give Sprint and
the Investors the opportunity to participate in the defense or
settlement of any stockholder Proceeding against Clearwire and
its directors
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relating to the Transactions contemplated by this Agreement or
the Merger, except no settlement will be agreed to without
Sprints and the Investors consent, and that consent
will not be unreasonably withheld.
Section 10.6 Director
and Officer Indemnification.
(a) It is understood and agreed that all rights to
indemnification, expense advancement, and exculpation existing
in favor of each present and former director, officer and
employee of Clearwire or any of its Subsidiaries as provided in
Clearwires Certificate of Incorporation or
Clearwires Bylaws or the charter or organizational
documents of Clearwires Subsidiaries, in each case as in
effect on the date of this Agreement, or under any other
agreements in effect on the date hereof, will survive the
Transactions contemplated by this Agreement and the Surviving
Entity will, and NewCo will cause the Surviving Entity to,
(i) continue in full force and effect for a period of at
least 6 years from the Effective Time (or, if any relevant
claim is asserted or made within such six year period, until
final disposition of such claim) such rights to
indemnification and
(ii) perform, in a timely manner, the Surviving
Entitys obligation with respect thereto.
Any claims for indemnification under this Section 10.6 as
to which the Surviving Entity has received written notice before
the sixth anniversary of the Effective Time will survive,
whether or not those claims will have been finally adjudicated
or settled, and no action taken during such period may be deemed
to diminish the obligations set forth in this Section 10.6.
(b) The Surviving Entity will, maintain in effect for
6 years from the Effective Time the current directors
and officers liability insurance policies applicable to
Clearwire and its Subsidiaries (D&O
Insurance) (except the Surviving Entity may substitute
therefor policies of at least the same coverage containing terms
and conditions that are not less favorable) providing coverage
with respect to matters occurring before the Effective Time and
such policies or endorsements must name as insureds thereunder
all present and former directors, officers and employees of
Clearwire and its Subsidiaries, except that in no event will the
Surviving Entity be required to expend under this
Section 10.6(b) more than an amount per year equal to two
hundred percent (200%) of current annual premiums paid by
Clearwire for that insurance. If, but for the proviso to the
immediately preceding sentence, the Surviving Entity would be
required to expend more than two hundred percent (200%) of
current annual premiums, the Surviving Entity will obtain the
maximum amount of that insurance obtainable by payment of annual
premiums equal to two hundred percent (200%) of current annual
premiums. To the extent that a tail policy is
available that complies with the foregoing requirements of this
Section 10.6(b) with respect to the coverage, terms, and
conditions applicable to all present and former directors,
officers and employees of Clearwire and its Subsidiaries the
Surviving Entity may satisfy its obligation under this
Section 10.6(b) by obtaining such policy.
If the Surviving Entity or any of its successors or assigns
(i) consolidates with or merges into any other Person and
will not be the continuing or surviving corporation or entity of
that consolidation or merger or
(ii) transfers all or substantially all of its properties
and assets to any Person, then, and in each case, proper
provision will be made so that the successors and assigns of the
Surviving Entity will assume the obligations set forth in this
Section 10.6.
Section 10.7 Clearwire
Stockholders Meeting. Clearwire will
use its Reasonable Best Efforts in accordance with and subject
to Delaware Law, its certificate of incorporation and bylaws and
the rules of the Nasdaq to cause a meeting of its stockholders
(the Clearwire Stockholder Meeting) to be
duly called and held as soon as reasonably practicable for the
purpose of securing the Clearwire Stockholder Approval. Subject
to Section 10.4, the Proxy Statement will contain the
recommendation of the Board of Directors of Clearwire that
Clearwires stockholders approve the Transactions
contemplated by this Agreement (the Clearwire
Recommendation) and the written opinion of the
Independent Advisor, dated as of the Execution Date, to the
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effect set forth in Section 6.1(c). In connection with the
Clearwire Stockholder Meeting, Clearwire will, subject to
Section 10.4:
(a) mail the Proxy Statement and all other proxy materials
for the meeting to its stockholders as promptly as practicable
after the Registration Statement is declared effective under the
Securities Act,
(b) use Reasonable Best Efforts to obtain Clearwire
Stockholder Approval and
(c) otherwise comply with all legal requirements applicable
to such meeting.
Section 10.8 Proxy
Statement; Registration Statement.
(a) Clearwire will, as promptly as practicable following
the Execution Date, prepare and file, the Proxy Statement and a
registration statement on
Form S-4,
or other appropriate form, registering the Class A Common
Stock (the Registration Statement) with
the SEC and will use Reasonable Best Efforts to respond to the
comments of the SEC and to cause the Proxy Statement to be
mailed to Clearwires stockholders at the earliest
practicable time, provided, however, that
Clearwire will not be in breach of this Section 10.8 if
Sprint or any Investor fails to provide any information required
by Law for the preparation of the Proxy Statement or the
Registration Statement. Sprint and each Investor will use
Reasonable Best Efforts to provide as soon as reasonably
practicable the information required by Law to be included in
the Proxy Statement or the Registration Statement. Each Party to
this Agreement will notify the other Parties promptly of the
receipt of the comments of the SEC, if any, and of any request
by the SEC for amendments or supplements to the Proxy Statement
or Registration Statement or for additional information with
respect thereto, and will supply the other Parties with copies
of all correspondence between that party or its Representatives,
on the one hand, and the SEC or members of its staff, on the
other hand, with respect to the Proxy Statement, the
Registration Statement or the Merger. If, at any time before the
Stockholders Meeting, any event should occur relating to:
(i) Clearwire or any of its Affiliates, or relating to the
plans of those Persons for NewCo after the Effective Time that
should be set forth in an amendment of, or a supplement to, the
Proxy Statement or Registration Statement, or
(ii) Sprint or any of its Affiliates, or relating to the
plans of those Persons for NewCo after the Effective Time that
should be set forth in an amendment of, or a supplement to, the
Proxy Statement or Registration Statement, or
(iii) any Investor or any of its Affiliates, or relating to
the plans of those Persons for NewCo after the Effective Time
that should be set forth in an amendment of, or a supplement to,
the Proxy Statement or Registration Statement,
in each case, so that the Registration Statement
and/or Proxy
Statement would not include any misstatement of a material fact
or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under
which they were made, not misleading, then Clearwire, Sprint or
that Investor, as the case may be, will promptly inform the
other Parties, and Clearwire will, on learning of that event,
promptly prepare, and Clearwire will file and, if required, mail
that amendment or supplement to Clearwires stockholders,
except that, before that filing or mailing, Clearwire will
consult with the other Parties with respect to that amendment or
supplement and will use its Reasonable Best Efforts to
accommodate the other Parties comments thereon.
(b) Notwithstanding the foregoing, prior to filing the
Registration Statement (or any amendment or supplement thereto)
or filing the Proxy Statement (or any amendment or supplement
thereto) or responding to any comments of the SEC with respect
thereto, Clearwire shall provide Sprint and each Investor and
its respective counsel with a reasonable opportunity to review
and comment on such document or response and include in the
Proxy Statement any language reasonably proposed by Sprint.
(c) Clearwire will include in the Proxy Statement the
recommendation of Clearwires board of directors described
in Section 6.1(b), subject to any modification, amendment
or withdrawal thereof, to the extent permitted by
Section 10.4, and represents that the Independent Advisor
has, subject to the terms of its engagement letter with
Clearwire and Clearwires board of directors, consented to
the inclusion of references
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to its opinion in the Proxy Statement. In addition, Clearwire
will include in the Proxy Statement a reasonably detailed
description of the provisions of NewCos certificate of
incorporation relating to limitations on fiduciary duties and a
description of the material risks posed to NewCos
stockholders relating to such limitation of fiduciary duties.
Clearwire and its counsel will permit Sprint and its counsel and
the Investors and their respective counsel to participate in all
communications with the SEC and its staff, including any
meetings and telephone conferences, relating to the Proxy
Statement, the Merger or this Agreement.
(d) Sprint shall, and shall cause its Subsidiaries to, and
shall use its Reasonable Best Efforts to cause its and their
respective Representatives to, provide to Clearwire and NewCo
all cooperation reasonably requested by Clearwire or NewCo that
is necessary, proper or advisable in connection with the
preparation of the Proxy Statement and Registration Statement,
including (i) using Reasonable Best Efforts to participate
in a reasonable number of meetings, presentations, and sessions
with rating agencies, (ii) to the extent reasonably
requested by Clearwire, using Reasonable Best Efforts to, as
promptly as practical, furnish Clearwire and NewCo with all
financial statements, pro forma financial information, financial
data, audit reports and other information with respect to Sprint
Sub LLC and the Transfer Entities of the type required by
Regulation S-X
and
Regulation S-K
under the Securities Act and of type and form required in a
registration statement on
Form S-4
(or any applicable successor form) under the Securities Act (all
such information, the Required
Information), or as otherwise reasonably required in
connection with the Proxy Statement and Registration Statement
or in connection with any debt financing (a Debt
Financing), (iii) using Reasonable Best Efforts
to obtain accountants comfort letters, legal opinions,
appraisals, surveys, engineering reports, title insurance and
other documentation and items relating to a Debt Financing as
reasonably requested by Clearwire and, if requested by Clearwire
or NewCo, to reasonably cooperate with and assist Clearwire or
NewCo in obtaining such documentation and items; (iv) to
the extent required by applicable Law, using its Reasonable Best
Efforts to provide financial statements (excluding footnotes)
for Sprint Sub LLC and the Transfer Entities to the extent
prepared on a monthly basis in the ordinary course by Sprint or
any of its Subsidiaries, within 30 days of the end of each
month prior to the Closing Date, and (v) using Reasonable
Best Efforts to execute and deliver any pledge and security
documents, other definitive financing documents, or other
certificates, or documents as may be reasonably requested by
Clearwire (including a certificate of the Chief Financial
Officer of Sprint or any of its Subsidiaries with respect to
solvency matters) and otherwise reasonably facilitating the
pledging of collateral (including cooperation in connection with
the pay off of existing indebtedness and the release of related
Encumbrances, if any); provided that Sprint will only be
required to deliver certificates and other documentation, with
respect to each of the foregoing clauses, to the extent relating
to Sprint Sub LLC and the Transfer Entities; provided,
further, that no obligation of Sprint or any of its
Subsidiaries under such executed documents will be effective
until the Effective Time and will terminate and be of no effect
if this Agreement is terminated. With respect to
clause (v), Sprint will have the opportunity to review and
comment on any of these documents or certificates, each of which
will be subject to the approval of Sprint, which approval shall
not be unreasonably withheld, conditioned or delayed. It is
understood and agreed that Sprint will prepare a letter to the
SEC requesting that the SEC provide written concurrence that the
information in clause (ii) above may be limited to
carve-out financial statements as set forth more
fully in such letter. Sprint will provide Clearwire the
opportunity to review such letter prior to its submission to the
SEC. Sprint will submit such letter to the SEC no later than
15 days after the Execution Date. In addition to the
obligations set forth above, (1) if the SEC grants such
written concurrence then Sprint shall, and shall cause its
Subsidiaries to, and shall use its Reasonable Best Efforts to
cause its and their respective Representatives to, deliver the
financial statements and reports described in clause (ii)
above no later than 90 days after the Execution Date and
(2) if the SEC requires different or additional financial
statements or has not responded to Sprints request, Sprint
shall, and shall cause its Subsidiaries to, and shall use its
Reasonable Best Efforts to cause its and their respective
Representatives to, deliver the financial statements and reports
described in clause (ii) above, as modified by any written
SEC response, no later than 120 days after the Execution
Date.
Section 10.9 Notices
of Certain Events.
(a) Each Party will give prompt notice the other Parties of:
(i) the occurrence, or nonoccurrence, of any event that
would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate; and
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(ii) any failure by that Party to comply with or satisfy
any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement, provided that the
delivery of any notice under this Section 10.9 will not
limit or otherwise affect the representations, warranties,
covenants or agreements of the Parties (or remedies with respect
thereto) or the conditions to the obligations of the Parties
under this Agreement.
If any event or matter arises during the period between the date
of this Agreement and the earlier of the Closing and the
termination of this Agreement in accordance with
Section 12.1 that, if existing or occurring at the date of
this Agreement, would have been required to be set forth or
described in the Clearwire Disclosure Schedule or the Sprint
Disclosure Schedule or that is necessary to correct any
information in the Clearwire Disclosure Schedule or the Sprint
Disclosure Schedule that has been rendered inaccurate by that
event or matter (which shall not cure any breach of a
representation, warranty or covenant), then Clearwire or Sprint,
as the case may be, will, for informational purposes only,
promptly supplement, and deliver to each other Party hereto the
Clearwire Disclosure Schedule or the Sprint Disclosure Schedule,
as the case may be, that it has delivered under this Agreement;
provided that no such supplement or amendment shall limit
or otherwise modify the representations, warranties, covenants
or agreements of the Parties (or remedies with respect thereto)
or the conditions to the obligations of the Parties under this
Agreement, or cure any breach thereof.
(b) During the period from the Execution Date through the
earlier of the termination of this Agreement or Closing, each
Party will promptly notify the other Parties of:
(i) any written notice or other written communication from
any Person alleging that the Consent of the Person is or may be
required in connection with the Transactions that is not
disclosed in Section 6.2 of the Clearwire Disclosure
Schedule or Section 7.2 of the Sprint Disclosure Schedule,
as applicable;
(ii) subject to applicable Law, any written notice or other
written communication from any Governmental Authority in
connection with the Transactions; and
(iii) any material Proceeding commenced or, to its
Knowledge, threatened against, relating to or involving or
otherwise affecting a Clearwire Asset or Sprint Asset, as the
case may be, except with respect to actions related to
late-filed EBS renewal applications filed by third parties whose
licenses expired before January 10, 2005.
(c) Each Party acknowledges that the other Parties do not
and will not waive any right they may have under this Agreement
as a result of the notifications.
Section 10.10 Public
Announcements. The Parties have agreed upon
the form and substance of press releases announcing the
execution of this Agreement and the transactions contemplated
hereby, which shall be issued promptly following the execution
and delivery hereof. Thereafter until the earlier of the Closing
and the termination of this Agreement in accordance with
Section 12.1, no Party will, and no Party will permit any
of its Affiliates to, issue or cause the publication of any
press release or other public announcement with respect to, or
otherwise make any public statement concerning, the Transactions
without the prior consent (which consent will not be
unreasonably withheld) of the other Parties, except that any
Party may, without the prior consent of any other Party,
(a) issue or cause the publication of any press release or
other public announcement to the extent it determines that so
doing is or may be required by Law or by the rules and
regulations of Nasdaq or the NYSE; and
(b) make public statements including blog postings (but may
not publish any press release) that are consistent with the
Parties prior public disclosures regarding the
Transactions.
Section 10.11 Transfer
Taxes. Any Transfer Taxes resulting from or
payable in connection with the Merger, the transfers
contemplated by Section 3.3 (for the avoidance of doubt,
specifically excluding any such Transfer Taxes that are incurred
in connection with, or otherwise attributable to, the
transactions contemplated by Sections 3.1 and 3.2
(Sprint Restructuring Transfer Taxes) and any
Taxes described in Section 13.1(b)(ii)) or the Investment
shall be borne by NewCo LLC in each case regardless of the
Person on whom the Transfer Taxes are imposed by Law. The
Parties will reasonably cooperate in providing information and
executing and
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delivering documents necessary to reduce or eliminate any
Transfer Taxes and otherwise to properly report and remit such
Transfer Taxes to the appropriate Taxing Authority. Any refunds
of Transfer Taxes paid by NewCo LLC in accordance with this
Section 10.11 that are received by any Party or its
Affiliates will be paid over to NewCo LLC, net of any costs
(including Tax costs) incurred or reasonably expected to be
incurred by such Person in recovering or by reason of receipt of
such refunds, promptly upon receipt.
Section 10.12 Consistent
Tax Reporting. None of the Parties nor any of
their Affiliates will take any position on an applicable income
Tax Return that is inconsistent with the treatment of the
Recapitalization and the Merger as tax-free reorganizations
under Section 368(a)(1)(E) and Section 368(a)(1)(F) of
the Code, respectively, other than in connection with a Final
Determination following a challenge by a Taxing Authority. The
Parties acknowledge that NewCo and NewCo LLC intend to treat the
Class B Common Stock and the Voting Units issued in
connection with the transactions described in Articles 2, 3
and 4 hereof as having a fair market value equal to the par
value of the Class B Common Stock. No Party shall take a
position on any Tax Return that is inconsistent with such fair
market value, other than in connection with a Final
Determination following a challenge by a Taxing Authority.
Section 10.13 No
Purchase of Clearwire Capital Stock. Until
the Closing, none of Sprint, any Investor or any of their
Controlled Affiliates will, and Sprint and each Investor will
cause its respective Controlled Affiliates not to,
(a) purchase any shares of Clearwire Capital Stock or any
options, warrants, convertible securities, subscriptions, stock
appreciation rights, phantom stock or stock equivalents or other
rights, agreements, arrangements or commitments (contingent or
otherwise) of any character issued or authorized by Clearwire
relating to the issued or unissued Clearwire Capital Stock or
obligating Clearwire to issue or sell any shares of Clearwire
Capital Stock, or options, warrants, convertible securities,
subscriptions or other equity interests in Clearwire; or
(b) directly or indirectly, sell, transfer, assign, or
similarly dispose of, either voluntarily or involuntarily, or to
enter into any contract, option or other arrangement or
understanding with respect to the sale, transfer, assignment, or
similar disposition of, any shares of Clearwire Capital Stock or
any interest in any Clearwire Capital Stock (including any
arrangement to provide another Person the economic performance
of all or any portion of such Clearwire Capital Stock (including
by means of any option, swap, forward or other contract or
arrangement the value of which is linked in whole or in part to
the value of such Clearwire Capital Stock)); provided,
however, the provisions of this Section 10.13 shall
not restrict any disposition by Intel of the shares of Clearwire
Capital Stock Intel owns as of the Execution Date or any
contract, option or other arrangement or understanding entered
into by Intel with respect to the hedging of such shares.
Section 10.14 Transaction
Related Agreements.
(a) Each Transaction Related Agreement entered into at the
Closing will not contain any material amendment, modification or
supplement from the form either attached as an exhibit hereto or
agreed by the parties as of the date of this Agreement without
the prior written consent of each of the Parties. In addition,
any Transaction Related Agreement entered into prior to the
Closing will not be amended, modified or supplemented in any
material respect on or prior to the Closing without the prior
written consent of each of the Parties.
(b) From the Execution Date to and including the Closing
Date, except (i) for the Google Products and Services
Agreement between Google and Sprint and (ii) as
contemplated by the Transaction Related Agreements or with the
written consent of all Parties, no Party shall enter into any
contract, agreement, arrangement or other understanding, whether
written or oral, and regardless of the subject matter thereof
with any other Party or any of their respective Affiliates in
connection with or in consideration of the transactions
contemplated by the Transaction Related Agreements including any
term sheet, letter of intent, memorandum of understanding or
agreement to agree, in each case, whether or not
such agreement purports to be binding.
Section 10.15 Pending
Party Litigation. As soon as reasonably
practicable (but no later than 15 Business Days) after the
Execution Date, Clearwire and Sprint shall, and shall cause
their respective Subsidiaries and their respective litigation
counsel to, cooperate in good faith and to take all actions
(including the preparation of joint, stipulated motions)
reasonably necessary to obtain an immediate and complete stay of
all proceedings (including discovery) in the Proceedings
identified as items 1, 2 and 4 in Section 6.6 of the
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Clearwire Disclosure Schedule and items 2 through 7 in
Section 7.6(b) of the Sprint Disclosure Schedule (each, a
Pending Party Litigation). Clearwire and
Sprint shall, and shall cause their respective Subsidiaries and
their respective litigation counsel to, use Reasonable Best
Efforts to ensure that the stay of each Pending Party Litigation
(i) remains in force pending the earlier of the Closing and
the termination of this Agreement in accordance with
Section 12.1 and (ii) is applied broadly to encompass
any matters presently pending before the court, including the
possible issuance of any further opinions or orders on matters
previously submitted for decision. If any court denies the
request for a stay of any Pending Party Litigation, Clearwire
and Sprint shall, and shall cause their respective Subsidiaries
and their respective litigation counsel to, use Reasonable Best
Efforts to collaborate on an alternative strategy to prevent the
unstayed Pending Party Litigation from advancing, in an attempt
to realize the parties joint intent not to have to
litigate pending the earlier of the Closing and the termination
of this Agreement in accordance with Section 12.1.
Section 10.16 Pre-Existing
Intel Agreements. Each of Intel and Clearwire
shall, and shall cause their respective Affiliates to, take all
action necessary to terminate the Pre-Existing Intel Agreements
effective at the Closing. In addition, Intel shall cause Intel
Pacific, Inc. to enter into an acknowledgment irrevocably and
unconditionally waiving any and all rights that Intel Pacific,
Inc. may have under the Investor Rights Agreement dated as of
August 29, 2006 among Clearwire, Intel Pacific, Inc. and
Motorola, Inc. effective at the Closing.
Section 10.17 Sprint
WiMAX Inventory.
(a) On the Closing Date, Sprint will provide to Clearwire
and the Investors a certificate setting forth the type and
Sprints cost (determined by reference to the amounts
actually paid by Sprint for such inventory pursuant to the
relevant contracts) for the Sprint WiMAX Inventory as of the
Closing Date (the Sprint WiMAX Closing Date
Inventory). NewCo LLC will purchase the Sprint WiMAX
Closing Date Inventory for a price equal to Sprints cost
as set forth on such certificate, without interest, with all
purchases to occur during the period between the Closing Date
and the date that is 12 months from the Closing Date (the
Purchase Period); provided that NewCo
LLC will not be required to purchase an amount of Sprint WiMAX
Inventory with a cost greater than $167 million. Such
purchases will occur from
time-to-time
during the Purchase Period as directed by NewCo LLC. To the
extent that NewCo LLC has not purchased the Sprint WiMAX Closing
Date Inventory at the end of the Purchase Period, Sprint may
ship, and NewCo LLC will be obligated to purchase, subject to
the $167 million cap referenced above, any such remaining
Sprint WiMAX Closing Date Inventory as provided in
Section 10.17(b).
(b) Sprint will ship the Sprint WiMAX Closing Date
Inventory to those locations designated by NewCo LLC upon
reasonable written notice (which may be to one or more locations
and in one or more notices). Sprint will invoice NewCo LLC upon
shipment, with all invoices due and payable within 15 days.
Any amounts not paid when due will accrue interest at LIBOR plus
250 basis points for each Interest Period until the date of
payment. Such interest will be payable at the same time as the
invoice to which it relates and will be calculated daily on the
basis of a year of 360 days and the actual number of days
elapsed. Sprint will pay all costs associated with maintaining
the Sprint WiMAX Closing Date Inventory during the Purchase
Period, and NewCo LLC will bear all costs of shipping the Sprint
WiMAX Closing Date Inventory to NewCo LLC.
Section 10.18 Sprint
Future Credit Agreements. Neither Sprint nor
any of its Affiliates will enter into any new agreement that
restricts or purports to restrict the ability of NewCo and its
Subsidiaries to incur Indebtedness or take any other action,
except that with respect to any amendment or refinancing of the
Credit Agreement dated as of December 19, 2005, as amended,
among Sprint, Nextel Communications, Inc., Sprint Capital
Corporation, the banks and other financial institutions and
lenders that are parties thereto, and JPMorgan Chase Bank, N.A.,
as Administrative Agent, or the Credit Agreement dated as of
March 23, 2007 between Sprint Nextel Corporation and Export
Development Canada, (i) Sprint will use its Reasonable Best
Efforts to cause such amendment or refinanced facility to not
restrict the ability of NewCo or its Subsidiaries to incur
Indebtedness or take any other action and (ii) in no event
will Sprint enter into any agreement in connection with any such
amendment or refinancing that contains restrictions
(x) that are more restrictive than those contained in the
Indenture dated as of October 1, 1998 among Sprint Capital
Corporation, Sprint
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Corporation and Bank One, NA, as trustee, together with all
supplements thereto or (y) that apply to NewCo to a greater
extent than those contained in such Indenture.
Section 10.19 Certain
Financing Matters. If Clearwire proposes to
incur, modify the terms of, or refinance before the Closing any
indebtedness in a manner such that such indebtedness would be
treated other than as a non-recourse liability of
NewCo LLC within the meaning of Regulations
Section 1.752-1(a)(2)
following the Closing, the provisions of Section 5.2(e) of
the NewCo LLC Agreement shall be incorporated herein by
reference and shall apply mutatis mutandis with respect
to such proposed indebtedness as if such proposed indebtedness
were a Specified Financing (as defined in the NewCo
LLC Agreement).
Section 10.20 3G
MVNO Agreement. From and after the Closing,
NewCo LLC shall have the right to become a party to the 3G MVNO
Agreement upon (i) the execution by NewCo LLC of the
joinder agreement in substantially the form attached as
Schedule 10 to the 3G MVNO Agreement and (ii) the
execution by NewCo of a letter agreement in substantially the
form attached as Attachment 2 to the 3G MVNO Agreement.
ARTICLE 11
EMPLOYEES
Section 11.1 Transfer
of Employees.
(a) The Parties understand and agree that following the
Closing, NewCo
and/or NewCo
LLC will employ certain individuals who were employed by Sprint
in its WiMAX Business or Clearwire prior to the Closing. It is
understood that by operation of the Merger, all Clearwire
employees will become employees of NewCo LLC upon the Closing;
however pursuant to the process set forth below, some of those
employees may be terminated following the Closing. Further, it
is understood that NewCo LLC will have the right, but not the
obligation, to hire each individual who is employed by Sprint or
a Sprint Affiliate in Sprints WiMAX Business effective as
of the Closing pursuant to the process set forth below.
(b) Prior to the Closing, each of Sprint and Clearwire
will, to the extent permissible under Law, provide the other
with sufficient information regarding the employees of the
Sprint WiMAX Business and Clearwire, respectively, for Clearwire
and Sprint to collectively determine which employees from each
will be hired
and/or
retained by NewCo LLC following the Closing. Prior to the
Closing, management representatives of each of Clearwire and
Sprint will meet in-person and determine which employees of the
Sprint WiMAX Business will be offered employment by NewCo LLC at
the Closing and the basic terms and conditions of each such
offer (including location of their primary work site), and which
employees of Clearwire will be retained by NewCo LLC following
the Closing and the basic terms and conditions of their
retention (including location of their primary worksite). It is
understood and agreed that, except to the extent NewCo LLC
enters into a written contractual arrangement with an employee
to the contrary, all employees of NewCo LLC will be employed
at will.
(c) Each such individual employed in the Sprint WiMAX
Business prior to the Closing as to whom Clearwire extends an
offer of employment and who accepts such offer by NewCo LLC will
be referred to in this Agreement as a Transferred
Employee.
Section 11.2 Employee
Information and Employment Taxes. Sprint will
provide NewCo LLC the information relating to each Transferred
Employee as NewCo LLC may reasonably request in order for NewCo
LLC to satisfy its obligations under this Section 11 to the
extent permissible under applicable Law in a form mutually
agreed upon between NewCo LLC and Sprint. Sprint and NewCo LLC
also will take all actions necessary and appropriate to transfer
each Transferred Employees employment tax history for the
calendar year that includes the Closing from Sprint to NewCo LLC
so that each individual will receive credit after the Closing
for employment taxes paid before the Closing. Sprint and NewCo
will comply with employment tax reporting obligations with
respect to Transferred Employees in accordance with the
standard procedure for predecessors and successors
set forth in Section 4 of Revenue Procedure
2004-53,
2004-34 IRB
320.
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Section 11.3 Service
and Other Credit.
(a) NewCo LLC will grant each Clearwire Employee and
Transferred Employee full service credit for his or her service
with, as applicable, Clearwire or a Clearwire Affiliate or
Sprint or a Sprint Affiliate for all purposes under all of NewCo
LLCs employee benefit plans, programs and policies (other
than for purposes of accrual under any defined benefit plan or,
except as provided for in Section 2.7(a), vesting under any
equity-based compensation plan), including vacation, holiday and
severance pay plans, programs and policies (individually a
NewCo LLC Plan and collectively the
NewCo LLC Plans); provided,
however, that such service shall not be recognized to the
extent that it would result in duplication of benefits. Except
as expressly set forth in this Section 11.3, NewCo LLC will
not make any distinctions after the Closing with respect to
compensation or benefits between NewCo LLCs employees
based on whether an employee is, or was, a Clearwire Employee or
a Transferred Employee.
(b) Each Clearwire Employee and Transferred Employee will
be eligible to participate in each NewCo LLC Plan at the
Closing if he or she was eligible to participate immediately
before the Closing in a plan, program or policy of, as
applicable, Clearwire or a Clearwire Affiliate or Sprint or a
Sprint Affiliate which provided comparable benefits to the
benefits provided in the NewCo LLC Plan.
(c) The NewCo LLC Plan which is described in
Section 401(a) of the Code will accept a direct rollover
from a Sprint plan or the plan of a Sprint Affiliate which also
is described in Section 401(a) of the Code.
(d) Each Clearwire Employee and Transferred Employee will
receive full credit for the calendar year which includes the
Closing under each NewCo LLC Plan which conditions the payment
of benefits on the satisfaction of any co-payment or deductible
requirements for all co-payments made and deductibles paid for
the calendar year under a corresponding Sprint plan or a
corresponding plan of a Sprint Affiliate, and no Clearwire
Employee or dependent of a Clearwire Employee or Transferred
Employee or dependent of a Transferred Employee will be subject
to any pre-existing condition limitation under a NewCo LLC Plan
except to the extent he or she was subject to the limitation
under a corresponding Clearwire or Sprint plan or a
corresponding plan of a Clearwire Affiliate or Sprint Affiliate
immediately before the Closing. In addition, each Clearwire
Employee and Transferred Employee will receive credit or debits
under a NewCo LLC Plan that is a cafeteria plan under
Section 125 of the Code equal to the sum of all
contributions to the applicable Clearwire or Sprint plan made
with respect to the calendar year that includes the Closing by
or on behalf of the Clearwire Employee or Transferred Employee
for the calendar year reduced by the sum of all claims incurred
in the calendar year in which the Closing occurs and paid by the
Clearwire or Sprint plan.
(e) Each Clearwire Employee and Transferred Employee will
be eligible to receive no less annual paid vacation and other
annual paid time off under NewCo LLCs Plans that provide
paid vacation and other paid time off as he or she was eligible
to receive immediately before the Closing under the
corresponding Sprint and Clearwire plans or the corresponding
plans of a Sprint Affiliate or Clearwire Affiliate.
(f) Sprint will be responsible for any liability for
severance pay and any amounts related to acceleration of Sprint
stock options or other equity awards as a result of the
transactions contemplated by this Agreement either under a
Sprint plan, program or policy or a plan, program or policy of a
Sprint Affiliate or under applicable Law, except that if NewCo
LLC fails to offer employment to any of the individuals listed
in a writing dated as of the Execution Date expressly
referencing this Section 11.3(f) in accordance with the
basic terms and conditions agreed upon in accordance with
Section 11.1(b) and Sprint terminates the employment of
such individuals within the 90 days following the Closing,
then NewCo LLC will on demand from Sprint reimburse Sprint for
the severance payment obligations of Sprint for such individual
as set forth in such writing opposite each individuals
name to the extent paid by Sprint.
(g) The only Persons that have any rights under this
Article 11 are the Parties. No other Person or Persons have
any rights whatsoever (whether as a third party beneficiary or
otherwise) under this Article 11. The provisions of this
Article 11 are not intended to constitute an amendment to
any benefit plan.
(h) NewCo LLC will reimburse Sprint for all salary and
employee benefits incurred after the Closing with respect to any
individual who is employed by Sprint or any of its Subsidiaries
in the Sprint WiMAX Business on the Closing Date and who does
not become a Transferred Employee on the Closing Date, but
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whom NewCo LLC has requested in writing continue to provide
services to the WiMAX Business on a transitional basis after the
Closing Date. NewCo LLCs obligation to reimburse Sprint
with respect to any individual will end upon the earliest to
occur of the date that (i) such individual becomes a
Transferred Employee, (ii) ten (10) Business Days
following the date that NewCo LLC notifies Sprint that such
individual is no longer needed to perform services for NewCo
LLC, (iii) is no longer employed by Sprint or any of its
Subsidiaries and (iv) is assigned by Sprint or any of its
Subsidiaries to perform other duties. Nothing in this
Section 11.3(h) is intended to require Sprint to retain any
employee who does not become a Transferred Employee after the
Closing, to cause NewCo LLC to be liable for severance pay
(except as provided in Section 11.3(f)) or any amounts
related to acceleration of stock options or other equity awards,
or to impose on NewCo LLC any obligation to request the services
of any employee who does not become a Transferred Employee.
ARTICLE 12
TERMINATION
Section 12.1 Termination. This
Agreement may be terminated before the Closing:
(a) in writing by mutual consent of the Parties;
(b) by written notice from Clearwire to the other Parties,
if
(i) any other Party fails to perform any of its agreements
contained in this Agreement required to be performed by it at or
before the Closing that would cause the condition set forth in
Section 9.3(b) not to be satisfied, and such condition is
incapable of being satisfied by the Termination Date,
(ii) any other Party breaches any of its representations
and warranties contained in this Agreement that would cause the
condition set forth in Section 9.3(a) not to be satisfied,
and such condition is incapable of being satisfied by the
Termination Date,
(iii) prior to the receipt of the Clearwire Stockholder
Approval, Clearwires Board of Directors makes an Adverse
Recommendation Change in compliance with the terms of this
Agreement in order to enter into a definitive, written agreement
concerning a Superior Proposal; provided that Clearwire
shall simultaneously with any termination pursuant to this
Section 12.1(b)(iii) (x) pay the amount due pursuant
to Section 14.14(b) in connection with such termination and
(y) enter into such definitive, written agreement,
and in the case of (i) or (ii) is not cured within
30 days after Clearwire has notified the other Parties of
its intent to terminate this Agreement under this
Section 12.1(b), except that if Sprint or the applicable
Investor, as the case may be, proceeds with reasonable diligence
during the 30 day period and is unable, because of
circumstances beyond its control or because of the nature of the
default, to cure the default within the applicable time period,
the time for cure will be extended, but in no event beyond
90 days after receipt of written notice from Clearwire of
its intent to terminate;
(c) by written notice from Sprint to the other Parties, if
(i) Clearwires Board of Directors has made an Adverse
Recommendation Change,
(ii) any other Party fails to perform any of its agreements
contained in this Agreement required to be performed by it at or
before the Closing that would cause the condition set forth in
Section 9.2(b) not to be satisfied, and such condition is
incapable of being satisfied by the Termination Date,
(iii) any other Party breaches any of its representations
and warranties contained in this Agreement that would cause the
condition set forth in Section 9.2(a) not to be satisfied,
and such condition is incapable of being satisfied by the
Termination Date,
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and in the case of (ii) or (iii) is not cured within
30 days after Sprint has notified the other Parties of its
intent to terminate this Agreement under this
Section 12.1(c), except that if Clearwire or the applicable
Investor, as the case may be, proceeds with reasonable diligence
during the 30 day period and is unable, because of
circumstances beyond its control or because of the nature of the
default, to cure the default within the applicable time period,
the time for cure will be extended, but in no event beyond
90 days after receipt of written notice from Sprint of its
intent to terminate;
(d) by written notice from any Investor (other than BHN) to
the other Parties, if
(i) Clearwires Board of Directors has made an Adverse
Recommendation Change,
(ii) any other Party fails to perform any of its agreements
contained in this Agreement required to be performed by it at or
before the Closing that would cause the condition set forth in
Section 9.4(b) not to be satisfied, and such condition is
incapable of being satisfied by the Termination Date,
(iii) any other Party breaches any of its representations
and warranties contained in this Agreement that would cause the
condition set forth in Section 9.4(a) not to be satisfied,
and such condition is incapable of being satisfied by the
Termination Date,
and in the case of (ii) or (iii) is not cured within
30 days after the applicable Investors have notified the
other Parties of their intent to terminate this Agreement under
this Section 12.1(d), except that if Clearwire, Sprint or
the applicable Investor, as the case may be, proceeds with
reasonable diligence during the 30 day period and is
unable, because of circumstances beyond its control or because
of the nature of the default, to cure the default within the
applicable time period, the time for cure will be extended, but
in no event beyond 90 days after receipt of written notice
from the applicable Investors of their intent to terminate;
(e) by written notice by any Party to the other Parties, if
the Closing has not occurred by the date that is the last
Business Day of the calendar month which is 12 months from
the Execution Date (the Termination Date) for
any reason other than delay or nonperformance of the Party
seeking the termination, and as long as the Party giving notice
of termination is not in material breach of this Agreement,
except that (i) if the FCC Consent or the termination of
the waiting period under the HSR Act has not occurred by such
date and all other conditions have been satisfied or are capable
of being satisfied as of the date, the Termination Date will be
extended to the last Business Day of the calendar month which is
15 months from the Execution Date and (ii) if all
other conditions have been satisfied or are then-capable of
being satisfied except for the conditions set forth in
Sections 9.2(e), 9.3(e) and 9.4(e) as a result of an
Investors breach, the Termination Date may be further
extended by Clearwire or Sprint by two months to allow the
non-breaching Parties to seek to cause the breaching Investor to
cure its breach; or
(f) by any Party if, at the Clearwire Stockholder Meeting
(including any adjournment or postponement thereof), the
Clearwire Stockholder Approval shall not have been obtained.
Section 12.2 Effect
of Termination. If this Agreement terminates
under this Article 12, this Agreement will immediately
become void, and there will be no liability on the part of any
Party or its partners, officers, directors or stockholders,
except for obligations under Section 13.5 (Additional
Indemnification by Sprint), Section 14.1 (Notices),
Section 14.4 (Controlling Law; Amendment),
Section 14.5 (Jurisdiction), Section 14.14 (Fees) and
Section 14.15 (Waiver of Jury Trial) and this
Section 12.2, all of which will survive the Termination
Date. Notwithstanding the foregoing and notwithstanding
Section 14.11, nothing contained in this Agreement will
relieve any Party from liability or Damages (which the Parties
acknowledge and agree shall not be limited to reimbursement of
expenses or
out-of-pocket
costs, and may include to the extent proven the benefit of the
bargain lost by a Partys shareholders (taking into
consideration relevant matters, including other combination
opportunities and the time value of money), which shall be
deemed in such event to be Damages of such Party) for any breach
of this Agreement (including the payment of any amount due
pursuant to Section 14.14(b)) giving rise to a termination
of this Agreement.
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ARTICLE 13
INDEMNIFICATION
Section 13.1 Indemnification
by Sprint. From and after the Closing Date,
Sprint will indemnify and defend NewCo, NewCo LLC and their
Subsidiaries and their respective successors and assigns (the
NewCo Indemnified Persons), on a net
after-Tax basis, from and against any and all Damages incurred
or suffered by any NewCo Indemnified Person arising out of, in
connection with or relating to:
(a) any breach or inaccuracy of any representation or
warranty of Sprint in Section 7.1(d) (Sprint Assets),
Section 7.7(h) (Tax Treatment of Sprint Entities),
Section 7.7(i) (Sprint Qualified Liabilities) or
Section 7.14 (No Obligations);
(b) (i) all Taxes imposed on or measured by the income
of Sprint Sub LLC, the Transfer Entities and their respective
predecessors for taxable periods or portions thereof ending on
or before the Closing Date; and all such Taxes of any member of
an affiliated, consolidated, combined or unitary group of which
Sprint or any of its Subsidiaries (including Sprint Sub LLC and
any Transfer Entity or its predecessor) is or was a member on or
prior to the Closing Date, including any liability imposed under
Treasury
Regulation Section 1.1502-6
or any similar state, local or foreign law or regulation,
(ii) the sales tax liability described in items
(b) and (c) on Section 7.7 of the Sprint
Disclosure Schedule and (iii) any Sprint Restructuring
Transfer Taxes;
(c) all Liabilities of either Sprint, any Subsidiary of
Sprint (including Sprint Sub LLC and any Transfer Entity) or any
ERISA Affiliate of any of the foregoing which arise under or
relate to any employee benefit plan (as defined in
Section 3(3) of ERISA), incentive plan or other benefit
arrangement of Sprint, any Subsidiary of Sprint (including any
Transfer Entity, Sprint Sub LLC or any ERISA Affiliate of any of
the foregoing that is subject to Title IV of ERISA,
Section 302 of ERISA, Section 412 of the Code, COBRA
or any other statute or regulation that imposes liability on a
so-called controlled group basis with or without
reference to any provision of Section 414 of the Code or
Section 4001 of ERISA, including by reason of the
Sprints affiliation with any of its ERISA Affiliates or
NewCo being deemed a successor to any ERISA Affiliate of Sprint
or any Subsidiary of Sprint (including any Transfer Entity and
Sprint Sub LLC);
(d) all Liabilities of Sprint Sub LLC or any Transfer
Entity that do not relate primarily to the Sprint WiMAX Business
and do not relate to or arise out of actions or omissions taken
by NewCo or any of its Subsidiaries after the Closing
Date; or
(e) all Liabilities of Sprint Sub LLC or any Transfer
Entity that relate to any pending or future litigation brought
by any party to a Sprint Affiliate Management Agreement against
Sprint or any of its Affiliates or NewCo or any of its
Affiliates regarding the plaintiffs contractual
arrangements with Sprint
and/or its
Affiliates (collectively, the Indemnified
Litigation).
Section 13.2 Indemnification
Procedures.
(a) In the case of any Proceeding with respect to which
Sprint (the Indemnifying Party) is
obligated under Article 13 to indemnify any NewCo
Indemnified Person (as the case may be, the Indemnified
Party), the Indemnified Party will give prompt written
notice thereof to the Indemnifying Party. In the event of any
Proceeding asserted by any third party (a Third Party
Claim), the Indemnifying Party may assume the defense
of such Third Party Claim by employment of counsel reasonably
satisfactory to the Indemnified Party no later than 30 days
after the date of the notice. The Indemnified Partys delay
or failure to notify timely the Indemnifying Party will not
relieve the Indemnifying Party of its obligations under this
Article 13, except to the extent the delay has an adverse
impact on the Indemnifying Partys ability to defend
against the Damages. If the Indemnifying Party does assume the
defense, the Indemnified Party may, if it so desires, employ
counsel at its own expense. In addition, where the named parties
to a Proceeding include both the Indemnifying Party and an
Indemnified Party, the Indemnified Party shall be entitled to
retain its own counsel, at the Indemnifying Partys
expense, where the Indemnified Party has been advised by counsel
that there are conflicts of interest
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between the Indemnifying Party and the Indemnified Party which
make representation by the same counsel not appropriate.
(b) The Indemnifying Party may, without the Indemnified
Partys consent, settle or compromise any Third Party Claim
or consent to the entry of any judgment if the settlement,
compromise or judgment involves only the payment of money by the
Indemnifying Party (which payment is made or adequately provided
for at the time of the settlement, compromise or judgment), or
provides for unconditional release by the claimant or plaintiff
of the Indemnified Party (and all of its Affiliates) from all
liability with respect to the Third Party Claim and does not
impose injunctive relief, admissions against interest or
operating restrictions against any of the Indemnified Party or
any of its Affiliates. Subject to the provisions of
Section 13.2(c), the Indemnified Party will not settle or
compromise any Third Party Claim without the prior written
consent of the Indemnifying Party.
(c) The Indemnified Party will provide reasonable
assistance to the Indemnifying Party in the defense of the Third
Party Claim. If the Indemnifying Party does not so assume the
defense, the Indemnified Party may do so, with all reasonable
costs and expenses thereof being borne by the Indemnifying
Party, except that, the Indemnified Party will not, without the
prior written consent of the Indemnifying Party, which consent
will not to be unreasonably withheld, settle or compromise any
Third Party Claim or consent to the entry of any judgment if
such settlement, compromise or judgment involves injunctive or
other non-monetary relief that adversely affects the
Indemnifying Party.
(d) Any refunds of Taxes indemnified or subject to
indemnification by Sprint under Section 13.1(b) that are
received by NewCo, NewCo LLC or their Subsidiaries will be paid
over to Sprint, net of any costs (including Tax costs) incurred
or reasonably expected to be incurred by NewCo LLC or any member
or subsidiary thereof in recovering or by reason of receipt of
such refunds, promptly upon receipt.
Section 13.3 Limitation
of Liability.
(a) Notwithstanding anything to the contrary set forth in
this Agreement, no Indemnifying Party will be liable for any
breach or inaccuracy of any representation or warranty of Sprint
in Section 7.14 (No Obligations) unless the aggregate
amount of Damages incurred by the Indemnified Parties with
respect to breaches or inaccuracies of the representations or
warranties of Sprint in Section 7.14 (No Obligations)
exceeds $25 million (the Deductible
Amount) and then only to the extent of such excess.
(b) No Party will be liable to any other Party for special,
indirect, incidental, exemplary, consequential or punitive
damages, or loss of profits, arising from the relationship of
the Parties or the conduct of business under, or breach of, this
Agreement, except where the damages or loss of profits
(i) are claimed by or awarded to a third party in a claim
or (ii) arise from a Partys willful misconduct or
intentional misrepresentation.
Section 13.4 Claims
Period. No Indemnified Party may make a claim
against an Indemnifying Party (a) under
Section 13.1(a) (other than to the extent relating to the
breach of a representation set forth in Section 7.7(h) or
Section 7.7(i)) after the third anniversary of the Closing
Date or (b) under Section 13.1(a) (to the extent
relating to a claim for the breach of a representation set forth
in Section 7.7(h) or Section 7.7(i)), after the
expiration of any applicable statutes of limitation (the
applicable period, the Claims Period);
provided that claims under
Sections 13.1(b)-(e)
and Section 13.5 may be made and shall survive
indefinitely. Notwithstanding the foregoing, if, before the
close of business on the last day of the applicable Claims
Period, an Indemnifying Party has been properly notified of a
claim for indemnity under this Agreement and the claim has not
been finally resolved or disposed of at that date, the claim
will continue to survive and will remain a basis for indemnity
under this Agreement until the claim is finally resolved or
disposed of in accordance with the terms of this Agreement.
Section 13.5 Additional
Indemnification by Sprint. From and after the
date hereof, Sprint will indemnify and defend each of the other
Parties hereto and their Subsidiaries and their respective
successors and assigns (the Additional
Indemnified Persons), on a net after-Tax basis, from
and against any and all Damages incurred or suffered by any
Additional Indemnified Person arising out of, in connection with
or relating to the Indemnified Litigation. Sections 13.2
and 13.3(b) shall apply fully, mutatis mutandis, to the
indemnification provided provided under this Section 13.5
(with Section 13.2 applying as if, for purposes of
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that Section, the Additional Indemnified Persons were NewCo
Indemnified Persons). None of the Investors or their
Subsidiaries or their respective successors and assigns will be
entitled to make any claim under this Section 13.5 for any
actual or alleged diminution in value of their NewCo Capital
Stock or membership interests in NewCo LLC.
Section 13.6 Exclusion
of Other Remedies. From and after the Closing
Date, the indemnification obligations set forth in this
Article 13 will constitute the sole and exclusive remedies
of the Parties for any Damages based on, arising out of or
otherwise in respect of any matter addressed in Section 13,
except for remedies involving specific performance or other
equitable relief.
ARTICLE 14
MISCELLANEOUS PROVISIONS
Section 14.1 Notices. All
notices, communications and deliveries under this Agreement will
be made in writing signed by or on behalf of the Party making
the notice, communication or delivery, will specify the Section
under this Agreement under which it is given or being made, and
will be delivered by first class mail (certified or registered
mail, postage prepaid, return receipt requested), by hand or
established overnight courier (with evidence of delivery and
postage and other fees prepaid) or facsimile transmission (with
facsimile acknowledgment) as follows:
To Clearwire:
Clearwire Corporation
4400 Carillon Point
Kirkland, Washington 98033
Attention: Chief Executive Officer
Facsimile No.:
(425) 828-8061
with copies to:
Clearwire Corporation
4400 Carillon Point
Kirkland, Washington 98033
Attention: Legal Department
Facsimile No.:
(425) 216-7776
Davis Wright Tremaine LLP
1201 Third Avenue, Suite 2200
Seattle, Washington 98101
Attention: Sarah English Tune
Facsimile No.:
(206) 757-7161
Kirkland & Ellis LLP
Citigroup Center
153 East
53rd Street
New York, New York 10022
Attention: Joshua N. Korff
Facsimile No.:
(212) 446-6460
To Sprint:
Sprint Nextel Corporation
2001 Edmund Halley Drive
Reston, Virginia 20191
Attention: President of Strategic Planning and Corporate
Initiatives
Facsimile No.:
(703) 433-4034
A-70
with copies to:
Sprint Nextel Corporation
6200 Sprint Parkway
Overland Park, Kansas 66251
Attention: Vice President Law, Corporate
Transactions and Business Law
Facsimile No.:
(913) 523-9803
King & Spalding LLP
1180 Peachtree Street, N.E.
Atlanta, Georgia 30309
Attention: Michael J. Egan
Facsimile No.:
(404) 572-5100
To Comcast:
Comcast Corporation
One Comcast Center
1701 John F. Kennedy Boulevard
Philadelphia, Pennsylvania 19103
Attention: Chief Financial Officer
Facsimile No.:
(215) 286-1240
with copies to:
Comcast Corporation
One Comcast Center
1701 John F. Kennedy Boulevard
Philadelphia, Pennsylvania 19103
Attention: General Counsel
Facsimile No.:
(215) 286-7794
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: David L. Caplan
Facsimile No.:
(212) 450-3800
To TWC:
Time Warner Cable Inc.
One Time Warner Center
North Tower
New York, New York 10019
Attention: General Counsel
Facsimile No.:
(212) 364-8254
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, New York
10019-6064
Attention: Matthew W. Abbott
Robert B. Schumer
Facsimile No.:
(212) 757-3990
A-71
To BHN:
Bright House Networks, LLC
c/o Advance/Newhouse
Partnership
5000 Campuswood Drive
East Syracuse, New York 13057
Attention: Mr. Leo Cloutier
Facsimile No.:
(315) 438-4643
with a copy to:
Sabin, Bermant & Gould LLP
Four Times Square
New York, New York 10036
Attention: Arthur J. Steinhauer, Esq.
Facsimile No.:
(212) 381-7218
To Google:
Google Inc.
1600 Amphitheatre Parkway
Mountain View, California 94043
Attn: General Counsel
Facsimile No.:
(650) 887-2421
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attn: David Segre, Esq.
Facsimile No.:
(650) 493-6811
To Intel:
Intel Corporation
2200 Mission College Blvd., MS RN6-65
Santa Clara, California
95054-1549
Attention: President, Intel Capital
Facsimile No.:
(408) 765-8871
Intel Corporation
2200 Mission College Blvd., MS RN6-59
Santa Clara, California
95054-1549
Attention: Intel Capital Portfolio Manager
Facsimile No.:
(408) 765-6038
Intel Corporation
2200 Mission College Blvd., MS RN4-151
Santa Clara, California
95054-1549
Attention: Intel Capital Group General Counsel
Facsimile No.:
(408) 653-9098
Intel Corporation
2200 Mission College Blvd., MS RN5-125
Santa Clara, California
95054-1549
Attention: Director, U.S. Tax and Trade
Facsimile No.:
(408) 765-1733
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with copies to:
Gibson, Dunn & Crutcher LLP
1881 Page Mill Road
Palo Alto, California 94304
Attention: Gregory T. Davidson
Facsimile No.:
(650) 849-5050
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California
90071-3197
Attention: Paul S. Issler
Facsimile No.:
(213) 229-6763
or to the other representative or at the other address of a
party as the party may furnish to the other parties in writing.
Any notice, communication or delivery will be deemed received on
the date of receipt by the recipient thereof if received prior
to 5:00 p.m. on a Business Day in the place of receipt.
Otherwise, any such notice, communication or delivery shall be
deemed to have been received on the next succeeding Business Day
in the place of receipt.
Section 14.2 Schedules
and Exhibits. The Disclosure Schedules and
Exhibits are incorporated into this Agreement and are made a
part of this Agreement as if set out in full in this Agreement.
Section 14.3 Assignment;
Successors in Interest. No assignment or
transfer by any Party of the Partys rights and obligations
under this Agreement will be made except with the prior written
consent of the other Parties, except that each Investor may
transfer or assign its rights and obligations under this
Agreement, in whole or from time to time in part, to one or
more, but no more than five, of its direct or indirect wholly
owned Subsidiaries at any time; provided that such
transfer or assignment does not delay or adversely affect the
Closing and shall not relieve such Investor of its obligations
hereunder or enlarge, alter or change any obligation of any
other Party hereto or due to such Investor; provided,
further, that to the extent any Investor assigns the
right to make all or a portion of its Investment to any direct
or indirect wholly owned Subsidiary in accordance with the
immediately preceding proviso, such Subsidiary shall, upon
making all or such portion of such Investment at the Closing,
become a Equityholder and Member of
NewCo and NewCo LLC, respectively, at the Closing. This
Agreement will be binding on and will inure to the benefit of
the Parties and their successors and permitted assigns, and any
reference to a Party will also be a reference to the successors
(whether by merger, operation of law or otherwise) or permitted
assigns of that Party.
Section 14.4 Controlling
Law; Amendment. This Agreement will be
governed by and construed and enforced in accordance with the
internal Laws of the State of Delaware without reference to its
choice of law rules. This Agreement may not be amended, modified
or supplemented except by written agreement of the Parties.
Section 14.5 Jurisdiction. Any
Proceeding seeking to enforce any provision of, or based on any
matter arising out of or in connection with, this Agreement or
the Transactions may only be brought in the courts of the State
of Delaware or the federal courts located in the State of
Delaware, and each of the Parties consents to the jurisdiction
of the courts (and of the appropriate appellate courts
therefrom) in any Proceeding and irrevocably waives, to the
fullest extent permitted by Law, any objection that it may now
or hereafter have to the laying of the venue of any Proceeding
in any court or that any Proceeding that is brought in any court
has been brought in an inconvenient forum. Process in any
Proceeding may be served on any party anywhere in the world,
whether within or without the jurisdiction of the court. Without
limiting the foregoing, each Party agrees that service of
process on the Party as provided in Section 14.1 will be
deemed effective service of process on the Party.
Section 14.6 Specific
Performance and Other Remedies. Each Party
acknowledges that the rights of each Party to consummate the
Transactions are special, unique and of extraordinary character
and that, if any Party violates or fails or refuses to perform
any covenant or agreement made by it in this Agreement, the
non-breaching Party or Parties may be without an adequate remedy
at law. Notwithstanding the provisions of
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Section 13.6, if any Party violates or fails or refuses to
perform any covenant or agreement made by the Party in this
Agreement, the non-breaching Party or Parties may, subject to
the terms of this Agreement and in addition to any remedy at law
for damages or other relief, institute and prosecute a
Proceeding in any court of competent jurisdiction to enforce
specific performance of the covenant or agreement or seek any
other equitable relief.
Section 14.7 Severability. Any
provision of this Agreement that is prohibited or unenforceable
in any jurisdiction will, as to that jurisdiction, be
ineffective to the extent of the prohibition or unenforceability
without invalidating the remaining provisions of this Agreement,
and any prohibition or unenforceability in one jurisdiction will
not invalidate or render unenforceable the provision in any
other jurisdiction. If permitted by Law, each Party waives any
provision of Law that renders any provision prohibited or
unenforceable in any respect.
Section 14.8 Counterparts. This
Agreement may be executed in two or more counterparts, each of
which will be deemed an original, and it will not be necessary
in making proof of this Agreement or the terms of this Agreement
to produce or account for more than one counterparts.
Section 14.9 Enforcement
of Certain Rights. Except (i) as set
forth in Section 10.6 and (ii) NewCos rights
pursuant to Article 13, nothing expressed or implied in
this Agreement is intended, or will be construed, to confer on
or give any Person other than the Parties, and their successors
or permitted assigns, any right, remedy, obligation or liability
under or by reason of this Agreement, or result in the
Persons being deemed a third party beneficiary of this
Agreement.
Section 14.10 Waiver. Any
provision of this Agreement may be waived if, but only if, such
waiver is in writing and is signed by the Party against whom the
waiver is to be effective. A waiver by a Party of the
performance of any covenant, agreement, obligation, condition,
representation or warranty will not be construed as a waiver of
any other covenant, agreement, obligation, condition,
representation or warranty. A waiver by any Party of the
performance of any act will not constitute a waiver of the
performance of any other act or an identical act required to be
performed at a later time.
Section 14.11 Non-Survival
of Representations and Warranties and
Agreements. Except for the representations
and warranties contained in Section 4.3(d) and described in
Section 13.1(a), the representations and warranties in this
Agreement will terminate at the Closing Date or on the
termination of this Agreement under Section 12.1. Any
covenant or other agreement of any Party herein shall survive
the Closing hereunder indefinitely or for such lesser period of
time as may be specified herein; provided that with
respect to any covenant or other agreement that would otherwise
terminate at a specified time, breaches of such covenant or
other agreement will survive the Closing indefinitely. No Party
to this Agreement will have or make any claim against any other
Party to this Agreement with respect to or arising out of the
Transactions except with respect to those agreements that
survive Closing or the termination of this Agreement under
Section 12.1, and, in any event, solely under the explicit
provisions of this Agreement.
Section 14.12 Integration. This
Agreement supersedes all negotiations, agreements and
understandings among the Parties with respect to the subject
matter of this Agreement, and, together with the Transaction
Related Agreements, constitutes the entire agreement among the
Parties with respect to the Transactions.
Section 14.13 Cooperation
Following the Closing. Following the Closing,
each Party will deliver to the other Party the further
information and documents and will execute and deliver to the
other Party the further instruments and agreements as any other
Party may reasonably request to consummate or confirm the
Transactions, to accomplish the purpose of this Agreement or to
assure to the other Party the benefits of this Agreement.
Section 14.14 Fees.
(a) Each Party will pay any HSR Act filing fees applicable
to such Party and any filing fees related to any filing made by
such Party under foreign antitrust Laws. Except as set forth in
Section 10.11, each Party will pay its own fees, costs and
expenses incurred in connection with this Agreement and the
Transactions, including the fees, costs and expenses of its
accountants, investment banks and counsel; provided that
the fees
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payable by Clearwire and any of its Subsidiaries (including,
after the Closing, NewCo and any of its Subsidiaries) to the
Independent Advisor shall not be in excess of the amount set
forth on Section 6.19 of the Clearwire Disclosure Schedule.
(b) If a Clearwire Payment Event (as defined below) occurs,
Clearwire will pay (by wire transfer of immediately available
funds), no later than the time specified in
Section 14.14(c) below, to Sprint, a fee of $60,000,000.
Clearwire Payment Event means the
termination of this Agreement under
(i) Section 12.1(b)(iii), 12.1(c)(i), or 12.1(d)(i),
(ii) Section 12.1(c)(ii) or 12.1(d)(ii), solely due to
a breach by Clearwire, or
(iii) Section 12.1(e) or Section 12.1(f) only if
(A) before the Clearwire Stockholder Meeting an Acquisition
Proposal will have been made to Clearwire or will have been made
directly to the stockholders of Clearwire generally or will have
otherwise become publicly known or any Person will have publicly
announced an intention (whether or not conditional and whether
or not withdrawn) to make an Acquisition Proposal and
(B) within 12 months following the date of the
termination: (1) Clearwire merges with or into, or is
acquired, directly or indirectly, by merger or otherwise by, a
third party; (2) a third party, directly or indirectly,
acquires more than 50% of the total assets of Clearwire and its
Subsidiaries, taken as a whole; (3) a third party, directly
or indirectly, acquires more than 50% of the outstanding shares
of Clearwire Capital Stock or (4) Clearwire or any
Clearwire Subsidiary(ies) will have entered into any contract or
agreement providing for any of the actions, or the Clearwire
Board of Directors recommends to its stockholders any
transaction that would have any of the effects, described in any
of the immediately preceding clauses (1) through (3).
(c) If a Clearwire Payment Event occurs, Clearwire shall
pay to Sprint the amount due to Sprint pursuant to
Section 14.14(b) as follows: (x) simultaneously with
the occurrence of such Clearwire Payment Event, if the Agreement
is terminated by Clearwire pursuant to Section 12.1(b)(iii)
or (y) within two Business Days following such Clearwire
Payment Event, if the Agreement is terminated with respect to
any other Clearwire Payment Event.
(d) Each of the Parties acknowledges that the agreements
contained in this Section 14.14 are an integral part of the
Transactions contemplated by this Agreement and that, without
these agreements, no Party would enter into this Agreement.
Accordingly, if Clearwire fails promptly to pay any amount due
under this Section 14.14, Clearwire will also pay any costs
and expenses incurred by Sprint in connection with a legal
action to enforce this Agreement that results in a judgment
against the non-paying party for that amount, together with
interest on the amount of any unpaid fee or expense at the
publicly announced prime rate of Citibank, N.A. from the date
that fee was required to be paid to, but excluding, the payment
date.
Section 14.15 Waiver
of Jury Trial. Each of the Parties
irrevocably waives any and all right to trial by jury in any
legal proceeding arising out of or related to this Agreement or
the Transactions.
Section 14.16 Investor
Rights and Obligations. Notwithstanding any
other provision of this Agreement to the contrary, (a) the
obligations of each of Comcast, TWC, BHN, Google and Intel under
this Agreement shall be several with respect to itself (and not
joint or joint and several) and (b) the rights granted to
the Investors or each of Comcast, TWC, BHN, Google and Intel
under this Agreement (including, rights to invoke Closing
Conditions, to terminate this Agreement and to enforce
covenants, except as specifically provided in this Agreement)
may be exercised by each such Investor individually. For the
avoidance of doubt and notwithstanding anything to the contrary
in this Agreement, none of Time Warner Inc. or any of its
Affiliates other than TWC shall have any obligations or
liabilities under this Agreement, express, implied or otherwise.
Section 14.17 Interpretation. Unless
the context of this Agreement otherwise clearly requires,
(a) references to the plural include the singular, and
references to the singular include the plural,
(b) the words include, includes and
including do not limit the preceding terms or words
and will be deemed to be followed by the words without
limitation,
(c) references to any Person include the successors and
permitted assigns of that Person,
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(d) the terms day and days mean and
refer to calendar day(s),
(e) the terms year and years mean
and refer to calendar year(s), and
(f) the words in full force and effect, when
used with respect to any contract, agreement or other
arrangement that is binding or purports to be binding, mean,
without limitation, that, if applicable, such contract,
agreement or arrangement has been assumed by the relevant party
pursuant to Section 365 of the Bankruptcy Code.
Unless otherwise set forth in this Agreement, references in this
Agreement to
(i) any document, instrument or agreement (including this
Agreement)
(A) includes and incorporates all Schedules and Exhibits,
(B) includes all documents, instruments or agreements
issued or executed in replacement of those documents,
instruments or agreements, and
(C) means the document, instrument or agreement, or
replacement or predecessor thereto, as amended, modified or
supplemented from time to time in accordance with its terms and
in effect at any given time, and
(ii) all Article, Section, Schedule and Exhibit references
in this Agreement are to Articles, Sections, Schedules and
Exhibits of this Agreement, unless otherwise specified. This
Agreement will not be construed as if prepared by one of the
Parties, but rather according to its fair meaning as a whole, as
if all Parties had prepared it.
[Rest of page intentionally left blank]
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IN WITNESS WHEREOF, the parties to this Agreement have executed
this Transaction Agreement and Plan of Merger as of the date set
forth in the first paragraph of this Agreement.
CLEARWIRE CORPORATION
Name: Benjamin G. Wolff
Title: Chief Executive Officer
[Signature
Page to the Transaction Agreement and Plan of Merger]
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SPRINT NEXTEL CORPORATION
Name: Keith O. Cowan
Title: President of Strategic Planning and
Corporate
Initiatives
[Signature
Page to the Transaction Agreement and Plan of Merger]
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COMCAST CORPORATION
Name: Robert S. Pick
Title: Senior Vice President
[Signature
Page to the Transaction Agreement and Plan of Merger]
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TIME WARNER CABLE INC.
Name: Robert D. Marcus
Title: Senior Executive Vice President and
Chief
Financial
Officer
[Signature
Page to the Transaction Agreement and Plan of Merger]
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BRIGHT HOUSE NETWORKS, LLC
Name: Leo Cloutier
Title: Vice President, Strategy &
Partnership
[Signature
Page to the Transaction Agreement and Plan of Merger]
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GOOGLE INC.
Name: J. Kent Walker
Title: Vice President and General Counsel
[Signature
Page to the Transaction Agreement and Plan of Merger]
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INTEL CORPORATION
Name: Arvind Sodhani
Title: Executive Vice President,
Intel
Capital
[Signature
Page to the Transaction Agreement and Plan of Merger]
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EXHIBIT A
DEFINITIONS
For purposes of this Agreement, the following terms have the
meanings set forth on this Exhibit A:
2.5 GHz Spectrum means any
spectrum authorized by the FCC under licenses for BRS or EBS.
3G MVNO Agreement means the MVNO
Support Agreement dated as of the date hereof, among Sprint
Spectrum L.P., BHN Spectrum Investments, LLC, Comcast
MVNO II, LLC and TWC Wireless, LLC, as amended, modified or
supplemented from time to time.
Accounting Referee has the meaning set
forth in Section 1.2(c).
Acquisition Proposal means, other than
the Transactions, in respect of Clearwire, any offer, proposal
or inquiry relating to, or any indication of interest in,
(i) any acquisition or purchase, direct or indirect, of 20%
or more of the consolidated assets of Clearwire and its
Subsidiaries or over 20% of any class of equity or voting
securities of Clearwire or any of its Subsidiaries whose assets,
individually or in the aggregate, constitute more than 20% of
the consolidated assets of Clearwire in a single transaction or
a series of related transactions, (ii) any tender offer
(including a self-tender offer) or exchange offer that, if
consummated, would result in a Person beneficially owning 20% or
more of any class of equity or voting securities of Clearwire or
any of its Subsidiaries whose assets, individually or in the
aggregate, constitute more than 20% of the consolidated assets
of Clearwire in a single transaction or a series of related
transactions, or (iii) a merger, consolidation, share
exchange, business combination, sale of substantially all the
assets, reorganization, recapitalization, liquidation,
dissolution or other similar transaction involving Clearwire or
any of its Subsidiaries whose assets, individually or in the
aggregate, constitute more than 20% of the consolidated assets
of Clearwire in a single transaction or a series of related
transactions.
Additional Indemnified Persons has the
meaning set forth in Section 13.5.
Adjustment Amount means, with respect
to an Investor making its Investment (or the applicable portion
of its Investment) under Section 4.1, the number equal to
the number of Class B Common Units issued to such Investor
pursuant to Section 4.1(a), or with respect to an Investor
making its Investment (or the applicable portion of its
Investment) under Section 4.2, the number equal to the
number of shares of Class A Common Stock issued to such
Investor pursuant to Section 4.2(a), in each case minus the
quotient (rounded to the nearest whole number) obtained by
dividing such Investors Investment by the NewCo Volume
Weighted Share Price.
Adjustment Date means the date that is
the ninetieth (90th) day after the Closing Date, or the
following Business Day if that date is not a Business Day.
Adverse Recommendation Change means
either (i) any failure by the Board of Directors of
Clearwire to make, or any withdrawal or modification in a manner
adverse to Sprint or the Investors of, the Clearwire
Recommendation or (ii) any recommendation by
Clearwires Board of Directors of an Acquisition Proposal.
Affiliate means, with respect to any
Person, any other Person, directly or indirectly, controlling,
controlled by, or under common control with, the Person;
provided that following the Closing, (i) neither
NewCo nor any of its Subsidiaries shall be considered an
Affiliate of any of Sprint or the Investors or their respective
Affiliates (other than NewCo and its Subsidiaries) and
(ii) none of Sprint or the Investors or their respective
Affiliates (other than NewCo and its Subsidiaries) shall be
considered an Affiliate of NewCo and its Subsidiaries. For
purposes of this definition, the term control
(including the correlative terms controlling,
controlled by and under common control
with) means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
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Agreement has the meaning set forth in
the Preamble.
Ancillary Agreements means,
collectively, the following documents:
(i) the 3G MVNO Agreement,
(ii) the 4G MVNO Agreement to be entered into as of the
Closing Date among NewCo LLC, Sprint Spectrum L.P., BHN Spectrum
Investments, LLC, Comcast MVNO II, LLC and TWC Wireless, LLC,
substantially in the form agreed to by the Parties as of the
date of this Agreement,
(iii) the Network Master Services Agreement to be entered
into as of the Closing Date between NewCo LLC and Sprint
Solutions, Inc., substantially in the form agreed to by the
Parties as of the date of this Agreement,
(iv) the IT Master Services Agreement to be entered into as
of the Closing Date between NewCo LLC and Sprint Solutions,
Inc., substantially in the form agreed to by the Parties as of
the date of this Agreement,
(v) the Master Site Agreement to be entered into as of the
Closing Date between NewCo LLC and a Subsidiary of Sprint,
substantially in the form agreed to by the Parties as of the
date of this Agreement,
(vi) the Intellectual Property Agreement to be entered into
as of the Closing Date between NewCo LLC and Sprint,
substantially in the form agreed to by the Parties as of the
date of this Agreement,
(vii) the Google Agreements,
(viii) the Intel Agreements,
(ix) the Registration Rights Agreement,
(x) the Secured Note Documentation,
(xi) the Equityholders Agreement,
(xii) the NewCo LLC Agreement,
(xiii) the Parent Agreements to be entered into as of the
Closing Date, substantially in the form attached as
Exhibit G to the Equityholders Agreement,
(xiv) the Strategic Investor Agreement entered into among
Comcast, TWC, BHN and Google as of the date hereof, as amended
from time to time,
(xv) the National Retailer Agreement to be entered into as
of the Closing Date between Sprint and NewCo, substantially in
the form agreed to by the Parties as of the date of this
Agreement,
(xvi) the Authorized Sales Representative Agreement to be
entered into as of the Closing Date between Sprint and NewCo,
substantially in the form agreed to by the Parties as of the
date of this Agreement,
(xvii) the Letter Agreement re: Open Patent Alliance, LLC
entered into as of the date hereof among Clearwire, Sprint and
Intel, and
(xviii) the Joinder to LLC Agreement to be entered into
among Sprint, Clearwire and Open Patent Alliance, LLC,
substantially in the form agreed to by the Parties as of the
date of this Agreement.
Assumed Note has the meaning set forth
in Section 1.2(a).
Bankruptcy means, with respect to any
Person, (i) one or more lenders notify such Person in
writing that such lender(s) are declaring amounts in excess of
$1 billion in the aggregate owed to such lender(s) to be
immediately due and payable prior to the scheduled maturity of
such obligations and such Person has not repaid such debt or
cured the default(s) giving rise to such notification within the
earlier of (A) 10 Business Days after receipt of such
notification and (B) the satisfaction or waiver of the
Closing Conditions (excluding
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conditions that by their nature cannot be satisfied until the
Closing); (ii) such Person applies for, consents to, or
acquiesces in, the appointment of a trustee, receiver,
sequestrator or other custodian for substantially all of its
property; (iii) such Person, in the absence of an
application, consents or acquiesces, permits or suffers to exist
the appointment of a trustee, receiver, sequestrator or other
custodian for it or substantially all of its property;
(iv) such Person voluntarily commences any bankruptcy,
reorganization, or other case or proceeding under any
bankruptcy, insolvency or similar laws affecting creditors
rights, or any dissolution, winding up or liquidation
proceeding; (v) such Person fails to obtain the dismissal
of any petition for the commencement of a case under any present
or future bankruptcy, insolvency or similar statute, law or
regulation within the earlier of (A) sixty (60) days
and (B) the satisfaction or waiver of the Closing
Conditions (excluding conditions that by their nature cannot be
satisfied until the Closing); (vi) such Person admits in
writing that it will be unable to pay its debts as they come
due; (vii) such Person has made a general assignment for
the benefit of creditors; (viii) the board of directors of
such Person takes any action authorizing any of the foregoing;
or (ix) (A) the present fair market value of such
Persons assets is less than the amount that will be
required to pay its probable liability on its existing debts as
they become absolute and matured or (B) the sum of such
Persons debts (as such term is defined in Section 101
of the Bankruptcy Code) is greater than all of its property, at
fair market valuation, exclusive of property transferred,
concealed or removed with the intent to hinder, delay or defraud
its creditors. Notwithstanding the foregoing,
subsection (i) shall not apply with respect to a notice of
default resulting from the failure of Clearwire to obtain the
Credit Agreement Consent if the applicable Parties have waived
the Closing Conditions in Section 9.1(o).
Bankruptcy Code means Title 11 of
the United States Code entitled Bankruptcy, as now
and hereafter in effect, or any successor statute.
Bankruptcy Exception has the meaning
set forth in Section 6.1(a).
BHN has the meaning set forth in the
Preamble.
BRS Broadband Radio Service means
radio service licensed by the FCC under Part 27 of
Title 47 of the Code of Federal Regulations, as amended and
interpreted by the FCC, which can be used to provide fixed and
mobile wireless services.
BTA means a Basic Trading Area, as
determined by the FCC.
Burdensome Condition has the meaning
set forth in Section 10.3(d).
Business Day means a day that is not a
Saturday or Sunday or other day that banks are authorized by Law
to be closed in New York, New York.
Capital Stock of any entity means the
issued and outstanding equity interests, including limited
liability company interests, of the entity.
Cash Payment has the meaning set forth
in Section 1.2(b).
Certificate of Merger has the meaning
set forth in Section 2.4.
Certificates has the meaning set forth
in Section 2.6(a).
Claims Period has the meaning set
forth in Section 13.4.
Class A Common Stock has the
meaning set forth in the Recitals.
Class A Common Units has the
meaning set forth in the NewCo LLC Agreement.
Class B Common Stock has the
meaning set forth in the Recitals.
Class B Common Units has the
meaning set forth in the NewCo LLC Agreement.
Clearwire has the meaning set forth in
the Preamble.
Clearwire Assets means:
(i) the Clearwire Contracts;
A-86
(ii) the Clearwire Licenses;
(iii) the Clearwire Leases;
(iv) the Clearwire Network Assets; and
(vi) all Governmental Licenses relating to any Clearwire
License, Clearwire Lease or Clearwire Network Asset.
Clearwire Benefit Plans has the
meaning set forth in Section 6.16.
Clearwire Budget means the budget in
the form agreed to by Clearwire and the Investors and that has
been provided to the Investors (but not to Sprint).
Clearwire Capital Stock means the
Capital Stock of Clearwire.
Clearwire Class A Common Stock
has the meaning set forth in the Recitals.
Clearwire Class B Common Stock
has the meaning set forth in the Recitals.
Clearwire Closing Date MHz-Pops has
the meaning set forth in Section 9.2(d).
Clearwire Contracts means any
contracts of Clearwire or any of Subsidiaries (other than
Clearwire Licenses or Clearwire Leases).
Clearwire De Facto Transfer Lease
means a Clearwire Lease that is a long term de facto transfer
leasing arrangement pursuant 47 C.F.R. 1.9030.
Clearwire Disclosure Schedule has the
meaning set forth in the preamble to Article 6.
Clearwire Employee means each employee
of Clearwire or its Subsidiaries as of the Closing Date.
Clearwire In-Lease means any Clearwire
Lease other than (i) a Lease under which Clearwire or any
of its Subsidiaries is the lessor or sublessor or (ii) any
such Lease under which Clearwire or any of its Subsidiaries is
the lessee of a Sprint License.
Clearwire Lease means any Lease under
which Clearwire or any of the Domestic Clearwire Subsidiaries is
a party and that encumbers any License.
Clearwire Leased FCC Licenses has the
meaning set forth in Section 6.4(h).
Clearwire Licenses means the Licenses
held by Clearwire or any of the Domestic Clearwire Subsidiaries.
Clearwire License Disputes has the
meaning set forth in Section 6.6(b).
Clearwire License Facilities has the
meaning set forth in Section 6.3(c).
Clearwire Material Adverse Effect
means any state of facts, change, event, effect or occurrence
(when taken together with all other states of fact, changes,
events, effects or occurrences) that is or would be reasonably
likely to be materially adverse to (a) the condition
(financial or otherwise), business, assets or liabilities of
Clearwire and its Subsidiaries taken as a whole, or (b) the
ability of Clearwire and NewCo to consummate any of the
Transactions. However, none of the following, either alone or in
combination, will constitute or be taken into account in
determining whether there has been a Clearwire Material Adverse
Effect for purposes of clause (a): (i) any change in
the market price of the Capital Stock of Clearwire after the
date of this Agreement (except this clause (i) does not
exclude any underlying circumstance, change, event, fact,
development or effect that may have caused that change in market
price), (ii) changes, circumstances or conditions generally
affecting any industry in which Clearwire or any of its
Subsidiaries participate and not having a materially
disproportionate effect on Clearwire and its Subsidiaries, as
compared to other companies in its industry, (iii) changes
generally affecting United States or global economic conditions
or financial, banking or securities markets, (iv) the
suspension of trading in or the delisting of Clearwires
securities on the Nasdaq Stock Market or any other national
securities exchange or other trading market, (except this
clause (iv) does not exclude any underlying circumstances,
change, event, fact, development or effect that may have
A-87
caused the suspension or delisting), (v) changes resulting
from a change in any applicable law, rule or regulation or GAAP
or official interpretation thereof or other accounting
requirement or principle and not having a materially
disproportionate effect on Clearwire and its Subsidiaries as
compared to other companies in its industry, (vi) changes
resulting from any act of God; (vii) changes resulting from
any act of war or terrorism (or any escalation thereof) or any
national or international political or social event or
condition, including the engagement by the United States in
hostilities or the expansion of hostilities ongoing on the date
of this Agreement, whether or not pursuant to the declaration of
a national emergency or war, or the occurrence of any military
or terrorist attack upon the United States or any of its
territories, possessions or diplomatic or consular offices or
upon any military installation, equipment or personnel of the
United States and not uniquely targeting or having a unique or
materially disproportionate effect on Clearwire and its
Subsidiaries, or (viii) changes, facts, circumstances or
conditions attributable solely to the announcement or existence
of this Agreement or any Transaction contemplated by or in
compliance with any term of this Agreement; provided,
however, that the exception in this clause (viii)
will not be deemed to apply to references of Clearwire Material
Adverse Effect in the representations and warranties set forth
in Sections 6.2 and 6.10 and, to the extent related to such
representations and warranties, the conditions set forth in
Sections 9.2(a) and 9.4(a).
Clearwire Network Assets means the
tower sites, equipment and related assets (including design
plans) owned by Clearwire or any of the Domestic Clearwire
Subsidiaries and used solely in connection with the Clearwire
Licenses.
Clearwire Out-Lease means any
Clearwire Lease under which Clearwire or any of its Subsidiaries
is the lessor or sublessor, other than any such Lease under
which (i) Sprint or any of its Subsidiaries is the lessee
of a Clearwire License (ii) that expires by its terms
within 12 months of the Execution Date or (iii) the
terms of which permit Clearwire to terminate such Clearwire
Lease within 12 months of the Execution Date.
Clearwire Payment Event has the
meaning set forth in Section 14.14(b).
Clearwire Recommendation has the
meaning set forth in Section 10.7.
Clearwire Stockholder Approval has the
meaning set forth in Section 6.1(a).
Clearwire Stockholder Meeting has the
meaning set forth in Section 10.7.
Clearwire Stock Option has the meaning
set forth in Section 2.7(a).
Clearwire Stock Option Plans has the
meaning set forth in Section 2.7(a).
Clearwire Sub LLC has the meaning set
forth in the Recitals.
Clearwire Transaction Tax Items has
the meaning set forth in Section 6.7(i).
Clearwire Warrant has the meaning set
forth in Section 2.8.
Clearwire Warrant Agreements has the
meaning set forth in Section 2.8.
Closing has the meaning set forth in
Section 2.3.
Closing Conditions has the meaning set
forth in Section 2.1.
Closing Date means the date on which
the Closing occurs.
Code has the meaning set forth in the
Recitals.
Comcast has the meaning set forth in
the Preamble.
Communications Act means the
Communications Act of 1934 and all regulations and rules
promulgated under it.
Consents means the Governmental
Consents, the consents set forth on Section 6.2 of the
Clearwire Disclosure Schedule and Section 7.2 of the Sprint
Disclosure Schedule and any other third party consent required
to effect any aspect of the Transactions.
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Credit Agreement means the Credit
Agreement dated as of July 3, 2007 among Clearwire,
Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Citigroup Global Markets Inc., as
Co-Documentation Agents, JPMorgan Chase Bank, N.A., as
Syndication Agent, Morgan Stanley & Co., Inc., as
Collateral Agent, Morgan Stanley Senior Funding, Inc., as
Administrative Agent, and the lenders thereto, as amended from
time to time.
Credit Agreement Consent has the
meaning set forth in Section 9.1(o).
Credit Agreement Refinancing has the
meaning set forth in Section 9.1(o)).
Daily Sales Price for any Trading Day
means the volume weighted intraday average price per share of
Class A Common Stock as of the closing of the Trading Day
as reported by Nasdaq or the NYSE, if applicable.
Damages means the amount of any loss,
liability, claim, damage, Taxes, expense (including costs of
investigation and defense and reasonable attorneys fees)
or diminution of value, whether or not involving a third-party
claim.
Deductible Amount has the meaning set
forth in Section 13.3(a).
Debt Financing has the meaning set
forth in Section 10.8(d).
Delaware Law has the meaning set forth
in Section 2.2.
Disclosure Schedule means the
disclosure schedules to this Agreement delivered by the Parties
on the Execution Date.
DGCL has the meaning set forth in
Section 2.2.
DLLC has the meaning set forth in
Section 2.2.
D&O Insurance has the meaning set
forth in Section 10.6(b).
Domestic Clearwire Subsidiary means
any Subsidiary of Clearwire other than Clearwire International
LLC and its Subsidiaries.
Eagle River has the meaning set forth
in the Recitals.
EBS means Educational Broadband
Service, a fixed or mobile service, the licensees of which are
educational institutions or non-profit educational
organizations, and intended primarily for video, data, or voice
transmissions of instructional, cultural, and other types of
educational material licensed by the FCC under Part 27 of
Title 47 of the Code of Federal Regulations, as amended and
interpreted by the FCC.
Effective Time has the meaning set
forth in Section 2.4.
Encumbrance means any charge, claim,
condition, equitable interest, lien, option, pledge, security
interest, right of first refusal, or restriction of any kind,
including any restriction on use, voting, transfer, receipt of
income, or exercise of any other attribute of ownership, except
for the following Permitted Encumbrances:
(a) liens in respect of property taxes or similar
assessments, governmental charges or levies that (i) relate
solely to the interests of a ground lessor and are not, in the
aggregate for all such interests, in excess of $10 million,
or (ii) are not yet due and payable;
(b) liens of landlords, laborers,
shippers, carriers, warehousemens,
mechanics, materialmens, repairmens and other
like Liens imposed by law, (i) that relate solely to the
interests of a ground lessor and are not in excess of $50,000,
or (ii) arising in the ordinary course of business and
securing obligations that are not yet due and payable;
(c) any easements, rights of public utility companies,
rights-of-way,
covenants, conditions, licenses, restrictions, reservations of
mineral rights (with surface rights being waived) or similar
non-monetary
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encumbrances that do not impair the use or operation of the
applicable property, including property used as a communications
tower site and the rental of that site to tower subtenants,
(d) rights of tenants in possession of a telecommunications
tower site under a collocation agreements,
(e) ground lessor mortgages,
(f) other matters filed in the public real estate records
which do not materially impair, in the lessees reasonable
discretion, the use or operation of applicable property,
including property used as a communication tower site and the
rental of that site to tower subtenants, and
(g) liens on the shares of Capital Stock of Clearwire.
Environmental Laws means any Law
relating to the environment (including air, water, vapor,
surface water, groundwater, drinking water supply, surface land,
subsurface land, plant and animal life or any other natural
resource), to pollutants, contaminants, wastes, chemicals or any
toxic, radioactive, ignitable, corrosive, reactive or otherwise
hazardous substance, wastes or materials, or to human health or
safety as it relates to the environment, including without
limitation the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. § 9601 et
seq., the Emergency Planning and Community
Right-to-Know
Act, 42 U.S.C. § 11001 et seq., the National
Environmental Policy Act, 42 U.S.C. § 4321 et seq.,
the Hazardous Materials Transportation Act, 49 U.S.C.
§ 1801 et seq., the Resource Conservation and Recovery Act,
42 U.S.C. § 6901 et seq., the Clean Water Act,
33 U.S.C. § 1251 et seq., the Clean Air Act,
33 U.S.C. § 2601 et seq., the National Historic
Preservation Act, 16 U.S.C. § 470 et. seq., the Toxic
Substances Control Act, 15 U.S.C. § 2601 et seq., the
Federal Insecticide, Fungicide, and Rodenticide Act,
7 U.S.C. § 136 et seq., and the Oil Pollution Act
of 1990, 33 U.S.C. § 2701 et seq., and the regulations
promulgated under these Laws, and all analogous state or local
Laws, in the case of each of these federal, state or local Laws
and regulations, as amended.
Equityholders Agreement has the
meaning set forth in Section 1.3.
ERISA has the meaning set forth in
Section 6.16.
ERISA Affiliate has the meaning set
forth in Section 6.16.
Exchange Act means the Securities
Exchange Act of 1934, as amended.
Exchange Agent means American Stock
Transfer.
Execution Date has the meaning set
forth in the Preamble.
FCC means the Federal Communications
Commission.
FCC Consent means that the FCC has
released one or more public notices which, considered together,
constitute its consent to the transfer of control or assignment
of (i) each Clearwire License and Sprint License, and
(ii) each Clearwire Lease or Sprint Lease requiring such
consent, which are included in the Transactions; provided
that if the FCC has released a public notice, news release
or similar document or announcement that it will release a
formal order addressing one or more of such transfers of control
or assignments, the FCC has released a formal order
affirmatively consenting to such transfers of control or
assignments and setting forth the detailed terms and conditions,
if any, thereof, and such order has become effective.
FCC Rules means the Communications
Act, and the rules and regulations established by the FCC under
the Communications Act, as codified in Title 47 of the Code
of Federal Regulations, as any of them may be modified or
amended from time to time hereafter, together with all orders
and public notices of the FCC.
Final Determination means (i) any
final determination of liability in respect of a Tax, that under
applicable Law, is not subject to further appeal, review or
modification through Proceedings or otherwise (including the
expiration of the statute of limitations or a period for the
filing of claims for refunds, amended Tax Returns or appeals
from adverse terminations), including a
determination as defined in Section 1313(a) of
the Code or execution of an Internal Revenue Service
Form 870 or 870AD (or comparable events for state,
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local or foreign income Tax purposes), (ii) the payment of
Tax by a Party or any of their Affiliates, whichever is
responsible for payment of such Tax under applicable Law with
respect to any item disallowed or adjusted by a Taxing
Authority, (iii) the execution by a Party or any of its
Affiliates of an Issue Resolution Agreement (or similar or
successor agreement, or comparable agreement for state, local or
foreign income Tax purposes) in respect of a Tax pursuant to the
Internal Revenue Service Compliance Assurance Process program
(or similar or successor program, or comparable program for
state, local or foreign income Tax purposes) or (iv) the
receipt by a Party or any of its Affiliates of a Full or Partial
Letter of Acceptance (or similar or successor agreement, or
comparable agreement for state, local or foreign income Tax
purposes) in respect of a Tax pursuant to the Internal Revenue
Service Compliance Assurance Process program (or similar or
successor program, or comparable program for state, local or
foreign income Tax purposes).
Final Order means that 41 days
have elapsed from the date of the FCCs issuance of public
notice of an action without any filing of any adverse request,
petition or appeal by any third Person or adverse action by the
FCC on its own motion, or, if challenged, the action will have
been reaffirmed or upheld and the applicable period for seeking
further administrative or judicial review will have expired
without the filing of any action, petition or request for
further review.
Financial Statements means all of the
financial statements made by the applicable party included in
filings made to the SEC, including any related notes thereto.
GAAP has the meaning set forth in
Section 6.12(d).
Google has the meaning set forth in
the Preamble.
Google Agreements means (i) the
Products and Services Agreement to be entered into as of the
Closing Date between Google and NewCo LLC, (ii) the
Spectrum Agreement to be entered into as of the Closing Date
between Google and NewCo LLC and (iii) the Letter Agreement
to be entered into as of the Closing Date among NewCo, NewCo
LLC, Comcast, Google and TWC, each substantially in the form
agreed to by the Parties as of the date of this Agreement.
Governmental Authority means any
(i) nation, state, county, city, town, village, district or
other jurisdiction of any nature; (ii) federal, state,
local, municipal, or other government; (iii) governmental
or quasi-governmental authority of any nature; or (iv) body
exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory or taxing
power or authority of any nature.
Governmental Consents means the
following consents, approvals, authorizations or permits of, or
filings with or notification to, any Governmental Authority
required for the performance of this Agreement:
(a) the applicable requirements, if any, of the Securities
Act, the Exchange Act, state securities or blue sky
Laws and filing and recordation of appropriate merger documents
as required by Delaware Law,
(b) those required by the HSR Act and any applicable
foreign antitrust Laws;
(c) the approval of the FCC and any applicable foreign
Governmental Authorities governing telecommunications
services, and
(d) filings with the SEC.
Governmental Licenses means all
notifications, licenses, permits (including environmental,
construction and operation permits), franchises, certificates,
approvals, exemptions, classifications, registrations and other
similar documents and authorizations issued by a Governmental
Authority, and applications therefor, except Licenses issued by
the FCC.
GSA has the meaning set forth in the
definition of MHz-Pops.
HSR Act means the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
Indebtedness of any Person means, at
any date, without duplication, (i) all obligations of such
Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar
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instruments, (iii) all obligations of such Person to pay
the deferred purchase price of property or services, other than
(A) obligations under spectrum purchase agreements and
purchase agreements for tower sites, equipment and related
assets not yet due and payable as of the Closing Date and
(B) trade accounts payable arising in the ordinary course
of business, (iv) all obligations of such Person as lessee
which are capitalized in accordance with GAAP, (v) all
non-contingent obligations of such Person to reimburse any bank
or other Person in respect of amounts paid under a letter of
credit or similar instrument, (vi) all Indebtedness secured
by an Encumbrance on any asset of such Person, whether or not
such Indebtedness is otherwise an obligation of such Person, but
only to the extent of such Encumbrance, and excluding any
purchase money security interests and (vii) all guarantees
by such Person of Indebtedness of another Person (each such
guarantee to constitute Indebtedness in an amount equal to the
amount of such other Persons Indebtedness guaranteed
thereby).
Indemnified Litigation has the meaning
set forth in Section 13.1(e).
Indemnified Party has the meaning set
forth in Section 13.2(a).
Indemnifying Party has the meaning set
forth in Section 13.2(a).
Independent Advisor has the meaning
set forth in Section 6.1(c).
Initial NewCo LLC Agreement has the
meaning set forth in Section 1.1(b).
Intel has the meaning set forth in the
Preamble.
Intel Agreements means (i) the
Market Development Agreement to be entered into as of the
Closing Date between Intel and NewCo LLC, (ii) the Letter
Agreement to be entered into as of the date of this Agreement
between Intel and Sprint Spectrum L.P. and (iii) the Letter
Agreement to be entered into as of the date of this Agreement
between Intel and Clearwire, each substantially in the form
agreed to by the Parties as of the date of this Agreement.
Interest Period means the period
beginning on (i) for purposes of clause (i) of
Section 1.2(f), the Sprint Pre-Closing Financing Repayment
Date; (ii) for purposes of clause (ii) of
Section 1.2(f), the date on which any interest was paid by
Sprint Sub LLC to Sprint pursuant to the Secured Note with
respect to the portion of the Reimbursement Amount for which the
Secured Note is reduced pursuant to Section 1.2(e); and
(iii) for purposes of Section 10.17(b), the first date
on which an invoice for Sprint WiMAX Closing Date Inventory is
due but not yet paid (in the case of the first Interest Period)
or on the day following the last day of the Interest Period then
ending (in the case of each subsequent Interest Period) and
ending on the last day of each calendar month; provided
that if an Interest Period would otherwise end (x) on a
day which is not a Business Day, it shall be extended to the
next succeeding Business Day and (y) after the relevant
payment date, it shall end on the day preceding the payment date
or, if such day is not a Business Day, the next preceding
Business Day.
Investor Material Adverse Effect
means, with respect to any Investor, any state of facts, change,
event, effect or occurrence (when taken together with all other
states of fact, changes, events, effects or occurrences) that is
or would be reasonably likely to be materially adverse to the
ability of such Investor to consummate the Transactions.
Investor Supermajority in Interest
means any number of Investors whose collective Investment is
greater than 75% of the Total Investment.
Investment means, with respect to each
Investor, the contribution of each Investor made under
Section 4.1 or Section 4.2.
Investors has the meaning set forth in
the Preamble.
Knowledge means (i) with respect
to Clearwire, all facts actually known after reasonable inquiry
by any of the individuals listed on
Section A-1
of the Clearwire Disclosure Schedule and (ii) with respect
to Sprint, all facts actually known after reasonable inquiry by
any of the individuals listed on
Section A-2
of the Sprint Disclosure Schedule.
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Law means any applicable foreign or
domestic, federal, state or local law (including common law),
statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, order, judgment, decree,
injunction or requirement of any Governmental Authority or any
arbitration tribunal.
Lease means any written agreements,
together with all amendments, waivers and notices to these
written agreements, under which a Person (i) leases the
right to use the transmission capacity associated with a License
or (ii) has a right of first refusal or any other
contractual right to acquire any rights for the use of any
License, including without limitation, any agreement for the
acquisition of a License or any right to lease spectrum rights
under a License.
Liabilities means all debts,
liabilities, obligations, responsibilities, response actions,
losses, damages (whether compensatory, punitive, consequential,
treble or other), fines, penalties and sanctions, absolute or
contingent, matured or unmatured, liquidated or unliquidated,
foreseen or unforeseen, on- or off-balance sheet, joint, several
or individual, asserted or unasserted, accrued or unaccrued,
known or unknown, when arising, including those arising under or
in connection with any Law, and those arising under any
contract, guarantee, commitment or undertaking, whether sought
to be imposed by a Governmental Authority, private party, or a
party, whether based in contract, tort, implied or express,
warranty, strict liability, criminal or civil statute, or
otherwise, and including any costs, expenses, interest,
attorneys fees, disbursements and expense of counsel,
expert and consulting fees, fees of third party administrators,
and costs related thereto or to the investigation or defense
thereof.
LIBOR means, for any Interest Period,
the 6-month
London Interbank Offered Rate as of 11:00 a.m. London
time on the second Business Day prior to the last day of the
Interest Period. The applicable rate will be determined by
typing US0006M <index> HP <go>
on Bloomberg and selecting the yield shown on the screen for the
applicable date.
License means an FCC license for the
operation of 2.5 GHz Spectrum, including any application
for a License and any application to renew any previously
existing License.
Listed Transaction has the meaning set
forth in Section 7.7(g).
LLC Contribution has the meaning set
forth in Section 3.3(a).
Marketing Funds has the meaning set
forth in Section 3.5.
Merger has the meaning set forth in
Section 2.2.
Merger Consideration has the meaning
set forth in Section 2.5.
MHz-Pops means, with respect to any
set of spectrum rights, the number of MHz of spectrum bandwidth
to which such rights apply, multiplied by the population
residing within the Geographic Service Area (as defined in
Section 27.1206 of the FCC Rules, a GSA)
covered by such rights, as modified by any partitioning of such
GSA, and as otherwise determined by applying the standards and
methodology set forth below and in Article 9.
For the purpose of calculating MHz and MHz-Pops:
(a) the number of MHz of spectrum bandwidth attributable to
any BRS License will equal all spectrum authorized by the FCC
for such License, calculated as if the Transition
contemplated by the FCC in WT Docket
No. 03-66
has been completed with respect to such License (regardless of
whether the Transition has been initiated or completed), less
the portion of the spectrum for such License authorized in
the J band (2568 MHz to 2572 MHz) or K band
(2614 MHz to 2618 MHz);
(b) the number of MHz attributable to any EBS License that
is subject to a Lease will equal all spectrum authorized by the
FCC for such License (without regard to any licensee reservation
other than as set forth in clause (ii) below), calculated
as if the Transition contemplated by the FCC in WT
Docket
No. 03-66
has been completed with respect to such License (regardless of
whether the Transition has been initiated or completed), less
(i) the portion of the spectrum associated with such
License authorized in the J band (2568 MHz to
2572 MHz) or K band (2614 MHz to 2618 MHz) and
(ii) any
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MHz representing a full 5.5 MHz or 6 MHz channel that
is reserved solely for the EBS licensees use following
implementation of digital transmissions using the spectrum;
(c) only the MHz and MHz-Pops associated with Licenses that
are in full force and effect shall be included in any
calculation; and
(d) (i) if any Governmental Authority has required the
disposition of any spectrum, such spectrum (and related
MHz-Pops) shall not be included in such calculation even if such
disposition is to occur or can be delayed until after the date
of the applicable calculation, (ii) if Clearwire or any of
its Subsidiaries or Sprint or any of its Subsidiaries has
entered into a spectrum swap agreement relating to the exchange
of spectrum with any Person that has not been consummated prior
to the date of the applicable calculation but as to which the
agreement is then in full force and effect and no party thereto
is then in breach, it shall be assumed that the swap transaction
has been consummated, and (iii) if Clearwire or any of its
Subsidiaries or Sprint or any of its Subsidiaries has entered
into any agreement that requires that transfer of a License or
Lease to a Person other than Sprint, Clearwire or a Subsidiary
of either, that has not been consummated prior to the date of
the applicable calculation, such Lease or License (and related
MHz-Pops) shall not be included in such calculation (it being
understood that the taking of any actions referred to in
clauses (ii) or (iii) are subject to the provisions of
Section 10.1).
To the extent any License has been or is renewed or reinstated
by the FCC following its expiration without the timely filing of
an application for renewal or other termination by Final Order,
for purposes of calculating MHz Pops, the GSA boundaries for
such renewed or reinstated License are determined by applying
the applicable provisions in the FCCs March 20, 2008
Declaratory Ruling in WT Docket
No. 03-66
(Amendment of Parts 1, 21, 73, 74 and 101 of the
Commissions Rules to Facilitate the Provision of Fixed and
Mobile Broadband Access, Educational and Other Advanced Services
in the
2150-2162
and
2500-2690 MHz
Bands, Third Order on Reconsideration and Sixth Memorandum
Opinion and Order and Fourth Memorandum Opinion and Order and
Second Further Notice of Proposed Rulemaking and Declaratory
Ruling, 23 FCC Rcd. 6315 (2008)), or by such other boundaries as
the FCC shall specify by Final Order in renewing or reinstating
such License.
GSA and BTA boundaries are determined on a
channel-by-channel
basis in accordance with Sections 27.1206 and 27.1208 of
the FCC Rules, respectively. Determination of population for any
GSA or BTA will be based upon the current SRC, LLC population
database, or such other industry-standard database as may be
mutually agreed upon by the Parties. Sprint will use
CelPlan®
Technologies Inc.
CelSpectrumTM,
and Clearwire will use
MapInfotm
and its proprietary software, to determine GSA boundaries and
associated population counts as well as to plot such GSAs for
graphical presentation.
Modified Tax Certificate has the
meaning set forth in Section 10.3(j).
Nasdaq means the Nasdaq Global Select
Market.
NewCo has the meaning set forth in the
Recitals.
NewCo Capital Stock means the Capital
Stock of NewCo.
NewCo Indemnified Persons has the
meaning set forth in Section 13.1.
NewCo LLC has the meaning set forth in
the Recitals.
NewCo LLC Plan has the meaning set
forth in Section 11.3(a).
NewCo LLC Agreement has the meaning
set forth in Section 1.1(b).
NewCo Volume Weighted Share Price
means the price equal to the average Daily Sales Price (rounded
to the nearest ten-thousandth) of the Class A Common Stock
for the fifteen (15) Trading Days selected by Sprint,
Clearwire and the Investors in the manner described in the next
two sentences out of the thirty (30) Trading Days ending on
and including the Trading Day prior to the Adjustment Date (the
Random Trading Days); provided,
however, that (i) if the NewCo Volume Weighted Share
Price is less than $17.00, then, for purposes of this Agreement,
the NewCo Volume Weighted Share Price will be deemed to equal
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$17.00; and (ii) if the NewCo Volume Weighted Share Price
is more than $23.00, then, for purposes of this Agreement, the
NewCo Volume Weighted Share Price will be deemed to equal
$23.00. The Random Trading Days shall be selected pursuant to a
process reasonably acceptable to Sprint, Clearwire and each of
the Investors which ensures that the selections are made on a
random and blind basis without manipulation by any Party. The
Random Trading Days shall be selected pursuant to such process
by Sprint, Clearwire and the Investors, with a representative of
each of Sprint and Clearwire each selecting five of those Random
Trading Days and a representative of each of the five Investors
each selecting one of those Random Trading Days. The blind
selection process shall take place at the end of the Trading Day
immediately prior to the Adjustment Date at a location that is
reasonably acceptable to Sprint, Clearwire and the Investors and
each Party shall be entitled to have a representative present.
New Sprint LLC has the meaning set
forth in Section 3.2(b).
NYSE means the New York Stock Exchange.
Objection has the meaning set forth in
Section 1.2(c).
Parties has the meaning set forth in
the preamble.
Partnership Tax Opinion has the
meaning set forth in Section 10.3(j).
Pending Party Litigation has the
meaning set forth in Section 10.15.
Person means any individual,
corporation, limited liability company, limited or general
partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, government or any agency or
political subdivisions thereof or any group comprised of two or
more of the foregoing.
Pre-Closing Accrued Interest has the
meaning set forth in Section 1.2(b).
Pre-Existing Intel Agreements means
(i) the Voting Agreement dated as of August 29, 2006
among Clearwire, Intel Pacific, Inc., Intel Capital Corporation
and Eagle River Holdings, LLC and (ii) Side Letter dated as
of June 28, 2006 by and among Clearwire, Intel Pacific,
Inc. and Eagle River Holdings, LLC.
Post-Closing Verification Period has
the meaning set forth in Section 1.2(c).
Preferred Stock has the meaning set
forth in Section 6.13(a).
Proceeding means any claim, action,
arbitration, hearing, legal complaint, investigation,
litigation, or suit (whether civil, criminal, administrative)
commenced, brought, conducted, or heard by or before, any
Governmental Authority or arbitrator.
Proxy Statement has the meaning set
forth in Section 6.20.
Purchase Period has the meaning set
forth in Section 10.17(a).
Reasonable Best Efforts means the
efforts that a prudent Person desirous of achieving a result
would use in similar circumstances to achieve that result as
expeditiously and as reasonably as possible, except that a
Person required to use Reasonable Best Efforts under this
Agreement will not by this requirement be required to take
actions that would result in a material adverse change in the
benefits to the Person of this Agreement or dispose of any
material asset (except as provided in this Agreement).
Recapitalization has the meaning set
forth in Section 2.1.
Receiving Party has the meaning
specified in Section 10.2(b).
Registration Rights Agreement means
the Registration Rights Agreement dated as of the Closing Date,
substantially in the form of Exhibit H.
Registration Statement has the meaning
set forth in Section 10.8(a).
Reimbursement Amount has the meaning
set forth in Section 1.2(c).
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Representative means, with respect to
a particular Person, any director, officer, member, manager,
employee, agent, consultant, advisor, or other representative of
such Person, including legal counsel, accountants, and financial
advisors.
Required Information has the meaning
set forth in Section 10.8(d).
SEC means the Securities and Exchange
Commission.
SEC Documents has the meaning set
forth in Section 6.12(a).
Secured Note has the meaning set forth
in Section 1.2(b).
Secured Note Documentation means
the Secured Note and other documents to be delivered in
accordance with Exhibit L.
Securities Act means the Securities
Act of 1933, as amended.
Specified Clearwire Contracts means
Clearwire Contracts (a) which involve obligations of, or
payments to Clearwire or any Subsidiary of Clearwire in excess
of $10 million, (b) which involve the granting of any
rights or any provisions that, individually or in the aggregate,
materially restrict or adversely affect the development,
licensing, marketing, distribution or sale of Clearwires
or its Affiliates products or services, (c) which
limit or purport to limit the freedom of Clearwire or any of its
Affiliates to compete in any line of business or with any Person
or in any area or which would so limit the freedom of NewCo or
any of its Affiliates after the Effective Time, (d) which
grant any exclusive license or supply or distribution agreement
or right or other exclusive rights, (e) of Clearwire or any
Domestic Clearwire Subsidiary which involve most favored
nation or similar obligations or restrictions,
(f) that would, after the Closing, purport to bind (or
otherwise restrict in any way) any Affiliate of NewCo (other
than NewCo or any of its Subsidiaries), (g) with Sprint or
any of its Affiliates or (h) with (i) Eagle River or
any of its Affiliates (excluding Clearwire and its
Subsidiaries), (ii) any Person directly or indirectly
owning, controlling or holding the power to vote, any of the
outstanding voting securities of Eagle River or any of its
Affiliates (excluding Clearwire and its Subsidiaries) or
(iii) any director, manager or officer of Eagle River or
any of its Affiliates (excluding Clearwire and its Subsidiaries)
or any associates or members of the immediate
family (as such terms are respectively defined in
Rule 12b-2
and
Rule 16a-1
of the Exchange Act) of any such director, manager or officer.
Specified Sprint Contracts means
Sprint Contracts (a) which involve obligations of, or
payments to Sprint or any Subsidiary of Sprint in excess of
$10 million, (b) which involve the granting of any
rights or any provisions that, individually or in the aggregate,
materially restrict or adversely affect the development,
licensing, marketing, distribution or sale of Sprints
products or services of the Sprint WiMAX Business,
(c) which limit or purport to limit the freedom of the
Sprint WiMAX Business to compete in any line of business or with
any Person or in any area or which would so limit the freedom of
NewCo or any of its Affiliates after the Effective Time,
(d) which grant any exclusive license or supply or
distribution agreement or right or other exclusive rights,
(e) which involve most favored nation or
similar obligations or restrictions, (f) that would, after
the Closing, purport to bind (or otherwise restrict in any way)
any Affiliate of NewCo (other than NewCo or any of its
Subsidiaries), (g) with Clearwire or any of its Affiliates
or (h) in which Sprint or any of its Affiliates will be a
counterparty following the Closing other than the agreements
contemplated by this Agreement.
Sprint has the meaning set forth in
the preamble.
Sprint Affiliate Management Agreement
means an agreement (including any addenda) entered into between
Sprint or its Affiliates and another Person for the purpose of
engaging the other Person to both (i) manage portions of a
CDMA mobile wireless communications network using the
Persons own network equipment and (ii) sell mobile
wireless communications services as the agent of Sprint under
the Sprint designated brand.
Sprint Assets means:
(i) the Sprint Contracts (subject to Section 3.5);
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(ii) the Sprint Licenses;
(iii) the Sprint Leases;
(iv) the Sprint Intellectual Property;
(v) the Sprint Network Assets;
(vi) all Governmental Licenses relating to any Sprint
License, Sprint Lease or Sprint Network Asset; and
(vii) all rights of Sprint and its Subsidiaries in the
Proceedings identified as items 1 through 8 in
Section 7.6 of the Sprint Disclosure Schedule.
Sprint Budget means the budget for the
period beginning on April 1, 2008 through December 31,
2008 in the form agreed to by Sprint and the Investors and that
has been provided to the Investors (but not to Clearwire).
Sprint Closing Date MHz-Pops has the
meaning set forth in Section 9.3(d).
Sprint Contracts means any contracts
of Sprint or of its Subsidiaries (other than Sprint Licenses or
Sprint Leases) primarily relating to the Sprint Licenses, Sprint
Leases, Sprint Network Assets or the Sprint WiMAX Business.
Sprint Confidentiality Agreement means
the Agreement for Mutual Use and Non-Disclosure of Proprietary
Information between Clearwire and Sprint dated February 16,
2008.
Sprint De Facto Transfer Lease means a
Sprint Lease that is a long term de facto transfer
leasing arrangement pursuant 47 C.F.R. 1.9030.
Sprint Disclosure Schedule has the
meaning set forth in the preamble to Article 7.
Sprint HoldCo LLC has the meaning set
forth in the recitals.
Sprint In-Lease means any Sprint Lease
other than (i) a Lease under which Sprint or any of its
Subsidiaries is the lessor or sublessor, or (ii) any such
Lease under which Sprint or any of its Subsidiaries is the
lessee of a Clearwire License.
Sprint Intellectual Property means the
intellectual property being assigned to NewCo (or an Affiliate
of NewCo) under the Intellectual Property Rights Agreement in
the form agreed to by the Parties as of the date of this
Agreement, subject to the updating of the schedules to the
Intellectual Property Rights Agreement on the Closing Date as
contemplated by the Intellectual Property Rights Agreement.
Sprint Lease means any Lease under
which Sprint or any of its Subsidiaries is a party and that
encumbers a License.
Sprint Leased FCC Licenses has the
meaning set forth in Section 7.4(h).
Sprint Licenses means the Licenses
held by Sprint or its Subsidiaries.
Sprint License Disputes has the
meaning set forth in Section 7.6(b).
Sprint License Facilities has the
meaning set forth in Section 7.3(c)
Sprint Material Adverse Effect means
any state of facts, change, event, effect or occurrence (when
taken together with all other states of fact, changes, events,
effects or occurrences) that is or would be reasonably likely to
be materially adverse to (a) the condition (financial or
otherwise), business, assets or liabilities of the Sprint Assets
or Sprint WiMAX Business taken as a whole, or (b) the
ability of Sprint, Sprint HoldCo LLC, Sprint Sub LLC and the
Transfer Entities to consummate any of the Transactions.
However, none of the following, either alone or in combination,
will constitute or be taken into account in determining whether
there has been a Sprint Material Adverse Effect for purposes of
clause (a) (i) any change in the market price of the
Capital Stock of Sprint after the date of this Agreement (except
this clause (i) does not exclude any underlying
circumstance, change, event, fact, development or effect that
may have caused that
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change in market price), (ii) changes, circumstances or
conditions generally affecting any industry in which Sprint or
any of its Subsidiaries participate and not having a materially
disproportionate effect on Sprint and its Subsidiaries
(iii) changes generally affecting United States or global
economic conditions or financial, banking or securities markets,
(iv) changes resulting from a change in any applicable law,
rule or regulation or GAAP or official interpretation thereof or
other accounting requirement or principle and not having a
materially disproportionate effect on Sprint and its
Subsidiaries as compared to other companies in its industry,
(v) changes resulting from any act of God;
(vi) changes resulting from any act of war or terrorism (or
any escalation thereof) or any national or international
political or social event or condition, including the engagement
by the United States in hostilities or the expansion of
hostilities ongoing on the date of this Agreement, whether or
not pursuant to the declaration of a national emergency or war,
or the occurrence of any military or terrorist attack upon the
United States or any of its territories, possessions or
diplomatic or consular offices or upon any military
installation, equipment or personnel of the United States and
not uniquely targeting or having a unique or materially
disproportionate effect on Sprint and its Subsidiaries, or
(vii) changes, facts, circumstances or conditions
attributable solely to the announcement or existence of this
Agreement or any Transaction contemplated by or in compliance
with any term of this Agreement; provided,
however, that the exception in this clause (vii)
will not be deemed to apply to references of Sprint Material
Adverse Effect in the representations and warranties set forth
in Sections 7.2 and 7.10 and, to the extent related to such
representations and warranties, the conditions set forth in
Sections 9.3(a) and 9.4(a).
Sprint Network Assets means tower
sites, equipment and related assets (including design plans)
owned by Sprint or any of its Subsidiaries and used solely in
connection with the Sprint Licenses and Sprint Leases.
Sprint Out-Lease means any Sprint
Lease under which Sprint or any of its Subsidiaries is the
lessor or sublessor, other than any such Lease (i) under
which Clearwire or any of its Subsidiaries is the lessee of a
Sprint License, (ii) that expires by its terms within
12 months of the Execution Date, or (iii) the terms of
which permit Sprint to terminate such Sprint Lease within
12 months of the Execution Date.
Sprint Pre-Closing Financing has the
meaning set forth in Section 1.2(a).
Sprint Pre-Closing Financing Repayment
Date has the meaning set forth in
Section 1.2(b).
Sprint Restructuring Transfer Taxes
has the meaning set forth in Section 10.11.
Sprint Samsung Agreement means that
certain Master Supply Agreement by and between Sprint/United
Management Company and Samsung Telecommunications America, LLC,
dated August 22, 2007.
Sprint Senior Debt Agreements means,
collectively, (i) the Credit Agreement dated as of
December 19, 2005, as amended, among Sprint Nextel
Corporation, Nextel Communications, Inc., Sprint Capital
Corporation, the banks and other financial institutions and
lenders that are parties thereto, and JPMorgan Chase Bank, N.A.,
as Administrative Agent, (ii) the Indenture dated as of
October 1, 1998 among Sprint Capital Corporation, Sprint
Corporation and Bank One, NA, as trustee, together with all
supplements thereto, (iii) the Credit Agreement dated as of
March 23, 2007 between Sprint Nextel Corporation and Export
Development Canada and (iv) each other credit or loan
agreement, indenture, or other similar instrument (or series of
related instruments) evidencing or governing indebtedness for
money borrowed or guarantees of Sprint or any of its
Subsidiaries in an amount equal to or greater than $100,000,000
(provided that (x) any indebtedness borrowed or
issued pursuant to a base indenture or credit
agreement with multiple facilities, series or tranches shall be
aggregated for purposes of this calculation, and (y) the
amount of indebtedness for purposes of this calculation under
any revolving facility shall be the maximum amount available to
be borrowed under such facility).
Sprint Sub LLC has the meaning set
forth in the Recitals.
Sprint WiMAX Business means the WiMAX
Business of Sprint and its Subsidiaries, including the Sprint
Assets.
Sprint WiMAX Closing Date Inventory
has the meaning set forth in Section 10.17(a).
Sprint WiMAX Inventory means the
inventory Sprint and its Subsidiaries purchases under
(i) the Sprint Samsung Agreement, (ii) the Binding
Term Sheet between Sprint United Management Company and Motorola
A-98
Inc. for Next Generation Mobile Wireless Broadband, effective as
of August 4, 2006, and (iii) the Master Purchase
Agreement for Technical Deliverables and Related Services, dated
June 1, 2007 by and between Sprint/United Management
Company and KMW USA Inc.
Stockholders Meeting has the
meaning set forth in Section 6.20.
Subsidiary means a corporation,
association, subsidiary, partnership, limited liability company
or other entity of which any Party controls, directly or
indirectly, 50% or more of the outstanding equity interests;
provided that following the Closing, neither NewCo nor
any of its Subsidiaries shall be considered a Subsidiary of
Sprint or its Affiliates.
Superior Proposal has the meaning set
forth in Section 10.4(f).
Surviving Entity has the meaning set
forth in Section 2.2.
Tax or Taxes
means any federal, state, local, or foreign taxes, assessment,
duties, fees, levies, imposts, deductions, or withholdings,
including income, gross receipts, ad valorem, value added,
excise, real or personal property, asset, sales, use, license,
payroll, transaction, capital, net worth, franchise taxes,
estimated, withholding, employment, social security, workers
compensation, environmental, utility, severance, production,
unemployment compensation, occupation, premium, windfall
profits, transfer, gains, or other tax or governmental charge of
any nature whatsoever, imposed by any Governmental Authority of
any government or country or political subdivision of any
country, and any liabilities with respect thereto, including any
penalties, additions to tax, fines or interest thereon and
includes any liability for Taxes of another person by contract,
as a transferee or successor, under Treas. Reg. § 1.1502-6
or analogous state, local or foreign Law provision or otherwise.
Tax Certificate has the meaning set
forth in Section 10.3(j).
Tax Counsel means Davis Wright
Tremaine LLP, Kirkland & Ellis LLP, or other legal
counsel nationally recognized in matters relating to federal
income taxation reasonably acceptable to Sprint, Comcast, TWC,
BHN and Intel.
Tax Return means any return (including
any information return), report, statement, schedule, notice,
form, or other document or information filed with or submitted
to, or required to be filed with or submitted to, any Taxing
Authority in connection with the determination, assessment,
collection, or payment of any Tax or in connection with the
administration, implementation, or enforcement of or compliance
with any Law relating to any Tax, including any schedule or
attachment thereto and any amendment to those documents.
Taxing Authority means the Internal
Revenue Service and any other federal, state, local or foreign
governmental authority, agency, or instrumentality responsible
for the administration or assessment of any Tax.
Termination Date has the meaning set
forth in Section 12.1(e).
Third Party Claim has the meaning set
forth in Section 13.2(a).
Total Investment means the aggregate
Investments of Comcast, TWC, BHN, Google and Intel.
Trading Day means a day that
Class A Common Stock is traded on Nasdaq or the NYSE, if
applicable.
Transaction Related Agreements has the
meaning set forth in Section 6.21.
Transactions means those transactions
contemplated by Article 1, Article 2, Article 3,
Article 4, and Article 5.
Transfer Taxes means sales, use,
stamp, recording, transaction-related excise, gross receipts or
similar transfer taxes, fees and charges. For the avoidance of
doubt, Transfer Taxes do not include any Tax measured by net
income, profit, or gain of any Person.
A-99
Transfer Entities means those Persons
wholly owned, directly or indirectly by Sprint and listed in
Section 7.1(c) of the Sprint Disclosure Schedule as
modified before the Closing in accordance with
Section 3.2(b).
Transferred Employee has the meaning
set forth in Section 11.1(c).
TWC has the meaning set forth in the
Preamble.
Uncertificated Shares has the meaning
set forth in Section 2.6(a).
Voting Units has the meaning set forth
in the NewCo LLC Agreement.
WiMAX means the IEEE
802.16e-2005
Wave 2 conforming technology standard, including future
evolution thereof (as defined by the WiMAX Forum).
WiMAX Forum means the industry-led,
non-profit corporation formed to promote and certify
compatibility and interoperability of broadband wireless
products utilizing industry standard, IEEE 802.16.
WiMAX Businesses means the assets,
operations and businesses as of the Closing Date held by a Party
or any of its Affiliates that relate to the present or future
ownership, control and operation of systems or networks to
provide telecommunications and information services over the
2.5 GHz Spectrum.
Wireless Broadband Network has the
meaning set forth in the Recitals.
A-100
Annex
B
RESTATED
CERTIFICATE OF INCORPORATION
OF
[NEWCO CORPORATION]
[NewCo Corporation], a Delaware corporation (the
Corporation), hereby certifies as follows:
1. The name of the Corporation is [NewCo
Corporation]. The date of filing of its original Certificate
of Incorporation with the Secretary of State was
[ ],
2008, under the name of
[ ].
2. This Restated Certificate of Incorporation amends in its
entirety the Certificate of Incorporation as currently in effect
of the Corporation and has been duly adopted in accordance with
the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware as from time to time in
effect including any successor provisions of law (the
DGCL) by written consent of the holders of
all of the outstanding stock entitled to vote thereon in
accordance with the provisions of Section 228 of the DGCL.
3. The text of the Certificate of Incorporation as
currently in effect is hereby amended and restated to read as
set forth in full herein:
ARTICLE 1
Section 1.1 Name. The
name of the corporation is [NewCo Corporation] (the
Corporation).
ARTICLE 2
Section 2.1 Address. The
address of the Corporations registered office in the State
of Delaware is 2711 Centerville Road, Suite 400, City of
Wilmington, County of New Castle, Delaware 19808. The name of
the Corporations registered agent at the address above is
Corporation Service Company.
ARTICLE 3
Section 3.1 Purpose. The
purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the
General Corporation Law of the State of Delaware as from time to
time in effect including any successor provisions of law (the
DGCL).
ARTICLE 4
Section 4.1 Capitalization. The
total number of shares of all classes of stock that the
Corporation is authorized to issue is 2,065,000,000 shares,
consisting of 15,000,000 shares of Preferred Stock, par
value $.0001 per share (Preferred Stock),
1,300,000,000 shares of Class A Common Stock, par
value $.0001 per share (Class A Common
Stock), and 750,000,000 shares of Class B
Common Stock, par value $.0001 per share
(Class B Common Stock together with the
Class A Common Stock, the Common Stock).
The number of authorized shares of any of the Class A
Common Stock, Class B Common Stock or Preferred Stock may
be increased or decreased (but not below the number of shares of
a particular class then outstanding plus, in the case of
Class A Common Stock, the number of shares of Class A
Common Stock issuable in connection with
(A) the exchange of Class B Common Stock and
Class B Common Units under agreements between the
Corporation and holders of Class B Common Stock and
Class B Common Units or Article 5 of this Certificate
of Incorporation; and
(B) the exercise of outstanding options, warrants, exchange
rights, conversion rights or similar rights for Class A
Common Stock), in each case by the affirmative vote of the
holders of a majority in voting power of the stock of the
Corporation entitled to vote thereon irrespective of the
provisions of Section 242(b)(2) of the
B-1
DGCL, and no vote of the holders of any of the Class A
Common Stock, Class B Common Stock or Preferred Stock
voting separately as a class will be required therefor.
Section 4.2 Preferred
Stock.
(A) The Board of Directors of the Corporation (the
Board) is hereby expressly authorized, by
resolution or resolutions, to provide one or more series of
Preferred Stock (including convertible preferred stock) and,
with respect to each series, to fix the number of shares
constituting the series and the designation of the series, the
voting powers (if any) of the shares of the series, and the
powers, preferences and relative, participating, optional or
other special rights, if any, and any qualifications,
limitations or restrictions thereof, of the shares of the
series. The powers, preferences and relative, participating,
optional and other special rights of each series of Preferred
Stock, and the qualifications, limitations or restrictions
thereof, if any, may differ from those of any and all other
series at any time outstanding.
(B) Except as otherwise required by law, holders of a
series of Preferred Stock, as such, will be entitled only to
voting rights, if any, as are expressly granted thereto by this
Certificate of Incorporation (including any certificate of
designations relating to the series).
Section 4.3 Common
Stock.
(A) Voting Rights.
(1) Each holder of Class A Common Stock, as such, will
be entitled to one vote for each share of Class A Common
Stock held of record by the holder on all matters on which
stockholders generally are entitled to vote, except that to the
fullest extent permitted by law, holders of Class A Common
Stock, as such, will have no voting power with respect to, and
will not be entitled to vote on, any amendment to this
Certificate of Incorporation (including any certificate of
designations relating to any series of Preferred Stock) that
relates solely to the terms of one or more outstanding class or
series (but not to all outstanding classes or series) of Common
Stock (other than the Class A Common Stock) or Preferred
Stock if the holders of the affected class or series are
entitled, either separately or together with the holders of one
or more other classes or series, to vote thereon under this
Certificate of Incorporation (including any certificate of
designations relating to any series of Preferred Stock) or under
the DGCL.
(2) Each holder of Class B Common Stock will be
entitled to one vote for each share of Class B Common Stock
held of record by the holder on all matters on which
stockholders are generally entitled to vote, except that, to the
fullest extent permitted by law, holders of Class B Common
Stock, as such, will have no voting power with respect to, and
will not be entitled to vote on, any amendment to this
Certificate of Incorporation (including any certificate of
designations relating to any series of Preferred Stock) that
relates solely to the terms of one or more outstanding class or
series (but not to all outstanding classes or series) of Common
Stock (other than the Class B Common Stock) or Preferred
Stock if the holders of the affected class or series are
entitled, either separately or together with the holders of one
or more other classes or series, to vote thereon under this
Certificate of Incorporation (including any certificate of
designations relating to any series of Preferred Stock) or under
the DGCL.
(3) Except as otherwise required in this Certificate of
Incorporation or by applicable law, the holders of Common Stock
will vote together as a single class on all matters (or, if any
holders of Preferred Stock are entitled to vote together with
the holders of Common Stock, as a single class with the holders
of Preferred Stock).
(B) Preemptive Rights. Except as
set forth in the Equityholders Agreement, the stockholders
of the Corporation, in their capacity as such, will have no
preemptive rights to acquire additional shares of the
Corporation or securities convertible into or exchangeable for
such shares.
(C) Dividends; Stock Splits or
Combinations. Subject to applicable law and
the rights, if any, of the holders of any outstanding series of
Preferred Stock or any class or series of stock having a
preference senior to or the right to participate with the
Class A Common Stock with respect to the payment of
dividends, dividends of cash or property may be declared and
paid on the Class A Common Stock out of the assets of the
Corporation that are by law available therefor, at the times and
in the amounts as the Board in its discretion
B-2
will determine. If a distribution is paid with respect to Units
(other than a distribution in connection with a Dissolution
Event or a distribution of a type described in clause (i)
or clause (ii) of Section 4.3(a) of the Operating
Agreement or any successor provision thereto) then the
Corporation will, subject to applicable law, the restrictions of
any indebtedness of the Corporation and the rights of any
holders of Preferred Stock, promptly declare and pay a dividend
on the Class A Common Stock equal to an amount per share
paid with respect to each Unit in the distribution; and the
record date for the dividend on the Class A Common Stock
shall be the same as or prior to the record date for the
distribution with respect to the Units. Dividends of cash or
property (other than stock dividends) will not be declared or
paid on the Class B Common Stock. In no event will any
stock dividends, stock splits, reverse stock splits,
combinations of stock, reclassifications or recapitalizations be
declared or made on Class A Common Stock or Class B
Common Stock, as the case may be, unless contemporaneously
therewith (a) the shares of Class B Common Stock or
Class A Common Stock, as the case may be, at the time
outstanding are treated in the same proportion and the same
manner and (b) the stock dividend, stock split, reverse
stock split, combination of stock, reclassification or
recapitalization has been reflected in the same economically
equivalent manner on all Units. Stock dividends with respect to
Class A Common Stock may only be paid with Class A
Common Stock. Stock dividends with respect to Class B
Common Stock may only be paid with Class B Common Stock.
(D) Liquidation.
(1) In the case of any consolidation, merger,
recapitalization, reorganization or similar event, the
consideration payable in respect of each share of Class A
Common Stock will be the same.
(2) In the event of any consolidation, merger,
recapitalization, reorganization or similar event or voluntary
or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation, after payment or provision for
payment of the debts and other liabilities of the Corporation
and of the preferential and other amounts, if any, to which the
holders of Preferred Stock will be entitled, the holders of all
outstanding shares of Class A Common Stock and Class B
Common Stock will be entitled to receive, pari passu, an
amount per share equal to the Par Value thereof, and
thereafter the holders of all outstanding shares of Class A
Common Stock will be entitled to receive the remaining assets of
the Corporation available for distribution ratably in proportion
to the number of shares of Class A Common Stock held by
each stockholder. Without limiting the rights of the holders of
Class B Common Stock to exchange their shares of
Class B Common Stock and Class B Common Units for
shares of Class A Common Stock in accordance with
Article 5, the holders of shares of Class B Common
Stock, as such, will not be entitled to receive, with respect to
such shares, any assets of the Corporation in excess of the
Par Value thereof in the event of any consolidation,
merger, recapitalization, reorganization or similar event or
voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Corporation.
(E) Transfer
Restrictions. Class B Common Stock may
only be Transferred in accordance with Article 5 hereof or
Section 3.1 or Section 3.12 of the Equityholders
Agreement.
(F) Taxes. The issuance of shares
of Class A Common Stock on conversion of shares of
Class B Common Stock will be made without charge to the
holders of the shares of Class B Common Stock for any stamp
or other similar tax in respect of the issuance, unless any
such shares
of Class A Common Stock are to be issued in a name other
than that of the then record holder of the shares of
Class B Common Stock being converted, in which case the
Person or Persons requesting the issuance thereof will pay to
the Corporation the amount of any tax that may be payable in
respect of any transfer involved in the issuance or will
establish to the reasonable satisfaction of the Corporation that
the tax has been paid or is not payable.
(G) Fractional Shares. No
fractional shares of Common Stock will be issued by the
Corporation.
(H) Restrictions on Stock Ownership or
Transfer.
(1) Notwithstanding any other provision of this Certificate
of Incorporation to the contrary, if, at any time, a holder of
shares of capital stock of the Corporation acquires additional
shares of capital stock of the Corporation, or is otherwise
attributed with ownership of such shares, that would cause the
Corporation to violate any requirement of the Federal
Communications Laws regarding foreign ownership (collectively,
Foreign Ownership Requirements) (in each
case, an FCC Violation), then the Corporation
may, at the
B-3
option of the Board and subject to Section 4.3(H)(4),
redeem, in accordance with Section 4.3(H)(3), from the
holder or holders causing such FCC Violation a sufficient number
of shares of capital stock of the Corporation to eliminate the
FCC Violation.
(2) Beneficial
Ownership Inquiry. The Corporation may
by written notice require a Person that is a holder of record
of, or that the Corporation knows to have, or has reasonable
cause to believe has, Beneficial Ownership of capital stock of
the Corporation, to certify that, to the knowledge of the Person:
(A) no capital stock as to which the Person has record
ownership or Beneficial Ownership is, directly or indirectly,
Beneficially Owned by Aliens; or
(B) the number of shares of capital stock held of record
or, directly or indirectly, Beneficially Owned by the Person
that are held of record or Beneficially Owned by Persons that
are Aliens are as set forth in the certification.
With respect to any capital stock identified by the Person in
response to Section 4.3(H)(2)(B) above, the Corporation may
require the Person to provide further information as the
Corporation may reasonably require in order to implement the
provisions of Sections 4.3(H)(1). For purposes of applying
Sections 4.3(H)(1) with respect to any capital stock of the
Corporation, if any Person fails to provide the certification or
other information to which the Corporation is entitled under
this Section 4.3(H)(2), the Corporation in its sole
discretion may presume that the capital stock of the Corporation
in question is, or is not, directly or indirectly, Beneficially
Owned by Aliens.
(3) Redemption of Shares. The
terms and conditions of the redemption provided for in
Section 4.3(H)(1) will be as follows, subject in any case
to any other rights of a particular Alien or of the Corporation
as part of any contract or agreement between the Alien and the
Corporation:
(A) subject to Section 4.3(H)(3)(F), the redemption
price of the shares to be redeemed under this
Section 4.3(H)(3) will be equal to the Market Price of the
shares on the date notice of the redemption is given under
Section 4.3(H)(3)(D), provided that, subject to
Section 4.3(H)(3)(F), the redemption price as to any shares
of Common Stock purchased within one year before the
Redemption Date will not exceed the purchase price paid by
the Alien for such shares;
(B) the redemption price of such shares will be paid in
cash, Redemption Securities or any combination thereof;
(C) if less than all of the shares directly or indirectly
Beneficially Owned by Aliens are to be redeemed, the shares to
be redeemed will be selected in a manner as will be determined
in good faith by a majority of the Independent Directors, which
may include selection first of the most recently purchased
shares, selection by lot or selection in any other manner
determined in good faith by a majority of the Independent
Directors to be equitable;
(D) the Corporation will give notice of the
Redemption Date at least thirty (30) days before the
Redemption Date to the record holders of the shares
selected to be redeemed (unless waived in writing by any holder)
by delivering a written notice by first class mail, postage
pre-paid, to the holders of record of the shares selected to be
redeemed, addressed to the holders at their last address as
shown on the stock transfer books of the Corporation (each
notice of redemption specifying the date fixed for redemption,
the redemption price, the place or places of payment and that
payment will be made with the presentation and surrender of the
certificates representing the shares);
(E) on the Redemption Date any and all rights of
Aliens in respect of shares so redeemed (including without
limitation any rights to vote or participate in dividends) will
cease and terminate, and from and after the Redemption Date
the Aliens will be entitled only to receive the cash
and/or
Redemption Securities payable on redemption of the shares
to be redeemed; and
(F) other terms and conditions as a majority of the
Independent Directors will determine to be equitable.
B-4
(4) Prior Notice;
Cooperation. Prior to effecting any such
redemption provided for in this Section 4.3(H), the
Corporation shall provide any holder of capital stock of the
Corporation to be redeemed with reasonable prior written notice
of any Foreign Ownership Requirements that are reasonably likely
to give rise to the Corporations redemption right, and, if
requested to do so by such holder, the Corporation shall
cooperate in good faith with such affected holder in arranging
another method to avoid or eliminate the FCC Violation giving
rise to the Corporations redemption right, including, but
not limited to and not in any particular order of priority,
preparing and filing waiver requests with the FCC, assisting
with a sale of such holders interest in the Corporation
and obtaining FCC approvals for such transaction.
(5) [Intentionally Omitted]
(6) Factual Determination. A
majority of the Independent Directors will have the power and
duty to construe and apply the provisions of this
Section 4.3(H) and, with respect to shares of capital
stock, to make all determinations necessary or desirable to
implement the provisions of this Section 4.3(H), including,
but not limited to: (i) the number of shares of capital
stock that are Beneficially Owned by any Person;
(ii) whether a Person is an Alien; (iii) the
application of any other definition of this Certificate of
Incorporation to the given facts and (iv) any other matter
relating to the applicability or effect of Section 4.3(H).
(7) Legends. The Corporation
will, to the extent required by law, note on the certificates of
its capital stock, if any, that the shares represented by the
certificates are subject to the restrictions set forth in this
Section 4.3(H).
Section 4.4 Use
of Certain Proceeds.
(A) Except to the extent that the Board (i) has
approved the expansion of the Corporations business
activities to include Other Business Activities and
(ii) has approved the funding of any such Other Business
Activities out of net proceeds from the issuance of Equity
Securities of the Corporation in accordance with
Section 2.6(b)(iv) of the Equityholders Agreement,
the net proceeds from any issuance of Equity Securities of the
Corporation, including net proceeds from the exercise of any
Exercisable Rights, will be contributed to [NewCo LLC] in the
manner set forth in Article 7 of the Operating Agreement.
(B) Except to the extent that the Board (i) has
approved the expansion of the Corporations business
activities to include Other Business Activities and
(ii) has approved the funding of any such Other Business
Activities out of indebtedness incurred by the Corporation in
accordance with Section 2.6(b)(iv) of the
Equityholders Agreement, and subject to the procedures
required under Article 5 of the Operating Agreement, if the
Corporation issues or incurs any indebtedness of any kind, the
Corporation will, to the extent permitted by law, lend the net
proceeds thereof to [NewCo LLC] with any such loan to be on
substantially the same terms and conditions (including interest
rate, repayment schedule, and conversion, redemption, repurchase
and exchange rights, but not including financial covenants) as
the indebtedness issued or incurred by the Corporation.
ARTICLE 5
Section 5.1 Exchange
of Class B Common Stock and Class B Common
Units. Each holder of a share of Class B
Common Stock will be entitled at any time and from time to time
to exchange one share of Class B Common Stock plus one
Class B Common Unit in [NewCo LLC] (on a combined basis)
for one share of Class A Common Stock, and each Unit
Holding Company Stockholder may cause a Unit Holding Company to
merge with and into a Company Disregarded Subsidiary in a merger
in which the Company Disregarded Subsidiary is the surviving
entity, in exchange for a number of shares of Class A
Common Stock equal to the number of Class B Common Units
(and a corresponding number of shares of Class B Common
Stock) held by such Unit Holding Company, in each case as
provided in this Article 5 and the Operating Agreement.
Following any exchange, the shares of Class B Common Stock
surrendered in the exchange will be retired by the Corporation
and will cease to be outstanding and may not be reissued by the
Corporation.
Section 5.2 Shares
Reserved for Issuance. The Corporation will
at all times reserve and keep available out of its authorized
but unissued shares of Class A Common Stock, solely for the
purpose of issuance on
B-5
exchange of Class B Common Stock, the number of shares of
Class A Common Stock that are issuable on the exchange of
all outstanding shares of Class B Common Stock. Nothing
contained in this Certificate of Incorporation will be construed
to preclude the Corporation from satisfying its obligations in
respect of the exchange of Class B Common Stock by delivery
of purchased shares of Class A Common Stock that are held
in the treasury of the Corporation. The Corporation covenants
that if any shares of Class A Common Stock require
registration with or approval of any governmental authority
under any federal or state law before such shares of
Class A Common Stock may be issued on exchange, the
Corporation will cause such shares to be duly registered or
approved, as the case may be; provided that this
provision will not apply to registration under the Securities
Act of 1933, as amended. A holder of shares of Class B
Common Stock will become a record holder of Class A Common
Stock and cease to be a record holder of Class B Common
Stock and Class B Common Units pursuant to the procedure
set forth in the Operating Agreement. The Corporation will use
its best efforts to cause the shares of Class A Common
Stock required to be delivered on exchange pursuant to
Section 5.1 to be listed, prior to the date of delivery of
such shares, on each national securities exchange or
inter-dealer quotation system on which the outstanding
Class A Common Stock may be listed or traded at the time of
the delivery; provided that if such shares are not so
listed on or before the date of delivery, the Corporation will
continue to use its best efforts to cause such shares to be
listed. The Corporation covenants that all shares of
Class A Common Stock that are issued on exchange of shares
of Class B Common Stock under Section 5.1 will, on
issue, be validly issued, fully paid and non-assessable.
Section 5.3 Amendments
to this Article. Notwithstanding anything to
the contrary contained in this Certificate of Incorporation, and
in addition to any other approval or vote required by the DGCL,
the Equityholders Agreement or this Certificate of
Incorporation, the affirmative vote of the holders of at least
75% in voting power of the Class B Common Stock will be
required to alter, amend or repeal this Article 5 or to
adopt any provision that is inconsistent herewith.
ARTICLE 6
Section 6.1 Bylaws. Subject
to any additional approval or vote required by this Certificate
of Incorporation, the Bylaws of the Corporation or the
Equityholders Agreement, in furtherance and not in
limitation of the powers conferred by statute, the Board is
expressly authorized to make, repeal, alter, amend and rescind
any or all of the Bylaws of the Corporation.
ARTICLE 7
Section 7.1 Board
of Directors. The business and affairs of the
Corporation will be managed by or under the direction of the
Board, with the exact number of directors to be determined from
time to time in accordance with the Bylaws of the Corporation
and the Equityholders Agreement. The election of directors
need not be by written ballot unless the Bylaws of the
Corporation so provide.
ARTICLE 8
Section 8.1 Meetings
of Stockholders; Action by Written
Consent. Any action required or permitted to
be taken by the holders of stock of the Corporation may be
effected at a duly called annual or special meeting of holders
or by any consent in writing by holders in accordance with
Section 228 of the DGCL. Except as otherwise required by
law and subject to the rights of the holders of any series of
Preferred Stock, if any, special meetings of the stockholders of
the Corporation may be called for any purpose only by a majority
of the Board, the Chairman of the Board, the Chief Executive
Officer of the Corporation, the President of the Corporation,
the holders of at least
662/3%
in voting power of all of the then outstanding shares of
Class B Common Stock, or the holders of at least 50% in
voting power of all of the then outstanding shares of
Class A Common Stock of the Corporation.
Section 8.2 Certain
Stockholder Approvals. The approval of the
holders of at least 75% in voting power of all of the then
outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of directors, voting
together as a single class, will be required to approve
(i) any merger,
B-6
consolidation, share exchange, recapitalization, business
combination or other similar transaction involving the
Corporation or NewCo LLC, that, upon completion, would
constitute a Change of Control of the Corporation or NewCo LLC,
respectively, (ii) the issuance of capital stock of the
Corporation or of NewCo LLC that, upon completion, would
constitute a Change of Control of the Corporation or of NewCo
LLC, respectively or (iii) any sale or other disposition of
all or substantially all of the assets of the Corporation or
NewCo LLC. Notwithstanding anything to the contrary contained in
this Certificate of Incorporation, and in addition to any other
vote required by the DGCL or this Certificate of Incorporation,
the affirmative vote of the holders of at least 75% of the
voting power of all the then outstanding shares of stock of the
Corporation entitled to vote generally in the election of
directors, shall be required to alter, amend or repeal this
Section 8.2 or to adopt any provision that is inconsistent
herewith.
ARTICLE 9
Section 9.1 Limited
Liability of Directors. No director of the
Corporation will have any personal liability to the Corporation
or its stockholders for monetary damages for any breach of
fiduciary duty as a director, except to the extent an exemption
from liability or limitation thereof is not permitted under the
DGCL. Neither the amendment nor the repeal of this
Article 9 will eliminate or reduce the effect of the
foregoing sentence in respect of any matter occurring, or any
cause of action, suit or claim that, but for this
Article 9, would accrue or arise, prior to an amendment or
repeal.
ARTICLE 10
Section 10.1 Indemnification. To
the fullest extent permitted by the DGCL, the Corporation will
indemnify any Person (and the Persons heirs, executors or
administrators) who was or is made or is threatened to be made a
party to or is otherwise involved in any threatened, pending or
completed action, suit or proceeding (brought in the right of
the Corporation or otherwise), whether civil, criminal,
administrative or investigative, and whether formal or informal,
including appeals, by reason of the fact that the Person, or a
Person for whom the Person was the legal representative, is or
was a director, officer or employee of the Corporation or, while
a director, officer or employee of the Corporation, is or was
serving at the request of the Corporation as a director,
officer, partner, trustee, manager, employee or agent of another
corporation, partnership, joint venture, trust, limited
liability company, nonprofit entity or other enterprise, for and
against all loss and liability suffered and expenses (including,
without limitation, attorneys fees and expenses,
judgments, fines, excise taxes or penalties under the Employee
Retirement Income Security Act of 1974, as amended
(ERISA), and amounts paid or to be paid in
settlement) reasonably incurred by the Person or the heirs,
executors or administrators in connection with the action, suit
or proceeding, including appeals. Notwithstanding the preceding
sentence, except as otherwise provided in Section 10.3 of
this Certificate of Incorporation, the Corporation will be
required to indemnify a Person described in the preceding
sentence in connection with any action, suit or proceeding (or
part thereof) commenced by the Person only if the commencement
of the action, suit or proceeding (or part thereof) by the
Person was authorized by the Board.
Section 10.2 Advance
of Expenses. To the fullest extent permitted
by the DGCL, the Corporation will promptly pay expenses
(including attorneys fees) incurred by any Person
described in Section 10.1 of this Certificate of
Incorporation in appearing at, participating in or defending any
action, suit or proceeding in advance of the final disposition
of the action, suit or proceeding, including appeals, on
presentation of an undertaking on behalf of the Person to repay
the amount if it is ultimately determined that the Person is not
entitled to be indemnified under this Article 10 or
otherwise. Notwithstanding the preceding sentence, except as
otherwise provided in Section 10.3 of this Certificate of
Incorporation, the Corporation will be required to pay expenses
of a Person described in the sentence in connection with any
action, suit or proceeding (or part thereof) commenced by the
Person only if the commencement of the action, suit or
proceeding (or part thereof) by the Person was authorized by the
Board.
Section 10.3 Unpaid
Claims. If a claim for indemnification
(following the final disposition of the action, suit or
proceeding) or advancement of expenses under this
Article 10 is not paid in full within 30 days after a
written claim therefor by any Person described in
Section 10.1 has been received by the Corporation,
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the Person may file suit to recover the unpaid amount of the
claim and, if successful in whole or in part, will be entitled
to be paid the expense of prosecuting the claim to the fullest
extent permitted by law. In any such action, the Corporation
will have the burden of proving that the Person is not entitled
to the requested indemnification or advancement of expenses
under applicable law.
Section 10.4 Insurance. To
the fullest extent permitted by the DGCL, the Corporation may
purchase and maintain insurance on behalf of any Person
described in Section 10.1 against any liability asserted
against the Person, whether or not the Corporation would have
the power to indemnify the Person against the liability under
the provisions of this Article 10 or otherwise.
Section 10.5 Service
for Subsidiaries. Any Person serving as a
director, officer, employee or agent of [NewCo LLC] or another
corporation, partnership, limited liability company, joint
venture or other enterprise at least 50% of whose equity
interests are directly or indirectly owned by the Corporation
will be conclusively presumed to be serving in such capacity at
the request of the Corporation.
Section 10.6 Reliance. Persons
who after the date of the adoption of this provision become or
remain a Person described in Section 10.1 will be
conclusively presumed to have relied on the rights to indemnity,
advance of expenses and other rights contained in this
Article 10 in entering into or continuing the service. The
rights to indemnification and to the advance of expenses
conferred in this Article 10 will apply to claims made
against any Person described in Section 10.1 arising out of
acts or omissions in respect of the Corporation or one of its
Subsidiaries that occurred or occur both prior and subsequent to
the adoption hereof.
Section 10.7 Merger
or Consolidation. For purposes of this
Article 10, references to the Corporation will
include, in addition to the resulting Corporation, any
constituent Corporation (including any constituent of a
constituent) absorbed in a consolidation or merger that, if its
separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees or
agents, so that any Person who is or was a director, officer,
employee or agent of the constituent Corporation, or is or was
serving at the request of the constituent Corporation as a
director, officer, employee or agent of another Corporation,
partnership, joint venture, trust or other enterprise, will
stand in the same position under this Article 10 with
respect to the resulting or surviving Corporation as he or she
would have with respect to the constituent Corporation if its
separate existence had continued.
Section 10.8 Non-Exclusivity
of Rights.
(A) The provisions of this Article 10 will be
applicable to all actions, claims, suits or proceedings made or
commenced after the adoption of this Certificate of
Incorporation, whether arising from acts or omissions to act
occurring before or after its adoption. The provisions of this
Article 10 will be deemed to be a contract between the
Corporation and each director, officer or employee (or legal
representative thereof) who serves in the capacity at any time
while this Article 10 and the relevant provisions of the
DGCL and other applicable law, if any, are in effect, and
neither any alteration, amendment or repeal of this Certificate
of Incorporation, nor the adoption of any provision of this
Certificate of Incorporation inconsistent with any provision of
this Article 10, will affect any rights or obligations then
existing with respect to any state of facts or any action, suit
or proceeding then or theretofore existing, or any action, suit
or proceeding thereafter brought or threatened based in whole or
in part on any state of facts. If any provision of this
Article 10 is found to be invalid or limited in application
by reason of any law or regulation, it will not affect the
validity of the remaining provisions of this Certificate of
Incorporation. The rights of indemnification provided in this
Article 10 will neither be exclusive of, nor be deemed in
limitation of, any rights to which any Person may otherwise be
or become entitled or permitted by contract, this Certificate of
Incorporation, the Bylaws of the Corporation, vote of
stockholders or directors or otherwise, or as a matter of law,
both as to actions in the Persons official capacity and
actions in any other capacity.
(B) For purposes of this Article 10, references to
other enterprises will include employee benefit
plans; references to fines will include any excise
taxes assessed on a Person with respect to an employee benefit
plan and references to serving at the request of the
Corporation will include any service as a director,
officer, employee or agent of the Corporation that imposes
duties on, or involves services by, the director, officer,
employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries.
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(C) This Article 10 will not limit the right of the
Corporation, to the extent and in the manner permitted by law,
to indemnify and to advance expenses to, and purchase and
maintain insurance on behalf of, Persons other than Persons
described in Section 10.1 of this Certificate of
Incorporation.
Section 10.9 Savings
Clause. If this Article 10 or any
portion of this Article 10 is invalidated on any ground by
any court of competent jurisdiction, then the Corporation will
nevertheless indemnify each Person entitled to indemnification
under Section 10.1 of this Article 10 as to all
expense, liability and loss (including, without limitation,
attorneys fees and expenses, judgments, fines, ERISA
excise taxes and penalties, and amounts paid or to be paid in
settlement) actually and reasonably incurred or suffered by the
Person and for which indemnification is available to the Person
under this Article 10 to the fullest extent permitted by
any applicable portion of this Article 10 that has not been
invalidated and to the fullest extent permitted by applicable
law.
ARTICLE 11
Section 11.1 Rights
and Duties of the Corporation, the Founding Stockholders and
Directors.
(A) Certain Acknowledgments. In
recognition and anticipation that
(1) each Founding Stockholder will remain, for some period
of time, a stockholder of the Corporation;
(2) the Corporation and each Founding Stockholder may
engage in the same or similar activities or lines of business
and may have an interest in the same or similar areas of
corporate opportunities;
(3) the Corporation will derive benefits from its existing
and potential future contractual, corporate and business
relations with the Founding Stockholders (including without
limitation service of officers of the Founding Stockholders as
directors or board observers of the Corporation); and
(4) there will be benefits in providing guidelines for
directors, board observers and officers of the Founding
Stockholders and of the Corporation with respect to the
allocation of corporate opportunities and other matters;
the provisions of this Article 11 are set forth to
regulate, define and guide the conduct of certain affairs of the
Corporation as they may involve each Founding Stockholder, and
the powers, rights, duties and liabilities of the Corporation
and its officers, directors, board observers, employees and
stockholders in connection therewith. As used in this
Section 11.1, the term Corporation means the
Corporation
and/or any
of its Subsidiaries, and any reference to the stockholders of
the Corporation will be deemed to include the members of
[NewCo LLC].
(B) Competition and Corporate
Opportunities. Except as each Founding
Stockholder may otherwise expressly agree in writing with the
Corporation, each Founding Stockholder will have the right to,
and will have no duty not to,
(1) engage in the same or similar business activities or
lines of business as the Corporation,
(2) compete against the Corporation,
(3) do business with any potential or actual competitor,
customer or supplier of the Corporation and
(4) employ or otherwise engage any officer or employee of
the Corporation.
The Corporation will have no interest or expectancy that the
Founding Stockholder will not engage in any of the foregoing
activities, any interest or expectancy being hereby renounced by
the Corporation, except, in each case, as provided in
Section 11.1(C) of this Article 11. If a Founding
Stockholder acquires knowledge of a potential transaction or
matter that may be a corporate opportunity or otherwise of
interest to the Founding Stockholder and the Corporation, except
as provided in Section 11.1(C) of this Article 11, the
Founding Stockholder will have no duty to communicate or present
the corporate opportunity to the Corporation, the
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Corporation will have no interest or expectancy in any such
transaction or matter, any interest or expectancy being hereby
renounced by the Corporation, and, without limiting the
generality of the foregoing, a Founding Stockholder may pursue
or acquire a corporate opportunity for itself, direct the
corporate opportunity to another Person, or otherwise not
present the corporate opportunity to the Corporation. Without
limiting the generality of the foregoing, a Founding Stockholder
shall have no such duty even if a director, board observer or
officer of the Corporation (including, without limitation, any
such director, board observer or officer who is also a partner,
principal, director, officer, member, manager, representative,
designee, or employee of such Founding Stockholder) becomes
aware of such transaction or matter in his or her capacity as a
director, board observer or officer of the Corporation, so long
as such Founding Stockholder also learns, discovers, acquires or
develops such transaction or matters independently or otherwise
in a manner that was not based on such directors, board
observers or officers awareness of such transaction
or matter. In such case, the provisions of this
Section 11.1(B) shall apply and not be affected by any
other provision of this Certificate of Incorporation including,
without limitation, Section 11.1(C) or 11.1(D) of this
Article 11.
(C) Allocation of Corporate
Opportunities. If a director or officer of
the Corporation who is also a director, officer or employee of a
Founding Stockholder acquires knowledge of a potential
transaction or matter that may be a corporate opportunity or
otherwise of interest to the Corporation and the Founding
Stockholder, the director or officer of the Corporation
(1) will have fully satisfied and fulfilled the fiduciary
duties of the director or officer to the Corporation and its
stockholders with respect to the corporate opportunity,
(2) will not be obligated to communicate information
regarding the corporate opportunity to the Corporation, or the
Founding Stockholders pursuing or acquiring the corporate
opportunity for itself or directing the corporate opportunity to
another Person,
(3) will, to the fullest extent permitted by law, be
presumed to have acted in good faith and in a manner the Person
reasonably believes to be in and not opposed to the best
interests of the Corporation and
(4) will be deemed not to have breached his or her duty of
loyalty to the Corporation or its stockholders and not to have
derived an improper benefit therefrom, if the corporate
opportunity belongs to the Founding Stockholder in accordance
with the following policy:
(A) a corporate opportunity offered or disclosed to any
Person who is a director but not an officer of the Corporation
and who is also a partner, principal, director, officer, member,
manager, representative, designee or employee of a Founding
Stockholder will belong to the Founding Stockholder, unless the
opportunity is expressly offered to the Person primarily in his
or her capacity as a director of the Corporation, in which case
the opportunity will belong to the Corporation;
(B) a corporate opportunity offered or disclosed to any
Person who is an officer or manager (whether or not a director)
of the Corporation and who is also a partner, principal,
director or member, but not an officer or manager of a Founding
Stockholder, will belong to the Corporation, unless the
opportunity is expressly offered to the Person primarily in his
or her capacity as a partner, principal, director or member of
the Founding Stockholder, in which case the opportunity will
belong to the Founding Stockholder; and
(C) a corporate opportunity offered or disclosed to any
other Person who is an officer or manager of both the
Corporation and a Founding Stockholder, or a partner, principal,
director or member of both the Corporation and a Founding
Stockholder, will belong to the Founding Stockholder or to the
Corporation, as the case may be, if the opportunity is expressly
offered to the Person primarily in his or her capacity as a
partner, principal, director, member, officer or manager of the
Founding Stockholder or of the Corporation, respectively;
otherwise, the opportunity will belong to the Founding
Stockholder.
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(D) Certain Matters Deemed Not Corporate
Opportunities. In addition to and
notwithstanding the foregoing provisions of this
Article 11, a corporate opportunity will not be deemed to
belong to the Corporation if it is a business opportunity or
matter
(1) that the Corporation is not contractually permitted,
financially able or legally able to undertake,
(2) that is, from its nature, not in the line of the
Corporations business or that is one in which the
Corporation has no interest as evidenced by a decision of a
majority of the Arms Length Directors or
(3) in which the Corporation or a Founding Stockholder is
permitted to participate as part of any agreement between the
Corporation and the Founding Stockholder that has been approved
by a majority of the Arms Length Directors, it being
acknowledged that the rights of the Corporation under any
agreement will be deemed to be contractual rights and will not
be corporate opportunities of the Corporation for any purpose,
except that no presumption or implication as to corporate
opportunities relating to any transaction not explicitly covered
by an agreement will arise from the existence or absence of any
agreement.
(E) Agreements and Transactions with any Founding
Stockholder. If any contract, agreement,
arrangement or transaction between the Corporation and a
Founding Stockholder involves a corporate opportunity and is
approved in accordance with the procedures set forth in
Article 11 hereof, the Founding Stockholder and its
officers and directors (including without limitation, any Person
who is also a director or officer of the Corporation) will also,
for the purposes of this Article 11 and the other
provisions of this Certificate of Incorporation, be deemed to
have fully satisfied and fulfilled any fiduciary duties they may
have to the Corporation and its stockholders. Any contract,
agreement, arrangement or transaction involving a corporate
opportunity not so approved will not by reason thereof result in
any breach of any fiduciary duty, but will be governed by the
other provisions of Article 11, this Certificate of
Incorporation, the Bylaws of the Corporation, the DGCL and other
applicable law.
(F) Deemed Notice. Any Person
purchasing or otherwise acquiring (including as a result of the
conversion of any of its securities in a merger or other
corporate transaction) any interest in any shares of stock or
other securities (including without limitation stock options) of
the Corporation will be deemed to have notice of and consented
to the provisions of this Article 11.
(G) No Expansion. Nothing in this
Article 11 is intended to, and will not be construed to,
expand any partys fiduciary duties under applicable law.
(H) Amendment. Notwithstanding
anything to the contrary contained in this Certificate of
Incorporation, and in addition to any other vote required by the
DGCL or this Certificate of Incorporation, the affirmative vote
of the holders of at least 75% of the voting power of all the
then outstanding shares of stock of the Corporation entitled to
vote generally in the election of directors, shall be required
to alter, amend or repeal this Section 11.1 or to adopt any
provision that is inconsistent herewith.
ARTICLE 12
Section 12.1 Severability. If
any provision or provisions of this Certificate of Incorporation
are held to be invalid, illegal or unenforceable as applied to
any circumstance for any reason whatsoever:
(A) the validity, legality and enforceability of the
provisions in any other circumstance and of the remaining
provisions of this Certificate of Incorporation (including,
without limitation, each portion of any paragraph of this
Certificate of Incorporation containing any provision held to be
invalid, illegal or unenforceable that is not itself held to be
invalid, illegal or unenforceable) will not in any way be
affected or impaired thereby, and
(B) to the fullest extent possible, the provisions of this
Certificate of Incorporation (including, without limitation,
each portion of any paragraph of this Certificate of
Incorporation containing any provision held to be invalid,
illegal or unenforceable) will be construed so as to permit the
Corporation to protect its directors, officers, employees and
agents from personal liability in respect of their good faith
service to or for the benefit of the Corporation to the fullest
extent permitted by law.
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ARTICLE 13
Section 13.1 Section 203
of the DGCL. The Corporation will not be
subject to the provisions of Section 203 of the DGCL.
ARTICLE 14
Section 14.1 Equityholders
Agreement. All of the provisions set forth in
this Certificate of Incorporation will be subject to the terms
and conditions of the Equityholders Agreement for so long
as such agreement remains in effect in accordance with its terms.
ARTICLE 15
Section 15.1 Amendments. Subject
to Section 5.3, Section 8.2 and Section 11.1(H),
this Certificate of Incorporation may be altered, amended or
repealed from time to time and at any time in the manner now or
hereafter prescribed by the laws of the State of Delaware.
ARTICLE 16
Section 16.1 Definitions. As
used in this Certificate of Incorporation, the term:
(A) Affiliate means, with
respect to any Person, any other Person (other than the
Corporation) directly or indirectly controlling or controlled by
or under direct or indirect common control with that Person;
provided that (i) neither the Corporation nor any of
its Subsidiaries will be deemed an Affiliate of any stockholder
of the Corporation and (ii) no stockholder of the
Corporation will be deemed an Affiliate of any other stockholder
of the Corporation, in each case, solely by reason of any
investment in the Corporation or entry into any of the
Transaction Documents. For the purposes of this definition,
control, when used with respect to any Person, means
(1) the ownership, directly or indirectly, of more than 50%
of the voting securities of that Person or
(2) the power to otherwise direct the management and
policies of that Person, whether by contract or otherwise.
(B) Alien means
aliens, their representatives, a
foreign government or representatives thereof or any
corporation organized under the laws of a foreign country
as the terms are used in Section 310(b)(4) of the
Communications Act.
(C) Arms Length
Directors means the directors on the Board
who are disinterested with respect to a certain transaction.
(D) Beneficial Owner,
Beneficially Own and
Beneficial Ownership has the meaning
given in
Rule 13d-3
under the Exchange Act, and a Persons beneficial ownership
of Common Stock of the Corporation will be calculated in
accordance with the provisions of that Rule.
(E) Business Day means any
day other than a day on which commercial banks in The City of
New York are required or authorized by law to be closed.
(F) Change of Control has
the meaning attributed to such term in the Equityholders
Agreement.
(G) Class B Common
Unit means a Unit designated as a
Class B Common Unit under the Operating Agreement with the
rights, powers and duties set forth in such agreement.
(H) Communications Act means
the Communications Act of 1934, as amended.
(I) Company Disregarded
Subsidiary has the meaning attributed to such
term in the Operating Agreement.
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(J) Dissolution Event has
the meaning attributed to such term in the Operating Agreement.
(K) Equity Securities has
the meaning attributed to such term in the Operating Agreement.
(L) Equityholders
Agreement means that certain
Equityholders Agreement, dated as of
[ ],
2008, by and among the Corporation, [Sprint], [Eagle River],
[Comcast], [TWC], [Google], [BHN] and [Intel] (as the same may
be amended, amended and restated, supplemented or otherwise
modified from time to time).
(M) Exchange Act means the
Securities Exchange Act of 1934, as amended.
(N) Exercisable Rights has
the meaning attributed to such term in the Operating Agreement.
(O) FCC means the Federal
Communications Commission.
(P) Federal Communications
Laws means any law of the United States now
or in the future in effect (and any regulation thereunder,
including, without limitation, the Communications Act), and
regulations thereunder, pertaining to the ownership, operation
or regulating the business activities of (i) any television
or radio station, daily newspaper, cable television system,
Internet service provider or other medium of mass communications
or (ii) any provider of programming content to any medium.
(Q) Founding
Stockholder means:
(1) [Sprint],
a ,
and its Affiliates and any other entity that is one of its
Permitted Transferees and Permitted Designees;
(2) [Eagle River], a Washington limited liability company,
and its Affiliates and any other entity that is one of its
Permitted Transferees and Permitted Designees;
(3) [Comcast],
a ,
and its Permitted Transferees and Permitted Designees;
(4) [TWC],
a ,
and its Permitted Transferees and Permitted Designees;
(5) [Google],
a ,
and its Permitted Transferees and Permitted Designees;
(6) [BHN],
a ,
and its Permitted Transferees and Permitted Designees;
(7) [Intel],
a ,
and its Permitted Transferees and Permitted Designees;
(8) [XYZ, LLC], a Washington limited liability company, any
of its members, its or their Affiliates, and any Person for whom
any such member serves as a director or officer and any
successor or assign of any of the foregoing, for such time as
any member of [XYZ, LLC] or any of its Affiliates (including
transferees of capital stock of the Corporation held by [XYZ,
LLC] who are Affiliates of [XYZ, LLC] at the time of such
transfer) serves as a member of the Board.
(9) any future stockholder who has the right to designate
at least one director for election to the Board under the Bylaws
of the Corporation or other agreement with the Corporation and
its Affiliates; and
(10) all successors to a Founding Stockholder by way of
merger, consolidation or sale of all or substantially all of the
Founding Stockholders assets and its Affiliates.
(R) Independent
Director means any member of the Board who
meets the director independence requirements of the rules and
regulations of The NASDAQ Stock Market, LLC, applicable to
listed companies, as amended from time to time, or if the
principal United States listing or quotation of the Common Stock
is on another United States securities exchange, the director
independence requirements of the rules and regulations of that
exchange, as amended from time to time; provided, that if
the Class A Common Stock is not then traded on an exchange
or association that maintains director independence
requirements, the Independent Directors will be the Arms
Length Directors.
(S) Market Price means as to
any security, the average of the closing prices of the
securitys sales on all domestic securities exchanges on
which the security may at the time be listed, or, if there have
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been no sales on any exchange on any day, the average of the
highest bid and lowest asked prices on all exchanges at the end
of the day, or, if on any day the security is not so listed, the
average of the representative bid and asked prices quoted in the
NASDAQ System as of 4:00 P.M., New York time, on the day,
or, if on any day the security is not quoted in the NASDAQ
System, the average of the highest bid and lowest asked prices
on such day in the domestic over-the-counter market as reported
by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each case averaged over a period of
21 Business Days consisting of the Business Day as of which
Market Price is being determined, the 10 consecutive
Business Days prior to such day and the 10 consecutive Business
Days after such day; provided that if the security is
listed on any domestic securities exchange the term
Business Days as used in this sentence means
Business Days on which the exchange is open for trading. If at
any time the security is not listed on any domestic securities
exchange or quoted in the NASDAQ System or the domestic
over-the-counter market, the Market Price will be
the fair value thereof determined in good faith by a majority of
the Independent Directors.
(T) [NewCo LLC] Ameans
a Delaware limited liability company.
(U) Operating
Agreement means the Amended and Restated
Operating Agreement of [NewCo LLC],
dated ,
200 , as the same may be amended, amended and
restated, supplemented or otherwise modified from time to time.
(V) Other Business
Activities means business activities of the
Corporation that are (a) approved by the Board in
accordance with Section 2.6(b)(iii) of the Equityholders
Agreement and (b) not conducted by or through the LLC or
its Subsidiaries.
(W) Par Value means,
with respect to shares of Class A Common Stock and
Class B Common Stock, $0.0001 per share, as adjusted for
Recapitalization Events.
(X) Permitted Designee has
the meaning attributed to such term in the Equityholders
Agreement.
(Y) Permitted Transferee has
the meaning attributed to such term in the Equityholders
Agreement.
(Z) Person means any
individual, corporation, limited liability company, limited or
general partnership, joint venture, association, joint-stock
company, trust, estate, unincorporated organization, government
or any agency or political subdivisions thereof or any group
comprised of two or more of the foregoing.
(AA) Recapitalization
Event has the meaning attributed to such term
in the Operating Agreement.
(BB) Redemption Date means
the date fixed by a majority of the Independent Directors for
the redemption of any shares of capital stock of the Corporation.
(CC) Redemption Securities means
any debt or equity securities of the Corporation, any of its
Subsidiaries, or any combination thereof having the terms and
conditions as will be approved by a majority of the Independent
Directors and that, together with any cash to be paid as part of
the redemption price, in the opinion of an investment banking
firm of recognized national standing selected by a majority of
the Independent Directors (which may be a firm that provides
other investment banking, brokerage or other services to the
Corporation), have a Market Price, at the time notice of
redemption is given, at least equal to the redemption price
required to be paid by Section 4.3(H)(3)(A).
(DD) Subsidiary has the
meaning attributed to such term in the Equityholders
Agreement.
(EE) Transaction
Documents has the meaning attributed to such
term in the Operating Agreement.
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(FF) Transfer has the
meaning attributed to such term in the Equityholders
Agreement.
(GG) Transferee means any
Person to whom any stockholder or any Transferee of that
stockholder Transfers Common Stock in accordance with the terms
of this Certificate of Incorporation.
(HH) Transferor means the
stockholder or any Transferee that Transfers Common Stock in
accordance with the terms of this Certificate of Incorporation.
(II) Unit Holding
Company has the meaning attributed to such
term in the Operating Agreement.
(JJ) Unit Holding Company
Stockholder has the meaning attributed to
such term in the Operating Agreement.
(KK) Units means limited
liability company interests in [NewCo LLC], or any successor
entities thereto, authorized and issued under its Operating
Agreement.
B-15
IN WITNESS WHEREOF, the Corporation has caused this Certificate
of Incorporation to be signed
by ,
its this
day
of ,
2008.
[NEWCO CORPORATION]
Name:
B-16
Annex C
EQUITYHOLDERS
AGREEMENT
by and among
[NEWCO CORPORATION,]
[SPRINT,]
[EAGLE RIVER HOLDINGS, LLC,]
[INTEL,]
[COMCAST,]
[GOOGLE INC.,]
[TIME WARNER CABLE,]
and
[BHN SPECTRUM INVESTMENTS, LLC]
Dated as of
[ ],
2008
TABLE OF
CONTENTS
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Page
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ARTICLE 1 DEFINITIONS
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C-2
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ARTICLE 2 CORPORATE GOVERNANCE
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C-3
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2.1
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Board Representation
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C-3
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2.2
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Officers; Chairman of the Board
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C-9
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2.3
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Committees
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C-10
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2.4
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Available Financial Information
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C-11
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2.5
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Access
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C-12
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2.6
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Requirements for Board Action
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C-13
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2.7
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Supermajority Voting Requirements
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C-14
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2.8
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Employee Option Pool
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C-16
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2.9
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Controlled Company
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C-16
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2.10
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Certain Undertakings
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C-17
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2.11
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Subsidiary Governance
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C-18
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2.12
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No Imputed Conflicts
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C-18
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2.13
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Sprint Compliance Certificate
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C-18
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2.14
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Sprint Future Credit Agreements
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C-23
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2.15
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Indemnified Litigation
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C-23
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ARTICLE 3 TRANSFERS
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C-24
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3.1
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General Limitations on Transfer
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C-24
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3.2
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Certain Permitted Transfers
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C-25
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3.3
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Right of First Offer
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C-26
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3.4
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Tag-Along Rights
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C-28
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3.5
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Preemptive Rights
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C-30
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3.6
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Transfers to a Restricted Entity
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C-32
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3.7
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Standstill Agreement
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C-33
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3.8
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Joint Purchase Rights
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C-35
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3.9
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Permitted Designee
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C-37
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3.10
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Void Transfers
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C-37
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3.11
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Limitations Prior to the Adjustment Date
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C-37
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3.12
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Holding Company Transfers
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C-38
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ARTICLE 4 MISCELLANEOUS
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C-38
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4.1
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Parent Guaranty
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C-38
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4.2
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Termination
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C-38
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4.3
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Amendments and Waivers
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C-39
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4.4
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Successors, Assigns and Transferees; Groups and Thresholds
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C-39
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4.5
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Legend
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C-39
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4.6
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Notices
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C-40
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4.7
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Confidentiality
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C-42
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4.8
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Accounting Policies
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C-43
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4.9
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Strategic Investor Representative; Strategic Investor Agreement
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C-43
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4.10
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No Joint and Several Liability of the Equityholders
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C-44
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4.11
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Further Assurances
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C-44
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C-i
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Page
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4.12
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Entire Agreement
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C-44
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4.13
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Enabling Clause
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C-44
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4.14
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Delays or Omissions
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C-44
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4.15
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Governing Law; Jurisdiction; Waiver of Jury Trial
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C-44
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4.16
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Severability
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C-45
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4.17
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Enforcement
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C-45
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4.18
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No Recourse
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C-45
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4.19
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No Third Party Beneficiaries
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C-45
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4.20
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Counterparts; Facsimile Signatures
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C-45
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4.21
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Interpretation
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C-45
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Exhibit A Definitions
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C-49
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Exhibit B Initial Directors and Officers
of the Company
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C-60
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Exhibit C Terms of D&O Insurance
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C-61
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Exhibit D Form of Compliance Certificate
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C-62
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Exhibit E Form of Non-Equityholder
Transferee Agreement
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C-63
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Exhibit F Assignment and Assumption
Agreement
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C-64
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Exhibit G Form of Parent Agreement
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C-65
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C-ii
THIS EQUITYHOLDERS AGREEMENT (this
Agreement) is entered into as of
[ ],
200[ ] (the Effective Date), by
and among NEWCO CORPORATION, a Delaware corporation (the
Company), [SPRINT],
a
(Sprint), [EAGLE RIVER HOLDINGS, LLC], a Washington
limited liability company (Eagle River),
[INTEL],
a (Intel),
[COMCAST],
a
(Comcast), [GOOGLE INC.], a Delaware
corporation (Google), [TIME WARNER CABLE],
a (TWC),
and [BHN SPECTRUM INVESTMENTS, LLC], a Delaware limited
liability company (BHN; and, together with
Comcast, Google and TWC, the Strategic
Investors).1
Each of Sprint, Eagle River, Intel and each Strategic Investor,
together with each of their respective Permitted Transferees and
Permitted Designees (each as hereinafter defined) that becomes a
party to this Agreement in accordance with Article 3, is
individually referred to as an Equityholder,
and collectively as the Equityholders.
RECITALS:
A. The parties desire to (i) foster the development of
a nationwide wireless broadband network (the Wireless
Broadband Network); (ii) expedite the commercial
availability of wireless broadband services over the Wireless
Broadband Network; (iii) enable the offering of a greater
depth and breadth of wireless broadband services; and
(iv) promote wireless broadband development.
B. In order to satisfy the foregoing objectives, Sprint,
Intel, the Strategic Investors and Clearwire Corporation
(Clearwire) have entered into the Transaction
Agreement and Plan of Merger (as amended from time to time, the
Transaction Agreement), under which
(i) Clearwire formed the Company;
(ii) the Company formed NewCo LLC (the
LLC), which was until the Closing treated as
a disregarded entity for U.S. federal income tax purposes;
(iii) NewCo LLC in turn formed a wholly-owned limited
liability company subsidiary, Clearwire Sub LLC
(Clearwire Sub LLC) that is and has at all
times since its formation been treated as a disregarded entity
for U.S. federal income tax purposes;
(iv) the outstanding shares of Class B common stock of
Clearwire were converted into an equal number of shares of the
Class A common stock of Clearwire in a transaction intended
to qualify as a reorganization within the meaning of Code
Section 368(a)(1)(E) and governed by Code Section 1036;
(v) Clearwire merged with and into Clearwire Sub LLC in a
transaction intended to qualify as a reorganization under Code
Section 368(a)(1)(F) (the Merger) and,
in the Merger, the stockholders of Clearwire exchanged their
Class A common stock of Clearwire for an equal number of
shares of Class A Common Stock;
(vi) in connection with the Merger, the Company was issued
Voting Units and Class A Common Units (both as defined in
the Operating Agreement) in accordance with the terms of the
Original Operating Agreement (as defined in the Operating
Agreement);
(vii) Sprint formed a Delaware limited liability company
(Sprint HoldCo LLC), which has at all times
been treated as a partnership for U.S. federal income tax
purposes and which in turn formed a wholly-owned Delaware
limited liability company (Sprint Sub LLC),
which is and all times since its formation has been treated as a
disregarded entity for U.S. federal income tax purposes;
(viii) Sprint caused one or more wholly-owned companies
(the Transfer Entities) to hold the Sprint
WiMAX Business (as defined in the Transaction Agreement) and
caused all of the Transfer Entities to be limited liability
companies treated as disregarded entities for U.S. federal
income tax purposes immediately prior to and as of the Closing
(and the Transfer Entities continue to be treated as disregarded
entities for U.S. federal income tax purposes following the
Closing);
1 Note:
Parties to be updated (and corresponding changes to be made, if
necessary) if Sprint, Intel or a Strategic Investor invests
through more than one entity.
C-1
(ix) Sprint and its Subsidiaries contributed all of the
limited liability company interests in each of the Transfer
Entities to Sprint HoldCo LLC, which in turn contributed those
interests to Sprint Sub LLC, and Sprint Sub LLC assumed the
Sprint Pre-Closing Financing (as defined in the Transaction
Agreement) in accordance with the terms of the Transaction
Agreement;
(x) following the Merger and the contribution of the
Transfer Entities to Sprint Sub LLC, Sprint caused Sprint HoldCo
LLC to contribute all of the limited liability company interests
of Sprint Sub LLC to the LLC (the Sprint
Contribution) in exchange for Class B Common
Units (as defined in the Operating Agreement) and purchased an
equal number of shares of Class B Common Stock for cash;
(xi) the Company thereafter contributed the cash it
received from Sprint described in clause (x) above to the
LLC in exchange for additional Voting Units;
(xii) following the Merger and the Sprint Contribution,
Intel contributed $1,000,000,000 in cash to the LLC in exchange
for Voting Units and Class B Common Units;
(xiii) Intel thereafter contributed its Voting Units to the
Company in exchange for an equal number of shares of
Class B Common Stock;
(xiv) following the Merger and the Sprint Contribution,
Comcast, TWC and BHN contributed $1,050,000,000, $550,000,000
and $100,000,000, respectively, in cash to the LLC in exchange
for Voting Units and Class B Common Units;
(xv) each of Comcast, TWC and BHN thereafter contributed
their respective Voting Units to the Company in exchange for an
equal number of shares of Class B Common Stock;
(xvi) following the Merger and the Sprint Contribution,
Google contributed $500,000,000 to the Company in exchange for
shares of Class A Common Stock;
(xvii) the Company thereafter contributed the cash it
received from Google to the LLC in exchange for Voting Units and
Class A Common Units; and
(xviii) as a result of the contributions to the LLC by
Sprint, Intel, Comcast, TWC and BHN described in clauses (x),
(xii) and (xiv) above, the LLC was converted into a
partnership for U.S. federal income tax purposes, to which
partnership the Company, Sprint, Intel, Comcast, TWC and BHN
were treated as contributing assets.
C. NewCo LLC and Intel have agreed to enter into the Intel
Agreement at the Closing to, among other things, accelerate and
facilitate the development of a nationwide mobile wireless
broadband network and devices using WiMAX.
D. The parties desire to enter into this Agreement to
provide for certain rights and obligations of the Equityholders,
and for the management and operation of the Company.
ARTICLE 1
DEFINITIONS
Capitalized terms used in this Agreement and not otherwise
defined in this Agreement have the meanings specified in
Exhibit A.
C-2
ARTICLE 2
CORPORATE
GOVERNANCE
2.1 Board Representation.
(a) The Board will be comprised of 13 Directors, who
will be nominated as follows:
(i) seven Directors may be nominated by Sprint (the
Sprint Designees), except that
(A) for as long as there are not more than two Independent
Designees, at least one of the Sprint Designees must
(I) qualify as an Independent Director, and
(II) qualify to serve on the Audit Committee, and be
willing to serve on the Audit Committee during his or her tenure
as a Director;
(B) if, at any time after the Effective Date, Sprint ceases
to have a Percentage Interest equal to at least 50% of its
Percentage Interest as of the Effective Date (as may be adjusted
on the Adjustment Date), then the right of Sprint to nominate
Directors will be reduced to a number equal to the product
obtained by multiplying the Percentage Interest then held by
Sprint by 13, rounded to the nearest whole number (and, for the
avoidance of doubt, will be subject to further adjustment
pursuant to this clause (B) as a result of subsequent
changes in Sprints Percentage Interest);
(C) upon and at all times following the occurrence of a
Sprint Adverse Change of Control, then
(I) the right of Sprint to nominate Directors will be
reduced (if applicable) to a number equal to the lesser of
(x) the product obtained by multiplying the Percentage
Interest then held by Sprint by 13, rounded to the nearest whole
number and (y) six; and
(II) the right of Sprint to nominate Directors will be
subject to further adjustment in accordance with
Section 2.1(a)(i)(B), Section 2.1(a)(vii) and
Section 3.8(e)(i); provided that in no event shall
the number of Directors that Sprint is entitled to nominate upon
and after the occurrence of a Sprint Adverse Change of Control
exceed six; and
(D) subject to clause (C)(II) above, the number of
Directors that Sprint is entitled to nominate may be further
adjusted in accordance with
(I) clause (vii) of this Section 2.1(a), and
(II) Section 3.8(e)(i); and
(ii) one Director may be nominated by Eagle River (the
Eagle River Designee), except that
(A) if, at any time after the Effective Date, Eagle River
ceases to own at least 50% of the Eagle River Original Shares,
then Eagle River will cease to have the right to nominate any
Directors; and
(B) for as long as Eagle River has the right to nominate a
Director, Eagle River will also have the right to designate one
individual (the Eagle River Observer) that
will have Observer Rights subject to the Observer
Restrictions; and
(iii) one Director may be nominated by Intel (the
Intel Designee), except that
(A) if, at any time after the Effective Date, Intel ceases
to have a Percentage Interest equal to at least 50% of its
Percentage Interest as of the Effective Date (as may be adjusted
on the Adjustment Date), then the right of Intel to nominate
Directors will be reduced to a number equal to the product
obtained by multiplying the Percentage Interest then held by
Intel by 13, rounded to the nearest whole number (and, for the
avoidance of doubt, will be subject to further adjustment
pursuant to this clause (A) as a result of subsequent
changes in Intels Percentage Interest);
C-3
(B) the number of Directors that Intel is entitled to
nominate may be further adjusted in accordance with
(I) clause (vii) of this Section 2.1(a), and
(II) Section 3.8(e)(i); and
(C) for as long as Intel has the right to nominate a
Director, Intel will also have the right to designate one
individual (the Intel Observer) that will
have Observer Rights subject to the Observer
Restrictions; and
(iv) two Directors may be nominated by the Strategic
Investor Group (the Strategic Investor
Designees), except that
(A) if, at any time after the Effective Date, the Strategic
Investor Group collectively ceases to have a Percentage Interest
equal to at least 50% of its aggregate Percentage Interest as of
the Effective Date (as may be adjusted on the Adjustment Date),
then the right of the Strategic Investor Group to nominate
Directors will be reduced to a number equal to the product
obtained by multiplying the Percentage Interest then held by the
Strategic Investor Group, in the aggregate, by 13, rounded to
the nearest whole number (and, for the avoidance of doubt, will
be subject to further adjustment pursuant to this
clause (A) as a result of subsequent changes in the
Strategic Investor Groups Percentage Interest);
(B) the number of Directors that the Strategic Investor
Group is entitled to nominate may be further adjusted in
accordance with
(I) clause (vii) of this Section 2.1(a), and
(II) Section 3.8(e)(i); and
(C) for as long as BHN owns a number of shares of Common
Stock equal to at least 50% of the BHN Original Shares, BHN will
have the right to designate one individual that will have
Observer Rights subject to the Observer Restrictions (the
BHN Observer) and
(D) for as long as the Strategic Investor Group owns a
number of shares of Common Stock equal to at least 50% of the
Strategic Investor Groups Original Shares, then the
Strategic Investor Group will have the right to designate one
individual that will have Observer Rights subject to the
Observer Restrictions (a Strategic Investor
Observer, and collectively with the Eagle River
Observer, the Intel Observer, the BHN Observer and any
individual that has Observer Rights subject to the Observer
Restrictions pursuant to Section 2.1(a)(x)(A), the
Observers, and each an
Observer); provided that, subject to
Section 2.1(a)(x)(A), there will not be, at any given time,
more than one Strategic Investor Observer;
(v) one Director may be nominated by the unanimous
agreement of Intel and the Strategic Investor Group
(Investor Independent Designee), except that
(A) if, at any time after the Effective Date, the Strategic
Investor Group collectively ceases to have a Percentage Interest
equal to at least 50% of its aggregate Percentage Interest as of
the Effective Date (as may be adjusted on the Adjustment Date),
then the Investor Independent Designee may be nominated by
Intel, and if Intel ceases to have a Percentage Interest equal
to at least 50% of its Percentage Interest as of the Effective
Date (as may be adjusted on the Adjustment Date), the Investor
Independent Designee may be nominated by the Strategic Investor
Group, and if both the Strategic Investor Group and Intel cease
to have a Percentage Interest equal to at least 50% of their
respective Percentage Interests as of the Effective Date (as may
be adjusted on the Adjustment Date), then neither of the
Strategic Investor Group nor Intel may nominate an Investor
Independent Designee, and the Director seat will be filled by an
Independent Designee nominated by the Nominating Committee in
accordance with clause (viii) below, and
(B) the Investor Independent Designee must
(I) qualify as an Independent Director, and
C-4
(II) qualify to serve on the Audit Committee, and be
willing to serve on the Audit Committee during his or her tenure
as a Director;
(vi) in addition to any Directors to be nominated by the
Nominating Committee as provided in clause (viii) of this
Section 2.1(a), one Director will be nominated by the
Nominating Committee (the Initial Independent
Designee), except that the Initial Independent
Designee must
(A) qualify as an Independent Director, and
(B) qualify to serve on the Audit Committee as its
chairperson and be willing to serve on and to be the chairperson
of the Audit Committee during his or her tenure as a
Director; and
(vii) if Sprint Transfers to any other Equityholder(s) (the
25% Transferee(s)) a number of shares of
Common Stock or Units, as applicable, equal in the aggregate to
at least 25% of Sprints Original Shares or 25% of the
Units acquired by Sprint on the Effective Date (as adjusted for
Recapitalization Events) (whether under Section 3.3 of this
Agreement or otherwise), then, if requested by any of the
applicable 25% Transferees (it being understood and agreed that
the Strategic Investor Group as a whole shall be deemed to be a
single 25% Transferee for purposes of this
Section 2.1(a)(vii)), the following adjustments will be
made as among Sprint and such 25% Transferee(s) only, without
affecting the Board nomination rights of any other Equityholder:
(A) the right of Sprint to nominate Directors will be
reduced if the number equal to the product obtained by
multiplying the Percentage Interest then held by Sprint by 13,
rounded to the nearest whole number, is less than the number of
Directors that Sprint had the right to nominate immediately
prior to such Transfer, in which case, Sprint will then have the
right to nominate such lesser number of Directors,
(B) subject to Section 2.1(a)(x), the right of each
such 25% Transferee to nominate Directors will be increased if
the number equal to the product obtained by multiplying the
Percentage Interest then held by such 25% Transferee by 13,
rounded to the nearest whole number, is greater than the number
of Directors that such 25% Transferee had the right to nominate
immediately prior to such Transfer, in which case, such 25%
Transferee will then have the right to nominate such greater
number of Directors, and
(C) from and after the time of such Transfer, the
provisions of Section 2.1(a)(i)(B),
Section 2.1(a)(iii)(A) and Section 2.1(a)(iv)(A), as
applicable, relating to the proportionate adjustment of the
right to nominate Directors shall apply to Sprint and the
applicable 25% Transferee(s) regardless of whether the 50%
threshold referred to in those Sections has been met.
(viii) Except as provided in this clause (viii) and in
clauses (vii) above and (x) below, if an Equityholder
loses or elects not to exercise (in whole or in part) the right
to nominate all or any portion of its Equityholder Designees for
any reason, the Director seats that the Equityholder has lost or
elects not to exercise the right to nominate will become
additional Independent Directors nominated by the Nominating
Committee (the Initial Independent Designee and each such
additional Independent Director nominated by the Nominating
Committee being referred to herein as an Independent
Designee); provided that any election by an
Equityholder not to exercise (in whole or in part) the right to
nominate all or any portion of its Equityholder Designees shall
not constitute a permanent waiver or relinquishment of such
right; and provided, further, that if an
Equityholder elects not to exercise its right to nominate an
Equityholder Designee, and the seat held by such Equityholder
Designee is filled by an Independent Designee in accordance with
the foregoing, the Equityholder will be entitled to re-exercise
its right to nominate a Director in place of such Independent
Designee only upon a vacancy of one of the seats held by an
Independent Designee or at a regularly scheduled meeting of
stockholders at which Directors are elected in accordance with
Section 2.1(b), if applicable.
(ix) The Initial Independent Designee, one of the Sprint
Designees (for as long as Sprint is required to nominate an
Independent Director) and the Investor Independent Designee (for
as long as there is an Investor Independent Designee) must
qualify to serve on the Audit Committee (and be willing to serve
on
C-5
the Audit Committee during their respective tenures as a
Director) and at least one of the Independent Designees must
have the requisite experience and qualifications to serve as an
audit committee financial expert within the meaning
of the Exchange Act. If, however, either Sprint is no longer
required to nominate an Independent Director or there is no
longer an Investor Independent Designee, then at least two of
the Independent Designees and either the Investor Independent
Designee or the Sprint Designee that qualifies as an Independent
Director (as applicable) must qualify to serve on the Audit
Committee (and will agree to do so at the time the Independent
Designees are appointed). If, however, Sprint is no longer
required to nominate an Independent Director and there is no
longer an Investor Independent Designee, then at least three of
the Independent Designees must qualify to serve on the Audit
Committee (and will agree to do so at the time the Independent
Designees are appointed).
(x) If at any time, as a result of any adjustment pursuant
to this Section 2.1(a) or Section 3.8(e)(i), any
Equityholder has the right to nominate a number of Directors
that is greater than the number of Available Seats, the Company
and the Equityholders will cooperate to take such actions as are
necessary to reduce (at the next annual or special meeting of
the stockholders of the Company at which Directors are elected)
the number of Independent Designees in order to permit such
Equityholder to exercise its rights under this
Section 2.1(a) or Section 3.8(e)(i); provided
that there will be at least three Independent Directors for
so long as the Company is required by Law or the rules of any
applicable national securities exchange to have three
Independent Directors. If, following the elimination of the
Independent Designees in accordance with the immediately
preceding sentence, as a result of any adjustment pursuant to
this Section 2.1(a) or Section 3.8(e)(i), an
Equityholder (for purposes of this Section 2.1(a)(x), a
Nominating Equityholder) has the right to
nominate a number of Directors that is greater than the number
of Available Seats (such excess number of seats,
Unfilled Director Seats), then,
(A) until (i) the Nominating Equityholder nominates a
number of Equityholder Designees pursuant to
Section 2.1(a)(x)(B) equal to the number of such Nominating
Equityholders Unfilled Director Seats and (ii) each
such Equityholder Designee that has been so nominated has been
elected or appointed to the Board, the Nominating Equityholder
will have the right, in respect of each of such Nominating
Equityholders Unfilled Director Seats, to designate one
individual that will have Observer Rights subject to the
Observer Restrictions, and
(B) when another Equityholder loses the right to nominate
one or more of its Equityholder Designees under circumstances
where the Board seat would otherwise be filled by an Independent
Designee in accordance with clause (viii) above, in lieu of
filling such Board seat in accordance with clause (viii)
above, the Nominating Equityholder will be entitled to nominate
additional Equityholder Designee(s) to fill each such vacated
seat (up to the number of Unfilled Director Seats of such
Nominating Equityholder); provided that if the
Equityholder Designee who is being replaced was required to
qualify as an Independent Director and serve on the Audit
Committee in accordance with this Section 2.1(a), then the
replacement Equityholder Designee nominated by the Nominating
Equityholder will be required to qualify as an Independent
Director and be willing and qualified to serve on the Audit
Committee until such time as there are at least three other
Independent Directors, for so long as the Company is required by
Law or the rules of any applicable national securities exchange
to have three Independent Directors.
(xi) The adjustments to Board nomination rights set forth
in this Section 2.1(a) shall be implemented from time to
time after the date hereof based on the relevant circumstances
at the time (i.e., adjustments in nomination rights triggered by
one event or circumstance may be further adjusted based on
subsequent events or circumstances). For example, upon and after
the initial adjustment (if any) pursuant to
Section 2.1(a)(vii), the Board nomination rights set forth
in this Section 2.1(a) shall be subject to further
adjustment pursuant to Section 2.1(a)(vii) based on any
subsequent change in the Percentage Interests of Sprint and the
applicable 25% Transferee(s).
(xii) For so long as an Equityholder has the right under
this Agreement to designate an Observer, the Observer will be
permitted to (A) attend and observe, but not otherwise
participate in, all meetings of the Board (but not any
committees of the Board), and (B) receive (on a concurrent
basis) all notices and
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other information provided to Directors in their capacity as
Directors by the Company (Observer Rights),
except that (x) as a condition to allowing the Observer to
attend meetings of the Board or to receive any information, the
Company may require that the Observer execute a confidentiality
agreement, reasonably satisfactory to the Company, with respect
to the information to be provided or the matters to be discussed
at any meeting of the Board; provided, however,
that if the Observer is an employee, agent or independent
contractor of the Equityholder appointing that Observer then in
lieu of a separate confidentiality, non-use or non-disclosure
agreement between the Observer and the Company, the Equityholder
agrees to cause the Observer to comply with Section 4.7 and
to be responsible for any breach of such Section by the
Observer, and (y) the Company may exclude the Observer from
any meeting of the Board, or portions thereof, or deny access to
any information or portions thereof provided to Directors, if
the Company reasonably determines that the participation of the
Observer, or access to the applicable information, could
(1) result in a waiver of the attorney-client privilege
(based on the advice of Company counsel) with respect to any
matters to be discussed or any matters included in the
information to be distributed; (2) expose to an Observer
(who represents or is affiliated with a competitor to the
Company, a customer, supplier or other business partner of the
Company or a competitor to the Companys customers,
suppliers or other business partners) (A) if a contract or
understanding with any Person or Affiliate of such Person
represented by the Observer is being described, discussed or
voted upon, any information related to such contract or
understanding
and/or
(B) the Companys business operations, objectives,
opportunities, competitive positioning
and/or
prospects related to any such Person or any matter in which such
Person may be reasonably deemed to have an interest that is
adverse to the Company; (3) cause the Company to violate
obligations with respect to confidential or proprietary
information of third parties, provided that an Observer
shall not be so excluded unless all other Persons whose
participation in such meeting of the Board, or portions thereof,
or receipt of such information, or portions thereof, would
result in a violation of such third party obligations are also
excluded; or (4) pose an actual or potential conflict of
interest for the Equityholder designating the Observer, any of
its Affiliates or the Observer (subsections (x) and
(y) collectively Observer Restrictions).
In addition, if an Observer designated by an Equityholder is an
observer, employee, officer, director, partner or member at
another company that competes with the Company or is primarily
engaged in a business in a substantially related industry, a
majority of those Directors that are not appointed by the
Equityholder appointing the Observer would be permitted to
exclude the Observer from any meeting of the Board, or portions
thereof, or deny access to any information provided to
Directors, if such Directors reasonably determine, in a closed
session, to exclude such Observer to protect the proprietary
nature of the information included in the matters to be
discussed
and/or
distributed.
(xiii) The Company acknowledges that an Equityholder
appointing an Observer
and/or an
Observer may likely have, from time to time, information that
may be of interest to the Company (but which excludes any
information that the Observer receives or learns in its position
as an Observer) (Observer Information)
including, by way of example only, technologies, plans, services
of the applicable Equityholder, strategies relating thereto,
developments with respect to the technologies, products and
services, and plans and strategies relating thereto, of other
companies, including actual or potential competitors of the
Company. The Observer Information may or may not be actually
known by the Observer. The Company agrees that an Equityholder
designating an Observer to the Board, merely by exercising that
right of appointing the Observer, and the Observer does not have
any additional duty to disclose any Observer Information to the
Company or offer to the Company the right to participate in
projects or investments based on the Observer Information or
otherwise take advantage of any opportunity that may be of
interest to the Company if it were aware of the Observer
Information, and waives, to the extent permitted by law, any
claim based on the corporate opportunity. The Company will not,
to the extent permitted by law, take action to limit the
Equityholders ability to pursue opportunities based on the
Observer Information or require the Equityholder or Observer to
disclose the Observer Information to the Company solely based on
the Equityholders exercise of its right to appoint the
Observer.
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(b) The initial Directors and the Observers will be as set
forth on
Exhibit B.2
Sprint, Eagle River, Intel and the Strategic Investor
Representative (on behalf of the Strategic Investor Group) will
provide the other Equityholders and the Company with written
notice of any changes to their respective Equityholder Designees
in connection with an annual meeting of the stockholders of the
Company at least 90 days before the annual meeting of the
stockholders of the Company at which elections of Directors will
be held. Notwithstanding the foregoing and
Section 2.1(a)(viii), the Company and the Equityholders
acknowledge and agree that (A) Intel may elect not to
nominate the Intel Designee to begin serving on the Board as of
the Effective Date, (B) Intel shall have until the
180th day following the Effective Date to nominate the
Intel Designee, (C) during such
180-day
period, there will be a vacancy on the Board until such time as
Intel nominates the Intel Designee and (D) if Intel does
not nominate the Intel Designee during such
180-day
period, then Intel will be deemed to have waived its rights to
nominate a Director until there is a vacancy of one of the seats
held by an Independent Designee or until a regularly scheduled
meeting of stockholders at which Directors are elected in
accordance with Section 2.1(b), if applicable, and the
Director seat will be filled in accordance with
Section 2.1(a)(viii). Until such time as the Intel Designee
is appointed, the Board may appoint an Independent Designee to
any of the committees on which the Intel Designee was entitled
to be a member under this Agreement.
(c) The Company and the Equityholders will take whatever
actions may be required under Law to cause the Board to consist
of the number of Directors specified in this Section 2.1.
(d) At each annual or special meeting of the stockholders
of the Company at which Directors are to be elected, the Company
will include in the slate of nominees recommended by the Board
and in the Companys proxy statement or notice of such
meeting all of the Equityholder Designees and each Independent
Designee and will use its Reasonable Best Efforts to cause the
election of each of those designees to the Board, including
nominating those individuals to be elected as Directors as
provided in this Agreement.
(e) If a vacancy is created at any time by the death,
disability, retirement, resignation or removal (with or without
cause) of any Director who is an Equityholder Designee or
Independent Designee, the Company and each Equityholder will
take all actions necessary to cause the vacancy to be filled as
soon as practicable by a new Equityholder Designee or
Independent Designee, as the case may be, who is nominated in
the manner specified in this Section 2.1. If the vacancy
was created by the death, retirement, disability, resignation or
removal of an Equityholder Designee, and if the applicable
Equityholder does not nominate a replacement Director to fill
such vacancy within 90 days following the date of the
vacancy, such Equityholder will be deemed to have waived its
rights to nominate a replacement Director until there is a
vacancy of one of the seats held by an Independent Designee or
until a regularly scheduled meeting of stockholders at which
Directors are elected in accordance with Section 2.1(b), if
applicable, and the Director seat will be filled in accordance
with Section 2.1(a)(viii). If the remaining Directors have
not, within 30 days following the earlier of (x) in
the case of an Equityholder Designee, the date on which the
replacement Director has been nominated or (y) 90 days
after the date of such vacancy, caused (by written consent or
otherwise) the vacancy to be filled by a new Equityholder
Designee or Independent Designee, as applicable, in the manner
specified in Section 2.1, then the Company and each
Equityholder will take all actions necessary to fill the vacancy
as provided in this Section 2.1(e).
(f) Each of the Equityholders will
(i) vote any Voting Securities owned by it or over which it
has the power to vote (or direct the voting of) and cause its
Controlled Affiliates to vote any Voting Securities, at each
annual or special meeting of stockholders of the Company at
which Directors are to be elected, or execute (or cause to be
executed) proxies or written consents with respect to such
Voting Securities, as the case may be, in favor of the election
of the Equityholder Designees and the Independent Designees
nominated to the Board as provided in this
Section 2.1, and
(ii) use its Reasonable Best Efforts to cause the election
of the Equityholder Designees and Independent Designees to the
Board, including nominating those individuals to be elected as
members of the Board.
2 Exhibit B
to be completed prior to Closing.
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(g) On the written request of the Equityholder entitled to
nominate the relevant Director, but only upon such written
request, each other Equityholder will vote any Voting Securities
owned by it or over which it has the power to vote (or direct
the voting) and will cause its Controlled Affiliates to vote any
Voting Securities, and, together with the Company, take or cause
to be taken all actions necessary, to remove any Director
nominated by the requesting Equityholder, and to elect any
replacement Director nominated by that Equityholder (provided
that such replacement Director otherwise meets all of the
applicable requirements under Section 2.1(a)). Subject to
Section 2.1(h) and the penultimate sentence of this
Section 2.1(g), unless the Equityholder entitled to
nominate the relevant Director otherwise requests in writing, no
Equityholder will take any action to cause the removal of any
Directors nominated by any other Equityholder. Notwithstanding
anything to the contrary in this Agreement, any Director may be
removed for cause by a majority vote of the other
Directors. For purposes of this Section 2.1(g),
cause shall mean the conviction of the Director of,
or the entry of a pleading of guilty or nolo contendere by the
Director to, any crime involving moral turpitude or any felony.
(h) If an Equityholder ceases to have the right to nominate
one or more Directors in accordance with this Section 2.1,
then, if requested in writing by any Equityholder holding, or
group of Equityholders collectively holding, at least 25% of the
outstanding Voting Securities, that first Equityholder will use
Reasonable Best Efforts to cause the removal or resignation of
its applicable Equityholder Designee(s) at the earliest possible
time. If no request is made in accordance with the preceding
sentence, the applicable designee(s) of that Equityholder will
serve the remaining portion of their then-current term and the
replacement Director(s) will be nominated in accordance with
this Section 2.1 at the next meeting of the stockholders at
which Directors are elected.
(i) The Company will compensate each Equityholder Designee
who is not an employee of the Company or any of its Subsidiaries
in the same manner and to the same extent as it compensates its
other non-employee Directors and will reimburse each
Equityholder Designee for reasonable out-of-pocket expenses
incurred by such Equityholder Designee for the purpose of
attending meetings of the Board or its committees. If an
Equityholder Designee is an employee of an Equityholder or its
Affiliates, the Company will pay the applicable compensation or
reimbursement on behalf of such Equityholder Designee to the
applicable Equityholder.
(j) The Company will obtain and maintain directors
and officers insurance that meets at least the terms and
conditions set forth on Exhibit C. Prior to the
occurrence of a Change of Control (disregarding, for purposes of
this Section 2.1(j), the second parenthetical in
clause (ii) of the definition of Change of
Control) or any merger, consolidation or similar
transaction in which the Company is not the surviving entity,
the Company will require that any successor (whether by merger,
operation of law or otherwise) to the Company assume the
Companys obligations under this Section 2.1(j) for a
period of at least six years, except that in no event will the
successor to the Company be required to expend for that
insurance more than an amount per year equal to 200% of the
annual premiums paid by the Company as of the date of the Change
of Control transaction. If, but for the immediately preceding
sentence, the successor to the Company would be required to
expend more than 200% of then-current annual premiums, the
successor to the Company would be required to obtain the maximum
amount of that insurance obtainable by payment of annual
premiums equal to 200% of the then-current annual premiums.
(k) The rights of the Equityholders under this
Section 2.1 are not Transferable and may not be exercised
by any Transferee, except by a Permitted Transferee or Permitted
Designee of such Equityholder.
(l) The Chief Executive Officer of the Company will be
entitled to attend all meetings of the Board regardless of
whether or not he or she is a Director, except that the Chief
Executive Officer may be excluded from meetings of the Board
when the Board is in executive session.
2.2 Officers; Chairman of the
Board. The initial Chairman of the Board,
Chief Executive Officer, President (if applicable), Chief
Financial Officer, Chief Technology Officer, Chief Operating
Officer, Chief Information Officer, Chief Strategy Officer and
General Counsel of the Company will be as set forth on
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Exhibit B.3
Subject to the provisions of Section 2.6(b)(i), changes to
any of the foregoing positions will be determined by the Board
in accordance with the Bylaws.
2.3 Committees.
(a) The Company will establish an audit committee (the
Audit Committee) to perform the duties
usually reserved for an audit committee, and certain other
duties, including reviewing and recommending to the full Board
(with related party Directors abstaining from the applicable
Board vote) all Related Party Transactions. The initial members
of the Audit Committee will be three or more Independent
Directors, including the Sprint Designee that qualifies as an
Independent Director (for as long as Sprint is required to
nominate that Director), and the Investor Independent Designee
(for as long as there is an Investor Independent Designee). At
least one of the Independent Designees on the Audit Committee
will qualify as an audit committee financial expert
within the meaning of the Exchange Act, and will chair the Audit
Committee. The approval of a majority of the Audit Committee
will be required for the approval of any matter that comes
before the Audit Committee.
(b) The Company will establish a nominating committee (the
Nominating Committee) to perform the
functions usually reserved for a nominating committee, including
nominating Independent Designees. The Nominating Committee will
consist of five members, two of whom will be Sprint Designees,
one of whom will be the Eagle River Designee, one of whom will
be a Strategic Investor Designee, and one of whom will be an
Intel Designee; provided that (i) no Equityholder or
the Strategic Investor Group, as the case may be, will have any
right to designate any member of the Nominating Committee unless
it is also entitled to nominate at least one Director pursuant
to Section 2.1(a) and (ii) on the first date that
Sprints right to nominate Directors is actually adjusted
downward pursuant
Section 2.1(a)(i)(B),2.1(a)(i)(C),2.1(a)(vii), or
3.8(e)(i), Sprint will thereafter have the right to designate
only one Sprint Designee as a member of the Nominating
Committee. In the event that an Equityholder or the Strategic
Investor Group, as the case may be, loses the right to nominate
a member of the Nominating Committee, the open seat(s) on the
Nominating Committee will be filled by one or more Independent
Designees. The approval of four of the five members of the
Nominating Committee will be required to nominate any
Independent Designee.
(c) The Company will establish a compensation committee
(the Compensation Committee) to perform the
functions usually reserved for a compensation committee,
including
(i) reviewing and determining salary, bonus and other
compensation for the Chief Executive Officer of the Company and
the LLC, and for all executive officers of the Company and the
LLC who report directly to the Chief Executive Officer
(including but not limited to the Chief Operating Officer, the
Chief Financial Officer, the Chief Technology Officer and any
officer determined to be a chief operating decision maker under
GAAP), and
(ii) such other tasks as the Board may from time to time
authorize.
The Compensation Committee will consist of four members, one of
whom will be a Sprint Designee, one of whom will be a Strategic
Investor Designee, one of whom will be a Eagle River Designee
and one of whom will be the Investor Independent Designee. If
any Equityholder or the Strategic Investor Group, as the case
may be, loses the right to designate any of its designees to the
Compensation Committee (which right will be lost with respect to
any designee by virtue of an Equityholder or the Strategic
Investor Group losing its right to nominate at least one
Director pursuant to Section 2.1(a)), then the seat on the
Compensation Committee will be filled by one of the Independent
Designees. The approval of two-thirds of the Compensation
Committee will be required to approve the matters described in
clauses (i) and (ii) above, and no other approval of
the Board (or any other Committee) will be required with respect
to those matters.
(d) The Company will establish a special committee (the
Transactions Committee) consisting of all
Directors other than Sprint Designees who (i) are employees
or directors of Sprint or any of its Controlled Affiliates or
(ii) would not be Independent Directors if they were to sit
on the board of directors of Sprint or any of its Controlled
Affiliates (i.e. who are not independent vis-à-vis
Sprint). The Transactions Committee
3 Exhibit B
to be completed prior to closing.
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will have the authority to take all actions and make the
determinations referred to in Section 2.13 and
Section 2.15.
(e) Other than the Audit Committee, the Transactions
Committee, the Nominating Committee, the Compensation Committee
and, if the Equityholders agree in accordance with this
Agreement and the Bylaws, an executive committee, the Company
will establish no other committees of the Board, other than
those special committees the Board may create from time to time,
as permitted by the Charter and the Bylaws, in order to carry
out its fiduciary duties (it being agreed that to the extent
that the Board delegates any authority to a committee (including
an executive committee), then each of Sprint, Intel, Eagle River
and the Strategic Investor Group will be entitled (but not
obligated) to designate at least one designee to any such
committee for so long as it has the right to nominate at least
one Director, unless, in each case, such designation would, in
the good faith determination of a majority of the Independent
Directors (based on the advice of counsel) be inappropriate as a
result of an actual or perceived conflict of interest on the
part of such designee, the Equityholder (or group of
Equityholders) designating such designee or any of their
respective Affiliates). Any such designation by Sprint, Intel,
Eagle River or the Strategic Investor Group must be initially
made within a reasonable period of time following receipt of
written notification of the formation of such committee.
2.4 Available Financial Information.
(a) The Company will deliver, or will cause to be
delivered, the following information to (x) each Strategic
Investor for so long as (1) the Strategic Investor Group
has the right to nominate at least one Director under
Section 2.1 and (2) such Strategic Investor has a
Percentage Interest equal to at least 2%, or in the case of BHN,
has a Percentage Interest equal to at least 50% of its
Percentage Interest as of the Effective Date (as may be adjusted
on the Adjustment Date), and (y) each other Equityholder
for so long as such Equityholder has the right to nominate at
least one Director under Section 2.1:
(i) as soon as available (and in any event within
90 days) after the end of each fiscal year of the Company
(or the earlier date by which the information is required to be
filed under the Exchange Act),
(A) (1) the annual financial statements required to be
filed by the Company under the Exchange Act and a reasonably
detailed comparison to the Companys business plan for that
fiscal year as approved by the Board and certified by the
principal financial or accounting officer of the Company, or
(2) if the financial statements described in (1) are
not required to be filed under the Exchange Act, an audited
consolidated balance sheet of the Company and its Subsidiaries,
in each case as of the end of the fiscal year, and audited
consolidated statements of income, retained earnings and cash
flows of the Company and its Subsidiaries for that year, in each
case prepared in accordance with GAAP and setting forth in each
case in comparative form the figures for the previous fiscal
year, all in reasonable detail and accompanied by the opinion of
independent public accountants of recognized national standing
selected by the Company, and a reasonably detailed comparison to
the Companys business plan for that year as approved by
the Board and certified by the principal financial or accounting
officer of the Company; and
(B) with respect to the LLC, an audited consolidated
balance sheet of the LLC and its Subsidiaries, in each case as
of the end of the fiscal year, and audited consolidated
statements of income, retained earnings and cash flows of the
LLC and its Subsidiaries for that year, in each case prepared in
accordance with GAAP and setting forth in each case in
comparative form the figures for the previous fiscal year, all
in reasonable detail and accompanied by the opinion of
independent public accountants of recognized national standing
selected by the LLC;
(ii) as soon as available after the end of the first,
second and third quarterly accounting periods in each fiscal
year of the Company and in any event within 45 days (or the
earlier date by which the information is required to be filed
under the Exchange Act),
(A) (1) the quarterly financial statements required to
be filed by the Company under the Exchange Act and a reasonably
detailed comparison to the Companys business plan for the
current fiscal year to date as approved by the Board and
certified by the principal financial or accounting officer of
the Company, or (2) if the financial statements described
in (1) are not required to be filed under the Exchange Act,
a consolidated balance sheet of the Company and its
Subsidiaries, in each case as of the
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end of each quarterly period, and consolidated statements of
income, retained earnings and cash flows of the Company and its
Subsidiaries, in each case for that period and for the current
fiscal year to date, in each case prepared in accordance with
GAAP (subject to normal year-end audit adjustments) and setting
forth in comparative form the figures for the corresponding
periods of the previous fiscal year and a reasonably detailed
comparison to the Companys business plan then in effect as
approved by the Board and certified by the principal financial
or accounting officer of the Company in reasonable detail and
certified by the principal financial or accounting officer of
the Company; and
(B) with respect to LLC, a consolidated balance sheet of
LLC and its Subsidiaries, in each case as of the end of each
quarterly period, and consolidated statements of income,
retained earnings and cash flows of LLC and its Subsidiaries, in
each case for that period and for the current fiscal year to
date, in each case prepared in accordance with GAAP (subject to
normal year-end audit adjustments) and setting forth in
comparative form the figures for the corresponding periods of
the previous fiscal year certified by the principal financial or
accounting officer of LLC;
(iii) as soon as available and in any event within
45 days after the end of each fiscal quarter,
(A) a consolidated balance sheet and income statement with
budget variances,
(B) consolidated key metrics with budget
variances, including gross adds, net adds, churn, ARPU, CPGA and
sites on air, and
(C) a summary of capital expenditures with budget variances,
provided, however, that the Company may exclude
market-specific information from any such reports; and
(iv) as soon as available, an annual operating budget (with
variance analysis) and strategic plan of the Company and the LLC
for the following fiscal year as approved by the Board.
(b) The Company covenants and agrees to deliver to
(x) a Strategic Investor for so long as (1) the
Strategic Investor Group has the right to nominate at least one
Director under Section 2.1 and (2) such Strategic
Investor has a Percentage Interest equal to at least 2%, or in
the case of BHN, has a Percentage Interest equal to at least 50%
of its Percentage Interest as of the Effective Date (as may be
adjusted on the Adjustment Date), and (y) each other
Equityholder for as long as such Equityholder has the right to
nominate at least one Director under Section 2.1, in each
case with reasonable promptness, any other information,
including data and reports made available to any lender of the
Company or any of its Subsidiaries under any credit agreement or
otherwise, as from time to time may be reasonably requested by
such Strategic Investor or other Equityholder.
(c) The officers, employees, auditors and contract
employees of any Equityholder receiving or having access to
information of the Company under Sections 2.4(a) and
(b) will be limited to those officers, employees, auditors
and contract employees of the Equityholder with a need to know
such information for the purpose of evaluating the
Equityholders equity investment in the Company and the
LLC, but, insofar as such information relates, in each case, to
the Companys retail business, may not include any officer
or employee that is directly responsible for the day-to-day
operations of such Equityholder that are competitive with the
business of the Company and the LLC.
2.5 Access.
(a) The Company will, and will cause its Subsidiaries,
officers, directors and employees to, until an Equityholder no
longer has the right to nominate at least one Director under
Section 2.1 (or, in the case of an Equityholder that is a
Strategic Investor, until (x) the Strategic Investor Group
no longer has the right to nominate at least one Director under
Section 2.1 and (y) such Strategic Investor has a
Percentage Interest equal to at least 2%, or in the case of BHN,
has a Percentage Interest equal to at least 50% of its
Percentage Interest as of the Effective Date (as may be adjusted
on the Adjustment Date)),
(i) afford the officers, employees, auditors and contract
employees of that Equityholder and its Controlled Affiliates,
during normal business hours and on reasonable notice,
reasonable access to the Companys and its
C-12
Subsidiaries officers, employees, properties, offices,
plants and other facilities and to all books and
records, and
(ii) afford that Equityholder the opportunity to discuss
the Companys and its Subsidiaries affairs, finances
and accounts with the Companys and its Subsidiaries
officers from time to time as the Equityholder may reasonably
request,
in each event, only to the extent necessary or reasonably
appropriate to accomplish the reasonable purpose of the proposed
inspection. If following such discussion the Equityholder
determines that it needs further financial information of the
Company and its Subsidiaries, then the Equityholder will provide
a written request of the same to the chief financial officer of
the Company including a description of the type of information
needed from the auditors. The chief financial officer of the
Company will promptly make the request of the Companys
auditors to discuss the requested issues with the requesting
Equityholder.
(b) The officers, employees, auditors and contract
employees of any Equityholder or its Controlled Affiliates
having access rights under Section 2.5(a) will be limited
to those officers, employees, auditors and contract employees of
the Equityholder and its Controlled Affiliates with a need to
have the above-described access rights for the purpose of
evaluating the Equityholders equity investment in the
Company and the LLC, but, insofar as such access rights provide
access to information that relates, in each case, to the
Companys retail business, may not include any officer or
employee that is directly responsible for the day-to-day
operations of such Equityholder that are competitive with the
business of the Company and the LLC.
2.6 Requirements for Board Action.
(a) In addition to any other actions or approvals required
under this Agreement, Law, the Operating Agreement, the Charter
or the Bylaws, the following actions (including the entry into
any agreement, contract or commitment to take any such action)
will require the prior approval of a Simple Majority of the
disinterested Directors:
(i) any Related Party Transaction, and
(ii) any Transfer of Equity Securities by the Principal
Equityholder, whether as part of a single transaction or a
series of related transactions, that constitutes a Change of
Control of the Company or any of its material Subsidiaries,
except that for purposes of this clause (ii), any failure of the
disinterested Directors to vote against the proposed Transfer
within 30 days following the receipt by the Company of
written notice of the Transfer will be deemed to be an approval
of the Transfer.
(b) In addition to any other actions or approvals required
under this Agreement, the Operating Agreement, Law, the Charter
or the Bylaws, the following actions (including the entry into
any agreement, contract or commitment to take any such action)
by the Company or any of its Subsidiaries will require the prior
approval of at least 10 Directors (or, if there are fewer
than 10 Directors, all of such Directors):
(i) the appointment or removal of the Chief Executive
Officer of the Company and the LLC, and the appointment or
removal of all executive officers of the Company and the LLC who
report directly to the Chief Executive Officer (including but
not limited to the Chief Operating Officer, the Chief Financial
Officer, the Chief Technology Officer and any officer determined
to be a chief operating decision maker under GAAP); provided
that the foregoing approval rights with respect to the
removal of executive officers of the Company and the LLC who
report directly to the Chief Executive Officer will not apply if
Sprint owns less than 50% of the outstanding Voting Securities
and has the right to nominate less than a majority of the
Directors;
(ii) the Company or any Subsidiary of the Company engaging
in:
(A) a joint venture with any Person that involves a
contribution by the Company or any Subsidiary of the Company to
the joint venture entity of assets with a book value in excess
of 20% of the book value of the consolidated assets of the
Company and its Subsidiaries, as reflected in the most recent
audited financial statements of the Company and its Subsidiaries;
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(B) an acquisition of any assets (including stock or other
equity interests) in a transaction or series of related
transactions that have an aggregate purchase price in excess of
20% of the book value of the consolidated assets of the Company
and its Subsidiaries, as reflected in the most recent audited
financial statements of the Company and its Subsidiaries; or
(C) a disposition of any assets of the Company or any
Subsidiary of the Company (including stock or other equity
interests) in a transaction or series of related transactions
that have an aggregate purchase price in excess of 20% of the
book value of the consolidated assets of the Company and its
Subsidiaries, as reflected in the most recent audited financial
statements of the Company and its Subsidiaries;
except that the approval required under this
Section 2.6(b)(ii) will not be required for any transaction
that qualifies as a Related Party Transaction (it being
understood that Related Party Transactions are to be addressed
as set forth in Section 2.6(a));
(iii) engaging in or undertaking any business activities
approved by the Board under clause (iv) of the definition
of the Business Purpose of the Company;
(iv) funding any of the following:
(A) any business activities outside the United States other
than funding as and to the extent necessary to maintain the
Companys existing operations and assets located outside of
the United States; or
(B) any acquisition of spectrum (whether by purchase, lease
or license) outside the United States; or
(C) any expansion of the Business Purpose of the Company
under clause (iv) of the definition thereof that is not
conducted through the LLC or its Subsidiaries; and
(v) any Change of Control of the Company or any of its
Subsidiaries (other than in connection with a transaction that
constitutes a Related Party Transaction) (it being understood
that Related Party Transactions are to be addressed as set forth
in Section 2.6(a)).
(c) In addition to any other actions or approvals required
under this Agreement, the Operating Agreement, Law, the Charter
or the Bylaws, any amendment to the Operating Agreement will
require the prior approval of a majority of the Directors who
are Independent Designee(s) and Independent Directors nominated
by one or more Equityholders other than those Independent
Directors that are current or former directors, officers or
employees of a nominating Equityholder.
(d) Notwithstanding anything to the contrary in this
Agreement,
(i) a Simple Majority of the Board (excluding the
interested Directors) shall have the right to direct, enforce
and control on behalf of any NewCo Indemnified Person (as such
term is defined in the Transaction Agreement) the prosecution of
any action in respect of which indemnity may be sought against
any Equityholder or any of its Affiliates under Article 13
of the Transaction Agreement (including the determination as to
whether to assert any claim, commence any action or settle,
dismiss or continue the prosecution of any such action); and
(ii) For purposes of Section 1.2(c) of the Transaction
Agreement, (A) all action taken by the Company or the LLC
shall be determined and directed by the senior management of the
Company unless such action requires approval from the Board, in
which case such action shall be determined and directed by the
members of the Board other than the Sprint Designees and
(B) the Sprint Designees will recuse themselves from all
consideration of these matters.
2.7 Supermajority Voting Requirements.
(a) In addition to any other actions or approvals required
under this Agreement, Law, the Operating Agreement, the Charter
or the Bylaws, the following actions (including the entry into
any agreement, contract or commitment to take any such action)
by the Company or any of its Subsidiaries will require the
approval of
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each of Sprint, Intel, and the Strategic Investor Representative
on behalf of the Strategic Investor Group so long as Sprint,
Intel or the Strategic Investor Group, respectively, has a
Percentage Interest of at least 5%.
(i) any amendment to the Bylaws (other than amendments that
are ministerial in nature and do not directly or indirectly
adversely affect the rights of the Equityholders), the Charter
or the Operating Agreement;
(ii) changing the size of the Board from the size
contemplated by Section 2.1(a);
(iii) any Bankruptcy of the Company or any material
Subsidiary of the Company;
(iv) any material capital restructuring or reorganization
of the Company or any material Subsidiary of the Company, except
that the foregoing will not include any financing transaction of
the Company or its Subsidiaries in the ordinary course of
business (including a public or private issuance of any debt or
equity securities in the ordinary course of business);
(v) the liquidation, dissolution or winding up of the
Company or the LLC;
(vi) any conversion, election or other action of or
affecting the LLC or any material Subsidiary of the LLC that
would cause any such entity to be taxed as a corporation for
U.S. federal income tax purposes; and
(vii) any issuance, or entry into any agreement to issue or
otherwise obligate the Company or the LLC to issue, after the
Effective Date of this Agreement, shares of Class B Common
Stock or Class B Common Units, other than (A) in
connection with a Recapitalization Event or as required under
the Transaction Agreement or (B) shares of Class B
Common Stock issued to Sprint under Section 2.13(e) or (f).
(b) The actions described in clauses (i) and
(ii) of Section 2.7(a) will also require the approval
of Eagle River if
(i) Eagle River and its Permitted Transferees own at least
50% of the Eagle River Original Shares, and
(ii) the action in question would uniquely or
disproportionately adversely affect Eagle River or the public
stockholders of the Company, or the Company as a Member of the
LLC, in any material respect as compared to the impact of the
action on Sprint, Intel and the Strategic Investors as
stockholders of the Company and members of the LLC.
(c) In addition to any other action or approval required
under this Agreement, the Operating Agreement, Law, the Charter
or the Bylaws, the written approval of the applicable Consenting
Equityholder(s) (as defined below) will be required for the
following actions (including the entry into any agreement,
contract or commitment to take any such action):
(i) any transaction (or series of related transactions)
that would result in the sale or other transfer of more than the
Specified Percentage of the consolidated assets of the Company
and its Subsidiaries, as reflected in the most recent audited
financial statements of the Company and its Subsidiaries, to any
Restricted Entity of the applicable Consenting
Equityholder(s), or
(ii) any merger, consolidation, share exchange,
recapitalization, business combination or other similar
transaction or issuance of capital stock of the Company or any
of its Subsidiaries with or to a Restricted Entity of the
applicable Consenting Equityholder(s) that constitutes a Change
of Control of the Company or any of its Subsidiaries.
For purposes of this Section 2.7(c) and Section 3.6, a
Consenting Equityholder means, at any time,
each of Sprint, Intel and the Strategic Investor Group if, at
the applicable time, such Equityholder (or the Strategic
Investor Group, as the case may be):
(x) owns a number of shares of Common Stock equal, in the
aggregate, to at least 50% of its Original Shares, and
(y) holds an aggregate Percentage Interest of at least 5%.
(d) The approval of the holders of at least 75% of the
outstanding Voting Securities of the Company will be required to
approve (i) any merger, consolidation, share exchange,
recapitalization, business combination or
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other similar transaction involving the Company or the LLC,
(ii) any issuance of capital stock of the Company or the
LLC, in either case that constitutes a Change of Control of the
Company or the LLC or (iii) any sale or other disposition
of all or substantially all of the assets of the Company or of
the LLC.
(e) If the Board proposes that the Company or any of its
Subsidiaries take any action that requires the approval of
Sprint, Intel, Eagle River, or the Strategic Investor Group (or
any combination of those Equityholders) under Section 2.7,
the Company will send a written notice to the Equityholders
(including to the Strategic Investor Representative on behalf of
the Strategic Investor Group) whose approval or waiver would be
required (the Approval Equityholders), which
notice will include a reasonably detailed description of the
action proposed. If none of the Approval Equityholders delivers
to the Company a written notice of objection to the taking of
such action within 30 days of the notice date, then such
action will be deemed approved. If any of the Approval
Equityholders timely delivers a written notice of objection,
then, as soon as reasonably practicable after delivery of such
notice (and in any event within 30 days thereafter), the
chief executive officers of the Approval Equityholders (which,
at the election of the Strategic Investor Group, may include the
chief executive officer of each of the Strategic Investors or
the chief executive officer of the Strategic Investor
Representative) and the Company will meet to discuss the
proposed action (either in person or, if agreed by all the
Approval Equityholders, by teleconference), and whether the
action should be approved. If the chief executive officers of
the Approval Equityholders and the Company unanimously determine
in writing that the action should be taken, the matter will be
deemed to have been approved by the Equityholders as required
under Section 2.7.
2.8 Employee Option Pool. The
Company will take all necessary action to reserve up to
80,000,000 shares of Class A Common Stock (as adjusted
for Recapitalization Events) for issuance of Equity Securities
and options to purchase Equity Securities to officers,
directors, consultants and employees of the Company or any of
its Subsidiaries under an initial Incentive Plan (including
options that have been issued as of the date hereof) as soon as
reasonably practicable after the consummation of the
transactions contemplated by the Transaction Agreement (it being
understood that any issuance of Equity Securities or options to
purchase Equity Securities to officers, directors, consultants
or employees of the Company or any of its Subsidiaries will
require the approval of the Board or the Compensation
Committee). Each Equityholder will vote all of its Equity
Securities in favor of any Incentive Plan pursuant to which the
Company has reserved or will reserve shares of Class A
Common Stock that is submitted to a vote of the stockholders of
the Company if such Incentive Plan does not provide for possible
issuances of Class A Common Stock, together with possible
issuances of Class A Common Stock under all other Incentive
Plans then in place (excluding any Incentive Plans in effect
prior to the Effective Date and assumed by the Company as part
of the Merger) (in each case, as adjusted for Recapitalization
Events), in excess of the amounts described in the first
sentence of this Section 2.8. The Company may, from time to
time thereafter, reserve additional shares of Class A
Common Stock under subsequent Incentive Plans.
2.9 Controlled Compan.
(a) The Equityholders agree and acknowledge that,
(i) by virtue of this Agreement, they are acting as a
group within the meaning of the NASDAQ
rules, and
(ii) by virtue of the combined Percentage Interest of the
Equityholders of more than 50%, the Company qualifies as a
controlled company within the meaning of the NASDAQ
rules.
(b) For so long as the Company qualifies as a controlled
company for purposes of NASDAQ, the Company will elect to be a
controlled company for purposes of NASDAQ, and will disclose in
its annual meeting proxy statement that it is a controlled
company and the basis for that determination. If the Company
ceases to qualify as a controlled company for purposes of
NASDAQ, the Equityholders and the Company will take whatever
action may be reasonably necessary, if any, to cause the Company
to comply with the NASDAQ rules as then in effect.
(c) If an Equityholder ceases to have the right to
(i) nominate one or more Directors in accordance with
Section 2.1, (ii) approve certain actions by the
Company and its Subsidiaries pursuant to Section 2.7,
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(iii) participate as a Non-Selling Equityholder in the
right of first offer pursuant to Section 3.3,
(iv) preemptive rights pursuant to Section 3.5 and
(v) qualify as a Consenting Equityholder pursuant to
Section 2.7(c) (a Non-Qualifying
Equityholder), the Company and the remaining
Equityholders agree to use Reasonable Best Efforts to take
whatever action may be reasonably necessary, including any
filings under the Exchange Act, to cause such Non-Qualifying
Equityholder to no longer constitute part of the
group referred to in Section 2.9(a) above. For
purposes of this Section 2.9(c), if the Non-Qualifying
Equityholder is a Strategic Investor, the Strategic Investor
Representative will promptly notify the Company and the
remaining Equityholders if and when any Strategic Investor
becomes a Non-Qualifying Equityholder.
2.10 Certain Undertakings.
(a) The Equityholders and the Company agree that the
initial three-year business plan of the Company and the LLC will
not contemplate the formation of an enterprise sales force.
During the three-year period following the Effective Date, the
Company and its Subsidiaries will promptly refer to Sprint any
opportunities that they become aware of for the sale of Wireless
Broadband Products and Services to the most recently published
Fortune 1000 companies (the Fortune 1000
Companies); provided, that if a Fortune 1000
Company directly approaches the Company or the LLC to obtain
services of the Wireless Broadband Network or other services
sold by the Company or the LLC, then nothing in this
Section 2.10(a) will preclude the Company or the LLC from
making such sales directly so long as it also makes the referral
to Sprint. Sprint and the Company will, from time to time, meet
with respect to certain Fortune 1000 Companies and discuss in
good faith opportunities where it may make sense for the Company
or the LLC to service a particular account (e.g. regional
headquarters). The Company and Sprint will each designate a
contact point and use a mutually agreeable form and process for
handling referrals. Sprint will appoint at least one
representative to be responsible for handling the Sprint sales
effort to the Fortune 1000 Companies. Sprints right to
continue to be the primary enterprise sales force selling
services on the Wireless Broadband Network to the Fortune 1000
Companies after the initial three-year period shall be subject
to the mutual agreement of the Company and Sprint. Nothing in
this Section 2.10(a) will preclude or affect the ability of
any Person that is a party to a wholesale or MVNO agreement with
the Company from marketing, promoting or selling the services of
the Wireless Broadband Network to the Fortune 1000 Companies as
long as such agreement is on customary, arms length terms and
neither the Company nor any of its Subsidiaries owns any equity
in such Person or is entitled to any revenue share or profit
share on such sales, provided that no action taken by any
Strategic Investor, Intel or any of their respective Affiliates
shall be deemed to violate this Section 2.10(a).
(b) The Company will develop and implement procedures and
safeguards, particularly with respect to access to competitively
sensitive information, to ensure compliance with applicable
antitrust Laws. No Equityholder will nominate a Person as its
Equityholder Designee if the participation of that Person would
violate any Law, including any antitrust Law.
(c) The Company will include in each of its annual
Forms 10-K
filed under the Exchange Act a reasonably detailed description
of the provisions of the Charter and the Operating Agreement
relating to limitations on fiduciary duties (including the
allocation of corporate opportunities between the Founding
Stockholders (as such term is defined in the Charter) and
Members (as such term is defined in the Operating Agreement), on
the one hand, and the Company and the LLC, on the other hand),
together with a separate risk factor describing the material
risks posed to the Companys stockholders relating to such
limitation on fiduciary duties, in each case, for so long as
such provisions are in effect.
(d) Determinations by the Company to take or initiate
actions to enforce this Agreement against any Equityholder, as
well as determinations regarding the manner in which any such
actions are taken, will be made:
(i) if there are fewer than three Independent Designees on
the Board at the time any such determination is made, by the
approval of a majority of the Independent Directors, including
the approval of at least one of the Independent
Designees; or
(ii) if there are at least three Independent Designees on
the Board at the time a decision is made, by the approval of a
majority of the Independent Designees.
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2.11 Subsidiary
Governance. Subject to Section 2.15, if
any Person other than an officer or employee of the Company or
any of its Subsidiaries is a member of the board of directors
(or equivalent governing body) of any Subsidiary of the Company,
then, upon the request of any Equityholder that is then entitled
to nominate at least one Director (or upon the request of the
Strategic Investor Representative if the Strategic Investor
Group is entitled to nominate at least one Director), the board
of directors (or equivalent governing body) of any or all of the
Subsidiaries of the Company will be comprised of the individuals
who are serving as Directors on the Board in accordance with
Section 2.1 (or designees of such Directors), in which
event the provisions of Section 2.1 and Section 2.3
will apply mutatis mutandis to each Subsidiary of the
Company; provided that, in the case of any non-
wholly-owned Subsidiaries of the Company, upon any such request,
the Company will use its commercially reasonable efforts to
replicate, to the extent practicable, the governance
arrangements set forth in Section 2.1 and Section 2.3
with respect to any actions or decisions to be taken or made by
the Company with respect to such Subsidiary.
2.12 No Imputed Conflicts. For the
avoidance of doubt, (a) the fact that any Strategic
Investor is interested with respect to any
particular transaction or other matter will not, without more,
render (i) any Strategic Investor Designee that was
nominated by any other Strategic Investor or (ii) any other
Strategic Investor or the Strategic Investor Group as a whole
interested with respect to such transaction or other
matter and will not, without more, cause such other Strategic
Investor Designee or any other Strategic Investor or the
Strategic Investor Group as a whole to be a related
party of the interested Strategic Investor, (b) the
fact that any Equityholder is interested with
respect to any particular transaction or other matter will not,
without more, render the Independent Director, if any, nominated
by such Equityholder (or the Strategic Investor Group)
interested or a related party with
respect to such transaction or other matter or a related
party of the interested Equityholder and (c) the fact
that any Equityholder has rights as a Non-Initiating
Equityholder under Section 3.8, or exercises such rights,
will not, without more, render (i) the Equityholder
Designees of such Equityholder (or the Strategic Investor Group)
or (ii) such Equityholder (in its capacity as a stockholder
of the Company) interested with respect to the
consideration of any proposal for a Qualifying Purchase.
Notwithstanding the above, the Board may, in the exercise of its
fiduciary duties and taking into account such factors as it may
deem appropriate, determine that a Director that is an affiliate
or employee of a Strategic Investor or Equityholder is
interested with respect to a particular transaction
or other matter in which such Strategic Investor or Equityholder
is a party.
2.13 Sprint Compliance Certificate.
(a) If the Company or any of its Subsidiaries proposes to
incur any Indebtedness or take any other action which may be
subject to restriction (whether directly or indirectly,
including as a result of a cross-default or cross-acceleration
provision) under any Sprint Senior Debt Agreement, the Chief
Executive Officer or Chief Financial Officer of the Company will
notify Sprint in writing (the Compliance
Notice). The Compliance Notice will include a brief
description of the proposed Indebtedness or other action,
including, as applicable, the amount of Indebtedness that will
be incurred or other action taken, a description of any security
being given, the proposed closing date or date such other action
will be taken and any other material terms and conditions of the
proposed Indebtedness or other action that are known at the time
the notice is given. Except as provided in the remainder of this
subsection (a), the notice will be given no later than
completion of a term sheet, letter of intent, or similar
pre-definitive document summary of material terms of such
Indebtedness or other action. If the Company proposes to enter
into a revolving line of credit (a Revolver),
the Company will deliver a Compliance Notice with respect to the
Revolver and will deliver a written notice (a Revolver
Quarterly Notice) not more than 90 days nor less
than 60 days prior to the commencement of each calendar
quarter during which amounts are available to be borrowed under
a Revolver indicating the Companys good faith estimate of
the total amount of draws that the Company intends to make on
each outstanding Revolver during such calendar quarter. The
Company will provide Sprint with drafts of definitive agreements
of the Companys proposed Indebtedness or other action as
the drafts are prepared. Nothing in the immediately preceding
sentence will be deemed to limit (i) the Companys
obligation to deliver a Modification Notice (as defined below)
if and when appropriate or (ii) Sprints obligation to
deliver a Compliance Certificate (as defined below) to the
Company.
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(b) Within ten days following its receipt of the Compliance
Notice or a Revolver Quarterly Notice, Sprint will notify the
Company in writing as to whether Sprint will be able to deliver
a compliance certificate substantially in the form attached as
Exhibit D (the Compliance
Certificate) from its Chief Executive Officer or Chief
Financial Officer (together with the legal opinion contemplated
by Section 2.13(h)) at the closing of the funding of the
proposed Indebtedness or the date such other action described in
the Compliance Notice will be taken or with respect to the
anticipated borrowing under the Revolver as specified in the
Revolver Quarterly Notice. If Sprint notifies the Company that
it will be able to deliver a Compliance Certificate (together
with the legal opinion contemplated by Section 2.13(h)),
the decision to proceed on the proposed Indebtedness or other
action will be subject to the approval of a Simple Majority of
the Board (except as otherwise provided in this Agreement and
the LLC Operating Agreement). If the Company elects to proceed
with the proposed Indebtedness or other action on the terms set
forth in the Compliance Notice, Sprint will deliver a Compliance
Certificate (together with the legal opinion contemplated by
Section 2.13(h)) at the closing of the funding of the
proposed Indebtedness or the date such other action is taken and
on the first Business Day of any calendar quarter as to which a
Revolver Quarterly Notice is given. If, notwithstanding the
foregoing, Sprint determines due to changed circumstances (other
than a Modification Notice) prior to the date on which such
documents are required to be delivered that it will not be able
to deliver the Compliance Certificate (or the legal opinion
contemplated by Section 2.13(h)) without taking further
action as contemplated by Section 2.13(d) below, Sprint
will promptly notify the Company in writing; provided
that delivery of that notice will not affect Sprints
obligation to deliver the Compliance Certificate with the legal
opinion contemplated by Section 2.13(h) in accordance with
this Section 2.13(b). If Sprint fails to deliver a
Compliance Certificate or the legal opinion contemplated by
Section 2.13(h) on the date on which such documents are
required to be delivered, then the Company, by majority vote of
the Transactions Committee, may elect to cause Sprint and its
Permitted Designees and Permitted Transferees to take any of the
actions specified in Section 2.13(d) below to the extent
determined by the Transactions Committee in good faith to be
reasonably necessary to permit (x) the applicable proposed
Indebtedness or other action to be consummated without
violating, conflicting with, causing a default or event of
default under or resulting in the imposition of a lien on the
assets or property of the Company under, any of the covenants
under the Sprint Senior Debt Agreements and (y) the
delivery by Sprint of a Compliance Certificate and the rendering
of the legal opinion contemplated by Section 2.13(h). If
the Company makes such an election then Sprint promptly will
take any action so directed by the Company, and the Company will
use Reasonable Best Efforts to take whatever action is necessary
to implement the action(s) taken by Sprint, and, if an amendment
to this Agreement is reasonably requested by Sprint to implement
such action(s), the Company and the remaining Equityholders will
so amend this Agreement as long as they are not adversely
affected by the amendment.
(c) If, in response to the Compliance Notice or Revolver
Quarterly Notice, Sprint notifies the Company that Sprint is not
then able to commit to deliver a Compliance Certificate or the
legal opinion contemplated by Section 2.13(h) on the date
on which such documents are required to be delivered or Sprint
notifies the Company that due to changed circumstances (other
than a Modification Notice) prior to the date on which such
documents are required to be delivered that it will not be able
to deliver the Compliance Certificate and the legal opinion
contemplated by Section 2.13(h) without taking further
action as contemplated by Section 2.13(d) below (each as
described in Section 2.13(b) above), then
(i) the determination of the Company whether to proceed
with the proposed Indebtedness or other action will be made by
Company management and the Transactions Committee,
(ii) if the Transactions Committee determines that the
Company should proceed with the proposed Indebtedness or other
action (and any other approvals required under this Agreement
and the LLC Operating Agreement have been obtained), then
notwithstanding the proposed closing date or date such other
action is to be taken as set forth in the Compliance Notice, the
Company may proceed with the proposed Indebtedness or other
action, but will not close on the proposed Indebtedness or take
such other action for at least 90 days following the date
of the Compliance Notice,
(iii) the Company will notify Sprint in writing of the new
proposed closing date or date such other action is to be taken
(if such date will be other than what is set forth in the
Compliance Notice), and
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(iv) Sprint will take all steps necessary to be able to
deliver, and subject to its rights under Section 2.13(d)
will deliver, a Compliance Certificate (together with the legal
opinion contemplated by Section 2.13(h)) at the closing of
the funding of the proposed Indebtedness or other action. If
Sprint fails to deliver a Compliance Certificate (or legal
opinion contemplated by Section 2.13(h)) on the proposed
closing date of the funding of the proposed Indebtedness or on
the date such other action is taken or on the first Business Day
of any calendar quarter as to which a Revolver Quarterly Notice
is given, then the Company, by majority vote of the Transactions
Committee, may elect to cause Sprint and its Permitted Designees
and Permitted Transferees to take any of the actions specified
in Section 2.13(d) below to the extent determined by the
Transactions Committee in good faith to be reasonably necessary
to permit (x) the applicable proposed Indebtedness or other
action to be consummated without violating, conflicting with,
causing a default or event of default under or resulting in the
imposition of a lien on the assets or property of the Company
under, any of the covenants under the Sprint Senior Debt
Agreements and (y) the delivery by Sprint of a Compliance
Certificate and the rendering of the legal opinion contemplated
by Section 2.13(h). If the Company makes such an election
then Sprint and its Permitted Designees and Permitted
Transferees promptly will take any action so directed by the
Company and the Company will use Reasonable Best Efforts to take
whatever action is necessary to implement the action(s) taken by
Sprint, and, if an amendment to this Agreement is reasonably
requested by Sprint to implement such action(s), the Company and
the remaining Equityholders will so amend this Agreement as long
as they are not adversely affected by the amendment.
(d) In connection with its obligations under
Sections 2.13(b) and (c) above, Sprint may elect to
take, and cause the Company to take, or as permitted by
Section 2.13(b) or (c) above, the Company may cause
Sprint to take, one or more of the following actions,
immediately on the written request of Sprint to the Company and
the remaining Equityholders (or the Company to Sprint, if the
Company is requiring the actions to be taken), and the Company
will take all steps necessary to cause any of the following
actions to occur (and, if an amendment to this Agreement is
reasonably requested by Sprint to implement such action(s), the
Company and the remaining Equityholders will so amend this
Agreement as long as they are not adversely affected by the
amendment) as soon as is reasonably practicable (but in any
event no later than the closing of the funding of the proposed
Indebtedness or other action or the first Business Day of any
calendar quarter as to which a Revolver Quarterly Notice is
given):
(i) surrender to the Company, for cash consideration equal
to the Par Value of the Class B Common Stock to be
surrendered, any number of shares of the Class B Common
Stock then held by Sprint and its Permitted Designees and
Permitted Transferees, without surrender or termination of its
corresponding Units,
(ii) surrender, for no additional consideration, any
governance rights then held by Sprint, including the right to
nominate one or more of the Sprint Designees and the right to
nominate all or any portion of the members of any of the
committees of the Company, except that
(A) if Sprint surrenders any governance rights under this
clause (ii), the written notice of Sprint (or the Company, if
the Company requires the surrender) will identify the positions
that will be surrendered and, if applicable, the individuals
that will resign, and, in the case of an election by Sprint, the
notice will be accompanied by the necessary letters of
resignation,
(B) any vacancies on the Board created by this
clause (ii) will be filled by Independent
Designees, and
(C) if Sprint surrenders one or more of the Sprint
Designees, and at the time of the surrender Sprint is required
to nominate an Independent Director, Sprint may remove its
Independent Director and Sprint will no longer be required to
nominate an Independent Director, and
(iii) surrender any other rights, or take any other
actions, reasonably necessary to permit (x) the applicable
proposed Indebtedness to be funded or other action to be
consummated without violating, conflicting with, causing a
default or event of default under or resulting in the imposition
of a lien on the assets or property of the Company under, any of
the covenants under the Sprint Senior Debt Agreements
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and (y) the delivery by Sprint of a Compliance Certificate
and the rendering of the legal opinion contemplated by
Section 2.13(h).
(e) If Sprint surrenders any shares of Class B Common
Stock or any of its governance rights under Section 2.13(d)
above (whether in connection with a Sprint election or as
required by the Company), then at any time after that election
is made or requirement is imposed, Sprint may revoke its
election (if applicable), and restore whatever was surrendered
by Sprint, if
(i) Sprint identifies in writing to the Company and the
remaining Equityholders the right(s) it intends to have restored,
(ii) Sprint refinances, amends, terminates or otherwise
modifies the Sprint Senior Debt Agreements such that
(A) the Indebtedness then in place (or then proposed to be
put in place) or other actions taken or to be taken would no
longer violate, conflict with, cause a default or event of
default under or result in the imposition of a lien on the
assets or property of the Company or its Subsidiaries under, any
of the covenants under the Sprint Senior Debt Agreements as then
in effect, and
(B) Sprint would be able to deliver a Compliance
Certificate (together with the legal opinion contemplated by
Section 2.13(h)) with respect to the Indebtedness then in
place (or then proposed to be put in place) or other actions
taken or to be taken,
in each case, regardless of whether Sprint holds the additional
Class B Common Stock or retains whatever other right that
was surrendered and is proposed by Sprint to be
restored, and
(iii) the Chief Executive Officer or Chief Financial
Officer of Sprint certifies in writing to the Company and the
remaining Equityholders in form and substance reasonably
acceptable to the Company and the remaining Equityholders to the
facts described in clause (ii).
If Sprint complies with its obligations under this
Section 2.13(e), the Company will take all steps necessary
to reissue the requested Class B Common Stock to Sprint (in
exchange for payment by Sprint to the Company of an amount in
cash equal to the aggregate Par Value for the Class B
Common Stock being reissued), if applicable, and to restore
whatever other rights are requested to be restored, in each
case, as soon as is reasonably practicable, and, if an amendment
to this Agreement is reasonably requested by Sprint to so
restore any such rights, the Company and the remaining
Equityholders will so amend this Agreement as long as they are
not adversely affected by the amendment (beyond the restoration
of such rights to Sprint). If Sprint is entitled to reinstate a
Sprint Designee to the Board, Sprint may do so only upon a
vacancy of one of the seats held by an Independent Designee or
at a regularly scheduled meeting of stockholders at which
Directors are elected. If Sprint would then be obligated to
appoint an Independent Director in accordance with
Section 2.1(a)(i)(A), and Sprint removed its Independent
Director under subsection (d) above, any replacement
Director appointed by Sprint will qualify as an Independent
Director. Any election by Sprint under this Section 2.13(e)
will not affect any rights or obligations of Sprint under
Section 2.1(a)(i)(B), 2.1(a)(vii) or 3.8(e)(i).
(f) In addition to Sprints right to restore its
rights under Section 2.13(e), if Sprint surrenders any
shares of Class B Common Stock under subsection 2.13(d)
above, then at any time after that election is made or the
requirement is imposed, Sprint may revoke its election, if
applicable, and cause the Company to re-issue to Sprint a
specified number of shares of the Class B Common Stock
surrendered by Sprint (which may be all or less than all of the
shares surrendered, but may not exceed the number of shares
surrendered), in exchange for payment by Sprint to the Company
of an amount in cash equal to the aggregate Par Value of
the shares to be re-issued, on written notice to the Company and
the remaining Equityholders, under the following circumstances:
(i) If the Company issues additional Voting Securities that
result in a decrease in Sprints Percentage Interest as in
effect immediately prior to the issuance of the Voting
Securities, then Sprint may cause the Company re-issue to it a
number of shares of Class B Common Stock (up to the number
of shares
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surrendered by Sprint) necessary to maintain Sprints
Percentage Interest as in effect immediately prior to the
issuance of the Voting Securities.
(ii) If Sprint proposes to sell or otherwise transfer any
of its Class B Common Units, Sprint may cause the Company
to re-issue a number of shares of Class B Common Stock (up
to a number of shares surrendered by Sprint) equal to the number
of Class B Common Units being sold or otherwise transferred
by Sprint, effective as of the closing of the sale or other
transfer, as long as the Class B Common Stock is
Transferred by Sprint in connection with the sale or transfer of
Class B Common Units.
On receipt of the written request of Sprint to restore a
specified number of shares of Class B Common Stock in
accordance with clause (i) or (ii) above, the Company
will take all steps necessary to reissue the requested
Class B Common Stock to Sprint as soon as is reasonably
practicable.
(g) If at any time prior to the closing of the funding of
any proposed Indebtedness or the taking of such other action,
the principal amount of the proposed Indebtedness (or other
commitment) increases in any material respect, or the security
package changes in any material respect, in each case from what
is set forth in the applicable Compliance Notice, the Company
will promptly notify Sprint in writing, including a reasonably
detailed description of any such increase or change (a
Modification Notice). Regardless of whether
Sprint has agreed to provide a Compliance Certificate (together
with the legal opinion contemplated by Section 2.13(h))
with respect to the proposed Indebtedness or other action as
originally described in the Compliance Notice, Sprint will have
ten days from the date of the Modification Notice to indicate
whether it will be able to provide a Compliance Certificate
(together with the legal opinion contemplated by
Section 2.13(h)) on the closing of the funding of the
proposed Indebtedness or the date on which such other action as
modified will be taken. If Sprint had previously indicated that
it could deliver the Compliance Certificate (together with the
legal opinion contemplated by Section 2.13(h)), but is no
longer able to deliver the Compliance Certificate (or the legal
opinion contemplated by Section 2.13(h)) as a result of the
modification described in the Modification Notice, the process
described in Sections 2.13(b) through (e) will be
reinitiated, except that the closing of the funding of the
proposed Indebtedness or other action will not occur until at
least 90 days following the date of the Modification
Notice. If Sprint had originally indicated that it was not able
to provide the Compliance Certificate (together with the legal
opinion contemplated by Section 2.13(h)), then the closing
of the funding of the proposed Indebtedness or date such other
action will be taken will be no earlier than 90 days after
the date of the Compliance Notice or Revolver Quarterly Notice
as provided in Section 2.13(c) above.
(h) Upon each delivery of a Compliance Certificate or a
certification described in Section 2.13(e)(iii), Sprint
will also cause to be delivered to the Company a legal opinion
of King & Spalding LLP or another law firm of
nationally recognized standing to the effect that the
Indebtedness or other actions that are the subject of the
Compliance Certificate or certification described in
Section 2.13(e)(iii) will not violate, cause a default or
event of default under or cause the imposition of a lien on the
assets or property of the Company or its Subsidiaries under any
of the Sprint Senior Debt Agreements, which opinion shall
(A) be subject to reasonable and customary assumptions,
(B) be based upon reasonable and customary certificates
from the Company and Sprint, (C) be in form and substance
reasonably satisfactory to the Company and (D) provide that
the Company and the proposed lender shall also be entitled to
rely thereon. Sprint shall cause drafts of any legal opinions to
be delivered pursuant to this Section 2.13(h) to be
circulated to the Company within a reasonable time prior to the
closing of the funding of the relevant Indebtedness or date such
other actions will be taken.
(i) If any credit agreement, indenture, guarantee or
similar instrument (or series of related instruments) evidencing
or governing indebtedness for money borrowed or guaranteed by
Sprint or any of its Subsidiaries that does not constitute a
Sprint Senior Debt Agreement (an Other Sprint Debt
Agreement) impairs the ability of the Company or any
of its Subsidiaries to incur Indebtedness or take any other
action, or is alleged to do so, upon written notice of such
occurrence from the Company, Sprint will comply with the
requirements of this Section 2.13 with respect to such
Other Sprint Debt Agreement to the fullest extent as if such
Other Sprint Debt Agreement were a Sprint Senior Debt Agreement.
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2.14 Sprint Future Credit Agreements.
(a) Neither Sprint nor any of its Affiliates will enter
into any agreement that purports to restrict the ability of the
Company and its Subsidiaries to incur Indebtedness or take any
other action, except that with respect to any amendment or
refinancing on or prior to December 31, 2010 of the Credit
Agreement dated as of December 19, 2005, as amended, among
Sprint Nextel Corporation, Nextel Communications, Inc., Sprint
Capital Corporation, the banks and other financial institutions
and lenders that are parties thereto, and JPMorgan Chase Bank,
N.A., as Administrative Agent, or the Credit Agreement dated as
of March 23, 2007 between Sprint Nextel Corporation and
Export Development Canada, (i) Sprint will use its
Reasonable Best Efforts to cause such amendment or refinanced
facility to not restrict the ability of the Company or its
Subsidiaries to incur Indebtedness or take any other action and
(ii) in no event will Sprint enter into any agreement in
connection with any such amendment or refinancing that contains
restrictions (x) that are more restrictive than those
contained in the Indenture dated as of October 1, 1998
among Sprint Capital Corporation, Sprint Corporation and Bank
One, NA, as trustee, together with all supplements thereto or
(y) that apply to the Company to a greater extent than
those contained in such Indenture.
(b) Notwithstanding the foregoing, on or prior to
January 1, 2011,
(i) Sprint will take whatever actions are necessary to
permit the Company and its Subsidiaries (from and at all times
on and after January 1, 2011) to incur Indebtedness
and take any other action without violating any of the Sprint
Senior Debt Agreements or other Sprint indebtedness for borrowed
money, and
(ii) Sprint will deliver a certification to the Company
executed by Sprints Chief Executive Officer or Chief
Financial Officer stating that neither Sprint nor any of its
Affiliates are then subject to (x) any agreement that
restricts or may in the future restrict the ability of the
Company and its Subsidiaries to incur Indebtedness or take any
other action or (y) any Sprint Senior Debt Agreement that
takes the Company or any of its Subsidiaries into account in
determining compliance with any financial covenants or similar
requirements contained in such agreements.
(c) Sprint will not, and will cause its Affiliates not to,
enter into on or after January 1, 2011, any agreement that
(x) restricts or may in the future restrict the ability of
the Company and its Subsidiaries to incur Indebtedness or take
any other action or (y) takes the Company or any of its
Subsidiaries into account in determining compliance with any
financial covenants or similar requirements contained in such
agreements.
The provisions of Sections 2.13(d) through (f) (including
the right of the Company to obligate Sprint to take any of the
actions described in Section 2.13(d)) will apply,
mutatis mutandis, with respect to Sprints
obligations under this Section 2.14.
2.15 Indemnified
Litigation. (a) At such time as is
reasonably determined by the Company (such determination to be
made by the Transactions Committee and management of the
Company) to be necessary to avoid any possible restriction or
limitation on the operations of the Company and its Subsidiaries
arising out of the Indemnified Litigation (as defined in the
Transaction Agreement), Sprint and the Company will take, permit
and authorize such actions with respect to the Company and its
Subsidiaries as are reasonably requested by the Company (such
determination to be made by the Transactions Committee and
management of the Company) to avoid any such restriction or
limitation, which may include transferring certain operations
and assets of the Company and its Subsidiaries into special
purpose entities with special governance provisions in
accordance with Exhibit M to the Transaction Agreement,
without regard to the provisions of Section 2.11. For these
purposes (i) the reasonableness of any requested actions
other than the actions described on Exhibit M to the
Transaction Agreement will be determined taking into account the
projected operations of the Company and its Subsidiaries during
the three-year period following such request and (ii) any
such requested actions other than actions described on
Exhibit M to the Transaction Agreement will not be
disproportionate in relation to the then-current and projected
operations of the Company and its Subsidiaries in the territory
affected by Indemnified Litigation.
(b) Sprint will not amend any Sprint Affiliate Management
Agreement, enter into any new Sprint Affiliate Management
Agreement or take any other action, in each case, to extend an
exclusivity provision
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under a Sprint Affiliate Management Agreement to (i) WiMAX
products and services in any manner that could restrict the
Company or (ii) the Company.
ARTICLE 3
TRANSFERS
3.1 General Limitations on Transfer.
(a) If any Equityholder or Non-Equityholder Transferee (as
defined below) Transfers a share of Class B Common Stock
(to the extent otherwise permitted by this Agreement and the
Charter) without Transferring a corresponding Unit in accordance
with the terms of the Operating Agreement, the share of
Class B Common Stock will be immediately redeemed by the
Company for its Par Value per share in accordance with the
terms of this Agreement and the Charter.
(b) If any Equityholder or Non-Equityholder Transferee
Transfers any Units (to the extent permitted by the Operating
Agreement) without Transferring a corresponding number of shares
of Class B Common Stock, a number of shares of Class B
Common Stock held by such Equityholder corresponding to the
number of Units so Transferred will be immediately redeemed by
the Company for their Par Value per share in accordance
with the terms of this Agreement and the Charter.
(c) An Equityholder may Transfer all or any portion of its
shares of Class B Common Stock (together with the
corresponding Units), and may permit its Transferees to Transfer
all or any portion of the Class B Common Stock Transferred
to them (together with the corresponding Units), as long as (and
in addition to any other requirements of the Equityholder under
this Agreement with respect to such Transfer):
(i) at least ten days prior to consummating a Transfer
(whether by the Equityholder or by its Transferee), the
Equityholder (or the applicable Transferee) notifies the Company
in writing,
(ii) as a condition to consummating the Transfer, any
Transferee that is not an Equityholder or a Permitted Designee
or Permitted Transferee (a Non-Equityholder
Transferee) executes and delivers to the Company and
the Equityholders a Non-Equityholder Transferee Agreement in the
form attached as Exhibit E, and
(iii) the Transfer (whether by the Equityholder or by its
Transferee) of Units corresponding to the Original Shares is
made in accordance with the terms of the Operating Agreement.
(d) Except as specifically provided in the Non-Equityholder
Transferee Agreement, a Non-Equityholder Transferee will not be
a party to this Agreement or have any rights or obligations
hereunder (and in determining whether a matter under this
Agreement that requires the approval of the holders of
Class B Common Stock, voting as a separate class, has been
approved, the Class B Common Stock held by a
Non-Equityholder
Transferee will be disregarded).
(e) If any shares of Class B Common Stock (together
with the corresponding Units) are Transferred in a Transfer that
is not permitted under Section 3.1(c) above, such Transfer
will be void ab initio.
(f) None of Sprint, the Strategic Investors, Intel or any
of their respective Affiliates will Transfer (other than
(x) to a Permitted Transferee pursuant to Section 3.2
or (y) in the case of Intel only, in a Transfer of Existing
Intel Shares), whether directly or indirectly, all or any
portion of its Equity Securities (or the Units that correspond
to its Equity Securities) to a single person or group (as those
terms are defined below) in a transaction or a series of related
transactions that would result in the Transferee person or group
(other than any of Sprint, the Strategic Investors or Intel or
their respective Permitted Transferees or Permitted Designees)
together with its or their Permitted Transferees or Permitted
Designees having a Percentage Interest immediately after the
proposed Transfer equal to or greater than the Specified
Percentage, unless the following occurs:
(i) The provisions of Sections 3.3 and 3.6 have been
complied with in full.
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(ii) As a condition to consummating the Transfer,
(A) the Transferee makes (or causes another Person to make)
a tender offer to the holders of Class A Common Stock to
purchase all shares of Class A Common Stock at a price per
share equal to or greater than the price per share that the
Transferee proposes to pay for the Equity Securities (including
the corresponding Units) proposed to be Transferred, and
(B) all shares of Class A Common Stock that are
properly tendered and not withdrawn are purchased by the
Transferee.
(iii) If the consideration proposed to be paid for the
Equity Securities (including the corresponding Units) is other
than cash, then the same form of consideration is offered to the
holders of Class A Common Stock.
(iv) The tender offer described in subsection (ii)
above is conducted in compliance with Law, including the rules
and regulations under the Exchange Act, and is not subject to
any conditions other than those contained in the agreement
governing the proposed Transfer.
(v) The agreement governing the proposed Transfer sets
forth the obligation described in this Section 3.1(f) and
states that the holders of Class A Common Stock are
intended third party beneficiaries of the provision setting
forth such obligation.
For purposes of this Section 3.1(f), person and
group have the meanings given to them for purposes
of Sections 13(d) and 14(d) of the Exchange Act or any
successor provisions, and the term group includes
any group acting for the purpose of acquiring, holding or
disposing of securities within the meaning of
Rule 13d-5(b)(1)
under the Exchange Act, or any successor provision.
3.2 Certain Permitted Transfers.
(a) Subject to Section 3.1, an Equityholder may
Transfer all or any portion of its Equity Securities, together
with the corresponding Units, if any, to a Permitted Transferee;
provided, in each case, that such Equityholder gives
written notice to the Company of its intention to make a
Transfer to such Transferee, stating the name and address of the
Permitted Transferee, the Equityholders relationship to
the Permitted Transferee and the type and amount of Equity
Securities (and Units, if any) to be Transferred. The Company
will give prompt notice of the Transfer to each other
Equityholder. As a condition to such Transfer, the Equityholder
will cause the Permitted Transferee to execute and deliver to
the Company and each other Equityholder an Assignment and
Assumption Agreement in the form attached as
Exhibit F, and upon consummation of such Transfer,
such Permitted Transferee will be an Equityholder and will be
subject to all rights and obligations of the Transferor
Equityholder under this Agreement.
(b) Except as provided in Section 3.12, before any
Permitted Transferee ceases to qualify as a Permitted Transferee
of the relevant Equityholder, such Permitted Transferee will
Transfer full legal and beneficial ownership of its Equity
Securities (and Units, if any) to the applicable Parent or,
subject to this Article 3, another Permitted Transferee of
the relevant Parent. If a Transfer is not made in accordance
with the immediately preceding sentence, then, in addition to
all other remedies available at law or in equity, each share of
Class B Common Stock held by such non-qualifying Permitted
Transferee will be immediately redeemed by the Company for its
Par Value per share in accordance with the terms of this
Agreement and the Charter.
(c) Except as provided in Section 3.12, before any
Equityholder (if not a Parent), or any Subsidiary of a Parent
that Controls such Equityholder, ceases to be a direct or
indirect wholly-owned Subsidiary of its Parent, or, in the case
of BHN, less than 100% of the economic and voting interests in
BHN cease to be Controlled by BHNs Parent, such
Equityholder will Transfer full legal and beneficial ownership
of its Equity Securities (and Units, if any) to its Parent or,
subject to this Article 3, another Permitted Transferee of
the relevant Parent. In the event of a breach of the immediately
preceding sentence, then, in addition to all other remedies
available at law or in equity, each share of Class B Common
Stock held by such Equityholder, will be immediately redeemed by
the Company for its Par Value per share in accordance with
the terms of this Agreement and the Charter.
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3.3 Right of First Offer.
(a) Subject to Section 3.1, 3.11 and the remaining
provisions of this Section 3.3, if an Equityholder (for
purposes of this Section 3.3, a Selling
Equityholder) desires to Transfer (other than as part
of an Excluded Transfer) all or any portion of its Equity
Securities (the Equity Securities proposed to be Transferred by
the Selling Equityholder, the Subject Stock),
the Selling Equityholder will notify each of the remaining
Equityholders that then owns (together with the particular
Equityholders Permitted Transferees and Permitted
Designees) a number of shares of Common Stock equal to at least
50% of its Original Shares (for purposes of this
Section 3.3, the Non-Selling
Equityholders) in writing prior to entering into any
agreement with respect to the proposed Transfer of the Subject
Stock. That notice (the Interest Notice) will
set forth the number of shares of Subject Stock that the Selling
Equityholder desires to Transfer, the material terms of a
transaction in which the Selling Equityholder is willing to
engage, including a proposed Transfer price payable in cash and,
if applicable, whether the Transfer is to be an Open Market
Transfer.
(b) Within 30 days of its receipt of the Interest
Notice, or five Business Days in respect of a proposed Open
Market Transfer, each of the Non-Selling Equityholders may
notify the Selling Equityholder in writing as to whether it
intends to purchase all or any portion of the Subject Stock on
the terms and conditions set forth in the Interest Notice and,
in respect of an Open Market Transfer, subject to
Section 3.3(h) (the Response Notice).
Any Response Notice from a Non-Selling Equityholder who wishes
to exercise its right to purchase more than the number of shares
of Subject Stock set forth in subsection (i) below assuming
all Non-Selling Equityholders exercise their rights in full
under this Section 3.3 will state the maximum number of
shares of Subject Stock that it wishes to purchase. A Response
Notice shall constitute a binding and irrevocable election by
the Non-Selling Equityholder delivering such Response Notice to
purchase the portion of the Subject Stock specified therein.
(i) If the Response Notices of the Non-Selling
Equityholders present an offer, collectively, for all but not
less than all of the Subject Stock, the parties will consummate
the sale of the Subject Stock at the time and in the manner set
forth in Section 3.3(e) and Section 3.3(f). Unless
otherwise agreed by the Non-Selling Equityholders, the right to
purchase the Subject Stock will be allocated among the
Non-Selling Equityholders pro rata based on their
relative Percentage Interests as of the date of the Interest
Notice (or, if fewer than all of the Non-Selling Equityholders
elect to purchase, based on the relative Percentage Interests
(as of the date of the Interest Notice) of the Non-Selling
Equityholders that elect to purchase the Subject Stock in
accordance with this Section 3.3). If there are two or more
Non-Selling Equityholders that exercise their option to purchase
more than their pro rata share of Subject Stock for a
total number of shares of excess Subject Stock in excess of the
number of available shares of Subject Stock, such excess Subject
Stock shall be allocated among such Non-Selling Equityholders on
a pro rata basis based on their respective Percentage
Interests as of the date of the Interest Notice. All
calculations under this subsection (i) will be made on an
as-converted to Class A Common Stock basis (i.e.,
each share of Class B Common Stock, plus one Unit, will
equal one share of Class A Common Stock in such
calculations).
(ii) If none of the Non-Selling Equityholders delivers a
Response Notice or if the Response Notices of the Non-Selling
Equityholders, collectively, present an offer for less than all
of the Subject Stock, the Non-Selling Equityholders will be
deemed to have declined to exercise their rights under this
Section 3.3 and, subject to Section 3.1,
Sections 3.3(c), 3.3(d) and 3.3(h), and Section 3.4
(if the Selling Equityholder is the Principal Equityholder), the
Selling Equityholder may proceed with the proposed Transfer of
such Subject Stock to the proposed Transferee based on the terms
and conditions set forth in the Interest Notice.
(c) A Selling Equityholder may Transfer Subject Stock
pursuant to Section 3.3(b)(ii) to a proposed Transferee
(other than a Non-Selling Equityholder) or in an Open Market
Transfer only if:
(i) the proposed Transferee is not an Affiliate of the
Selling Equityholder,
(ii) (A) in the case of any Transfer other than an
Open Market Transfer, the Transfer is consummated on
arms-length terms at a price not lower, and on other terms
and conditions no less
C-26
favorable, in the aggregate, to the Selling Equityholder than
those set forth in the most recent Interest Notice, or
(B) in the case of an Open Market Transfer, at a price
greater than or equal to 95% of the price specified in the
Interest Notice, and
(iii) except in the case of an Open Market Transfer, the
Selling Equityholder enters into a definitive agreement to
Transfer all of the Subject Stock within 90 days of
obtaining the right to do so in accordance with
Section 3.3(b)(i) or (ii), as applicable, and consummates
the Transfer within 180 days after entering into the
definitive agreement (which
180-day
period will be extended if the Transfer is subject to regulatory
approval until the expiration of five Business Days after all
such approvals have been received, but in no event later than
270 days after entering into the definitive agreement).
If the proposed Transfer does not comply with clauses (i)
or (ii) above, or if the Selling Equityholder fails to
enter into a definitive agreement within the
90-day
period, or fails to consummate the Transfer within the
180-day
period (as may be extended pursuant to clause (iii) above),
the Selling Equityholders right to Transfer the Subject
Stock under those clauses will terminate, and the Selling
Equityholder will be required to initiate the process set forth
in this Section 3.3 before Transferring all or any portion
of its Equity Securities (other than in an Excluded Transfer).
(d) If a Selling Equityholder Transfers Subject Stock to a
proposed Transferee (other than a Non-Selling Equityholder), or
in an Open Market Transfer, in accordance with this
Section 3.3, the Transfer by the Selling Equityholder will
be subject to the other terms and restrictions of this Agreement.
(e) The closing of the purchase of any Subject Stock by the
Non-Selling Equityholders will take place at the offices of the
Company, or at another location mutually agreed by the parties
to the sale, on a date mutually agreed by the parties to the
sale that is no later than the latest of
(i) the date specified in the Interest Notice as the
intended date of the proposed Transfer, and
(ii) 45 days after delivery of the applicable Response
Notice or if approvals of any Governmental Authority are
required, then five Business Days following the expiration of
whatever period is required to obtain any necessary regulatory
approvals in connection with the sale, but in no event more than
180 days after delivery of the applicable Response Notice.
(f) At the closing of the purchase of any Subject Stock by
the Non-Selling Equityholders, the Selling Equityholder will
deliver
(i) if the Subject Stock is certificated, a certificate or
certificates for the Subject Stock to be sold, in each case
accompanied by stock powers with signatures guaranteed and all
necessary stock transfer Taxes paid and stamps affixed, if
necessary, or
(ii) if the Subject Stock is uncertificated, proper
transfer instructions from the Selling Equityholder or the
Selling Equityholders lawfully constituted
attorney-in-fact, accompanied by evidence that all necessary
stock transfer Taxes have been paid and evidence of compliance
with appropriate procedures for transferring shares in
uncertificated form,
(iii) in either case against receipt of the purchase price
therefor by certified or official bank check or by wire transfer
of immediately available funds.
(g) Notwithstanding the foregoing, the provisions of this
Section 3.3 will not apply to (an Excluded
Transfer):
(i) in the case of Eagle River, any Open Market Transfer,
(ii) in the case of Intel, any Transfer or series of
Transfers of the Existing Intel Shares,
(iii) any Transfer of Equity Securities that is part of a
merger, consolidation, share exchange, recapitalization,
business combination or other similar transaction involving the
Company, in each case, that constitutes a Change of Control of
the Company and that has been approved by the Board and the
stockholders of the Company as required by this Agreement and
Law,
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(iv) a Spin-Off Transaction; provided, however, that
following a Spin-Off Transaction, the Spin-Off Entity will be
subject to each of the obligations and enjoy each of the rights
of the Spinning Entity for all purposes under this Agreement,
(v) a Transfer to a Permitted Transferee,
(vi) any Exchange Transaction (as defined in the Operating
Agreement), or
(vii) any Transfer by a Tag-Along Equityholder pursuant to
Section 3.4.
(h) In addition to the other provisions of this Agreement,
a Selling Equityholder (other than Eagle River or, with respect
to Existing Intel Shares only, Intel) may Transfer Subject Stock
in an Open Market Transfer only if
(i) in the case of an Open Market Transfer that is
Registered, the Transfer is made within 90 days of the
delivery of the latest of the applicable Response Notices
(unless, during the
90-day
period, the Company has postponed the filing or effectiveness of
the registration statement with respect to the Registered Open
Market Transfer, in which case the
90-day
period will be tolled for as long as the postponement is in
effect), or
(ii) in the case of an Open Market Transfer that is not
Registered, the Transfer is made within 30 days of the
delivery of the latest of the applicable Response Notices.
(i) The Strategic Investors, acting through the Strategic
Investor Representative, will exercise their rights pursuant to
this Section 3.3 as a group, and the Strategic Investor
Group will be deemed to be a single Non-Selling
Equityholder for purposes of calculating the number of
shares of Subject Stock which the Strategic Investor Group is
entitled to purchase under Section 3.3(b)(i). Unless the
Strategic Investors otherwise agree (as notified by the
Strategic Investor Representative to the Company and the
remaining Equityholders), Subject Stock to be Transferred by or
to the Strategic Investor Group (whether as a Selling
Equityholder or a Non-Selling Equityholder) will be allocated
among the Strategic Investors based on their relative Percentage
Interests within the Strategic Investor Group.
3.4 Tag-Along Rights.
(a) Subject to Sections 3.1, 3.3, 3.11 and the
remaining provisions of this Section 3.4, if the Principal
Equityholder proposes to Transfer (other than as part of
(x) an Excluded Transfer described in clauses (ii), (iv),
(v), (vi) or (vii) of Section 3.3(g), or
(y) an Open Market Transfer), in one transaction or a
series of related transactions, directly or indirectly, all or
any portion of its Equity Securities, and such transaction or
series of related transactions would result in the proposed
Transferee and its Affiliates (collectively referred to as the
Proposed Transferee) having a Percentage
Interest immediately after the proposed Transfer equal to or
greater than the Specified Percentage, the Principal
Equityholder will promptly notify the other Equityholders (for
purposes of this Section 3.4, the Tag-Along
Equityholders) in writing at least 30 days before
the closing of the proposed Transfer (a Tag-Along
Notice) setting forth the number of shares of Equity
Securities proposed to be Transferred (for purposes of this
Section 3.4, the Sale Securities), the
nature of the proposed Transfer, the aggregate consideration to
be paid for the Sale Securities (including the type of
consideration to be paid), the name and address of each Proposed
Transferee, the proposed closing date of the Transfer and any
other material information regarding the terms of the proposed
Transfer and the Proposed Transferee.
(b) With respect to Sale Securities, each of the Tag-Along
Equityholders will have the right, exercisable on delivery of
written notice to the Principal Equityholder within 30 days
after receipt of the Tag-Along Notice, to irrevocably elect to
sell a portion of its Equity Securities (without regard to
whether such Equity Securities are the same class as the Sale
Securities), on the same terms and conditions as set forth in
the Tag-Along Notice, in lieu of shares of Sale Securities. The
number of Equity Securities to be substituted by each electing
Tag-Along Shareholder will equal the product of the number of
shares of Sale Securities, multiplied by a fraction, the
numerator of which is the number of Equity Securities owned by
such Tag-Along Equityholder and the denominator of which is the
total number of Equity Securities owned by the Equityholders at
the time the Tag-Along Notice is delivered.
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All calculations under this subsection (b) will be made on
an as-converted to Class A Common Stock basis (i.e.,
each share of Class B Common Stock, plus one Unit, will
equal one share of Class A Common Stock in such
calculations).
(c) If none of the Tag-Along Equityholders makes a timely
election to exercise its tag-along rights under
Section 3.4(b), the Principal Equityholder may sell all,
but not less than all, of the Sale Securities to the Proposed
Transferee provided that such Transfer is consummated on
arms-length terms at a price not higher and on other terms
and conditions no more favorable, in the aggregate, to the
Principal Equityholder than the terms and conditions set forth
in the Tag-Along Notice. In addition,
(i) any material change in the terms and conditions
contained in the Tag-Along Notice (that is more favorable to the
Principal Equityholder) will constitute a new proposal to
Transfer for purposes of this Section 3.4; and
(ii) definitive documents for the sale by the Principal
Equityholder must be executed on or prior to the 90th day
following the expiration of the Tag-Along Equityholders
tag-along rights under this Section 3.4 and consummated
within 180 days following the expiration of such tag-along
rights (which
180-day
period will be extended if the Transfer is subject to regulatory
approval until the expiration of five Business Days after all
such approvals have been received, but in no event later than
270 days following the expiration of such tag-along
rights), and if the sale is not executed within the
90-day
period and consummated within the
180-day
period (as may be extended for the receipt of applicable
regulatory approvals), the Sale Securities will again become
subject to the rights of the Tag-Along Equityholders under this
Section 3.4.
(d) If any of the Tag-Along Equityholders elects to
exercise its tag-along rights under Section 3.4(b), the
number of shares of Sale Securities to be Transferred by the
Principal Equityholder to the Proposed Transferee will be
reduced by the applicable number of Voting Securities to be
included in the Transfer by the applicable Tag-Along
Equityholders, and the Transfer to the Proposed Transferee will
otherwise proceed in accordance with the terms of this
Section 3.4 and the Tag-Along Notice.
(e) The closing of the sale of any Sale Securities elected
to be sold by the Tag-Along Equityholders pursuant to this
Section 3.4 will take place at the offices of the Company,
or at another location mutually agreed by the parties to the
sale, and on a date mutually agreed by the parties to the sale
that is no later than the latest of
(i) the date specified in the Tag-Along Notice as the
intended date of the proposed Transfer to the Proposed
Transferee,
(ii) 90 days after delivery of the applicable
Tag-Along Notice, and
(iii) five Business Days following the expiration of
whatever period is required to obtain any necessary regulatory
approvals in connection with the sale.
(f) The following will apply to any Transfer of Sale
Securities (whether by the Principal Equityholder or by the
Tag-Along Equityholders):
(i) the Transfer by the Principal Equityholder (and any
Tag-Along Equityholders, if applicable) will be subject to the
other terms and restrictions of this Agreement, and
(ii) any future proposed Transfer of Equity Securities
other than the Sale Securities by the Principal Equityholder
(and any Tag-Along Equityholders, if applicable) will remain
subject to the terms and conditions of this Agreement, including
this Article 3.
(g) The Strategic Investors, acting through the Strategic
Investor Representative, will exercise their rights pursuant to
this Section 3.4 as a group, and the Strategic Investor
Group will be deemed to be a single Tag-Along
Equityholder for purposes of calculating the number of
Voting Securities which the Strategic Investor Group is entitled
to sell as a Tag-Along Equityholder. Unless the Strategic
Investors otherwise agree (as notified by the Strategic Investor
Representative to the Company and the remaining Equityholders),
Sale Securities to be Transferred by the Strategic Investor
Group (whether as a Principal Equityholder or as a Tag-
C-29
Along Equityholder) will be allocated among the Strategic
Investors based on their relative Percentage Interests within
the Strategic Investor Group.
3.5 Preemptive Rights.
(a) Each Equityholder will have the right to purchase its
Preemptive Right Pro Rata Share (as defined below) of New
Securities (as defined in Section 3.5(f)) that the Company
may from time to time propose to issue. An Equityholders
Preemptive Right Pro Rata Share will be, at
any given time, that proportion, calculated before any proposed
issuance of New Securities, that the voting power represented by
the Voting Securities owned by an Equityholder at that time
bears to the total voting power represented by the Voting
Securities issued and outstanding at that time.
(b) Subject to Section 3.5(d)(i), if the Company
proposes to issue New Securities, it will give the Equityholders
a written notice (the Notice of Issuance) of
its intention to sell New Securities, setting forth the price,
the identity of the proposed purchaser(s) (if known) and the
principal terms on which the Company proposes to issue the New
Securities. Subject to Section 3.5(c), each Equityholder
will have 30 days from the date of receipt of any Notice of
Issuance (New Securities Notice Period) to
elect to purchase a number of New Securities up to its
Preemptive Right Pro Rata Share of New Securities (in each case
calculated before the issuance and rounded to the nearest whole
share), for the price and on the terms specified in the Notice
of Issuance, by giving written notice to the Company stating the
number of New Securities to be purchased.
(c) Each holder of Class B Common Stock will have, at
its option, the right to purchase the following in lieu of New
Securities:
(i) from the Company, Voting Securities that have voting
rights that are the same as the voting rights in the New
Securities (Alternative Voting
Securities), and
(ii) from the LLC, additional Units that have the economic
and other rights (other than voting rights) that are the same as
the economic and other rights (other than voting rights) of the
New Securities (Alternative Units; and,
together with the Alternative Voting Securities,
Alternative New Securities),
in each case, so that the holders of Class B Common Stock
are able to maintain the allocation of economic and other
non-voting rights, if any, included as part of the New
Securities, and voting rights, if any, included as part of the
New Securities, in the same manner that economic, voting and
other non-voting rights are allocated between the Class B
Common Stock and the corresponding Units. The aggregate price
payable for the new Voting Securities and new Units by the
applicable Equityholders will be the price for the New
Securities that is set forth in the Notice of Issuance,
allocated between the Company and the LLC based on the relative
value of the new Voting Securities and the new Units purchased
under this Section 3.5.
(d) If the Company proposes to issue New Securities in a
Public Offering, the following will apply:
(i) In lieu of sending a Notice of Issuance as provided in
Section 3.5(b), at least ten Business Days prior to the
printing of the red herring prospectus for the
Public Offering, the Company will give written notice to the
Equityholders (a Public Offering Notice)
setting forth
(A) the Companys then-current estimate of the number
of shares of Common Stock the Company intends to offer,
(B) the anticipated per share range for the offering price,
(C) any other material terms on which the Company proposes
to issue the New Securities, and
(D) the date on which the red herring
prospectus is expected to be printed.
(ii) At least five Business Days prior to the date referred
to in Section 3.5(d)(i)(D), each Equityholder will deliver
a binding notice to the Company stating whether and as to how
many shares the Equityholder will elect to purchase (up to its
Preemptive Right Pro Rata Share rounded to the nearest whole
share). If an Equityholder fails to notify the Company by the
required time, the Equityholder will be deemed to have declined
to exercise its rights under this Section 3.5 with respect
to that Public Offering.
C-30
(iii) The actual purchase price for an Equityholders
Preemptive Right Pro Rata Share of New Securities will be a per
share purchase price equal to the purchase price paid for the
securities issued in the Public Offering that gave rise to the
rights under this Section 3.5, net of any underwriting
discounts in connection with that Public Offering. In the case
of a holder of Class B Common Stock, the purchase price
will be allocated between the new Voting Security and the new
Unit based on the relative value of the new Voting Securities
and the new Units purchased under Section 3.5(c).
(e) The Company will have 180 days after the date of
the Notice of Issuance or Public Offering Notice, as applicable,
to consummate the sale of any New Securities with respect to
which the Equityholders preemptive rights were not
exercised, at or above the price and on terms not more
favorable, in the aggregate, to the purchasers of the New
Securities than the terms specified in the initial Notice of
Issuance or Public Offering Notice, as applicable, given in
connection with that sale, except that the preceding
restrictions on the price and terms and conditions of any sale
will not apply to sales based on the prevailing market price of
Voting Securities on NASDAQ or any other public trading medium
at the time that the sale of New Securities is effected.
(f) For purposes of this Agreement, New
Securities means any capital stock (including Common
Stock) of the Company issued (or to be issued) after the
Effective Date, whether now or hereafter authorized, and any
rights, options, warrants or other rights to purchase or acquire
capital stock, and securities of any type whatsoever that are,
or may become, exchangeable or exercisable for or convertible
into capital stock. The term New Securities
does not include, and the preemptive rights described in this
Section 3.5 will not be exercisable with respect to, any of
the following:
(i) securities issued to holders of Class B Common
Stock in connection with the right of those holders, under the
terms of the Charter and the Operating Agreement, to convert
their shares of Class B Common Stock, together with the
corresponding Units, into shares of Class A Common Stock;
(ii) securities issued to officers, employees or directors
of the Company in connection with a persons employment or
director arrangements with the Company under any employee
benefit plan of the Company adopted by the Board, including but
not limited to any Incentive Plan;
(iii) securities issued in connection with any
Recapitalization Event of the Company approved by the Board;
(iv) securities issued in connection with the acquisition
of another business entity or business segment of another entity
by the Company or any Subsidiary of the Company, or in
connection with the acquisition of 2.5 GHz Spectrum by the
Company or any Subsidiary of the Company;
(v) securities issued in connection with the exercise of
any right, option or warrant to acquire any security or the
conversion of any security, in any case that (x) were
outstanding prior to the Effective Date or (y) were issued
after the Effective Date and were treated as New Securities in
respect of which preemptive rights were offered pursuant to this
Section 3.5;
(vi) securities issued under Section 4.3 of the
Transaction Agreement;
(vii) securities issuable or issued to consultants,
vendors, lessors or others with whom the Company conducts
business (other than the Equityholders and their respective
Affiliates), as long as
(A) the securities are issued directly in a transaction
approved by the Board, and
(B) the issuance of securities is not for financing
purposes;
(viii) securities issued to financial institutions or
lessors in connection with commercial credit arrangements,
equipment financing or similar transactions, as long as the
securities are issued directly in a transaction approved by the
Board; and
(ix) securities issued (other than to any Equityholder or
any of its Affiliates) in transactions involving technology
licensing, research or development activities, the use or
acquisition of strategic
C-31
assets, properties or rights, or the distribution, manufacture
or marketing of the Companys products, as long as
(A) the securities are issued directly in a transaction
approved by the Board, and
(B) the issuance of securities is not for financing
purposes.
(g) The closing of the purchases of an Equityholders
Preemptive Right Pro Rata Share of New Securities (and
Alternative New Securities, if any) under this Section 3.5
will take place at the offices of the Company:
(i) in the case of an issuance of New Securities other than
in connection with a Public Offering, on a date specified by the
exercising Equityholders, which will be within 30 days
after the exercise of such Equityholders rights under this
Section 3.5, or (if later) within 10 days after the
receipt of all required regulatory approvals, and
(ii) in the case of an issuance of New Securities in
connection with a Public Offering, on the date of the Public
Offering.
At the closing, the Company and the LLC will deliver, or cause
to be delivered, to the purchasing Equityholder, certificates
(if applicable) representing the shares of New Securities (and
Alternative New Securities, if any) to be purchased by the
purchasing Equityholder, in the name of the purchasing
Equityholder (and Unit holder, as applicable), against payment
of the purchase price therefor, as provided below; and the
purchasing Equityholder will deliver to the Company and to the
LLC an amount in cash by wire transfer in immediately available
funds equal to the product of the applicable price per share
determined
(x) in the Notice of Issuance, in the case of an issuance
of New Securities other than in connection with a Public
Offering, and
(y) under Section 3.5(d)(iii), in the case of an
issuance of New Securities issued in connection with a Public
Offering,
in each case, multiplied by the number of shares of New
Securities or Alternative New Securities, as applicable, to be
acquired by the purchasing Equityholder.
(h) After giving a Notice of Issuance, the Company may
close (prior to the expiration of the New Securities Notice
Period) the sale of any portion of the New Securities that is
not subject to preemptive rights under this Section 3.5, or
as to which any Equityholder has affirmatively waived its rights
under this Section 3.5.
(i) The rights under this Section 3.5 will terminate
with respect to an Equityholder if and when such Equityholder
and its Permitted Transferees and Permitted Designees cease to
own, in the aggregate, a number of shares equal to at least 50%
of the Original Shares of such Equityholder.
(j) The Strategic Investors, acting through the Strategic
Investor Representative, will exercise their rights pursuant to
this Section 3.5 as a group, and the Strategic Investor
Group will be deemed to be a single Equityholder for
purposes of calculating its Preemptive Right Pro Rata Share
under Section 3.5(a). Unless the Strategic Investors
otherwise agree (as notified by the Strategic Investor
Representative to the Company and the remaining Equityholders),
New Securities (or Alternative New Securities) acquired by the
Strategic Investor Group will be allocated among the Strategic
Investors based on their relative Percentage Interests within
the Strategic Investor Group.
3.6 Transfers to a Restricted Entity.
The Principal Equityholder and its Permitted Transferees and
Permitted Designees will not Transfer any of their Equity
Securities to:
(a) any Strategic Investor Restricted Entity without the
prior written consent of the Strategic Investor Representative
(acting on behalf of the Strategic Investors), if the Strategic
Investor Group is then a Consenting Equityholder,
C-32
(b) any Intel Restricted Entity without Intels prior
written consent, if Intel is then a Consenting
Equityholder, or
(c) any Sprint Restricted Entity without Sprints
prior written consent, if Sprint is then a Consenting
Equityholder;
in each case, if:
(x) such Transfer would constitute a Change of Control of
the Company or any of its Subsidiaries, or
(y) after giving effect to such Transfer, the applicable
Restricted Entity would have a Percentage Interest in excess of
the Specified Percentage, or would have the contractual right to
acquire Equity Securities (or Units) that would give the
Restricted Entity, in the aggregate, a Percentage Interest in
excess of the Specified Percentage immediately after the
acquisition of those Equity Securities or Units, as applicable.
3.7 Standstill Agreement.
(a) Notwithstanding any other provision of this Agreement,
but subject to Section 3.11, at any time before the end of
the Standstill Period, none of the Standstill Equityholders will
in any manner, directly or indirectly (whether through an agent,
representative or otherwise),
(i) effect (whether publicly or otherwise), participate in,
provide or guarantee financing for any third parties in
(A) any direct or indirect acquisition of any Common Stock
(or beneficial ownership of Common Stock) or any option or other
right to acquire any Common Stock except (w) by Sprint in
accordance with Section 2.13(e) or 2.13(f) or by any
Standstill Equityholder in accordance with Section 4.3 of
the Transaction Agreement, (x) by means of a conversion of
Units as provided in the Operating Agreement and the Charter;
(y) in a transaction expressly permitted under, and
executed in accordance with, Article 3 of this Agreement;
or (z) pursuant to a Recapitalization Event; or
(B) any direct or indirect acquisition of any of the assets
of the Company, other than acquisitions of assets
(I) in the ordinary course of business, or
(II) with a value of no more than $10 million in the
aggregate,
or of any businesses of the Company, or any option or other
right to acquire any of the foregoing (including from a third
party), or
(C) any tender or exchange offer, merger or other business
combination involving the Company or any Subsidiary of the
Company;
(ii) form, join or in any way participate in a
group (as that term is defined for purposes of
Sections 13 and 14 of the Exchange Act or any successor
provisions) with respect to any of the actions referred to in
clause (i) above; or
(iii) solicit, negotiate with or enter into any agreement
with any third party with respect to any of the foregoing or
make any public announcement of its intention or desire to do so.
(b) The provisions of Section 3.7(a) will not apply to
an acquisition of Common Stock by a Standstill Equityholder
(i) if that Standstill Equityholder acquires (x) a
Parent or (y) any other Person that holds Common Stock as
part of the acquisition of an operating business, so long as in
the case of clause (y) the Standstill Equityholder causes
the Person to divest itself of the Common Stock within
180 days following the consummation of such acquisition
transaction,
C-33
(ii) subject to Section 3.8, if that Standstill
Equityholder has offered to purchase 100% of the outstanding
Common Stock not owned by such Equityholder, and the offer
(A) has been approved by a Simple Majority of the Board
(excluding the Equityholder Designees of the applicable
Standstill Equityholder) and
(B) is subsequently accepted or approved by a majority of
the voting power represented by the Voting Securities of the
Company (excluding the Voting Securities of the Standstill
Equityholder and its Permitted Transferees and Permitted
Designees), either by the tendering of Voting Securities or by
an affirmative vote at a meeting of the stockholders called to
approve the transaction
(C) (a Qualifying Purchase),
(iii) if
(A) the acquisition of Common Stock is in response to a
bona fide offer by a stockholder to sell its Common Stock to the
Standstill Equityholder in a private sale that would otherwise
be prohibited by Section 3.7(a),
(B) both
(I) a Simple Majority of the Board (excluding the
Equityholder Designees of the applicable Standstill
Equityholder), and
(II) each of Sprint, Intel and the Strategic Investor
Representative (on behalf of the Strategic Investor Group)
have agreed to release the applicable Standstill Equityholder
from its obligations under Section 3.7(a) with respect to
such acquisition, and
(C) each other Equityholder that then has preemptive rights
under Section 3.5 has been offered the opportunity to
participate in such transaction on a pro rata basis in
accordance with its Percentage Interest (relative to the
Percentage Interests of those Equityholders that elect to
participate in such transaction), or
(iv) as provided in Section 3.7(c).
(c) If the Company issues Non-Preemptive Rights Securities
(as defined below), the following will apply:
(i) Notwithstanding the provisions of Section 3.7(a),
each of the Standstill Equityholders will have the right to
acquire, in the open market, the number of shares of Common
Stock necessary to cause the Percentage Interest of that
Standstill Equityholder to equal (to the nearest whole share)
what it would be if the Non-Preemptive Rights Securities had not
been issued (as adjusted for Recapitalization Events). Any
acquisition or Transfer of Equity Securities by a Standstill
Equityholder after the date of the applicable issuance of
Non-Preemptive Rights Securities (other than in connection with
a Recapitalization Event), whether under this Agreement or
otherwise, will not affect the number of shares of Common Stock
that a Standstill Equityholder is permitted to acquire in
accordance with this Section 3.7(c).
(ii) On each March 31st, June 30th,
September 30th and December 31st during the
term of this Agreement, the Company will notify the Standstill
Equityholders in writing of any issuances of Non-Preemptive
Rights Securities that have occurred since the date of the most
recently delivered notice under this Section 3.7(c)(ii).
(iii) If the Company issues Non-Preemptive Rights
Securities, a Standstill Equityholder will be deemed to have a
Percentage Interest for all purposes under this Agreement, for a
period of 30 days after such Standstill Equityholder has
received notice from the Company of such issuance, equal to its
Percentage Interest immediately prior to the issuance of such
Non-Preemptive Rights Securities. At the end of such
30-day
period, the Percentage Interest of such Standstill Equityholder
will convert to its actual Percentage Interest.
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(iv) For purposes of this Agreement,
Non-Preemptive Rights Securities means and
includes any Equity Securities, including Equity Securities
issued in respect of options, warrants, convertible securities
or other rights to purchase or acquire Equity Securities, in
each case, that are excluded from the definition of New
Securities under Section 3.5(f) (other than those excluded
under clauses (i), (iii), (v) and (vi) thereof).
(d) For purposes of this Section 3.7,
(i) Standstill Period means, with
respect to any Equityholder, the period from the Effective Date
until the later to occur of
(A) the fifth anniversary of the Effective Date, and
(B) with respect to the restrictions on the Strategic
Investors, the earliest date on which
(I) Sprint ceases to own a number of shares of Common Stock
equal to at least 50% of the Sprint Original Shares or Sprint
has a Percentage Interest of less than 5%, and
(II) Intel ceases to own a number of shares of Common Stock
equal to at least 50% of the Intel Original Shares or Intel has
a Percentage Interest of less than 5%;
(C) with respect to the restrictions on Intel, the earliest
date on which
(I) Sprint ceases to own a number of shares of Common Stock
equal to at least 50% of the Sprint Original Shares or Sprint
has a Percentage Interest of less than 5%, and
(II) the Strategic Investor Group ceases to own a number of
shares of Common Stock equal to at least 50% of the Strategic
Investor Original Shares or the Strategic Investor Group has,
collectively, a Percentage Interest of less than 5%; and
(D) with respect to the restrictions on Sprint, the date on
which
(I) the Strategic Investor Group ceases to own a number of
shares of Common Stock equal to at least 50% of the Strategic
Investor Original Shares or the Strategic Investor Group has,
collectively, a Percentage Interest of less than 5%, and
(II) Intel ceases to own a number of shares of Common Stock
equal to at least 50% of the Intel Original Shares or Intel has
a Percentage Interest of less than 5%.
(ii) Standstill Equityholders
means
(A) Sprint and its Controlled Affiliates,
(B) each Strategic Investor and its Controlled
Affiliates, and
(C) Intel and its Controlled Affiliates.
3.8 Joint Purchase Rights.
(a) If Sprint, Intel or any member of the Strategic
Investor Group (the Initiating Equityholder)
desires, at any time when the Standstill Period is still in
effect with respect to the applicable Initiating Equityholder,
to purchase outstanding shares of Common Stock, in one
transaction or a series of related transactions, whether
directly or indirectly, in a Qualifying Purchase, the Initiating
Equityholder will promptly notify (i) if Sprint is the
Initiating Equityholder, the Strategic Investor Group and Intel,
(ii) if Intel is the Initiating Equityholder, Sprint and
the Strategic Investor Group or (iii) if a member of the
Strategic Investor Group is the Initiating Equityholder, Intel,
Sprint and the remaining members of the Strategic Investor Group
(in each case, for purposes of this Section 3.8, the
Non-Initiating Equityholders) in writing at
least 30 days before commencing the process required under
this Agreement to engage in a Qualifying Purchase (a
Qualifying Purchase Notice) setting forth the
nature of the proposed Qualifying Purchase, the aggregate
consideration (in cash) to be paid for the outstanding shares of
Common Stock proposed to be purchased (the Qualifying
Purchase Securities), the proposed commencement and
closing date of the proposed Qualifying Purchase and any other
material information regarding the terms of the proposed
Qualifying Purchase.
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(b) With respect to a Qualifying Purchase, the
Non-Initiating Equityholders will have the right, exercisable on
delivery of written notice to the Initiating Equityholder within
30 days after receipt of the Qualifying Purchase Notice, to
elect irrevocably to participate with the Initiating
Equityholder in the Qualifying Purchase. If any Non-Initiating
Equityholder elects to participate, such Non-Initiating
Equityholder will have the right to acquire a portion of the
Qualifying Purchase Securities, on the same terms and conditions
as set forth in the Qualifying Purchase Notice, in accordance
with the relative Percentage Interests of the Initiating
Equityholder and the Non-Initiating Equityholders that elect to
participate in such Qualifying Purchase. If any of the
Non-Initiating Equityholders declines to exercise its
participation right under this Section 3.8(b), each of the
other participating Non-Initiating Equityholders and the
Initiating Equityholder will be entitled to acquire a portion of
the Qualifying Purchase Securities in accordance with the
relative Percentage Interests of the Initiating Equityholder and
the participating Non-Initiating Equityholders.
All calculations under this subsection (b) will be made on
an as-converted to Class A Common Stock basis (i.e.,
each share of Class B Common Stock, plus one Unit, will
equal one share of Class A Common Stock in such
calculations).
(c) If none of the Non-Initiating Equityholders makes a
timely election to purchase the Qualifying Purchase Securities
as provided in Section 3.8(b), the Initiating Equityholder
may purchase the Qualifying Purchase Securities on
arms-length terms at a price not lower, and on terms and
conditions no more favorable, in the aggregate, to the
Initiating Equityholder than the terms and conditions set forth
in the Qualifying Purchase Notice; provided that
(i) any material change in the terms and conditions
contained in the Qualifying Purchase Notice (that is more
favorable to the Initiating Equityholder) will constitute a new
proposal for a Qualifying Purchase for purposes of
Section 3.8(a); and
(ii) definitive documents for a Qualifying Purchase must be
executed on or prior to the 90th day following receipt of
the Qualifying Purchase Notice and consummated on or prior to
the 210th day following receipt of the Qualifying Purchase
Notice, or, if the applicable regulatory approvals have not been
received by the 210th day, within five Business Days of the
receipt of any applicable regulatory approvals (but in no event
more than 270 days following the receipt of the Qualifying
Purchase Notice), and if not, the proposed Qualifying Purchase
will again become subject to the rights and obligations under
this Section 3.8.
(d) The following will apply to any Qualifying Purchase:
(i) the purchase by the Initiating Equityholder and the
Non-Initiating Equityholders, if applicable, will be subject to
the other terms and restrictions of this Agreement, and
(ii) any future proposed Qualifying Purchase will remain
subject to the terms and conditions of this Agreement, including
this Article 3.
(e) If both the Initiating Equityholder and one or more
Non-Initiating Equityholders elect to participate in a
Qualifying Purchase in accordance with this Section 3.8,
and if the Qualifying Purchase is consummated,
(i) subject to Section 2.1(a)(x), the number of
Directors that may be nominated by each of Sprint, Intel and the
Strategic Investor Group will be adjusted, either upward or
downward as appropriate, so that the right of each of Sprint,
Intel and the Strategic Investor Group, respectively, to
nominate Directors will equal the product (rounded to the
nearest whole number) obtained by multiplying 13 by a fraction,
the numerator of which is the Percentage Interest then held by
Sprint, Intel or the Strategic Investor Group, as the case may
be, and the denominator of which is the sum of the Percentage
Interests of Sprint, Intel and the Strategic Investor Group,
(ii) this Agreement will be deemed to be amended, and the
Company and the Equityholders will take whatever action is
necessary to effect such amendment as necessary or appropriate
to reflect the
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Qualifying Purchase, including the following, in each case, to
be effective as of the closing of the Qualifying Purchase:
Section 2.6(b) will be amended to add the following new
clauses:
(I) (vi) the issuance of any Equity Securities to any
Person other than an Equityholder or its Permitted Designee, or
the admission of any new member to the LLC; and; and
(II) (vii) any material change from WiMAX to another
technology standard for the Companys business, or any
other significant technology decisions.
3.9 Permitted Designee.
(a) Subject to Section 3.1, any right of an
Equityholder under this Agreement to acquire additional Equity
Securities may be exercised, at the option of the Equityholder,
by a Permitted Designee of such Equityholder. If an Equityholder
desires for a Permitted Designee to acquire Equity Securities in
lieu of the Equityholder, the Equityholder will notify the
Company in writing. As a condition to such acquisition, the
Equityholder will cause the Permitted Designee to execute and
deliver to the Company and each other Equityholder an Assignment
and Assumption Agreement in the form attached as
Exhibit F, and upon consummation of the acquisition
of Common Stock, the Permitted Designee will be an Equityholder
and will be subject to all rights and obligations of an
Equityholder owning the acquired Equity Securities under this
Agreement.
(b) Except as provided in Section 3.12, before any
Permitted Designee ceases to qualify as a Permitted Designee of
the relevant Equityholder, it will Transfer full legal and
beneficial ownership of its Equity Securities and Units (if any)
to the relevant Equityholder or, subject to this
Section 3.9, another Permitted Designee of the
Equityholder. If such a Transfer is not made in accordance with
the immediately preceding sentence, then, in addition to all
other remedies available at law or in equity, any shares of
Class B Common Stock held by such non-qualified Permitted
Designee will be immediately redeemed by the Company for their
Par Value per share in accordance with the terms of this
Agreement and the Charter.
3.10 Void Transfers. Any Transfer
or attempted Transfer of Equity Securities in violation of any
provision of this Agreement will be void, ab initio.
3.11 Limitations Prior to the Adjustment
Date. Notwithstanding anything in this
Article 3 to the contrary, prior to the Adjustment Date:
(a) the Equityholders (other than Eagle River) will not,
and will cause their Controlled Affiliates not to, in any
manner, directly or indirectly (through an agent,
representative, or otherwise), Transfer, or enter into any
Hedging Transactions with respect to, any Equity Securities (or
Units that correspond to Equity Securities) or convert any
shares of Class B Common Stock and Class B Common
Units into shares of Class A Common Stock;
(b) none of the Equityholders will, or will permit any of
its Affiliates to, in any manner, directly or indirectly
(whether through an agent, representative or otherwise),
acquire, publicly announce an intention to acquire, offer to
acquire, or agree to acquire, by purchase, gift or otherwise,
any Equity Securities (or Units that correspond to Equity
Securities) or any direct or indirect interest in any Equity
Securities (including any arrangement to provide the economic
performance of all or any portion of such Equity Securities
(including by means of any option, swap, forward or other
contract or arrangement the value of which is linked in whole or
in part to the value of such Equity Securities));
(c) the Company shall not take, authorize, commit or agree
to take, any of the following actions (or publicly announce any
intention to do so):
(i) issue, deliver, grant or sell, or authorize or propose
the issuance, delivery, grant or sale of, any Equity Securities
(or Units that correspond to Equity Securities) other than any
issuance of securities described in clause (ii), (iii) or
(v) of Section 3.5(f);
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(ii) repurchase, redeem or otherwise acquire any shares of
any Equity Securities (or Units that correspond to Equity
Securities), except for any repurchase or redemption deemed to
occur upon any cashless exercise in connection with
the issuance of any securities described in clause (ii) or
(v) of Section 3.5(f); or
(iii) declare, set aside for payment or pay any dividends
on or make other distributions (whether in cash, stock or
property) in respect of any Equity Securities (or Units that
correspond to Equity Securities).
3.12 Holding Company
Transfers. Notwithstanding anything to the
contrary in this Agreement:
(a) Any Transfer that is permitted under this
Article 3 (other than a Holding Company Exchange under
Section 7.9(h) of the Operating Agreement) may, at the
option of an Equityholder that is a Securities Holding Company,
be effected as a transfer by the holder of 100% of the
securities of such Securities Holding Company (a
Securities Holding Company Stockholder) of
all of its securities in such Securities Holding Company (a
Holding Company Transfer).
(b) For the avoidance of doubt, (i) prior to effecting
any Holding Company Transfer, the transferor must comply,
mutatis mutandis, with the provisions of
(x) Section 3.3 by offering to the Non-Selling
Equityholders the opportunity to purchase directly the Equity
Securities held by the Securities Holding Company that is the
subject of the proposed Holding Company Transfer (as opposed to
the equity securities of the Securities Holding Company) and
(y) Section 3.4, and (ii) any Tag-Along
Equityholder may propose that a Transfer of its Equity
Securities pursuant to Section 3.4 be effected as a Holding
Company Transfer of the Securities Holding Company holding such
Tag-Along Equityholders Equity Securities, but such
proposal will not be binding upon the transferee, in which case
such Tag-Along Equityholder may Transfer its Equity Securities
in the Tag-Along Sale. Notwithstanding Section 3.3(c)(ii),
the price paid for securities of the Securities Holding Company
in a transfer to a transferee (other than a Non-Selling
Equityholder) will be not lower than the product of (x) the
transfer price proposed to the Non-Selling Equityholders in the
Interest Notice (assuming that 100% of the Securities Holding
Company is being transferred) and (y) the number of shares
of Subject Stock held by the Securities Holding Company. The
purchase price to be received by any Tag-Along Equityholder
pursuant to Section 3.4 in a Holding Company Transfer will
equal the quotient of (x) the aggregate consideration
received for the equity securities of the Securities Holding
Company being transferred (assuming that 100% of the Securities
Holding Company is being transferred) divided by
(y) the number of Equity Securities held by the
Securities Holding Company.
(c) If a Holding Company Transfer is effected pursuant to
this Section 3.12 in connection with a Transfer pursuant to
Section 3.3(b)(i) or Section 3.4, the Securities
Holding Company Stockholder and its Affiliates will be
responsible for, and will indemnify and hold the transferee and
each of its Affiliates harmless against, (i) Tax of a
Securities Holding Company incurred in such Holding Company
Transfer and (ii) all liabilities of the Securities Holding
Company and its Affiliates (including liabilities for Taxes not
described in clause (i)) to the extent such liabilities are
attributable to periods through and including the date of the
Holding Company Transfer (except to the extent attributable to
the period after the closing of the Holding Company Transfer),
including any liability of the Securities Holding Company
arising by reason of being a member of an affiliated, combined,
consolidated or other Tax group on or prior to the Holding
Company Transfer.
ARTICLE 4
MISCELLANEOUS
4.1 Parent Guaranty. On the
Effective Date, each Parent has executed and delivered the
Guaranty to the Company and the other Equityholders.
4.2 Termination. Subject to the
early termination of any provision (a) as a result of an
amendment to this Agreement agreed to by the Company and the
Equityholders as provided under Section 4.3 or (b) as
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provided in accordance with its terms, this Agreement will
terminate with respect to each Equityholder when that
Equityholder no longer owns any Equity Securities of the
Company; except that Sections 3.10, 4.5, 4.7, 4.9, 4.10,
4.13, 4.15, and 4.17 through 4.20 of this Agreement will not
terminate and will survive any termination of this Agreement. No
such termination will relieve any party from any liability for
the breach of any of the agreements set forth in this Agreement.
4.3 Amendments and Waivers. Except
as otherwise provided in this Agreement, no modification,
amendment or waiver of any provision of this Agreement will be
effective without the written approval of the Company, the
Strategic Investor Representative (on behalf of the Strategic
Investor Group) and each other Equityholder, except that any
Equityholder may waive (in writing) the benefit of any provision
of this Agreement with respect to itself for any purpose. No
failure or delay by any party in exercising any right, power or
privilege hereunder (other than a failure or delay beyond a
period of time specified in this Agreement) will operate as a
waiver of that right, power or privilege, nor will any single or
partial exercise of any right, power or privilege preclude any
other or further exercise of the right, power or privilege, or
the exercise of any other right, power or privilege. The rights
and remedies provided in this Agreement will be cumulative and
not exclusive of any rights or remedies provided by Law.
4.4 Successors, Assigns and Transferees; Groups and
Thresholds.
(a) This Agreement will bind and inure to the benefit of
and be enforceable by the parties to this Agreement and their
respective successors (whether by merger, operation of law or
otherwise) and permitted assigns.
(b) Whether or not so stated in the relevant provisions of
this Agreement, (i) references to Sprint, Eagle River,
Intel or any Strategic Investor shall be deemed to include their
respective Permitted Transferees and Permitted Designees,
(ii) all amounts, thresholds or similar metrics applicable
to Sprint, Eagle River, Intel, any Strategic Investor or the
Strategic Investor Group shall be determined or measured
(x) without duplication, by reference to the relevant
Person and its Permitted Transferees (excluding, in the case of
a Strategic Investor, any Permitted Transferee of the kind
described in clause (ii) of the definition thereof) and
Permitted Designees as a group and (y) taking into account
the effect of any Recapitalization Events and
(iii) references to a Person or group owning a number of
shares of Common Stock equal to at least a specified percentage
of such Persons or groups Original Shares shall be
deemed to refer to ownership of a number of shares of Common
Stock without regard to class.
4.5 Legend.
(a) All certificates or book entries, as the case may be,
representing the Equity Securities held by each Equityholder
will bear a legend substantially in the following form:
The securities represented by this [certificate] [book entry]
are subject to an Equityholders Agreement dated as of
[ ],
200[ ] (a copy of which is on file with the Secretary
of the Company). No transfer, sale, assignment, pledge,
hypothecation or other disposition of the securities represented
by this [certificate] [book entry] may be made except in
accordance with the provisions of the Equityholders
Agreement and (a) under a registration statement effective
under the Securities Act of 1933, as amended, or (b) under
an exemption from registration thereunder. The holder of the
securities represented by this [certificate] [book entry], by
acceptance of the securities, agrees to be bound by all of the
provisions of the Equityholders Agreement.
(b) (i) On the sale of any Equity Securities to a
person other than a Permitted Transferee under an effective
registration statement under the Securities Act or under
Rule 144 under the Securities Act or (ii) on and after
the termination of this Agreement, the certificates or book
entries representing those Equity Securities will be replaced,
at the expense of the Company, with certificates or book entries
not bearing the applicable legends required by this
Section 4.5, except that the Company may condition the
replacement of certificates or book entries under
clause (i) on the receipt of an opinion of securities
counsel reasonably satisfactory to the Company.
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4.6 Notices.
(a) All notices and other communications required or
permitted under this Agreement will be in writing and will be
deemed effectively given:
(i) when personally delivered to the party to be notified;
(ii) when sent by confirmed facsimile if sent during normal
business hours of the recipient or, if not, then on the next
Business Day, as long as a copy of the notice is also sent via
nationally recognized overnight courier, specifying next day
delivery, with written verification of receipt;
(iii) five days after having been sent by registered or
certified mail, return receipt requested, postage
prepaid; or
(iv) one Business Day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with
written verification of receipt.
(b) Any notice or other communication that is to be sent by
or delivered to the Strategic Investor Group under this
Agreement will be sent by or delivered to the Strategic Investor
Representative. In addition, in order to facilitate the
administration of this Agreement, if any of Eagle River, Sprint
or Intel Transfers any of its Equity Securities to a Permitted
Transferee, or causes any Equity Securities to be issued to a
Permitted Designee, such Equityholder will, by notice to the
Company and the other Equityholders, designate a single entity
(which must be one of its Controlled Affiliates) to send and
receive all notices and other communications under this
Agreement that are to be sent to or delivered by such
Equityholder, and to exercise all of such Equityholders
rights hereunder.
(c) All communications will be sent to the partys
address as set forth below or at another address that the party
has furnished to each other party in writing in accordance with
this provision:
If to the Company:
NEWCO CORPORATION
4400 Carillon Point
Kirkland, Washington 98033
Attention: Vice-President Corporate Development
Facsimile No.:
(425) 216-7766
with copies (which will not constitute notice) to:
NEWCO CORPORATION
4400 Carillon Point
Kirkland, Washington 98033
Attention: General Counsel
Facsimile No.:
(425) 216-7766
Kirkland & Ellis LLP
Citigroup Center
153 East 53rd Street
New York, New York 10022
Attention: Joshua N. Korff
Facsimile No.:
(212) 446-6460
Davis Wright Tremaine LLP
1201 Third Avenue, Suite 2200
Seattle, Washington 98101
Attention: Sarah English Tune
Facsimile No.:
(206) 757-7161
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If to Sprint:
Sprint Nextel Corporation
2001 Edmund Halley Drive
Reston, Virginia 20191
Attention: Senior Vice President Corporate Development and
Spectrum
Facsimile No.:
(703) 433-4406
with copies to (which will not constitute notice) to:
Sprint Nextel Corporation
6200 Sprint Parkway
Overland Park, Kansas 66251
Attention: Corporate Secretary
Facsimile No.:
(913) 523-9797
King & Spalding LLP
1180 Peachtree Street, N.E.
Atlanta, Georgia 30309
Attention: Michael J. Egan
Facsimile No.:
(404) 572-5100
If to Eagle River:
Eagle River
2300 Carillon Point
Kirkland, WA 98033
Attention: Chief Executive Officer
Facsimile No:
(425) 828-8061
If to the Strategic Investors:
with a copy (which will not constitute notice) to:
If to Intel:
Intel Corporation
2200 Mission College Blvd., MS RN6-65
Santa Clara, California
95054-1549
Attention: President, Intel Capital
Facsimile No.:
(408) 765-8871
Intel Corporation
2200 Mission College Blvd., MS RN6-59
Santa Clara, California
95054-1549
Attention: Intel Capital Portfolio Manager
Facsimile No.:
(408) 765-6038
Intel Corporation
2200 Mission College Blvd., MS RN4-151
Santa Clara, California
95054-1549
Attention: Intel Capital Group General Counsel
Facsimile No.:
(408) 653-9098
Intel Corporation
2200 Mission College Blvd., MS RN5-125
Santa Clara, California
95054-1549
Attention: Director, U.S. Tax and Trade
Facsimile No.:
(408) 765-1733
with copies (which will not constitute notice) to:
C-41
Gibson, Dunn & Crutcher LLP
1881 Page Mill Road
Palo Alto, California 94304
Attention: Gregory T. Davidson
Facsimile No.:
(650) 849-5050
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California
90071-3197
Attention: Paul S. Issler
Facsimile No.:
(213) 229-6763
4.7 Confidentiality.
(a) Each Equityholder agrees that Confidential Information
has been and may in the future be made available in connection
with such Equityholders investment in the Company. Each
Equityholder acknowledges and agrees that it shall not disclose
any Confidential Information to any Person or use any
Confidential Information, except that Confidential Information
(x) may be used solely in connection with the
Equityholders investment in the Company and the LLC and
not in connection with any of its other business operations and
(y) may be disclosed:
(i) to such Equityholders Representatives in the
normal course of the performance of their duties,
(ii) to the extent required by Law, rule or regulation
(including complying with any oral or written questions,
interrogatories, requests for information or documents,
subpoena, civil investigative demand or similar process to which
an Equityholder is subject, provided that such
Equityholder agrees to give the Company prompt notice of such
request(s), to the extent practicable, so that the Company may
seek an appropriate protective order or similar relief (and the
Equityholder shall cooperate with such efforts by the Company,
and shall in any event make only the minimum disclosure required
by such Law, rule or regulation)),
(iii) to any Person with whom such Equityholder is
contemplating a financing transaction or to whom such
Equityholder is contemplating a Transfer of its Equity
Securities, provided that such Transfer would not be in
violation of the provisions of this Agreement and such potential
transferee is advised of the confidential nature of such
information and agrees to be bound by a confidentiality
agreement consistent with the provisions hereof,
(iv) to any regulatory authority or rating agency to which
such Equityholder or any of its Affiliates is subject or with
which it has regular dealings, as long as such authority or
agency is advised of the confidential nature of such information,
(v) to the extent related to the tax treatment and tax
structure of the transactions contemplated by this Agreement
(including all materials of any kind, such as opinions or other
tax analyses that the Company, its Affiliates or its
Representatives have provided to such Equityholder relating to
such tax treatment and tax structure), provided that the
foregoing does not constitute an authorization to disclose the
identity of any existing or future party to the transactions
contemplated by this Agreement or their Affiliates or
Representatives, or, except to the extent relating to such tax
structure or tax treatment, any specific pricing terms or
commercial or financial information,
(vi) in the case of the Strategic Investor Representative
or any member of the Strategic Investor Group, to any other
member of the Strategic Investor Group, or
(vii) if the prior written consent of the Board shall have
been obtained.
(b) Nothing contained herein shall prevent the use
(subject, to the extent possible, to a protective order) of
Confidential Information in connection with the assertion or
defense of any claim by or against the Company or any of its
Subsidiaries or any Equityholder.
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(c) Confidential Information
means any information concerning the Company or any Persons that
are or become its Subsidiaries or the financial condition,
business, operations or prospects of the Company or any such
Persons in the possession of or furnished to any Equityholder
under this Agreement, provided that the term
Confidential Information does not include
information that (i) is or becomes generally available to
the public other than as a result of a disclosure by an
Equityholder or its affiliates, directors, officers, employees,
stockholders, members, partners, agents, counsel, auditors,
investment advisers or other representatives (all such persons
being collectively referred to as
Representatives) in violation of this
Agreement, (ii) was available to such Equityholder on a
non-confidential basis prior to its disclosure to such
Equityholder or its Representatives by the Company,
(iii) becomes available to such Equityholder on a
non-confidential basis from a source other than the Company
after the disclosure of such information to such Equityholder or
its Representatives by the Company, which source is (at the time
of receipt of the relevant information) not, to the best of such
Equityholders knowledge, bound by a confidentiality
agreement with (or other confidentiality obligation to) the
Company or another Person, (iv) is independently developed
by such Equityholder without violating any confidentiality
agreement with, or other obligation of secrecy to, the Company
or (v) is received by an Equityholder under or in
connection with other commercial contracts, agreements or
arrangements with the Company (which information shall be
governed by the terms of those contracts, agreements or
arrangements).
4.8 Accounting Policies. If
Sprint is required at any point to consolidate with the Company
and the LLC for accounting purposes, subject to Law and the
fiduciary duties of the Board, the accounting policies of the
Company and the LLC will be consistent with the accounting
policies of Sprint as long as the policies comply with GAAP in
the reasonable opinion of the Company.
4.9 Strategic Investor Representative; Strategic
Investor Agreement.
(a) Each Strategic Investor hereby acknowledges that the
Strategic Investor Representative is authorized to take all
actions that are designated herein to be performed by the
Strategic Investor Group, as a group, and to do or refrain from
doing all further acts and things, and to execute all documents,
as the Strategic Investor Representative deems necessary or
appropriate in furtherance of any of the foregoing, including:
(i) to receive and deliver all notices, communications and
deliveries on behalf of the Strategic Investor Group under this
Agreement;
(ii) to provide consent, on behalf of the Strategic
Investor Group, for any matter that requires the consent of the
Strategic Investor Group under this Agreement; and
(iii) to exercise any right or election on behalf of the
Strategic Investor Group under this Agreement.
(b) The Company and each Equityholder (other than the
Strategic Investors) may conclusively and absolutely rely,
without inquiry, on any actions of the Strategic Investor
Representative authorized under this Agreement as the acts of
the Strategic Investor Group in all matters referred to in this
Agreement.
(c) Each of the Strategic Investors hereby expressly
acknowledges and agrees that the Strategic Investor
Representative is authorized to act on behalf of the Strategic
Investor Group notwithstanding any dispute or disagreement among
the Strategic Investors, and that the Company and any
Equityholder (other than the Strategic Investors) is entitled to
rely on any and all action by the Strategic Investor
Representative specifically authorized under this Agreement
without liability to, or obligation to inquire of, any of the
Strategic Investors. The Strategic Investor Representative may,
at any time upon notice to the Company and the other
Equityholders (upon which notice the Company and the other
Equityholders will be entitled to rely), appoint a substitute or
replacement Strategic Investor Representative.
(d) Without in any way limiting the rights of the Company
and the Equityholders (other than the Strategic Investors),
under this Section 4.9 or otherwise, to rely on any and all
action by the Strategic Investor Representative pursuant to this
Agreement, each Strategic Investor expressly acknowledges and
agrees that the appointment of the Strategic Investor
Representative pursuant to Section 4.9(a) above, and all of
the rights, obligations, power and authority of the Strategic
Investor under this Agreement, are subject in all respects to
the Strategic Investor Agreement.
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(e) The Strategic Investor Representative will deliver to
each other party hereto a copy of any amendment to the Strategic
Investor Agreement with reasonable promptness following the
execution of any such amendment.
4.10 No Joint and Several Liability of the
Equityholders. The Company and each
Equityholder acknowledge and agree that under no circumstances
will any Equityholder be held jointly or severally liable for
the breach of any provision of this Agreement by any other
Equityholder or the Strategic Investor Representative (it being
understood that this Section 4.10 shall not otherwise limit
the liability of any Equityholder for its own breaches of this
Agreement); provided that, in the event of any breach of
this Agreement by the Strategic Investor Representative (acting
in its capacity as such), each Strategic Investor shall be
severally liable for a portion of any liability, loss, cost,
damage or expense (including attorneys fees) arising from
or in connection with such breach that is equal to such
Strategic Investors Percentage Interest divided by the
aggregate Percentage Interest of the Strategic Investor Group.
4.11 Further Assurances. At any
time or from time to time after the Effective Date, the parties
will cooperate with each other as may be reasonably requested,
and at the request of any other party, will execute and deliver
any further instruments or documents and, to the fullest extent
permitted by Law, will take all further action as the other
party may reasonably request in order to evidence or effectuate
the consummation of the transactions contemplated by this
Agreement and to otherwise carry out the agreements and the
intent of the parties under this Agreement.
4.12 Entire Agreement. Except as
otherwise expressly set forth in this Agreement, this Agreement,
together with the other Transaction Documents (and, as among the
Strategic Investors only, the Strategic Investor Agreement),
embodies the complete agreement and understanding among the
parties to this Agreement with respect to the subject matter of
this Agreement and supersedes and preempts any prior
understandings, agreements or representations by or among the
parties, written or oral, that may have related to the subject
matter of this Agreement in any way.
4.13 Enabling Clause. The Company
will cause the Charter, the Bylaws and the Operating Agreement
to give effect to the terms and provisions contained in this
Agreement to the extent permitted by Law. Each of the parties
will vote its Voting Securities and take any other action
reasonably requested by the Company or any Equityholder to amend
the Charter, the Bylaws and the Operating Agreement so as to
give full effect to and to avoid any conflict with the
provisions of this Agreement, all to the extent permitted by Law.
4.14 Delays or Omissions. No delay
or omission to exercise any right, power or remedy accruing to
any party, upon any breach, default or noncompliance by another
party under this Agreement, will impair any right, power or
remedy of any non-breaching and non-defaulting party, nor will
it be construed to be a waiver of any breach, default or
noncompliance, or any acquiescence in it, or of or in any
similar breach, default or noncompliance later occurring. Any
waiver, permit, consent or approval of any kind or character on
the part of any party to this Agreement of any breach, default
or noncompliance under this Agreement or any waiver on that
partys part of any provisions or conditions of this
Agreement, must be in writing and will be effective only to the
extent specifically set forth in that writing and to the extent
permitted under this Agreement. No waiver of any default with
respect to any provision, condition or requirement of this
Agreement will be deemed to be a continuing waiver in the future
or a waiver of any other provision, condition or requirement
hereof. All remedies, either under this Agreement, by Law, or
otherwise afforded to any party, will be cumulative and not
alternative.
4.15 Governing Law; Jurisdiction; Waiver of Jury
Trial. This Agreement will be governed in all
respects by the laws of the State of Delaware. No suit, action
or proceeding with respect to this Agreement may be brought in
any court or before any similar authority other than in a court
of competent jurisdiction in the State of Delaware, and the
parties to this Agreement submit to the exclusive jurisdiction
of those courts for the purpose of a suit, proceeding or
judgment. Each party to this Agreement irrevocably waives any
right it may have had to bring an action in any other court,
domestic or foreign, or before any similar domestic or foreign
authority. Each of the parties to this Agreement irrevocably and
unconditionally waives trial by jury in any legal action or
proceeding (including any counterclaim) in relation to this
Agreement.
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4.16 Severability. When possible,
each provision of this Agreement will be interpreted so as to be
effective and valid under Law, but if any provision of this
Agreement is held to be invalid, illegal or unenforceable in any
respect under any Law in any jurisdiction, that invalidity,
illegality or unenforceability will not affect any other
provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in that jurisdiction as if the
invalid, illegal or unenforceable provision had never been
contained in this Agreement and the parties to this Agreement
will use their Reasonable Best Efforts to find and employ an
alternative means to achieve the same or substantially the same
result as that contemplated by that provision.
4.17 Enforcement. Each party to
this Agreement acknowledges that money damages would not be an
adequate remedy if any of the covenants or agreements in this
Agreement, including Sections 2.13 and 2.14, are not
performed in accordance with its terms. If a party seeks an
injunction, temporary restraining order or other equitable
relief in any court of competent jurisdiction to enjoin an
alleged breach and enforce specifically the terms and provisions
of this Agreement, including Sections 2.13 and 2.14, the
other parties will not raise the defense of an adequate remedy
at law.
4.18 No Recourse. Except as
provided in any Guaranty, neither the Company nor any
Equityholder will whether by the enforcement of any assessment
or by any legal or equitable proceeding, or by virtue of any
Law, seek to hold liable under this Agreement or any documents
or instruments delivered in connection with this Agreement, any
current or future stockholder, director, officer, employee,
general or limited partner or member of any Equityholder or of
any Affiliate or assignee thereof. No current or future officer,
agent or employee of any Equityholder or any current or future
member of any Equityholder or any current or future stockholder,
director, officer, employee, partner or member of any
Equityholder or of any Affiliate or assignee thereof, will have
any personal liability whatsoever for any obligation of any
Equityholder under this Agreement or any documents or
instruments delivered in connection with this Agreement for any
claim based on, in respect of or by reason of those obligations
or their creation.
4.19 No Third Party
Beneficiaries. This Agreement is entered into
solely for the benefit of the Equityholders, their respective
Permitted Transferees, Permitted Designees and successors
(whether by merger, operation of law or otherwise) and permitted
assigns, and except that any current or former director or
officer of the Company may enforce Section 2.1(j), no other
Person may exercise any right or enforce any obligation under
this Agreement.
4.20 Counterparts; Facsimile
Signatures. This Agreement may be executed in
any number of counterparts, each of which will be an original,
but all of which together will constitute one instrument. This
Agreement may be executed by facsimile or pdf signature(s).
4.21 Interpretation. Unless the
context of this Agreement otherwise clearly requires,
(a) references to the plural include the singular, and
references to the singular include the plural,
(b) the words include, includes and
including do not limit the preceding terms or words
and will be deemed to be followed by the words without
limitation,
(c) the terms day and days mean and
refer to calendar day(s), and
(d) the terms year and years mean
and refer to calendar year(s).
Unless otherwise set forth in this Agreement, references in this
Agreement to
(i) any document, instrument or agreement (including this
Agreement)
(A) includes and incorporates all Schedules and Exhibits,
(B) includes all documents, instruments or agreements
issued or executed in replacement of those documents,
instruments or agreements, and
(C) means the document, instrument or agreement, or
replacement or predecessor thereto, as amended, modified or
supplemented from time to time in accordance with its terms and
in effect at any given time, and
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(D) all Article, Section and Exhibit references in this
Agreement are to Articles, Sections and Exhibits of this
Agreement, unless otherwise specified. This Agreement will not
be construed as if prepared by one of the parties, but rather
according to its fair meaning as a whole, as if all parties had
prepared it.
[Rest of
page intentionally left blank]
C-46
IN WITNESS WHEREOF, the parties to this Agreement have executed
this Equityholders Agreement as of the date set forth in
the first paragraph hereof.
NEWCO CORPORATION
[SPRINT]
[EAGLE RIVER HOLDINGS, LLC]
By: Eagle River Inc., its Manager
[INTEL]
C-47
[GOOGLE INC.]
[TIME WARNER CABLE]
[BHN SPECTRUM INVESTMENTS, LLC]
[ ],
as the Strategic Investor Representative
C-48
Exhibit A
Definitions
As used in this Agreement, the following terms have the
following meanings:
2.5 GHz Spectrum means any
spectrum in the
2495-2690 MHz
band authorized by the FCC under licenses for BRS or EBS.
25% Transferee is defined in
Section 2.1(a)(vii).
Adjustment Date has the meaning set
forth in the Transaction Agreement.
Affiliate means, with respect to any
Person, any other Person directly or indirectly Controlling or
Controlled by or under direct or indirect common Control with
that Person; provided that neither the Company nor any
of its Subsidiaries shall be deemed to be an Affiliate of any
Equityholder.
Alternative New Securities is defined
in Section 3.5(c)(ii).
Alternative Units is defined in
Section 3.5(c)(ii)
Alternative Voting Securities is
defined in Section 3.5(c)(i).
Ancillary Agreements has the meaning
set forth in the Transaction Agreement.
Approval Equityholder is defined in
Section 2.7(e).
Audit Committee is defined in
Section 2.3(a).
Available Seats means, at any time,
(i) 13 less (ii) the number of Independent
Designees at such time less (iii) one, if there is
then a Eagle River Designee, less (iv) the number
of Equityholder Designees (excluding the Eagle River Designee),
if any, that were nominated by Equityholders other than the
Equityholders whose Board nomination rights are being adjusted
pursuant to Section 2.1 or Section 3.8 at such time.
Bankruptcy means, with respect to any
Person,
(i) to apply for, consent to, or acquiesce in, the
appointment of a trustee, receiver, sequestrator or other
custodian for that Person or any property of that Person, or
make a general assignment for the benefit of creditors;
(ii) in the absence of an application, consent or
acquiescence, permit or suffer to exist the appointment of a
trustee, receiver, sequestrator or other custodian for that
Person or for a substantial part of the property of that Person;
(iii) to permit or suffer to exist the commencement of any
bankruptcy, reorganization, debt arrangement or other case or
proceeding under any bankruptcy or insolvency law, or any
dissolution, winding up or liquidation proceeding, in respect of
that Person; or
(iv) take any corporate or company action authorizing, or
in furtherance of, any of the foregoing.
beneficial owner or beneficially
own has the meaning given in
Rule 13d-3
under the Exchange Act and a Persons beneficial ownership
of securities of any Person will be calculated in accordance
with the provisions of that Rule, except that for purposes of
determining beneficial ownership, no Person will be deemed to
beneficially own any security solely as a result of that
Persons execution of this Agreement or the Operating
Agreement.
BHN is defined in the preamble.
BHN Observer is defined in
Section 2.1(a)(iv)(C).
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BHN Original Shares means the number
of shares of Common Stock acquired by BHN on the Effective Date
pursuant to Section 4.1 of the Transaction Agreement,
subject to adjustment (i) as set forth in Section 4.3
of the Transaction Agreement and (ii) for Recapitalization
Events.
Board means the Board of Directors of
the Company.
BRS means Broadband Radio Service, a
radio service licensed by the FCC under Part 27 of
Title 47 of the Code of Federal Regulations, as amended and
interpreted by the FCC, which can be used to provide fixed and
mobile wireless services.
Business Day means any day that is not
a Saturday, a Sunday or other day that banks are required or
authorized by Law to be closed in New York City.
Business Purpose of the Company means
(i) holding a membership interest in the LLC,
(ii) serving as Managing Member of the LLC under the LLC
Agreement,
(iii) in its capacity as Managing Member of the LLC,
causing the LLC to
(A) develop, own and operate a Wireless Broadband Network
utilizing 2.5 GHz Spectrum, and other spectrum that is used
in an ancillary manner to such 2.5 GHz Spectrum, primarily
within the United States,
(B) develop, own and operate comparable networks using
wireless broadband technology outside the United States as
necessary to maintain the assets and operations outside the
United States in existence as of the date hereof, and
(C) market, promote and sell all types and categories of
wireless communications services and associated products
(whether now existing or developed and implemented in the
future), including services and products that are
(x) designed as products and services to be offered as the
products and services of the Wireless Broadband Network or
(y) bundled with or complementary to the products and
services of the Wireless Broadband Network,
(iv) engaging in such other business activities as may be
approved by the Board from time to time, and
(v) conducting activities incidental to the activities
described in clauses (i) through (iv) above.
Bylaws means the Bylaws of the Company
as in effect on the Effective Date, as they may be amended,
supplemented or otherwise modified from time to time in
accordance with their terms, the terms of the Charter and the
terms of this Agreement.
Change of Control means, with respect
to any Person, any of the following events:
(i) the sale of more than a majority (or in the case of the
Company or the LLC, the Specified Percentage) of the
consolidated assets of that Person and its Subsidiaries;
(ii) any merger, consolidation, share exchange,
recapitalization, sale, issuance, disposition, transfer of
capital stock or other transaction, in each case in which any
Person or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act) (other than, in the case of the
Company or the LLC, Sprint, Intel, the Strategic Investors and
their respective Permitted Transferees and Permitted Designees,
singly or in a group) acquires beneficial ownership of more than
a majority (or, in the case of the Company or the LLC, the
Specified Percentage) of either
(A) the then-outstanding shares of that Persons
common stock or equivalent securities (determined on an
as-converted basis), or
(B) the combined voting power of the then-outstanding
voting securities of that Person entitled to vote generally in
the election of directors; or
(iii) during any period of 24 consecutive months, a
majority of the members of the board of directors or other
equivalent governing body of such Person cease to be composed of
individuals (A) who
C-50
were members of that board or equivalent governing body on the
first day of such period, (B) whose election or nomination
to that board or equivalent governing body was approved by
individuals referred to in clause (A) above constituting at
the time of such election or nomination at least a majority of
that board or equivalent governing body or (C) whose
election or nomination to that board or other equivalent
governing body was approved by individuals referred to in
clauses (A) and (B) above constituting at the time of
such election or nomination at least a majority of that board or
equivalent governing body; provided, however, that, in
the case of the Company, a member of the Board who differs from
the individual who was a member of the Board on the first day of
the applicable period will be deemed to have been a member on
the first day of the applicable period if such member was
nominated or otherwise designated by the same Equityholder as
appointed the original member in accordance with
Section 2.1.
Charter means the Restated Certificate
of Incorporation of the Company, as in effect on the Effective
Date and as it may be amended, supplemented or otherwise
modified from time to time in accordance with its terms and the
terms of this Agreement.
Class A Common Stock means
Class A common stock, par value $0.0001 per share, of the
Company, which is entitled to the voting and other rights
described in the Charter.
Class B Common Stock means
Class B common stock, par value $0.0001 per share, of the
Company, which is entitled to the voting and other rights
described in the Charter.
Clearwire is defined in the recitals.
Clearwire Sub LLC is defined in the
recitals.
Closing has the meaning set forth in
the Transaction Agreement.
Code means the Internal Revenue Code
of 1986, as amended from time to time.
Comcast is defined in the preamble.
Common Stock means any and all classes
of the Companys common stock as authorized pursuant to the
Charter, including the Class A Common Stock and the
Class B Common Stock.
Company is defined in the preamble.
Compensation Committee is defined in
Section 2.3(c).
Compliance Certificate is defined in
Section 2.13(b).
Compliance Notice is defined in
Section 2.13(a).
Confidential Information is defined in
Section 4.7(c).
Consenting Equityholder is defined in
Section 2.7(c).
Control (including the correlative
terms Controlling, Controlled
by and under common Control with)
means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of
a Person, whether through the ownership of voting securities, by
contract or otherwise.
Controlled Affiliate of an
Equityholder means
(i) each direct or indirect Subsidiary of that Equityholder
and of that
Equityholders Parent,
(ii) any Affiliate of the Equityholder that the
Equityholder (or its Parent) can directly or indirectly
unilaterally cause to take or refrain from taking any of the
actions required, prohibited or otherwise restricted by this
Agreement; and
(iii) such Equityholders Parent.
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provided that neither the Company nor any of it
Subsidiaries will be deemed to be a Controlled Affiliate of any
Equityholder.
Director means any member of the Board.
Eagle River is defined in the preamble.
Eagle River Designee is defined in
Section 2.1(a)(ii).
Eagle River Observer is defined in
Section 2.1(a)(ii)(B).
Eagle River Original Shares means
38,557,957 shares of Common Stock, as adjusted for
Recapitalization Events.
EBS means Educational Broadband
Service, a fixed or mobile service, the licensees of which are
educational institutions or non-profit educational
organizations, and intended primarily for video, data, or voice
transmissions of instructional, cultural, and other types of
educational material licensed by the FCC under Part 27 of
Title 47 of the Code of Federal Regulations, as amended and
interpreted by the FCC.
Effective Date is defined in the
preamble.
Equity Securities means any and all
shares of common stock of the Company and any securities issued
in respect thereof, including
(i) Common Stock,
(ii) securities of the Company convertible into, or
exchangeable for, shares of Common Stock, and options, warrants
or other rights to acquire shares of Common Stock; and
(iii) any securities issued in substitution for the
securities described in clauses (i) and (ii) above in
connection with any Recapitalization Event.
Equityholder has the meaning set forth
in the recitals; provided that, for purposes of
Sections 2.1(b), 2.1(g), 2.1(h) and 2.3(d) only, the term
Equityholder, when used in reference to a Strategic
Investor, will be deemed to refer to the Strategic Investor
Group.
Equityholder Designees means,
collectively, the Director(s), including the Investor
Independent Designee, that each Equityholder is entitled to
nominate pursuant to Section 2.1(a).
Exchange Act means the Securities
Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
Excluded Transfer is defined in
Section 3.3(g).
Existing Intel Shares means the shares
of Class A Common Stock issued to Intel in the Merger (and
any securities issued with respect to such shares in all
subsequent Recapitalization Events).
GAAP means generally accepted
accounting principles, as in effect in the United States of
America from time to time.
Google is defined in the preamble.
Guaranty means the Parent Agreement
attached to this Agreement as Exhibit G.
Hedging Transactions means engaging in
short sales, zero cost collars, equity swaps, prepaid variable
forward contracts, or the purchase and sale of puts and calls or
other derivative securities, so long as (i) the applicable
Equityholder retains beneficial ownership of the Equity
Securities underlying such Hedging Transactions within the
meaning of
Rule 13d-3
of the Exchange Act and (ii) such Hedging Transactions are
not permitted to be settled in securities, and are settled
solely in cash.
Holding Company Transfer is defined in
Section 3.12.
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Incentive Plan means any equity
incentive or similar plan or agreement under which the Company
may issue shares of Class A Common Stock or other Equity
Securities to existing and former directors, officers, employees
and other Persons providing services to the Company and its
Subsidiaries from time to time.
Indebtedness of the Company or any of
its Subsidiaries means, without duplication, (a) all
obligations for borrowed money (whether by loan, the issuance
and sale of debt securities or the sale of property to another
Person subject to an understanding or agreement, contingent or
otherwise, to repurchase such property from such Person),
(b) all obligations evidenced by bonds, debentures, notes
or similar instruments, (c) all obligations under
conditional sale or other title retention agreements relating to
property acquired by the Company or any of its Subsidiaries,
(d) all obligations in respect of the deferred purchase
price of property or services (excluding accounts payable
incurred in the ordinary course of business), (e) all
Indebtedness of others secured by (or for which the holder of
such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any lien on property owned or
acquired by the Company or any of its Subsidiaries, whether or
not the Indebtedness secured thereby has been assumed,
(f) all guarantees by the Company or any Subsidiary of
Indebtedness of others, (g) all capital lease obligations,
(h) all obligations, contingent or otherwise, as an account
party in respect of letters of credit and letters of guaranty,
(i) all obligations, contingent or otherwise, in respect of
bankers acceptances and (j) any other obligation, the
incurrence of which is subject to restriction under any Sprint
Senior Debt Agreement. However, Indebtedness does not include a
draw-down on a revolving line of credit that has been the
subject of a Revolver Quarterly Notice unless the Company
intends to draw an amount on such line of credit in excess of
the amount set forth in such Revolver Quarterly Notice.
Independent Designee is defined in
Section 2.1(a).
Independent Director means an
independent director as that term is used in the
listing rules or requirements of NASDAQ or any other listing
rules or requirements, if applicable, and any rules or
requirements under Law.
Initial Independent Designee is
defined in Section 2.1(a).
Initiating Equityholder is defined in
Section 3.8(a).
Intel is defined in the preamble.
Intel Agreement has the meaning set
forth in the Transaction Agreement.
Intel Designee is defined in
Section 2.1(a).
Intel Observer is defined in
Section 2.1(a)(iii)(C).
Intel Original Shares means the number
of shares of Common Stock acquired by Intel on the Effective
Date pursuant to Section 4.1 of the Transaction Agreement,
subject to adjustment (i) as set forth in Section 4.3
of the Transaction Agreement and (ii) for Recapitalization
Events.
Intel Restricted Entity means any of
the following (including any Controlled Affiliate of the
following and any successor (whether by merger, operation of law
or otherwise) to any of the following or any of their respective
Controlled Affiliates): Vodafone Group, NTT DoCoMo, Inc.,
AT&T Inc., Verizon Communications Inc. and Verizon Wireless.
Interest Notice is defined in
Section 3.3(a).
Investor Independent Designee is
defined in Section 2.1(a)(v).
Investor Securities Holding Company
means any entity (other than the Company or any of its
Subsidiaries) that (i) is taxable as a corporation for
U.S. federal income tax purposes, (ii) holds no
material assets other than an equal number of Units and shares
of Class B Common Stock, (iii) at all times since its
existence has held no material assets other than assets
transferred to or from the LLC (and earnings thereon) and an
equal number of (A) Units and (B) either
(1) shares of Class B Common Stock or (2) Voting
Units (as defined in the Operating Agreement), and (iv) has
conducted no business or other activities other than those
related to its ownership of such Units and Class B Common
Stock.
C-53
Law means any applicable foreign or
domestic, federal, state or local, statute, ordinance, rule,
regulation, code, license, permit, authorization, approval,
consent, order, judgment, decree, injunction or requirement of
any Governmental Authority or any arbitration tribunal. For the
purposes of this definition, Governmental
Authority means any (i) nation, state, county,
city, town, village, district or other jurisdiction of any
nature; (ii) federal, state, local, municipal, or other
government; (iii) governmental or quasi-governmental
authority of any nature; or (iv) body exercising, or
entitled to exercise, any administrative, executive, judicial,
legislative, police, regulatory or taxing power or authority of
any nature.
LLC is defined in the recitals.
Merger is defined in the recitals.
NASDAQ means The NASDAQ Stock Market,
LLC or other stock exchange or securities market on which the
Common Stock is at any time listed or quoted.
New Securities is defined in
Section 3.5(f).
New Securities Notice Period is
defined in Section 3.5(b).
Nominating Equityholder is defined in
Section 2.1(a)(x).
Non-Equityholder Transferee is defined
in Section 3.1(a).
Non-Initiating Equityholder is defined
in Section 3.8(a).
Non-Preemptive Rights Securities is
defined in Section 3.7(c)(iv).
Non-Qualifying Equityholder is defined
in Section 2.9(c).
Non-Selling Equityholder is defined in
Section 3.3(a).
Notice of Issuance is defined in
Section 3.5(b).
Observer is defined in
Section 2.1(a)(iv)(D).
Observer Restrictions is defined in
Section 2.1(a)(xii).
Observer Rights is defined in
Section 2.1(a)(xii).
Open Market Transfer means a Transfer
that is made in accordance with Rule 144 under the Act or
in a public offering registered under the Securities Act.
Operating Agreement means the Amended
and Restated Operating Agreement of the LLC, dated as of
[ ],
2008, as it may be amended, supplemented or otherwise modified
from time to time in accordance with its terms and the terms of
this Agreement.
Original Operating Agreement means the
Operating Agreement of the LLC, dated as of
[ ],
2008.
Original Shares means, as applicable,
any or all of the Sprint Original Shares, the Strategic Investor
Original Shares, the Intel Original Shares, the Eagle River
Original Shares or the BHN Original Shares.
Other Business Activities means
business activities of the Company that are (a) approved by
the Board in accordance with Section 2.6(b)(iii) and
(b) not conducted by or through the LLC or its Subsidiaries.
Other Sprint Debt Agreement is defined
in Section 2.13(i).
Par Value means, with respect to
shares of Class A Common Stock and Class B Common
Stock, $0.0001 per share, as adjusted for Recapitalization
Events.
Parent means, with respect to Sprint,
[ ]; with respect to Intel,
[ ]; with respect to Comcast,
[ ]; with respect to Google,
[Google]; with respect to TWC, [ ];
and with respect to BHN, [Advance/Newhouse Partnership or,
except for purposes of Section 4.1, Bright House Networks,
LLC]; and, in each case, any successor (whether by merger,
operation of law or otherwise) thereto; provided that if
any
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Equityholder effects a Spin-Off Transaction, following such
Spin-Off Transaction the Parent of the Person owning the Equity
Securities and Units that have been spun off will be deemed to
be the Spin-Off Entity.
Percentage Interest means, at the time
of determination with respect to any Person, the voting power
represented by the Voting Securities then collectively held by
that Person and its Permitted Transferees and Permitted
Designees (or, in the case of a Person that is not an
Equityholder, its Affiliates) as a percentage of the voting
power attributable to all Voting Securities then outstanding;
provided that the Percentage Interest of Intel will be
calculated as though Intel did not hold any Existing Intel
Shares (i.e., the Existing Intel Shares will be counted
in the denominator, but not in the numerator, in any calculation
of Intels Percentage Interest); and provided,
further, that any Equity Securities issued by Clearwire
under Section 10.1(b)(iv)(E), (F), (H) or (I) of
the Transaction Agreement or in connection with the transactions
described in Items 2, 3, 4 and 8 of
Section 6.13(c)(ii) or Item 4 of
Section 10.1(b)(iv) of the Clearwire Disclosure Schedules
(as defined in the Transaction Agreement), including those
issued upon exercise, conversion or exchange of such Equity
Securities will be deemed not to be outstanding for the purpose
of calculating an Equityholders Percentage Interest.
Permitted Designee means, with respect
to any Equityholder, any direct or indirect wholly-owned
Subsidiary of the Parent of such Equityholder.
Permitted Transferee means,
(i) with respect to any Equityholder, the Parent of such
Equityholder or a direct or indirect wholly-owned Subsidiary of
the Parent of such Equityholder, (ii) in the case of any
Equityholder that is a member of the Strategic Investor Group,
another member of the Strategic Investor Group and (iii) in
the case of Eagle River, any of the members of Eagle River.
Notwithstanding the foregoing, a Permitted Transferee of the
Spinning Entity or any of its direct or indirect wholly-owned
Subsidiaries will not cease to qualify as a Permitted Transferee
as a result of a Spin-Off Transaction for so long as such
Permitted Transferee remains a direct or indirect wholly-owned
Subsidiary of the Spin-Off Entity.
Person means any individual,
corporation, limited liability company, limited or general
partnership, joint venture, association, joint-stock company,
trust, estate, unincorporated organization, government or any
agency or political subdivisions thereof.
Preemptive Right Pro Rata Share is
defined in Section 3.5(a).
Principal Equityholder means, at any
given time, whichever of Sprint, the Strategic Investor Group or
Intel holds the largest Percentage Interest; provided
that in no event shall any Equityholder be deemed the
Principal Equityholder if it (together with its Permitted
Transferees and Permitted Designees) holds a Percentage Interest
of less than 26%.
Proposed Transferee is defined in
Section 3.4(a).
Public Offering means an underwritten
public offering of securities of the Company under an effective
registration statement under the Securities Act or the sale of
securities of the Company on a bought-deal basis to a
broker-dealer who intends to distribute the acquired securities.
Public Offering Notice is defined in
Section 3.5(d)(i).
Qualifying Purchase is defined in
Section 3.7(b)(ii).
Qualifying Purchase Notice is defined
in Section 3.8(a).
Qualifying Purchase Securities is
defined in Section 3.8(a).
Reasonable Best Efforts means the
efforts that a prudent Person desirous of achieving a result
would use in similar circumstances to achieve that result as
expeditiously and as reasonably as possible.
Recapitalization Event means a stock
split, reverse stock split, combination, reclassification,
recapitalization, stock dividend or similar transaction.
Registered means a registration
effected by preparing and filing a registration statement in
compliance with the Securities Act (and any post-effective
amendments filed or required to be filed) and the declaration or
ordering of effectiveness of that registration statement.
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Registration Rights Agreement means
the Registration Rights Agreement, dated as
of ,
2008, among the Company and each of the Equityholders, as
amended from time to time.
Related Party Transaction means any
transaction between the Company or any of its Controlled
Affiliates, on the one hand, and any Equityholder, any Affiliate
of an Equityholder, or any director, officer, employee or
associate (as defined in
Rule 12b-2
promulgated under the Exchange Act) of the Company, an
Equityholder or any Affiliate of an Equityholder, on the other
hand.
Representative is defined in
Section 4.7(c).
Response Notice is defined in
Section 3.3(b).
Restricted Entity means, collectively,
the Intel Restricted Entities, the Strategic Investor Restricted
Entities and the Sprint Restricted Entities.
Revolver is defined in
Section 2.13(a).
Revolver Quarterly Notice is define in
Section 2.13(a).
Sale Securities is defined in
Section 3.4(a).
Securities Act means the Securities
Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
Securities Holding Company means any
Investor Securities Holding Company or a Sprint Securities
Holding Company.
Securities Holding Company Stockholder
is defined in Section 3.12(a).
Selling Equityholder is defined in
Section 3.3(a).
Simple Majority means a majority of
the Directors (or relevant group of Directors) (i) present
at a meeting that has been duly called and at which a quorum was
present at the time any matter is being voted on or (ii) to
the extent permissible under applicable Law, acting by written
consent.
Specified Percentage means a
percentage equal to 50% of the Percentage Interest of Sprint as
of the Adjustment Date.
Spinning Entity is defined in the
definition of Spin-Off Transaction.
Spin-Off Entity is defined in the
definition of Spin-Off Transaction.
Spin-Off Transaction means any pro
rata transfer by a Parent (such Parent, a Spinning
Entity) to its stockholders in a spin-off or similar
transaction of all of the capital stock of a Permitted
Transferee of such Spinning Entity owning directly or indirectly
all of the Equity Securities and Units beneficially owned by
such Spinning Entity and its Affiliates (the Spin-Off
Entity) that qualifies as a tax-free spin-off under
Section 355(c) of the Code; provided that in order
to be treated as a Spin-Off Transaction the Spin-Off Entity must,
(a) if the Parent of Sprint is the Spinning Entity, also
own directly or indirectly all or substantially all of the
wireless, voice and data services business conducted by Sprint
and its Controlled Affiliates using CDMA technology over
1.9 GHz PCS spectrum (or successor operational or
functional equivalent),
(b) if the Parent of Comcast, TWC or BHN is the Spinning
Entity, also own directly or indirectly all or substantially all
of its and its Controlled Affiliates cable division or
business (or successor or operational or functional equivalent),
(c) if the Parent of Intel is the Spinning Entity, also own
directly or indirectly all or substantially all of the business
comprising the mobility group of Intel and its Controlled
Affiliates as of the date of the Transaction Agreement (or
successor or operational or functional equivalent), or
(d) if the Parent of Google is the Spinning Entity, also
own directly or indirectly all or substantially all of its and
its Controlled Affiliates search division or business (or
successor or operational or functional equivalent).
C-56
Sprint is defined in the preamble.
Sprint Adverse Change of Control means
(i) the acquisition of or beneficial ownership by a
Restricted Entity, in each case on or after the date of the
Transaction Agreement, of securities representing 50% or more of
the votes entitled to be cast in the election of directors of
Sprint or (ii) at any time prior to the later of
(x) two years following the date on which Sprint files a
petition for reorganization under the Bankruptcy Code and
(y) the date upon which (1) an order is entered in any
bankruptcy reorganization case of Sprint that confirms a plan or
reorganization or liquidation or (2) Sprint files a
Chapter 7 liquidation case under the Bankruptcy Code, a
majority of the Sprint Designees cease to be individuals who
(A) were Sprint Designees prior to such Bankruptcy,
(B) are then current or former employees of Sprint or any
of its Controlled Affiliates or (C) were directors of
Sprint or any of its Controlled Affiliates immediately prior to
the Bankruptcy.
Sprint Affiliate Management Agreement
means an agreement entered into between Sprint or its Affiliates
and another Person for the purpose of engaging the other Person
to both (i) manage portions of a CDMA mobile wireless
communications network using the Persons own network
equipment and (ii) sell mobile wireless communications
services as the agent of Sprint under the Sprint designated
brand.
Sprint Contribution is defined in the
recitals.
Sprint Designee is defined in
Section 2.1(a).
Sprint HoldCo LLC is defined in the
recitals.
Sprint Original Shares means the
number of shares of Common Stock acquired by Sprint on the
Effective Date in connection with the transactions contemplated
by the Transaction Agreement, as adjusted for Recapitalization
Events.
Sprint Restricted Entity means any of
the following (including any Controlled Affiliate of the
following and any successor (whether by merger, operation of law
or otherwise) to any of the following or any of their Controlled
Affiliates): AT&T Inc., Verizon Communications Inc., and
Verizon Wireless.
Sprint Securities Holding Company
means any entity (other than the Company or any of its
Subsidiaries) that (i) is taxable as a corporation for
U.S. federal income tax purposes, (ii) holds no
material assets other than an equal number of Units and shares
of Class B Common Stock, (iii) at all times since its
existence has held no material assets other than interests in
Sprint, assets transferred to or from the LLC (and earnings
thereon), and an equal number of Units and shares of
Class B Common Stock and (iv) has conducted no
business or other activities other than those related to its
ownership of such Units and shares of Class B Common Stock
and interests in Sprint.
Sprint Senior Debt Agreements means,
collectively, (i) the Credit Agreement dated as of
December 19, 2005, as amended, among Sprint Nextel
Corporation, Nextel Communications, Inc., Sprint Capital
Corporation, the banks and other financial institutions and
lenders that are parties thereto, and JPMorgan Chase Bank, N.A.,
as Administrative Agent (or any successor agreement),
(ii) the Indenture dated as of October 1, 1998 among
Sprint Capital Corporation, Sprint Corporation and Bank One, NA,
as trustee, together with all supplements thereto (or any
successor agreement), (iii) the Credit Agreement dated as
of March 23, 2007 between Sprint Nextel Corporation and
Export Development Canada (or any successor agreement) and
(iv) any other similar instrument (or series of related
instruments) evidencing or governing indebtedness for money
borrowed or guarantees of Sprint or any of its Subsidiaries in
an amount equal to or greater than $100,000,000 (or any
successor instrument); provided that (x) any
indebtedness borrowed or issued pursuant to a base
indenture or credit agreement with multiple facilities, series
or tranches shall be aggregated for purposes of this
calculation, and (y) the amount of indebtedness for
purposes of this calculation under any revolving facility shall
be the maximum amount available to be borrowed under such
facility.
Sprint Sub LLC is defined in the
recitals.
Standstill Equityholders is defined in
Section 3.7(d)(ii).
Standstill Period is defined in
Section 3.7(d)(i).
C-57
Strategic Investor is defined in the
preamble.
Strategic Investor Agreement means
that certain Strategic Investor Agreement entered into among the
Strategic Investors as of the date hereof, as amended from time
to time.
Strategic Investor Designee is defined
in Section 2.1(a).
Strategic Investor Group means,
collectively, (i) each Strategic Investor and
(ii) each Permitted Transferee and Permitted Designee of a
Strategic Investor.
Strategic Investor Observer is defined
in Section 2.1(a)(iv)(D).
Strategic Investor Original Shares
means the number of shares of Common Stock acquired by the
Strategic Investor Group on the Effective Date in connection
with the transactions contemplated by the Transaction Agreement,
subject to adjustment (i) as set forth in Section 4.3
of the Transaction Agreement, and (ii) for Recapitalization
Events.
Strategic Investor Representative
means ,
who was appointed by the Strategic Investor Group pursuant to
the Strategic Investor Agreement to take all actions designated
herein to be performed by the Strategic Investor Group, as a
group, in accordance with the terms set forth in the Strategic
Investor Agreement.
Strategic Investor Restricted Entity
means any of the following (including any Controlled Affiliate
of the following and any successor (whether by merger, operation
of law or otherwise) to any of the following or any of their
Controlled Affiliates): AT&T Inc., Verizon Communications
Inc., Verizon Wireless, DirectTV, Inc., Echostar Communications
Corporation and Microsoft Corporation.
Subject Stock is defined in
Section 3.3(a).
Subsidiary means, with respect to any
entity,
(i) any corporation of which a majority of the securities
entitled to vote generally in the election of directors thereof,
at the time as of which any determination is being made, are
owned by such entity, either directly or indirectly, and
(ii) any joint venture, general or limited partnership,
limited liability company or other legal entity in which such
entity is the record or beneficial owner, directly or
indirectly, of a majority of the voting interests or the general
partner or managing member.
Tag-Along Equityholder is defined in
Section 3.4(a).
Tag-Along Notice is defined in
Section 3.4(a).
Tax or Taxes means
any federal, state, local, or foreign taxes, assessment, duties,
fees, levies, imposts, deductions, or withholdings, including
income, gross receipts, ad valorem, value added, excise, real or
personal property, asset, sales, use, license, payroll,
transaction, capital, net worth, franchise taxes, estimated,
withholding, employment, social security, workers compensation,
environmental, utility, severance, production, unemployment
compensation, occupation, premium, windfall profits, transfer,
gains, or other tax or governmental charge of any nature
whatsoever, imposed by any taxing authority of any country, and
any liabilities with respect thereto, including any penalties,
additions to tax, fines or interest thereon and includes any
liability for Taxes of another person by contract, as a
transferee or successor, under
Regulation Section 1.1502-6
or analogous state, local or foreign Law provision or otherwise.
Transaction Agreement is defined in
the recitals.
Transaction Documents means this
Agreement, the Transaction Agreement, the Operating Agreement,
the Registration Rights Agreement, the Guaranty and the
Ancillary Agreements.
Transactions Committee is defined in
Section 2.3(d).
Transfer (including the terms
Transferring and
Transferred) means, directly or indirectly,
in one transaction or a series of related transactions, to sell,
transfer, assign, or similarly dispose of, either voluntarily or
involuntarily, or to enter into any contract, option or other
arrangement or understanding with respect to the
C-58
sale, transfer, assignment, or similar disposition of, any
Equity Securities beneficially owned by a Person or any interest
in any Equity Securities beneficially owned by a Person
(including any arrangement to provide another Person the
economic performance of all or any portion of such Equity
Securities (including by means of any option, swap, forward or
other contract or arrangement the value of which is linked in
whole or in part to the value of such Equity Securities));
provided that a Transfer will not include (i) any
Hedging Transaction or (ii) any pledge, encumbrance or
hypothecation of any Equity Securities incurred or effected in
connection with a financing transaction unless and until such
Equity Securities are Transferred as a result of a foreclosure
or similar action, so long as the following conditions are
satisfied: (x) in connection with any such pledge,
encumbrance or hypothecation, the applicable Equityholder will
cause the pledgee or other lienor with respect to such Equity
Securities to hold such Equity Securities subject to this
Agreement (including, without limitation, Section 3.3 and
Section 3.4) and (y) without limiting the generality
of the foregoing, in the event of a foreclosure or similar
action the pledgee or other lienor will be required to comply,
and will comply, in all respects with this Agreement (including,
without limitation, by giving the notices and taking the other
actions required of a Selling Equityholder under
Sections 3.3 and 3.4 prior to any Transfer of such Equity
Securities). For the avoidance of doubt, each party hereto
agrees that a Change of Control of a Parent, or sale or transfer
of other securities of a Parent, will not be deemed a Transfer
of Equity Securities hereunder.
Transfer Entities is defined in the
recitals.
Transferee means any Person to whom
any Equity Securities are Transferred.
Transferor means any Person that
Transfers Equity Securities.
TWC is defined in the preamble.
Unfilled Director Seat is defined in
Section 2.1(a)(x).
Unit means a limited liability company
unit in the LLC.
Voting Securities means, at any time,
any class of Equity Securities of the Company that are then
entitled to vote generally in the election of Directors.
WiMAX means the IEEE
802.16e-2005
Wave 2 conforming technology standard, including future
evolution thereof (as defined by the WiMAX Forum).
WiMAX Forum means the industry-led,
non-profit corporation formed to promote and certify
compatibility and interoperability of broadband wireless
products using industry standard IEEE
802.16e-2005,
including future evolutions thereof.
Wireless Broadband Network is defined
in the recitals.
Wireless Broadband Products and
Services means all types and categories of
wireless communications services and associated products
(whether now existing or developed and implemented in the
future) that are designed as products and services to be offered
as the products and services of the Wireless Broadband Network.
C-59
Exhibit B
Initial
Directors and Officers of the Company
C-60
Exhibit C
Terms of
D&O Insurance
The Company will maintain a minimum amount of total directors
and officers liability insurance of $150 million. These
limits will have a minimum of $50 million dedicated to Side
A personal asset protection with drop down features. Coverage
terms will be no less broad than what is currently contained in
the existing Clearwire directors and officers liability
insurance program. Carrier credit rating should be rated at A-
or better. The securities retention should be no more than
$2 million.
C-61
Exhibit D
Form of
Compliance Certificate
Pursuant to Section 2.13(b) of the Equityholders
Agreement, dated as
of ,
2008 (the Equityholders Agreement), by
and
among ,
the undersigned hereby certifies as follows:
1. The proposed Indebtedness or other action to be taken by
the Company and its Subsidiaries as set forth in the [Compliance
Notice/Revolver Quarterly Notice] attached to this Certificate
as Exhibit A will not violate, cause a default or event of
default under, or result in the imposition of a lien on any
assets or property of the Company or any of its Subsidiaries
under, any of the covenants under the Sprint Senior Debt
Agreements (a correct and complete list of which is attached to
this Certificate as Exhibit B).
2. All capitalized terms used in this certificate
Certificate and not defined in this
Certificate will have the meanings assigned to those terms in
the Equityholders Agreement.
SPRINT NEXTEL CORPORATION
Name:
|
|
|
|
Title:
|
Chief Executive/Financial Officer
|
Dated ,
20
C-62
Exhibit E
Form of
Non-Equityholder Transferee Agreement
Under the Equityholders Agreement, dated as
of ,
2008 (the Equityholders Agreement), by
and
among ,
the undersigned agrees that, having acquired Equity Securities
from
(the Transferor) as permitted by the terms of
the Equityholders Agreement, the undersigned will comply
with, and assumes the obligations of the Transferor under,
Section 3.1 of the Equityholders Agreement with
respect to the Transferred Equity Securities. Capitalized terms
used but not defined in this Agreement have the meanings
assigned to them in the Equityholders Agreement.
Listed below is information regarding the Equity Securities:
Number and Class of Equity Securities
IN WITNESS WHEREOF, the undersigned has executed this Assumption
Agreement as
of ,
20 .
[NAME OF TRANSFEREE]
Name:
Acknowledged by:
C-63
Exhibit F
Assignment
and Assumption Agreement
Under the Equityholders Agreement, dated as
of ,
2008 (the Equityholders Agreement), by
and
among ,
(the Transferor) assigns to the undersigned
the rights that may be assigned under the Equityholders
Agreement with respect to the Equity Securities being
Transferred, and the undersigned agrees that, having acquired
Equity Securities as permitted by the terms of the
Equityholders Agreement, the undersigned assumes the
obligations of the Transferor under the Equityholders
Agreement with respect to the Transferred Equity Securities.
Capitalized terms used but not defined in this Agreement have
the meanings assigned to them in the Equityholders
Agreement.
Listed below
is information regarding the Equity Securities:
Number and
Class of Equity Securities
IN WITNESS WHEREOF, the undersigned has executed this Assumption
Agreement as
of ,
20 .
[NAME OF TRANSFEREE]
Name:
Acknowledged by:
Name:
C-64
Exhibit G
FORM OF
PARENT AGREEMENT
This AGREEMENT, dated as
of ,
2008 (this Agreement), is made by
[Parent Corporation],
a corporation
(Guarantor), for the benefit of [NewCo
Corporation], a Delaware corporation
(NewCo), [NewCo LLC], a Delaware
limited liability company (NewCo LLC),
[Sprint],
a (Sprint),
[Eagle River Holdings, LLC],
a Washington
limited liability company (Eagle
River), [Intel],
a
(Intel), [Comcast],
a (Comcast),
[Time Warner Cable]
a (TWC),
[Google Inc.], a Delaware corporation
(Google), and [BHN Spectrum
Investments, LLC] a Delaware limited liability company
(BHN) (together with their respective
Permitted Transferees and Permitted Designees, collectively, the
Beneficiaries).4
RECITALS
[WHEREAS, ,
[a limited
liability company] [a corporation] and a [direct][indirect]
wholly owned subsidiary of Guarantor (together with its
Permitted Transferees and Permitted Designees, the
Guaranteed Party, provided that
no Securities Holding Company (as defined in the
Equityholders Agreement) shall be a Guaranteed Party from
and after the consummation of a Holding Company Transfer (as
defined in the Equityholders Agreement) pursuant to
Section 3.12 of the Equityholders Agreement), has
entered into that certain Equityholders Agreement, dated
as
of ,
2008, by and among NewCo Corporation, [Sprint], [Eagle River
Holdings, LLC], [Intel], [Comcast], [Google Inc.], [Time Warner
Cable], and [BHN Spectrum Investments,
LLC]4
(as amended, amended and restated, supplemented or otherwise
modified from time to time, the Equityholders
Agreement) and that certain Amended and Restated
Operating Agreement of NewCo LLC, dated as of
,
2008, by and among NewCo LLC, NewCo Corporation, [Sprint],
[Intel], [Comcast], [Time Warner Cable] and [Bright
House]4
(as amended, amended and restated, supplemented or otherwise
modified from time to time, the Operating
Agreement, and together with the
Equityholders Agreement, the Guaranteed
Agreements).]5
Capitalized terms used but not otherwise defined herein will
have the meanings given them in the Guaranteed Agreements.
4 The
name of the Guaranteed Party should be removed from this list.
5 This
is the appropriate recital for all parties other than Google.
For Google, use the
following: [WHEREAS, Guarantor has
entered into that certain Equityholders Agreement, dated
as
of ,
2008, by and among NewCo Corporation, [Sprint], [Intel],
[Comcast], [Time Warner Cable], [BHN Spectrum Investments, LLC]
and Guarantor (as amended, amended and restated, supplemented or
otherwise modified from time to time, the
Equityholders Agreement or the
Guaranteed Agreement).] In addition,
Guaranteed Agreements should be made singular
throughout.
C-65
NOW THEREFORE, in consideration of the premises in this
Agreement and in the Guaranteed Agreements, Guarantor agrees as
follows:
AGREEMENT
1. Guarantee. Guarantor irrevocably and
unconditionally guaranties the prompt and complete performance
of any and all obligations of [the Guaranteed
Party]6under
the Guaranteed Agreements (the Guaranteed
Obligations). Guarantor further agrees to pay each
Beneficiary for any and all out-of-pocket expenses reasonably
incurred by the Beneficiary in enforcing its rights against the
Guaranteed Party under this Agreement, including any and all
reasonable attorneys costs and expenses incurred in
connection therewith. To the extent that the Guaranteed Party
fails to perform any of the Guaranteed Obligations on a timely
basis pursuant to the terms and conditions of the Guaranteed
Agreements, Guarantor will promptly cause the Guaranteed Party
to perform such Guaranteed Obligations or will perform such
Guaranteed Obligations.
2. Guarantee Absolute. The guarantee
under this Agreement is and will be an absolute, irrevocable and
continuing guarantee of performance (and not merely of
collection) of the Guaranteed Obligations, when and as such
Guaranteed Obligations are to be performed, and Guarantors
obligations and liabilities under this Agreement will not be
released, reduced or discharged except by the complete
performance of all Guaranteed Obligations. Guarantor further
agrees that this Agreement will continue to be effective or be
reinstated (if a release or discharge has occurred), as the case
may be, if at any time the Guaranteed Obligations or any portion
thereof will be rescinded or avoided (whether as a result of any
bankruptcy or otherwise), and any prior release or discharge of
this Agreement will be without effect. Guarantor hereby agrees
to defer the exercise of any claims it has or may acquire
against the Guaranteed Party in respect of the Guaranteed
Obligations, including rights of exoneration, reimbursement and
subrogation, until the Guaranteed Obligations have been
completely performed.
3. Waiver. The Guarantor expressly waives
each and every defense that would otherwise operate to
eliminate, impair, condition or restrict the liabilities and
obligations of a guarantor or surety with respect to the
Guaranteed Obligations, other than any defense that Guarantor
would be entitled to raise if Guarantor were the sole primary
obligor of the Guaranteed Obligations (it being understood and
agreed that nothing set forth herein will be deemed to preclude
the Guaranteed Party from asserting any defense that it might
have with respect to the Guaranteed Obligations). Without
limiting the foregoing, Guarantor hereby waives presentment,
demand and protest; notice of acceptance of this Agreement;
notice of the creation of any Guaranteed Obligations, of any
default and of protest, dishonor, or other action taken in
reliance hereon; all demands and notices of any kind in
connection with this guarantee of the Guaranteed Obligations;
and all diligence in collection or protection of or realization
upon any of the Guaranteed Obligations. In furtherance, and not
in limitation, of the foregoing, each of the Guarantor and the
Guaranteed Party acknowledges and agrees that the Beneficiaries
may partially or fully release the Guaranteed Party or any one
or more other guarantors from liability with respect to the
Guaranteed Obligations and that no action will impair, restrict,
cancel or otherwise limit any of Guarantors liabilities
and obligations under this Agreement or the rights of the
Beneficiaries for performance of the Guaranteed Obligations by
Guarantor.
4. Acknowledgment. Guarantor is entering
into this Agreement with the understanding that this Agreement
is a material condition to the Beneficiaries entering into the
Guaranteed Agreements.
5. Duration; Termination. This Agreement
will take effect upon the date first above written and will
continue in full force and effect and be binding in accordance
with its terms with respect to a Guarantor until the date on
which no Guaranteed Party of such Guarantor has a continuing
obligation under the Guaranteed Agreements. This Agreement is
irrevocable.
6 In
the agreement entered into by Google replace bracketed text
with: [Guarantors Permitted Transferees and Permitted
Designees (collectively, the Guaranteed
Party, provided that no Securities Holding
Company shall be a Guaranteed Party from and after the
consummation of a Holding Company Transfer pursuant to
Section 3.12 of the Equityholders Agreement]
C-66
6. Miscellaneous.
a. Controlling Law; Amendments. This
Agreement will be governed by and construed and enforced in
accordance with the internal laws of the State of Delaware
without reference to its choice of law rules. This Agreement may
not be amended, modified or supplemented except by written
agreement of the parties.
b. Assignment; Successors in
Interest. This Agreement may not be assigned by
the Guarantor without the prior written consent of each
Beneficiary, which consent may be given or withheld by any
Beneficiary in its sole discretion; provided that
Guarantor may assign this Agreement (i) to the Spin-Off
Entity of the Guaranteed Party in connection with a Spin-Off
Transaction and (ii) to any Person that has acquired
beneficial ownership of more than 50% of the outstanding voting
securities of a Guarantor in a single transaction or a series of
related transactions, as long as, immediately following such
assignment, the Guaranteed Party continues to be a direct or
indirect wholly owned Subsidiary of the Guarantor (or its
successor). This Agreement will be binding on and will inure to
the benefit of the parties and their successors and permitted
assigns, and any reference to a party will also be a reference
to the successors (whether by merger, operation of law or
otherwise) or permitted assigns of that party. This Agreement is
entered into solely for the benefit of the Beneficiaries and
their respective successors and permitted assigns, and no other
Person may exercise any right or enforce any obligation under
this Agreement.
c. Severability. Any provision of this
Agreement that is prohibited or unenforceable in any
jurisdiction will, as to the jurisdiction, be ineffective to the
extent of the prohibition or unenforceability without
invalidating the remaining provisions of this Agreement, and any
prohibition or unenforceability in one jurisdiction will not
invalidate or render unenforceable the provision in any other
jurisdiction. If permitted by law, each party waives any
provision of law that renders any provision prohibited or
unenforceable in any respect.
d. Addresses for Notices. All notices,
communications and deliveries under this Agreement will be
provided as specified in Section 11.5 of the Operating
Agreement.7
e. Jurisdiction. No suit, action or
proceeding with respect to this Agreement may be brought in any
court or before any similar authority other than in a court of
competent jurisdiction in the State of Delaware, and the parties
to this Agreement submit to the exclusive jurisdiction of those
courts for the purpose of a suit, proceeding or judgment. Each
party to this Agreement irrevocably waives any right it may have
had to bring an action in any other court, domestic or foreign,
or before any similar domestic or foreign authority. Each of the
parties to this Agreement irrevocably and unconditionally waives
trial by jury in any legal action or proceeding (including any
counterclaim) in relation to this Agreement.
[Signature
Page Follows]
7 In
the agreement entered into by Google this provision must be
amended because Google is not a party to the Operating Agreement.
C-67
IN WITNESS WHEREOF, the undersigned has caused this Agreement to
be duly executed and delivered by its duly authorized officer as
of the day and year first above written.
[GUARANTOR]
Name:
C-68
ANNEX D
EAGLE
RIVER VOTING AGREEMENT
Annex D
EXECUTION
COPY
VOTING
AGREEMENT
VOTING AGREEMENT, dated as of May 7, 2008 (this
Agreement), by and among Sprint Nextel
Corporation, a Kansas corporation (Sprint),
Clearwire Corporation, a Delaware corporation (the
Company), Comcast Corporation, a Pennsylvania
corporation, Time Warner Cable Inc., a Delaware corporation,
Bright House Networks, LLC , a Delaware limited liability
company, Google Inc., a Delaware corporation, and Intel
Corporation, a Delaware corporation (each of Comcast
Corporation, Time Warner Cable Inc., Bright House Networks, LLC,
Google Inc. and Intel Corporation an Investor
and collectively the Investors) and Eagle
River Holdings, LLC, a Washington limited liability company
(Stockholder).
RECITALS
A. Stockholder beneficially owns (as such term
is defined in
Rule 13d-3
promulgated under the Exchange Act) and is entitled to dispose
of and to vote the number of shares of Class A common
stock, par value $.0001 per share (Class A Common
Stock), and Class B common stock, par value
$.0001 per share (Class B Common Stock),
of the Company set forth opposite the Stockholders name on
Schedule A to this Agreement (the Subject
Shares).
B. Concurrently with the execution and delivery of this
Agreement, the Company, Sprint, and the Investors are entering
into a Transaction Agreement and Plan of Merger (as amended from
time to time, the Transaction Agreement)
pursuant to which the parties to the Transaction Agreement will
perform their obligations thereunder in accordance with the
terms set forth therein.
C. As a condition to entering into the Transaction
Agreement, Sprint and the Investors have required that
Stockholder enter into this Agreement and Stockholder desires to
enter into this Agreement to induce Sprint and the Investors to
enter into the Transaction Agreement.
D. Capitalized terms not defined in this Agreement have the
meaning ascribed to them in the Transaction Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
premises, representations, warranties, covenants and agreements
contained in this Agreement, the parties to this Agreement,
intending to be legally bound, agree as follows:
1. Stockholder Representations and Warranties.
Stockholder represents and warrants to the other parties as
follows:
(a) Authority. Stockholder is duly
organized, validly existing and in good standing under the laws
of the state of its organization. Stockholder has all requisite
legal power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated by this
Agreement. This Agreement has been duly authorized, executed and
delivered by Stockholder and constitutes a valid and binding
obligation of Stockholder enforceable in accordance with its
terms subject to the Bankruptcy Exception.
(b) No Conflicts.
(i) Except for compliance with the HSR Act and appropriate
filings by Stockholder under the Exchange Act no filing by
Stockholder with any governmental body or authority, and no
authorization, consent or approval of any other Person is
necessary for the execution of this Agreement by Stockholder or
the performance by Stockholder of the transactions contemplated
by this Agreement,
(ii) none of the execution and delivery of this Agreement
by Stockholder, the performance by Stockholder of its
obligations under this Agreement or compliance by Stockholder
with any of the provisions of this Agreement will
D-1
(A) conflict with or result in any breach of the
organizational documents of Stockholder,
(B) result in, or give rise to, a violation or breach of or
a default under (with or without notice or lapse of time, or
both) any of the terms of any contract, trust agreement, loan or
credit agreement, note, bond, mortgage, indenture, lease,
permit, understanding, agreement or other instrument or
obligation to which Stockholder is a party or by which
Stockholder or any of its Subject Shares or assets may be
bound or
(C) violate any applicable order, writ, injunction, decree,
judgment, statute, rule or regulation, and
(iii) no consent, approval, order, authorization or permit
of, or registration, declaration or filing with or notification
to, any Governmental Authority or any other Person is required
by or with respect to Stockholder in connection with the
execution and delivery of this Agreement by Stockholder or the
performance by Stockholder of Stockholders obligations
hereunder, except for (A) the filing with the SEC of any
Schedules 13D or 13G or amendments to Schedules 13D or 13G and
filings under Section 16 of the Exchange Act as may be
required in connection with this Agreement and the transactions
contemplated hereby and (B) such consents, approvals,
orders, authorizations, permits or filings the failure of which
to be obtained or made would not have a material adverse effect
on Stockholders ability to perform its obligations
hereunder.
(c) Subject
Shares. Schedule A sets forth, opposite
Stockholders name, the number of Subject Shares over which
Stockholder has record or beneficial ownership as of the date of
this Agreement. As of the date of this Agreement, Stockholder is
the record or beneficial owner of the Subject Shares denoted as
being owned by Stockholder on Schedule A and has the sole
power to vote and dispose of those Subject Shares. Other than
such Subject Shares, Stockholder does not own beneficially or of
record any Clearwire Capital Stock or any interest therein.
Stockholder has good and valid title to the Subject Shares
denoted as being owned by Stockholder on Schedule A, free
and clear of any and all pledges, mortgages, liens, charges,
proxies, voting agreements, encumbrances, adverse claims,
options, security interests and demands of any nature or kind
whatsoever, other than those created by this Agreement.
(d) Reliance. Stockholder
acknowledges and agrees that Sprint, the Company and the
Investors are entering into the Transaction Agreement in
reliance upon Stockholders execution, delivery and
performance of this Agreement.
(e) Litigation. As of the date of
this Agreement, there is no action, proceeding or investigation
pending or, to the knowledge of Stockholder, threatened against
Stockholder that questions the validity of this Agreement or any
action taken or to be taken by Stockholder in connection with
this Agreement.
2. Stockholder Covenants.
(a) Until the termination of this Agreement in accordance
with Section 4, Stockholder, in its capacity as a
stockholder of the Company, agrees that, at the Clearwire
Stockholder Meeting or at any adjournment, postponement or
continuation of the Clearwire Stockholder Meeting or in any
other circumstances occurring before the Clearwire Stockholder
Meeting upon which a vote, consent or other approval (including
by written consent) with respect to the Merger and the
Transaction Agreement or any Acquisition Proposal is sought,
Stockholder will vote in favor of the approval of the Merger and
the approval and adoption of the Transaction Agreement and,
except with the written consent (which may be withheld by each
in its sole discretion) of Sprint, the Company and four of the
five Investors, against any Acquisition Proposal a number of
Subject Shares representing not less than 40% of the total
voting power of all Clearwire Capital Stock outstanding as of
the date of this Agreement (on a non-fully diluted basis) that
is entitled to vote on that matter (the Voting Share
Amount); provided, however, that the Voting
Share Amount shall be automatically reduced from 40% to 25% of
such total voting power if the Transaction Agreement is
terminated but this Agreement remains in effect pursuant to
Section 4(i)(C) below.
(b) Any vote subject to this Agreement will be cast, and
any consent subject to this Agreement will be given, in
accordance with the procedures relating to that vote or consent
so as to ensure that it is duly counted
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for purposes of determining that a quorum is present and for
purposes of recording the results of that vote or consent.
Notwithstanding the foregoing, Stockholder shall not have an
obligation to execute any written consent in lieu of a meeting
with respect thereto for the purpose of the approval and
adoption of the Transaction Agreement and the terms thereof
unless the Company shall have requested that such approval and
adoption be effected through the execution of any such written
consent. Stockholder agrees not to enter into any agreement or
commitment with any Person the effect of which would be
inconsistent with or violative of any provisions or agreements
in this Section 2. Except as expressly set forth in this
Agreement, Stockholder may vote the Subject Shares in its
discretion on all matters submitted for the vote of stockholders
of the Company.
(c) Stockholder agrees not to, directly or indirectly,
(i) sell, transfer, tender, pledge, encumber, assign or
otherwise dispose of (collectively, a
Transfer) or enter into any agreement, option
or other arrangement with respect to, or consent to a Transfer
of, or convert or agree to convert, any or all of the Subject
Shares to any Person, or
(ii) grant any proxies (other than the Company proxy card
in connection with the Clearwire Stockholder Meeting if and to
the extent such proxy is consistent with Stockholders
obligations under this Section 2 of this Agreement),
deposit any Subject Shares into any voting trust or enter into
any voting arrangement, whether by proxy, voting agreement or
otherwise, with respect to any of the Subject Shares, other than
pursuant to this Agreement.
Notwithstanding the foregoing, nothing herein shall prevent
Stockholder from distributing any of its Subject Shares to a
member of Stockholder provided that such member agrees in
writing (in a form reasonably acceptable to the other parties to
this Agreement) to be bound by and to comply with all of the
terms of this Agreement as a Stockholder as if such
member were an original signatory hereto (each such member a
Subject Member). In addition, Stockholder and any
Subject Member may Transfer Subject Shares without restriction
so long as the Subject Shares retained collectively by
Stockholder and all Subject Members after the Transfer
constitute at least the applicable Voting Share Amount then in
effect. If a proposed Transfer of Subject Shares would drop the
collective holdings of Stockholder and all of its Subject
Members below the then applicable Voting Share Amount, such
Transfer will only be permitted if the Transfer is made by a
Subject Member for estate planning purposes and the Subject
Member retains direct or indirect sole voting control over such
Subject Shares through the date of the Stockholder Vote.
(d) Stockholder further agrees not to commit or agree to
take any of the foregoing actions or take any action that would
have the effect of preventing, impeding, interfering with or
adversely affecting its ability to perform its obligations under
this Agreement.
(e) Stockholder agrees it will not, nor will Stockholder
permit any Affiliate controlled by Stockholder to, nor will
Stockholder act in concert with or permit any such Affiliate to
act in concert with any Person to make, or in any manner
participate in, directly or indirectly, a
solicitation (as such term is used in the rules of
the SEC) of proxies or powers of attorney or similar rights to
vote, or seek to advise or influence any Person with respect to
the voting of, any shares of Clearwire Capital Stock intended to
facilitate any Acquisition Proposal or to cause stockholders of
the Company not to vote to approve and adopt the Transaction
Agreement. Stockholder agrees it will not, and will direct any
investment banker, attorney, agent or other adviser or
representative of the Stockholder not to, directly or
indirectly, through any officer, director, agent or otherwise,
enter into, solicit, initiate, conduct or continue any
discussions or negotiations with, or knowingly encourage or
respond to any inquiries or proposals by, or provide any
information to, any Person, other than the parties to the
Transaction Agreement, relating to any Acquisition Proposal.
Notwithstanding the foregoing, nothing contained in this
Agreement shall prevent Stockholder from (A) complying with
its disclosure obligations under applicable U.S. securities
laws or (B) in the event the Company furnishes information
to or enters into discussions or negotiations with a Person, as
and to the extent permitted pursuant to Section 10.4(b) of
the Transaction Agreement. Stockholder shall be permitted to
furnish information and engage in discussions and negotiations
with such Person as and to the same extent that the Company is
permitted to take such actions. Stockholder hereby represents
that, as of the date hereof, it is not engaged in
D-3
discussions or negotiations with any party other than the
parties to the Transaction Agreement with respect to any
Acquisition Proposal.
(f) So long as the Transaction Agreement has not been
terminated, Stockholder hereby irrevocably elects, upon the
satisfaction of the conditions set forth in Section 2.1 of
the Transaction Agreement, to convert each share of its
Class B Common Stock into one share of Class A Common
Stock in accordance with Article IV, Section 1(d)(i)
of the Fourth Amended and Restated Certificate of Incorporation
of the Company, and Stockholder agrees to execute any
documentation required to effect such conversion. If the
Transaction Agreement is terminated, the election in this
Section 2(f) shall be null and void.
(g) So long as the Transaction Agreement has not been
terminated, Stockholder shall take all action necessary to
terminate, effective at the Closing, (i) the Voting
Agreement dated as of August 29, 2006 among the Company,
Intel Pacific, Inc., Intel Capital Corporation and Stockholder
and (ii) the Side Letter dated as of June 28, 2006 by
and among the Company, Intel Pacific, Inc. and Stockholder.
3. Stockholder Capacity. No Person
who owns, directly or indirectly, any Capital Stock of
Stockholder or any director or officer of Stockholder, in each
case, who is or becomes during the term of this Agreement a
director or officer of the Company will be deemed to make any
agreement or understanding in this Agreement in that
Persons capacity as a director or officer of the Company.
Stockholder is entering into this Agreement solely in its
capacity as the record holder or beneficial owner of its Subject
Shares, and nothing in this Agreement will limit or affect any
actions taken by any Person who owns, directly or indirectly,
any Capital Stock of Stockholder or any director or officer of
Stockholder in his or her capacity as a director or officer of
the Company to the extent specifically permitted by the
Transaction Agreement or following the termination of the
Transaction Agreement. Without limiting the generality of the
foregoing, Sprint and the Investors acknowledge that each of
Craig O. McCaw, Benjamin G. Wolff, R. Gerard Salemme and
Nicholas Kauser is a member of the Board of Directors of Company
and is also affiliated with Stockholder, and that each of the
foregoing persons in his capacity as a member of the Board of
Directors of Company may, in the exercise of his fiduciary
duties, take actions that would violate this Agreement if such
actions were taken by Stockholder. Sprint and the Investors
agree that no such action taken in such individuals
capacity as a member of the Board of Directors of Company will
be deemed a violation of this Agreement.
4. Termination. This Agreement will
terminate
(i) on the earliest of:
(A) the approval and adoption of the Transaction Agreement
at the Clearwire Stockholder Meeting,
(B) termination of the Transaction Agreement, unless the
termination is effected under Section 12.1(b)(iii),
Section 12.1(c)(i) or Section 12.1(d)(i) of the
Transaction Agreement as a result of a Superior Proposal,
(C) six months after termination of the Transaction
Agreement under Section 12.1(b)(iii),
Section 12.1(c)(i) or Section 12.1(d)(i) as a result
of a Superior Proposal, or
(ii) at any time on written agreement of each of Sprint,
the Company and four of the five Investors.
5. Breach; Survival
No party hereto will be relieved from any liability for
intentional breach of this Agreement by reason of any
termination of this Agreement. Regardless of the foregoing,
Sections 6 through 19 of this Agreement will survive the
termination of this Agreement.
6. Appraisal Rights. To the extent
permitted by applicable law, Stockholder waives any rights of
appraisal or rights to dissent with respect to the Merger or any
of the transactions contemplated by the Transaction Agreement
that Stockholder may have under applicable law.
7. Publication. Stockholder
authorizes the Company to publish and disclose in the Proxy
Statement or the Registration Statement (including any and all
documents and schedules filed with the SEC relating to the
D-4
Proxy Statement or the Registration Statement) its identity and
ownership of shares of Clearwire Capital Stock and the nature of
its commitments, arrangements and understandings made pursuant
to this Agreement.
8. Controlling Law; Amendment. This
Agreement will be governed by and construed and enforced in
accordance with the internal Laws of the State of Delaware
without reference to its choice of law rules. This Agreement may
not be amended, modified or supplemented except by written
agreement of each of the parties.
9. Jurisdiction. Any Proceeding
seeking to enforce any provision of, or based on any matter
arising out of or in connection with, this Agreement may only be
brought in the courts of the State of Delaware or the federal
courts located in the State of Delaware, and each of the parties
consents to the jurisdiction of the courts (and of the
appropriate appellate courts therefrom) in any Proceeding and
irrevocably waives, to the fullest extent permitted by Law, any
objection that it may now or hereafter have to the laying of the
venue of any Proceeding in any court or that any Proceeding that
is brought in any court has been brought in an inconvenient
forum. Process in any Proceeding may be served on any party
anywhere in the world, whether within or without the
jurisdiction of the court.
10. Specific Performance and other
Remedies. Stockholder acknowledges that the
rights of the other parties under this Agreement (including
third party beneficiaries hereof) are special, unique and of
extraordinary character and that, if Stockholder violates or
fails or refuses to perform any covenant or agreement made by it
in this Agreement, the other parties (including third party
beneficiaries hereof) may be without an adequate remedy at law.
If Stockholder violates or fails or refuses to perform any
covenant or agreement made by it in this Agreement, any other
party may, subject to the terms of this Agreement and in
addition to any remedy at law for damages or other relief,
institute and prosecute an Action in any court of competent
jurisdiction to enforce specific performance of the covenant or
agreement or seek any other equitable relief.
11. Waiver. Any agreement on the
part of a party to any extension or waiver of any provision of
this Agreement will be valid only if set forth in an instrument
in writing signed on behalf of the party (and, if the Company is
the relevant party, also signed by four of the five Investors).
A waiver by a party of the performance of any covenant,
agreement, obligation, condition, representation or warranty
will not be construed as a waiver of any other covenant,
agreement, obligation, condition, representation or warranty. A
waiver by any party of the performance of any act will not
constitute a waiver of the performance of any other act or an
identical act required to be performed at a later time.
12. Assignment; Successors in
Interest. No assignment or transfer by any party
of that partys rights and obligations under this Agreement
will be made except with the prior written consent of the other
parties. This Agreement will be binding on and will inure to the
benefit of the parties and their successors and permitted
assigns, and any reference to a party will also be a reference
to the successors or permitted assigns of that party.
13. Enforcement of Certain
Rights. Nothing expressed or implied in this
Agreement is intended, or will be construed, to confer on or
give any Person other than the parties, and their successors or
permitted assigns, any right, remedy, obligation or liability
under or by reason of this Agreement, or result in the
Persons being deemed a third party beneficiary of this
Agreement.
14. Notices. All notices,
communications and deliveries under this Agreement will be made
in writing signed by or on behalf of the party making the
notice, communication or delivery, will specify the Section
under this Agreement under which it is given or being made, and
will be delivered by established overnight courier (with
evidence of delivery and postage and other fees prepaid) as
follows:
To Sprint:
Sprint Nextel Corporation
2001 Edmund Halley Drive
Reston, Virginia 20191
Attention: President of Strategic Planning and Corporate
Initiatives
Facsimile No.: (703) 433-4034
D-5
with copies to:
Sprint Nextel Corporation
6200 Sprint Parkway
Overland Park, Kansas 66251
Attention: Vice President Law, Corporate
Transactions and Business Law
Facsimile No.: (913) 523-9803
King & Spalding
1180 Peachtree Street, N.E.
Atlanta, Georgia 30309
Attention: Michael J. Egan
Facsimile No.: (404) 572-5100
To Company:
Clearwire Corporation
4400 Carillon Point
Kirkland, Washington 98033
Attention: Chief Executive Officer
Facsimile No.: (425) 828-8061
with copies to:
Clearwire Corporation
4400 Carillon Point
Kirkland, Washington 98033
Attention: Legal Department
Facsimile No.: (425) 216-7776
Davis Wright Tremaine LLP
1201 Third Avenue, Suite 2200
Seattle, Washington 98101
Attention: Sarah English Tune
Facsimile No.: (206) 757-7161
Kirkland & Ellis LLP
Citigroup Center
153 East
53rd
Street
New York, New York 10022
Attention: Joshua N. Korff
Facsimile No.: (212) 446-6460
To Intel Corporation:
Intel Corporation
2200 Mission College Blvd., MS RN6-65
Santa Clara, California 95054-1549
Attention: President, Intel Capital
Facsimile No.: (408) 765-8871
Intel Corporation
2200 Mission College Blvd., MS RN6-59
Santa Clara, California 95054-1549
Attention: Intel Capital Portfolio Manager
Facsimile No.: (408) 765-6038
D-6
Intel Corporation
2200 Mission College Blvd., MS RN4-151
Santa Clara, California 95054-1549
Attention: Intel Capital Group General Counsel
Facsimile No.: (408) 653-9098
Intel Corporation
2200 Mission College Blvd., MS RN5-125
Santa Clara, California 95054-1549
Attention: Director, U.S. Tax and Trade
Facsimile No.: (408) 765-1733
with copies to:
Gibson, Dunn & Crutcher LLP
1881 Page Mill Road
Palo Alto, California 94304
Attention: Gregory T. Davidson
Facsimile No.: (650) 849-5050
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071-3197
Attention: Paul S. Issler
Facsimile No.: (213) 229-6763
To Comcast Corporation:
Comcast Corporation
One Comcast Center
1701 John F. Kennedy Boulevard
Philadelphia, Pennsylvania 19103
Attention: Chief Financial Officer
Facsimile No.: (215) 286-1240
with copies to:
Comcast Corporation
One Comcast Center
1701 John F. Kennedy Boulevard
Philadelphia, Pennsylvania 19103
Attention: General Counsel
Facsimile No.: (215) 286-7794
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: David L. Caplan
Facsimile No.: (212) 450-3800
To Time Warner Cable Inc.:
Time Warner Cable Inc.
One Time Warner Center
North Tower
New York, New York 10019
Attention: General Counsel
Facsimile No.: (212) 364-8254
D-7
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Matthew W. Abbott
Robert
B. Schumer
Facsimile No.: (212) 757-3990
To Bright House Networks, LLC:
c/o Advance/Newhouse
Partnership
5000 Campuswood Drive
East Syracuse, NY 13057
Attention: Mr. Leo Cloutier
Facsimile: (315) 438-4643
with a copy to:
Sabin, Bermant & Gould LLP
Four Times Square
New York, NY 10036
Attention: Arthur J. Steinhauer, Esq.
Facsimile: (212) 381-7218
To Google Inc.:
Google Inc.
1600 Amphitheatre Parkway
Mountain View, California 94043
Attn: General Counsel
Facsimile No.: (650) 887-2421
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attn: David Segre, Esq.
Facsimile No.: (650) 493-6811
To Stockholder:
Eagle River Holdings, LLC
2300 Carillon Point
Kirkland, WA 98033
Attention: Chief Executive Officer
15. Severability. Any provision of
this Agreement that is prohibited or unenforceable in any
jurisdiction will, as to the jurisdiction, be ineffective to the
extent of the prohibition or unenforceability without
invalidating the remaining provisions of this Agreement, and any
prohibition or unenforceability in one jurisdiction will not
invalidate or render unenforceable the provision in any other
jurisdiction. If permitted by Law, each party waives any
provision of Law that renders any provision prohibited or
unenforceable in any respect.
16. Integration. This Agreement
(together with the Transaction Agreement to the extent
referenced in this Agreement) supersedes all negotiations,
agreements and understandings among the parties with respect to
the subject matter of this Agreement and constitutes the entire
agreement among the parties.
17. Counterparts. This Agreement
may be executed in two or more counterparts, each of which will
be deemed an original, and it will not be necessary in making
proof of this Agreement or the terms of this Agreement to
produce or account for more than one counterparts.
D-8
18. Waiver of Jury Trial. Each of
the parties irrevocably waives any and all right to trial by
jury in any legal proceeding arising out of or related to this
Agreement or the Transactions.
19. Interpretation. Unless the
context of this Agreement otherwise clearly requires,
(a) references to the plural include the singular, and
references to the singular include the plural, and
(b) the words include, includes and
including do not limit the preceding terms or words
and will be deemed to be followed by the words without
limitation.
Unless otherwise set forth in this Agreement, references in this
Agreement to
(a) any document, instrument or agreement (including this
Agreement)
(A) includes and incorporates all Schedules,
(B) includes all documents, instruments or agreements
issued or executed in replacement of those documents,
instruments or agreements, and
(C) means the document, instrument or agreement, or
replacement or predecessor thereto, as amended, modified or
supplemented from time to time in accordance with its terms and
in effect at any given time, and
All Section and Schedule references in this Agreement are to
Sections and Schedules of this Agreement, unless otherwise
specified. This Agreement will not be construed as if prepared
by one of the parties, but rather according to its fair meaning
as a whole, as if all parties had prepared it.
[SIGNATURE
PAGE FOLLOWS]
D-9
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and date first above written.
EAGLE RIVER HOLDINGS, LLC
Name: Amit Mehta
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Title:
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Vice President, Corporate Development
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[Signature Page to the Eagle River Voting Agreement]
D-10
SPRINT NEXTEL CORPORATION
Name: Keith O. Cowan
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Title:
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President of Strategic Planning and Corporate Initiatives
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[Signature Page to the Eagle River Voting Agreement]
D-11
CLEARWIRE CORPORATION
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By:
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/s/ Benjamin
G. Wolff
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Name: Benjamin G. Wolff
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Title:
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Chief Executive Officer
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[Signature Page to the Eagle River Voting Agreement]
D-12
INTEL CORPORATION
Name: Arvind Sodhani
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Title:
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Executive Vice President
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President, Intel Capital
[Signature Page to the Eagle River Voting Agreement]
D-13
COMCAST CORPORATION
Name: Robert S. Pick
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Title:
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Senior Vice President
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[Signature Page to the Eagle River Voting Agreement]
D-14
TIME WARNER CABLE INC.
Name: Robert D. Marcus
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Title:
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Senior Executive Vice President and
Chief Financial Officer
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[Signature Page to the Eagle River Voting Agreement]
D-15
BRIGHT HOUSE NETWORKS, LLC
Name: Leo Cloutier
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Title:
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Vice President, Strategy & Partnership
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[Signature Page to the Eagle River Voting Agreement]
D-16
GOOGLE INC.
Name: Kent Walker
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Title:
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Vice President and General Counsel
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[Signature Page to the Eagle River Voting Agreement]
D-17
Schedule A
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Number of Shares of
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Number of Shares of
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Stockholder
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Class A Common Stock
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Class B Common Stock
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Eagle River Holdings, LLC
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17,232,005
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18,690,953
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D-18
Annex E
EXECUTION
COPY
VOTING
AGREEMENT
VOTING AGREEMENT, dated as of May 7, 2008 (this
Agreement), by and among Sprint Nextel
Corporation, a Kansas corporation (Sprint),
Clearwire Corporation, a Delaware corporation (the
Company), Comcast Corporation, a Pennsylvania
corporation, Time Warner Cable Inc., a Delaware corporation,
Bright House Networks, LLC, a Delaware limited liability
company, and Google Inc., a Delaware corporation (each of
Comcast Corporation, Time Warner Cable Inc., Bright House
Networks, LLC and Google Inc. a Strategic
Investor and collectively the Strategic
Investors) and Intel Corporation, a Delaware
corporation (Intel Parent), Intel Capital
Corporation, a Delaware corporation (Intel)
and Intel Capital (Cayman) Corporation, a Cayman Islands company
(Intel Cayman, and each of Intel and Intel Cayman, a
Stockholder and collectively,
Stockholder).
RECITALS
A. Intel is the record owner, and, together with Intel
Parent, the beneficial owner (as such term is defined in
Rule 13d-3
promulgated under the Exchange Act) and is entitled to dispose
of and to vote the number of shares of Class A common
stock, par value $.0001 per share (Class A Common
Stock), and Class B common stock, par value
$.0001 per share (Class B Common Stock),
of the Company and Intel Cayman is the record owner and,
together with Intel Parent, the beneficial owner and is entitled
to dispose of and to vote the number of shares of Class A
Common Stock of the Company, each as set forth opposite such
Stockholders name on Schedule A to this Agreement
(the Subject Shares).
B. Concurrently with the execution and delivery of this
Agreement, the Company, Sprint, Intel Parent and the Strategic
Investors are entering into a Transaction Agreement and Plan of
Merger (as amended from time to time, the Transaction
Agreement) pursuant to which the parties to the
Transaction Agreement will perform their obligations thereunder
in accordance with the terms set forth therein.
C. As a condition to entering into the Transaction
Agreement, Sprint and the Strategic Investors have required that
Stockholders enter into this Agreement, and Stockholders desire
to enter into this Agreement to induce Sprint and the Strategic
Investors to enter into the Transaction Agreement.
D. Capitalized terms used but not defined in this Agreement
have the meaning ascribed to them in the Transaction Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
premises, representations, warranties, covenants and agreements
contained in this Agreement, the parties to this Agreement,
intending to be legally bound, agree as follows:
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1.
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Stockholder Representations and Warranties.
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Each Stockholder represents and warrants to the other parties as
follows:
(a) Authority. Stockholder is duly
organized, validly existing and in good standing under the laws
of the state of its organization. Stockholder has all requisite
power and authority to execute and deliver this Agreement and to
perform the obligations to be performed by Stockholder under
this Agreement. This Agreement has been duly executed and
delivered by Stockholder and constitutes a valid and binding
obligation of Stockholder enforceable against Stockholder in
accordance with its terms, subject to the Bankruptcy Exception.
(b) No Conflicts.
(i) Except for compliance with the HSR Act and appropriate
filings by Stockholder under the Exchange Act no filing by
Stockholder with any governmental body or authority, and no
authorization, consent or approval of any other Person is
necessary for the execution of this Agreement by Stockholder or
the performance by Stockholder of the transactions contemplated
by this Agreement,
E-1
(ii) none of the execution and delivery of this Agreement
by Stockholder, the performance by Stockholder of its
obligations under this Agreement or compliance by Stockholder
with any of the provisions of this Agreement will
(A) constitute a breach of the organizational documents of
Stockholder,
(B) result in a violation or breach of or a default under
(with or without notice or lapse of time, or both) any contract,
trust agreement, loan or credit agreement, note, bond, mortgage,
indenture, lease, permit, agreement or other instrument to which
Stockholder is a party or by which Stockholder or any of its
Subject Shares or assets may be bound, or
(C) violate any order, writ, injunction, decree, judgment,
statute, rule or regulation applicable to Stockholder and in
existence as of the date hereof, and
(iii) no consent, approval, order, authorization or permit
of, or registration, declaration or filing with or notification
to, any Governmental Authority or any other Person is required
by or with respect to Stockholder in connection with the
execution and delivery of this Agreement by Stockholder or the
performance by Stockholder of Stockholders obligations
hereunder, except for (A) the filing with the SEC of any
Schedules 13D or 13G or amendments to Schedules 13D or 13G and
filings under Section 16 of the Exchange Act as may be
required in connection with this Agreement and the transactions
contemplated hereby and (B) such consents, approvals,
orders, authorizations, permits or filings the failure of which
to be obtained or made would not have a material adverse effect
on Stockholders ability to perform its obligations
hereunder.
(c) Subject
Shares. Schedule A sets forth, opposite
Stockholders name, the number of Subject Shares over which
Stockholder has record or beneficial ownership (including shared
beneficial ownership) as of the date of this Agreement. Except
as may be noted on Schedule A, as of the date of this
Agreement, Stockholder is the record or beneficial owner of the
Subject Shares denoted as being owned by Stockholder on
Schedule A and shares the power to vote and dispose of
those Subject Shares with Intel Parent. Other than such Subject
Shares or as contemplated by the Transaction Agreement,
Stockholder does not own beneficially or of record any Clearwire
Capital Stock or any interest therein. Stockholder has good and
valid title to the Subject Shares denoted as being owned by
Stockholder on Schedule A, free and clear of any and all
pledges, mortgages, liens, charges, proxies, voting agreements,
encumbrances, adverse claims, options, security interests and
demands of any nature or kind whatsoever, other than those
created by this Agreement, the Transaction Agreement and the
Voting Agreement by and among the Company, Eagle River Holdings,
LLC, Intel and Intel Cayman entered into August 29, 2006.
(d) Reliance. Stockholder
acknowledges and agrees that Sprint, the Company and the
Strategic Investors are entering into the Transaction Agreement
in part in reliance upon Stockholders execution, delivery
and performance of this Agreement.
(e) Litigation. As of the date of
this Agreement, there is no action, proceeding or investigation
pending or, to the Knowledge of Stockholder, threatened against
Stockholder that questions the validity of this Agreement or the
performance by Stockholder of its obligations under this
Agreement.
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2.
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Stockholder Covenants.
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(a) Until the termination of this Agreement in accordance
with Section 4, each Stockholder, in its capacity as a
stockholder of the Company, agrees that, at the Clearwire
Stockholder Meeting or at any adjournment, postponement or
continuation of the Clearwire Stockholder Meeting or in
connection with any written consent or other vote of the
Companys stockholders with respect to the Transactions is
sought, each Stockholder will vote in favor of the approval of
the Transactions a number of its Subject Shares owned as of the
record date with respect to such Clearwire Stockholder Meeting
(or the date that any written consent is executed by
Stockholder) (the Record Date) representing
the Allocated Percentage (as defined below) of the total voting
power as of the Record Date of all of its Subject Shares owned
as of the Record Date; provided that each Stockholder
shall be obligated under this Agreement to vote its Subject
Shares owned as of the Record Date in favor of or otherwise
consent to or approve the Transactions only if in connection
with such
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Clearwire Stockholder Meeting or written consent, an Independent
Majority (as defined below) has voted in favor of or consented
to or approved the Transactions; and provided,
further, that each Stockholder shall be obligated under
this Agreement to vote its Subject Shares against or otherwise
refrain from consenting to or approving of the Transactions only
if in connection with such Clearwire Stockholder Meeting or
written consent, an Independent Majority (as defined below) has
voted against or has not consented to or has not approved the
Transactions.
(b) The Allocated Percentage means the
percentage determined by dividing (i) the number of votes
cast in favor of the approval of the Merger and the approval and
adoption of the Transaction Agreement by (ii) the total
number of votes cast in those matters (excluding for the
purposes of this calculation all abstentions, votes cast by
Stockholder and any of its affiliates, votes cast by Eagle River
Holdings, LLC and any of its affiliates and votes cast by any
director or executive officer of the Company (as specified in
Item 401 of
Regulation S-K
of the Securities Act)). Independent Majority
shall mean a majority of the votes cast at the applicable
Clearwire Stockholder Meeting or shares voted pursuant to a
written consent (excluding for the purposes of this calculation
all abstentions, votes cast by a Stockholder and any of it
affiliates, votes cast by Eagle River Holdings, LLC and any of
its affiliates and votes cast by any director or executive
officer of the Company (as specified in Item 401 of
Regulation S-K
of the Securities Act)).
(c) Any vote subject to this Agreement will be cast or
consent will be given in accordance with the procedures relating
to that vote so as to ensure that it is duly counted for
purposes of determining that a quorum is present and for
purposes of recording the results of that vote or consent.
Notwithstanding the foregoing, no Stockholder shall have an
obligation to execute any written consent in lieu of a meeting
with respect thereto for the purpose of the approval and
adoption of the Transaction Agreement and the terms thereof
unless the Company shall have requested that such approval and
adoption be effected through the execution of such written
consent. Stockholder agrees not to enter into any agreement or
commitment with any Person the effect of which would be prevent
Stockholder from performing its obligations under this
Agreement. Except as expressly set forth in this Agreement, each
Stockholder may vote the Subject Shares in its discretion on all
matters submitted for the vote of stockholders of the Company or
in connection with any written consent of the Companys
stockholders.
(d) Each Stockholder may transfer any Subject Shares
without restriction.
(e) Each Stockholder further agrees not to commit or agree
to take any of the foregoing actions or take any action that
would have the effect of preventing, impeding, interfering with
or adversely affecting its ability to perform its obligations
under this Agreement.
(f) Each Stockholder agrees it will not, nor will such
Stockholder permit any Affiliate controlled by Stockholder to,
nor will Stockholder act in concert with or permit any such
Affiliate to act in concert with any Person to make, or in any
manner participate in, directly or indirectly, a
solicitation (as such term is used in the rules of
the SEC) of proxies or powers of attorney or similar rights to
vote, or seek to advise or influence any Person with respect to
the voting of, any shares of Clearwire Capital Stock to cause
stockholders of the Company not to vote to approve and adopt the
Transaction Agreement. Each Stockholder agrees it will not, and
will direct any investment banker, attorney, agent or other
adviser or representative of the Stockholder not to, directly or
indirectly, through any officer, director, agent or otherwise,
enter into, solicit, initiate, conduct or continue any
discussions or negotiations with, or knowingly encourage or
respond to any inquiries or proposals by, or provide any
information related thereto to, any Person, other than the
parties to the Transactions. Notwithstanding the foregoing or
any other provision of this Agreement, (A) nothing shall
prevent a Stockholder from complying with its disclosure
obligations under applicable U.S. securities laws,
(B) Section 2 of this Agreement is subject in all
respects to Section 3 below, and (C) in the event the
Company furnishes information to or enters into discussions or
negotiations with a Person, as and to the extent permitted
pursuant to Section 10.4(b) of the Transaction Agreement,
Stockholder shall be permitted to furnish information and engage
in discussions and negotiations with such Person as and to the
same extent that the Company is permitted to take such actions.
Stockholder hereby represents that, as of the date hereof, it is
not engaged in discussions or negotiations with any party other
than the parties to the Transaction Agreement with respect to
the matters set forth in the Transaction Agreement.
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(g) So long as the Transaction Agreement has not been
terminated, each Stockholder hereby irrevocably elects, upon the
satisfaction of the conditions set forth in Section 2.1 of
the Transaction Agreement, to convert each share of its
Class B Stock into one share of Class A Stock in
accordance with Article IV, Section 1(d)(i) of the
Fourth Amended and Restated Certificate of Incorporation of the
Company, and each Stockholder agrees to execute any
documentation required to effect such conversion. If the
Transaction Agreement is terminated, the election in this
Section 2(g) shall be null and void.
(h) Intel Parent, in its capacity as a Person with shared
voting and dispositive power of the Subject Shares of each
Stockholder, covenants and agrees that it will take no action
contrary to the obligations of Stockholder set forth herein.
3. Stockholder Capacity. No Person who owns,
directly or indirectly, any Capital Stock of Stockholder or any
director or officer of Stockholder, in each case, who is or
becomes during the term of this Agreement a director or officer
of the Company will be deemed to make any agreement or
understanding in this Agreement in that Persons capacity
as a director or officer of the Company. Each Stockholder is
entering into this Agreement solely in its capacity as the
record holder or beneficial owner of its Subject Shares, and
nothing in this Agreement will limit or affect any actions taken
by any Person who owns, directly or indirectly, any Capital
Stock of such Stockholder or any director or officer of such
Stockholder in his or her capacity as a director or officer of
the Company. Without limiting the generality of the foregoing,
Sprint and the Strategic Investors each acknowledge that David
Perlmutter is a member of the Board of Directors of the Company
and is also affiliated with the Stockholders and Intel Parent,
and that the foregoing person in his capacity as a member of the
Board of Directors of Company may, in the exercise of his
fiduciary duties, take actions that would violate this Agreement
if such actions were taken by a Stockholder. Sprint and the
Strategic Investors each agree that no such action taken in such
individuals capacity as a member of the Board of Directors
of Company will be deemed a violation of this Agreement.
4. Termination. This Agreement will
terminate
(i) on the earliest of:
(A) the approval and adoption of the Transaction Agreement
at the Clearwire Stockholder Meeting,
(B) provided that the Clearwire Stockholder Meeting will
have concluded, the failure of the stockholders of the Company
to approve and adopt the Transactions at the Clearwire
Stockholder Meeting,
(C) the date which is 12 months after the date hereof,
(D) the termination of the Transaction Agreement, or
(ii) at any time on written agreement of each of Sprint,
the Company and three of the four Strategic Investors.
5. Breach; Survival. No party hereto will
be relieved from any liability for intentional breach of this
Agreement by reason of any termination of this Agreement.
Regardless of the foregoing, Sections 6 through 19 of this
Agreement will survive the termination of this Agreement.
6. Appraisal Rights. To the extent
permitted by applicable law, each Stockholder waives any rights
of appraisal or rights to dissent with respect to the Merger or
any of the transactions contemplated by the Transaction
Agreement that such Stockholder may have under applicable law.
7. Publication. Each Stockholder
authorizes the Company to publish and disclose in the Proxy
Statement or the Registration Statement (including any and all
documents and schedules filed with the SEC relating to the Proxy
Statement or the Registration Statement) its identity and
ownership of shares of Clearwire Capital Stock and the nature of
its commitments, arrangements and understandings made pursuant
to this Agreement.
8. Controlling Law; Amendment. This
Agreement will be governed by and construed and enforced in
accordance with the internal Laws of the State of Delaware
without reference to its choice of law rules. This
E-4
Agreement may not be amended, modified or supplemented except by
written agreement of each of the parties.
9. Jurisdiction. Any Proceeding seeking
to enforce any provision of, or based on any matter arising out
of or in connection with, this Agreement may only be brought in
the courts of the State of Delaware or the federal courts
located in the State of Delaware, and each of the parties
consents to the jurisdiction of the courts (and of the
appropriate appellate courts therefrom) in any Proceeding and
irrevocably waives, to the fullest extent permitted by Law, any
objection that it may now or hereafter have to the laying of the
venue of any Proceeding in any court or that any Proceeding that
is brought in any court has been brought in an inconvenient
forum. Without limiting the foregoing, each party agrees that
service of process on the party as provided in Section 14
will be deemed effective service of process on the party.
10. Specific Performance and other
Remedies. Each Stockholder acknowledges that the
rights of the other parties under this Agreement (including
third party beneficiaries hereof) are special, unique and of
extraordinary character and that, if such Stockholder violates
or fails or refuses to perform any covenant or agreement made by
it in this Agreement, the other parties (including third party
beneficiaries hereof) may be without an adequate remedy at law.
If a Stockholder violates or fails or refuses to perform any
covenant or agreement made by it in this Agreement, any other
party may, subject to the terms of this Agreement and in
addition to any remedy at law for damages or other relief,
institute and prosecute an Action in any court of competent
jurisdiction to enforce specific performance of the covenant or
agreement or seek any other equitable relief.
11. Waiver. Any agreement on the part of a party
to any extension or waiver of any provision of this Agreement
will be valid only if set forth in an instrument in writing
signed on behalf of the party (and, if the Company is the
relevant party, also signed by three of the four Strategic
Investors). A waiver by a party of the performance of any
covenant, agreement, obligation, condition, representation or
warranty will not be construed as a waiver of any other
covenant, agreement, obligation, condition, representation or
warranty. A waiver by any party of the performance of any act
will not constitute a waiver of the performance of any other act
or an identical act required to be performed at a later time.
12. Assignment; Successors in
Interest. No assignment or transfer by any party
of that partys rights and obligations under this Agreement
will be made except with the prior written consent of each of
the other parties. This Agreement will be binding on and will
inure to the benefit of the parties and their successors and
permitted assigns, and any reference to a party will also be a
reference to the successors or permitted assigns of that party.
13. Enforcement of Certain
Rights. Nothing expressed or implied in this
Agreement is intended, or will be construed, to confer on or
give any Person other than the parties, and their successors or
permitted assigns, any right, remedy, obligation or liability
under or by reason of this Agreement, or result in the
Persons being deemed a third party beneficiary of this
Agreement, except that each Strategic Investor shall be deemed a
third party beneficiary of this Agreement.
14. Notices. All notices, communications
and deliveries under this Agreement will be made in writing
signed by or on behalf of the party making the notice,
communication or delivery, will specify the Section under this
Agreement under which it is given or being made, and will be
delivered by established overnight courier (with evidence of
delivery and postage and other fees prepaid) as follows:
To Sprint:
Sprint Nextel Corporation
2001 Edmund Halley Drive
Reston, Virginia 20191
Attention: President of Strategic Planning and Corporate
Initiatives
Facsimile No.: (703) 433-4034
E-5
with copies to:
Sprint Nextel Corporation
6200 Sprint Parkway
Overland Park, Kansas 66251
Attention: Vice President Law, Corporate
Transactions and Business Law
Facsimile No.: (913) 523-9803
King & Spalding
1180 Peachtree Street, N.E.
Atlanta, Georgia 30309
Attention: Michael J. Egan
Facsimile No.: (404) 572-5100
To Company:
Clearwire Corporation
4400 Carillon Point
Kirkland, Washington 98033
Attention: Chief Executive Officer
Facsimile No.: (425) 828-8061
with copies to:
Clearwire Corporation
4400 Carillon Point
Kirkland, Washington 98033
Attention: Legal Department
Facsimile No.: (425) 216-7776
Davis Wright Tremaine LLP
1201 Third Avenue, Suite 2200
Seattle, Washington 98101
Attention: Sarah English Tune
Facsimile No.: (206) 757-7161
Kirkland & Ellis LLP
Citigroup Center
153 East
53rd
Street
New York, New York 10022
Attention: Joshua N. Korff
Facsimile No.: (212) 446-6460
To Comcast Corporation:
Comcast Corporation
One Comcast Center
1701 John F. Kennedy Boulevard
Philadelphia, Pennsylvania 19103
Attention: Chief Financial Officer
Facsimile No.: (215) 286-1240
with copies to:
Comcast Corporation
One Comcast Center
1701 John F. Kennedy Boulevard
Philadelphia, Pennsylvania 19103
Attention: General Counsel
Facsimile No.: (215) 286-7794
E-6
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: David L. Caplan
Facsimile No.: (212) 450-3800
To Time Warner Cable Inc.:
Time Warner Cable Inc.
One Time Warner Center
North Tower
New York, New York 10019
Attention: General Counsel
Facsimile No.: (212) 364-8254
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Matthew W. AbbottRobert B. Schumer
Facsimile No.: (212) 757-3990
To Bright House Networks, LLC:
c/o Advance/Newhouse
Partnership
5000 Campuswood Drive
East Syracuse, NY 13057
Attention: Mr. Leo Cloutier
Facsimile: (315) 438-4643
with a copy to:
Sabin, Bermant & Gould LLP
Four Times Square
New York, NY 10036
Attention: Arthur J. Steinhauer, Esq.
Facsimile: (212) 381-7218
To Google Inc.:
Google Inc.
1600 Amphitheatre Parkway
Mountain View, California 94043
Attn: General Counsel
Facsimile No.: (650) 887-2421
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attn: David Segre, Esq.
Facsimile No.: (650) 493-6811
To Stockholder:
Intel Corporation
2200 Mission College Blvd., MS RN6-65
Santa Clara, California 95054-1549
Attention: President, Intel Capital
Facsimile No.: (408) 765-8871
E-7
Intel Corporation
2200 Mission College Blvd., MS RN6-59
Santa Clara, California 95054-1549
Attention: Intel Capital Portfolio Manager
Facsimile No.: (408) 765-6038
Intel Corporation
2200 Mission College Blvd., MS RN4-151
Santa Clara, California 95054-1549
Attention: Intel Capital Group General Counsel
Facsimile No.: (408) 653-9098
Intel Corporation
2200 Mission College Blvd., MS RN5-125
Santa Clara, California 95054-1549
Attention: Director, U.S. Tax and Trade
Facsimile No.: (408) 765-1733
with copies to:
Gibson, Dunn & Crutcher LLP
1881 Page Mill Road
Palo Alto, California 94304
Attention: Gregory T. Davidson
Facsimile No.: (650) 849-5050
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071-3197
Attention: Paul S. Issler
Facsimile No.: (213) 229-6763
or to the other representative or at the other address of a
party as the party may furnish to the other parties in writing.
Any notice, communication or delivery will be deemed given or
made on the first Business Day after delivery to an overnight
courier customer service representative.
15. Severability. Any provision of this
Agreement that is prohibited or unenforceable in any
jurisdiction will, as to the jurisdiction, be ineffective to the
extent of the prohibition or unenforceability without
invalidating the remaining provisions of this Agreement, and any
prohibition or unenforceability in one jurisdiction will not
invalidate or render unenforceable the provision in any other
jurisdiction. If permitted by Law, each party waives any
provision of Law that renders any provision prohibited or
unenforceable in any respect.
16. Integration. This Agreement (together
with the Transaction Agreement to the extent referenced in this
Agreement) supersedes all negotiations, agreements and
understandings among the parties with respect to the subject
matter of this Agreement and constitutes the entire agreement
among the parties.
17. Counterparts. This Agreement may be
executed in two or more counterparts, each of which will be
deemed an original, and it will not be necessary in making proof
of this Agreement or the terms of this Agreement to produce or
account for more than one counterparts.
18. Waiver of Jury Trial. Each of the
parties irrevocably waives any and all right to trial by jury in
any legal proceeding arising out of or related to this Agreement.
19. Interpretation. Unless the context of
this Agreement otherwise clearly requires,
(a) references to the plural include the singular, and
references to the singular include the plural, and
(b) the words include, includes and
including do not limit the preceding terms or words
and will be deemed to be followed by the words without
limitation.
E-8
Unless otherwise set forth in this Agreement, references in this
Agreement to
(a) any document, instrument or agreement (including this
Agreement)
(A) includes and incorporates all Schedules,
(B) includes all documents, instruments or agreements
issued or executed in replacement of those documents,
instruments or agreements, and
(C) means the document, instrument or agreement, or
replacement or predecessor thereto, as amended, modified or
supplemented from time to time in accordance with its terms and
in effect at any given time, and
All Section and Schedule references in this Agreement are to
Sections and Schedules of this Agreement, unless otherwise
specified. This Agreement will not be construed as if prepared
by one of the parties, but rather according to its fair meaning
as a whole, as if all parties had prepared it.
[SIGNATURE
PAGES FOLLOW]
E-9
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and date first above written.
SPRINT NEXTEL CORPORATION
Name: Keith O. Cowan
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Title:
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President of Strategic
Planning and Corporate Initiatives
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[Signature Page to the Intel Voting Agreement]
E-10
CLEARWIRE CORPORATION
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By:
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/s/ Benjamin
G. Wolff
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Name: Benjamin G. Wolff
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Title:
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Chief Executive Officer
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[Signature Page to the Intel Voting Agreement]
E-11
INTEL CORPORATION
Name: Arvind Sodhani
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Title:
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Executive Vice President
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[Signature Page to the Intel Voting Agreement]
E-12
INTEL CAPITAL CORPORATION
Name: Arvind Sodhani
[Signature Page to the Intel Voting Agreement]
E-13
INTEL CAPITAL (CAYMAN) CORPORATION
Name: Arvind Sodhani
[Signature Page to the Intel Voting Agreement]
E-14
COMCAST CORPORATION
Name: Robert S. Pick
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Title:
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Senior Vice President
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[Signature Page to the Intel Voting Agreement]
E-15
TIME WARNER CABLE INC.
Name: Robert D. Marcus
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Title:
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Senior Executive Vice President
and Chief Financial Officer
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[Signature Page to the Intel Voting Agreement]
E-16
BRIGHT HOUSE NETWORKS, LLC
Name: Leo Cloutier
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Title:
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Vice President, Strategy & Partnership
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[Signature Page to the Intel Voting Agreement]
E-17
GOOGLE INC.
Name: Kent Walker
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Title:
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Vice President and
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[Signature Page to the Intel Voting Agreement]
E-18
Schedule A
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Number of Shares of
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Number of Shares of
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Class A Common
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Class B Common
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Stockholder
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Stock
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Stock
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Intel Capital (Cayman) Corporation
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3,333,333
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Intel Capital Corporation
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23,427,601
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9,905,732
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E-19
Annex F
BYLAWS
OF
[NEWCO,
INC.]
A
Delaware Corporation
ARTICLE 1
MEETINGS
OF STOCKHOLDERS
Section 1. Date
and Time of Annual Meetings. An annual
meeting of the stockholders of [NewCo, Inc.] (the
Corporation) will be held each year on a date
not later than 150 days after the Corporations fiscal
year end at a time determined by the board of directors for the
purpose of electing directors and conducting such other business
as may properly come before the meeting.
Section 2. Notice
of Stockholder Business and Nominations.
(A) Annual Meetings of Stockholders.
(1) Subject to the provisions of Article 2 of these
bylaws, nominations of persons for election to the board of
directors of the Corporation and the proposal of business to be
considered by the stockholders may be made at an annual meeting
of stockholders exclusively by the following means:
(a) in the Corporations notice of meeting (or any
supplement thereto),
(b) by or at the direction of the board of directors or any
committee of the board of directors, or
(c) by any stockholder of the Corporation who was a
stockholder of record of the Corporation at the time the notice
provided for in Section 2(A)(2) is delivered to the
Secretary of the Corporation, who is entitled to vote at the
meeting and who complies with the notice procedures set forth in
this Section 2.
(2) For nominations or other business to be properly
brought before an annual meeting by a stockholder under
clause (c) of paragraph (A)(1) of this Section 2, the
stockholder must have given timely notice of the nomination or
other business in writing to the Secretary of the Corporation,
and any proposed business other than the nominations of persons
for election to the board of directors must constitute a proper
matter for stockholder action. To be timely, a
stockholders notice must be delivered to the Secretary at
the principal executive offices of the Corporation not later
than the close of business on the 60th day, nor earlier
than the close of business on 90th day, prior to the first
anniversary of the preceding years annual meeting, except
that if the date of the annual meeting is changed by more than
30 days from the anniversary date, notice by the
stockholder must be delivered not later than the close of
business on the earlier of the 7th day following the date
on which notice of the date of the meeting was mailed or a
public announcement of the date of the meeting is first made by
the Corporation. In no event will the public announcement of an
adjournment or postponement of an annual meeting commence a new
time period (or extend any time period) for the giving of a
stockholders notice as described above. The
stockholders notice will set forth:
(a) as to each person whom the stockholder proposes to
nominate for election as a director, all information relating to
the person that is required to be disclosed in solicitations of
proxies for election of directors in an election contest, or is
otherwise required, in each case under and in accordance with
Regulation 14A of the Securities Exchange Act of 1934, as
amended (the Exchange Act) and each such
persons written consent to being named in the proxy
statement as a nominee and to serving as a director if elected;
(b) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the text of the
proposal or business (including the text of any resolutions
proposed for consideration and if the business includes a
proposal to amend the bylaws or certificate of incorporation
(the Charter) of the Corporation, the
language of the proposed amendment), the reasons for conducting
business at the meeting and any material interest of the
F-1
stockholder and the beneficial owner, if any, on whose behalf
the proposal is made, in the business proposed by the
stockholder; and
(c) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or
proposal is made
(i) the name and address of the stockholder, as they appear
on the Corporations books, and of the beneficial owner,
(ii) (A) the class and number of shares of capital
stock of the Corporation that are owned beneficially and of
record by the stockholder and the beneficial owner, (B) any
option, warrant, convertible security, stock appreciation right,
or similar right with an exercise or conversion privilege or a
settlement payment or mechanism at a price related to any class
or series of shares of capital stock of the Corporation or with
a value derived in whole or in part from the value of any class
or series of shares of capital stock of the Corporation, whether
or not such instrument or right shall be subject to settlement
in the underlying class or series of shares of capital stock of
the Corporation or otherwise (a Derivative
Instrument) directly or indirectly owned beneficially by
such stockholder and any other direct or indirect opportunity to
profit or share in any profit derived from any increase or
decrease in the value of shares of capital stock of the
Corporation, (C) any proxy, contract, arrangement,
understanding, or relationship pursuant to which such
stockholder has a right to vote any shares of any security of
the Corporation, (D) any short interest in any security of
the Corporation (for purposes of this Section 2 a person
shall be deemed to have a short interest in a security if such
person directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise, has the
opportunity to profit or share in any profit derived from any
decrease in the value of the subject security), (E) any
rights to dividends on the shares of capital stock of the
Corporation owned beneficially by such stockholder that are
separated or separable from the underlying shares of capital
stock of the Corporation, (F) any proportionate interest in
shares of capital stock of the Corporation or Derivative
Instruments held, directly or indirectly, by a general or
limited partnership in which such stockholder is a general
partner or, directly or indirectly, beneficially owns an
interest in a general partner and (G) any
performance-related fees (other than an asset-based fee) that
such stockholder is entitled to based on any increase or
decrease in the value of shares of capital stock of the
Corporation or Derivative Instruments, if any, as of the date of
such notice, including without limitation any such interests
held by members of such stockholders immediate family
sharing the same household (which information shall be
supplemented by such stockholder and beneficial owner, if any,
not later than 10 days after the record date for the
meeting to disclose such ownership as of the record date),
(iii) a representation that the stockholder is a holder of
record of stock of the Corporation entitled to vote at the
meeting and intends to appear in person or by proxy at the
meeting to propose any business or a nomination, and
(iv) a representation as to whether the stockholder or the
beneficial owner, if any, intends or is part of a group that
intends to deliver a proxy statement or form of proxy to holders
of at least the percentage of the Corporations outstanding
capital stock required to approve or adopt the proposal or elect
the nominee or otherwise to solicit proxies from stockholders in
support of the proposal or nomination.
The foregoing notice requirements of this Section 2 will be
deemed satisfied by a stockholder if the stockholder has
notified the Corporation of his, her or its intention to present
a proposal or nomination at an annual meeting in compliance with
applicable rules and regulations promulgated under the Exchange
Act and the stockholders proposal or nomination has been
included in a proxy statement that has been prepared by the
Corporation to solicit proxies for the annual meeting. The
Corporation may require any proposed nominee to furnish other
information as it may reasonably require to determine the
eligibility of the proposed nominee to serve as a director of
the Corporation.
(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this Section 2 to the contrary, if the
number of directors to be elected to the board of directors of
the Corporation at an annual meeting is increased and there is
no public announcement by the Corporation naming the nominees
for the additional directorships at least 100 days prior to
the first anniversary of the preceding years annual
meeting, a
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stockholders notice required by this Section 2 will
also be considered timely, but only with respect to nominees for
the additional directorships, if it is delivered to the
Secretary at the principal executive offices of the Corporation
not later than the close of business on the
7th day
following the day on which the public announcement is first made
by the Corporation.
(B) Special Meetings of
Stockholders. Subject to the provisions of
Article 2 of these bylaws, if the Corporation calls a
special meeting of stockholders for the purpose of electing one
or more directors to the board of directors, any stockholder of
the Corporation may nominate a person or persons (as the case
may be) for election to the position(s) as specified in the
Corporations notice of meeting, if (i) the
stockholder delivers a notice satisfying the requirements set
forth in Sections (2)(A)(2)(a), (b) and (c) and the
final paragraph of Section 2(A)(2) to the Secretary at the
principal executive offices of the Corporation not later than
the close of business on the 7th day following the day on
which public announcement is first made of the date of the
special meeting and of the nominees proposed by the board of
directors to be elected at the meeting and (ii) the
stockholder is a stockholder of record of the Corporation at the
time the stockholders notice is delivered to the Secretary
of the Corporation and is entitled to vote at the special
meeting. In no event will the public announcement of an
adjournment or postponement of a special meeting commence a new
time period (or extend any time period) for the giving of a
stockholders notice as described above.
(C) General.
(1) Only those persons who are nominated in accordance with
the procedures set forth in this Section 2 or
Article 2 of these bylaws will be eligible to be elected at
an annual or special meeting of stockholders of the Corporation
to serve as directors. In addition, any business to be conducted
at a meeting of stockholders must have been brought before the
meeting in accordance with the procedures set forth in this
Section 2. Except as otherwise provided by law, the
chairman of the meeting will have the power and duty to do the
following:
(a) to determine whether a nomination or any business
proposed to be brought before the meeting was made or proposed,
as the case may be, in accordance with the procedures set forth
in this Section 2 or Article 2 (including whether the
stockholder or beneficial owner, if any, on whose behalf the
nomination or proposal is made, solicited (or is part of a group
that solicited) or did not so solicit, as the case may be,
proxies in support of the stockholders nominee or proposal
in compliance with the stockholders representation as
required by clause (A)(2)(c)(iv) of this Section 2) and
(b) if any proposed nomination or business was not made or
proposed in compliance with this Section 2, to declare that
the nomination will be disregarded or that the proposed business
will not be transacted.
Notwithstanding the foregoing provisions of this Section 2,
unless otherwise required by law, in the case of a nomination or
other business brought before an annual meeting by a stockholder
under clause (c) of paragraph (A)(1) of this Section 2
or a special meeting under paragraph (B) of this
Section 2, if the stockholder (or a qualified
representative of the stockholder) does not appear at the annual
or special meeting of stockholders of the Corporation to present
a nomination or proposed business, the nomination by the
stockholder will be disregarded and the proposed business will
not be transacted, notwithstanding that proxies in respect of
the vote may have been received by the Corporation. For purposes
of paragraph (C) of this Section 2, to be considered a
qualified representative of the stockholder, a person must be a
duly authorized officer, manager or partner of the stockholder
or must be authorized by a writing executed by the stockholder
or an electronic transmission delivered by the stockholder to
act for the stockholder as proxy at the meeting of stockholders
and the person acting as a qualified representative must produce
the writing or electronic transmission, or a reliable
reproduction of the writing or electronic transmission, at the
meeting of stockholders.
(2) For purposes of this Section 2, a public
announcement includes disclosure in a press release
reported by the Dow Jones News Service, Associated Press or
comparable national news service or in a document publicly filed
by the Corporation with the Securities and Exchange Commission
under Section 13, 14 or 15(d) of the Exchange Act.
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(3) Notwithstanding the foregoing provisions of this
Section 2, a stockholder must also comply with all
applicable requirements of the Exchange Act and the rules and
regulations thereunder with respect to the matters set forth in
this Section 2. Nothing in this Section 2 shall be
deemed to affect any rights of stockholders to request inclusion
of proposals or nominations in the Corporations proxy
statement under applicable rules and regulations promulgated
under the Exchange Act or of the holders of any series of
preferred stock of the Corporation to elect directors under any
applicable provisions of the Charter or of the holders of any
class or series of the Corporations capital stock to
nominate or elect directors pursuant to any agreement between
the Corporation and such stockholders.
(4) If information submitted pursuant to this
Section 2 by any stockholder proposing a nominee for
election as a director or any proposal for other business at a
meeting of stockholders shall be inaccurate to any material
extent, such information may be deemed not to have been provided
in accordance with this Section 2. Upon written request by
the Secretary, the board of directors or any committee thereof,
any stockholder proposing a nominee for election as a director
or any proposal for other business at a meeting of stockholders
shall provide, within seven business days of delivery of such
request (or such other period as may be specified in such
request), written verification, satisfactory in the discretion
of the board of directors, any committee thereof or any
authorized officer of the Corporation, to demonstrate the
accuracy of any information submitted by the stockholder
pursuant to this Section 2. If a stockholder fails to
provide such written verification within such period, the
information as to which written verification was requested may
be deemed not to have been provided in accordance with this
Section 2.
Section 3. Date
and Time of Special Meetings. Special
meetings of stockholders may be called for any purpose only by a
majority of the board of directors, the chairman of the board of
directors, the chief executive officer of the Corporation, the
president of the Corporation, the holders of at least
662/3%
in voting power of all of the then outstanding shares of
Class B Common Stock of the Corporation, or the holders of
at least 50% in voting power of all of the then outstanding
shares of Class A Common Stock of the Corporation. The
meetings may be held at any time stated in a notice of meeting
or in a duly executed waiver of notice thereof. Except as
specifically provided above, stockholders do not have the
ability to call a special meeting of stockholders.
Section 4. Place
of Meetings. The chief executive officer or
the board of directors may designate any place, either within or
outside the State of Delaware, as the place of meeting for any
annual meeting or for any special meeting called by the board of
directors or stockholders (as permitted above). If no
designation is made, the place of meeting will be the principal
executive office of the Corporation.
Section 5. Notice. Whenever
stockholders are required or permitted to take action at a
meeting, written notice (which can be electronic) stating the
place, if any, date, time, and, in the case of special meetings,
the purpose or purposes, of the meeting, will be given by the
chairman of the board of directors, the chief executive officer
or the secretary to each stockholder entitled to notice of or to
vote at the meeting. Unless otherwise provided by law, the
Charter or these bylaws, the written notice of any meeting will
be given not less than 10 nor more than 60 days before the
date of the meeting to each stockholder entitled to vote at the
meeting. If mailed, the notice will be deemed to be given when
deposited in the United States mail, postage prepaid, directed
to the stockholder at the stockholders address as it
appears in the records of the Corporation.
Section 6. Stockholders
List. The officer having charge of the stock
ledger of the Corporation will make, at least 10 days
before every meeting of the stockholders, a complete list of the
stockholders entitled to vote at the meeting arranged in
alphabetical order, showing the address of each stockholder and
the number of shares registered in the name of each stockholder.
For a period of at least 10 days prior to the meetings,
during ordinary business hours, the stockholder list will be
open to the examination of any stockholder, for any purpose
germane to the meeting, either on a reasonably accessible
electronic network with the information required to gain access
to the stockholder list provided with the notice of meeting or
at the principal place of business of the Corporation. The list
of stockholders will also be open to examination at the meeting
as required by the General Corporation Law of the State of
Delaware as from time to time in effect including any successor
provisions of law (the DGCL) or other
applicable law. Except as otherwise provided by law,
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the stock ledger will be the only evidence as to who are the
stockholders entitled to examine the list of stockholders
required by this Section 6 or to vote in person or by proxy
at any meeting of stockholders.
Section 7. Quorum. The
holders of a majority in voting power of the outstanding shares
of capital stock entitled to vote at the meeting, present in
person or represented by proxy, will constitute a quorum at all
meetings of the stockholders, except as otherwise provided by
statute or by the Charter or these bylaws, except that where a
separate vote by a class or classes is required, shares
representing a majority of all the voting power assigned under
the Charter to the outstanding shares of the applicable class or
classes, present in person or represented by proxy at the
meeting, will constitute a quorum entitled to take action with
respect to that vote on that matter. If a quorum is not present,
the holders of a majority of the voting power present in person
or represented by proxy at the meeting, and entitled to vote at
the meeting, or the chairman of the meeting, may adjourn the
meeting to another time or place in the manner provided by
Section 8 of this Article 1 until a quorum will be so
present or represented.
Section 8. Adjourned
Meetings. Any meeting of stockholders, annual
or special, may be adjourned from time to time, to reconvene at
some other place. When a meeting is adjourned to another time
and place, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which
the adjournment is taken. At the adjourned meeting the
Corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for
more than 30 days, or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the
adjourned meeting will be given to each stockholder of record
entitled to vote at the original meeting.
Section 9. Vote
Required. The directors will be elected by a
plurality of the votes cast by stockholders entitled to vote and
present in person or represented by proxy at the meeting. In all
other matters, when a quorum is present, the affirmative vote of
the majority in voting power of shares present in person or
represented by proxy at the meeting and entitled to vote on the
subject matter will be the act of the stockholders, except that
where a separate vote of a class or classes is required,
corporate action to be taken by the applicable class or classes
will be authorized by a majority of the voting power (assigned
under the Charter to the shares of the Corporation represented
in person or by proxy at the meeting and entitled to vote) cast
by the applicable class or classes. Notwithstanding the
foregoing provisions of this Section 9, if the question is
one on which the express provisions of the DGCL or other
applicable law or of the Charter or these bylaws or the rules or
regulations of any stock exchange applicable to the Corporation
or the Equityholders Agreement (as defined herein) require
a different vote, the express provision will govern and control
the decision of the question.
Section 10. Voting
Rights. Except as otherwise provided by the
DGCL or other applicable law, the Charter will establish the
voting rights of each stockholder at the meetings of the
stockholders.
Section 11. Proxies. Each
stockholder entitled to vote at a meeting of stockholders or to
consent or dissent to corporate action in writing without a
meeting may authorize another person or persons to act for him,
her or it by proxy, but no proxy will be voted or acted on after
3 years from its date, unless the proxy provides for a
longer period. A duly executed proxy will be irrevocable if it
states that it is irrevocable and if, and only as long as, it is
coupled with an interest sufficient in law to support an
irrevocable power, regardless of whether the interest with which
it is coupled is an interest in the stock itself or an interest
in the Corporation generally. A stockholder may revoke any proxy
that is not irrevocable by attending the meeting and voting in
person or by filing an instrument in writing revoking the proxy
or another duly executed proxy bearing a later date with the
Secretary of the Corporation. That authorization may be
accomplished by the stockholder or the authorized officer,
director, employee or agent of the stockholder by
(a) executing a writing or causing his or her signature to
be affixed to the writing by any reasonable means, including
facsimile signature, or (b) transmitting or authorizing the
transmission of a telegram, cablegram or other electronic
transmission to the intended holder of the proxy or to a proxy
solicitation firm, proxy support service or similar agent duly
authorized by the intended proxy holder to receive the
transmission, except that any telegram, cablegram or other
electronic transmission must either set forth or be accompanied
by information from which it can be determined that the
telegram, cablegram or other electronic transmission was
authorized by the stockholder. Any copy, facsimile
telecommunication or other reliable reproduction of the writing
or
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transmission by which a stockholder has authorized another
person to act as a proxy for the stockholder may be substituted
or used in lieu of the original writing or transmission for any
and all purposes for which the original writing or transmission
could be used, as long as the copy, facsimile telecommunication
or other reproduction is a complete reproduction of the entire
original writing or transmission.
Section 12. Action
by Stockholders without Meeting. Any action
required or permitted to be taken at any meeting of stockholders
may be taken without a meeting, if a consent in writing, setting
forth the action so taken, is:
(a) signed by the holders of outstanding stock that have
more than the minimum number of voting power assigned under the
Charter that would be necessary to authorize or take action at a
meeting at which all shares entitled to vote thereon were
present and voting and
(b) delivered to the Corporation by delivery to its
registered office in the State of Delaware, its principal place
of business, or an officer or agent of the Corporation having
custody of the records of proceedings of meetings of
stockholders.
Delivery made to the Corporations registered office may be
by hand, by verified facsimile, by nationally recognized courier
or by certified mail or registered mail, return receipt
requested. Every written consent must bear the date of signature
of each stockholder who signs the consent and no written consent
will be effective to take the corporate action referred to
therein unless written consents signed by the requisite number
of stockholders entitled to vote with respect to the subject
matter thereof are delivered to the Corporation, in the manner
required by this Section 12, within 60 (or, if less, the
maximum number permitted by the DGCL or other applicable law)
days of the earliest dated consent delivered to the Corporation
in the manner required by this Section 12. The validity of
any consent executed by a proxy for a stockholder through a
telegram, cablegram or other means of electronic transmission
transmitted to the proxy holder by or on the authorization of
the stockholder will be determined by or at the direction of the
Secretary. A written record of the information on which the
person making the determination relied will be made and kept in
the records of the proceedings of the stockholders. Prompt
notice of the effectiveness of the action will also be given by
the Corporation to those stockholders who did not consent in
writing.
Section 13. Organization. Meetings
of the stockholders will be presided over by the chairman or one
of the co-chairmen of the board of directors, if any, or in the
absence of the chairman or one of the co-chairmen of the board
of directors by the vice chairman of the board of directors, if
any, or in the absence of the vice chairman of the board of
directors by the chief executive officer, the president or a
vice-president (in order of seniority), or in the absence of the
foregoing persons by a chairman designated by the board of
directors, or in the absence of that designation by a chairman
chosen at the meeting. The secretary, or in the absence of the
secretary, an assistant secretary will act as secretary of the
meeting, but in the absence of the secretary and any assistant
secretary, the chairman of the meeting may appoint any person to
act as the secretary of the meeting.
Section 14. Inspectors
of Election. The Corporation will, if
required by law, in advance of any meeting of stockholders,
appoint one or more inspectors of election, who may be employees
of the Corporation, to act at the meeting or any adjournment of
the meeting and to make a written report of the meeting. The
Corporation may designate one or more persons as alternate
inspectors to replace any inspector who fails to act. If no
designated inspector is able to act at a meeting of
stockholders, the person presiding at the meeting will appoint
one or more inspectors to act at the meeting. Each inspector,
before discharging his or her duties, will take and sign an oath
to execute faithfully the duties of inspector with strict
impartiality and according to the best of his or her ability.
The inspector or inspectors so appointed or designated will do
the following:
(a) ascertain the number of shares of capital stock of the
Corporation outstanding and the voting power of each share;
(b) determine the shares of capital stock of the
Corporation represented at the meeting and the validity of
proxies and ballots;
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(c) count all votes and ballots;
(d) determine and retain for a reasonable period a record
of the disposition of any challenges made to any determination
by the inspectors; and
(e) certify their determination of the number of shares of
capital stock of the Corporation represented at the meeting and
the inspectors count of all votes and ballots.
The certification and report will specify any other information
that is required by law. In determining the validity and
counting of proxies and ballots cast at any meeting of
stockholders of the Corporation, the inspectors may consider any
information permitted by the DGCL or other applicable law. No
person who is a candidate for an office at an election may serve
as an inspector at that election.
Section 15. Conduct
of Meetings. The date and time of the opening
and the closing of the polls for each matter on which the
stockholders may vote at a meeting will be announced at the
meeting by the person presiding over the meeting. The board of
directors may adopt by resolution the rules and regulations for
the conduct of the meeting of stockholders as it deems
reasonably appropriate. Except to the extent inconsistent with
the rules and regulations adopted by the board of directors, the
person presiding over any meeting of stockholders will have the
right and authority to convene and to adjourn the meeting, to
prescribe the rules, regulations and procedures and to do all
acts as, in the judgment of the presiding person, are reasonably
appropriate for the proper conduct of the meeting. The rules,
regulations or procedures, whether adopted by the board of
directors or prescribed by the presiding person of the meeting,
may include, without limitation, the following:
(a) the establishment of an agenda or order of business for
the meeting;
(b) rules and procedures for maintaining order at the
meeting and the safety of those present;
(c) limitations on attendance at or participation in the
meeting to stockholders of record of the Corporation, their duly
authorized and constituted proxies or other persons as the
presiding person of the meeting determines;
(d) restrictions on entry to the meeting after the time
fixed for commencement; and
(e) limitations on the time allotted for questions or
comments by participants.
The presiding person at any meeting of stockholders, in addition
to making any other determinations that may be reasonably
appropriate to the conduct of the meeting, will, if the facts
warrant, determine and declare to the meeting that a matter or
business was not properly brought before the meeting and, at the
election of the presiding person, that the matter or business
not properly brought before the meeting will not be transacted
or considered. Unless and to the extent determined by the board
of directors or the person presiding over the meeting, meetings
of stockholders will not be required to be held in accordance
with the rules of parliamentary procedure.
ARTICLE 2
DIRECTORS
Section 1. General
Powers. The business and affairs of the
Corporation will be managed by or under the direction of the
board of directors, except as may be otherwise provided by the
DGCL or other applicable law or in the Charter.
Section 2. Number,
Election and Term of Office. The number of
directors constituting the whole board of directors will be no
less than one, as determined initially by the incorporator and,
after the issuance of stock, subject to Section 2 of
Article 6, as determined from time to time by resolution of
the board of directors or by the stockholders at the annual or
any special meeting, except that no decrease in the number of
directors may shorten the term of any incumbent director. Unless
a director resigns or is removed, each director elected will
hold office for the longer of one year or until that
directors successor is elected and qualified. Directors
will be at least eighteen years of age and need not be residents
of the State of Delaware nor stockholders of
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the Corporation. The directors, other than the first board of
directors, will be determined by resolution of the board of
directors or by the stockholders at the annual meeting, except
as provided in these bylaws.
Section 3. Removal
and Resignation. Except as provided in the
Charter and in the Equityholders Agreement, any or all of
the directors may be removed, with or without cause, at any time
by the holders of a majority of the shares then entitled to vote
at an election of directors at a special meeting called for that
purpose. Any director may resign at any time on written notice
to the board of directors, the president, the chief executive
officer or the secretary of the Corporation. The resignation
will take effect at the time specified therein (or if not
specified therein, then upon receipt thereof), and unless
otherwise specified therein no acceptance of the resignation
will be necessary to make it effective.
Section 4. Vacancies. Except
as provided in the Charter and in the Equityholders
Agreement, newly created directorships resulting from an
increase in the size of the board of directors and all vacancies
occurring in the board of directors, including without
limitation, vacancies caused by removal without cause, may be
filled by a majority of the directors then in office, though
less than a quorum, or by the sole remaining director, or if not
by the directors, then by the stockholders, and the directors so
chosen will hold office until the next annual election and until
their successors are duly elected and qualified, unless such
director earlier resigns or is removed. If there are no
directors in office, then an election of directors may be held
in the manner provided by statute.
Section 5. Annual
Meetings. The annual meeting of each newly
elected board of directors will be held without other notice
than this bylaw immediately after, and at the same place as, the
annual meeting of stockholders.
Section 6. Other
Meetings and Notice. Regular meetings, other
than the annual meeting, of the board of directors may be held
without notice at the time and at the place within or outside
the State of Delaware as is from time to time determined by
resolution of the board. Special meetings of the board of
directors may be held at any time or place within or outside the
State of Delaware whenever called by or at the request of any
chairman or co-chairman of the board, any three members of the
board, the chief executive officer or the president on at least
48 hours notice to each director, either personally, by
telephone, by mail, by facsimile or
e-mail. The
notice to each director will include the time, date and place of
the meeting and the purpose or purposes of the meeting that has
been called.
Section 7. Quorum,
Required Vote and Adjournment. At all
meetings of the board of directors, a majority of the total
number of directors will constitute a quorum for the transaction
of business or, if vacancies exist on the board of directors, a
majority of the total number of directors then serving on the
board of directors, except that the number may not be less than
one-third of the total number of directors fixed in the manner
provided for in these bylaws. The vote of a majority of
directors present at a meeting at which a quorum is present will
be the act of the board of directors unless the Charter, these
bylaws or the Equityholders Agreement requires a vote of a
greater number. If a quorum is not present at any meeting of the
board of directors, a majority of the directors present may
adjourn the meeting without notice other than announcement at
the meeting, until a quorum will be present.
Section 8. Committees. The
board of directors will establish the following committees: an
audit committee, a nominating committee, a compensation
committee and a transactions committee. The composition of the
audit committee, the nominating committee, the compensation
committee and the transactions committee will be established in
accordance with the Equityholders Agreement by and between
the Corporation, [Sprint],
a ,
[Eagle River Holdings, LLC], a Washington limited liability
company, [Comcast],
a ,
[BHN Spectrum Investments, LLC], a Delaware limited liability
company, [Time Warner Cable],
a ,
[Google Inc.], a Delaware corporation and [Intel],
a ,
dated as
of (as
amended, amended and restated, supplemented or otherwise
modified from time to time, the Equityholders
Agreement). Subject to the Equityholders
Agreement, the board of directors may designate an executive
committee consisting of one or more of the directors of the
Corporation. Other than an audit committee, a nominating
committee, a compensation committee, a transactions committee
and, if established in accordance with the Equityholders
Agreement and these bylaws, an executive committee, the
Corporation will establish no other committees of the board of
directors other than those special committees the board of
F-8
directors may create, from time to time, at its discretion in
order to carry out its fiduciary duties, provided that
the composition of any committee (including an executive
committee) to which the board of directors delegates any
authority shall be determined in accordance with the
Equityholders Agreement. Notwithstanding the foregoing,
the establishment of any additional committee of the board of
directors and the delegation of duties to such committee shall
require the approval of at least 10 members of the board of
directors (or, if there are fewer than 10 members of the board
of directors, all of such members of the board of directors), or
a majority of the disinterested directors if the establishment
of the committee is for the purpose of reviewing a related party
transaction. Subject to the agreements entered into by the
stockholders, any committee, to the extent provided in the
resolution of the board of directors, will have and may exercise
all the powers and authority of the board of directors in the
management of the business and affairs of the Corporation,
except that no committee will have the power or authority of the
board of directors in reference to (i) approving or
adopting, or recommending to the stockholders, any action or
matter expressly required by the DGCL or other applicable law to
be submitted to stockholders for approval or (ii) adopting,
amending, or repealing any bylaw of the Corporation. Unless the
board of directors otherwise provides, each committee designated
by the board may make, alter and repeal rules for the conduct of
its business. In the absence of those rules, each committee will
conduct its business in the same manner as the board of
directors conducts its business under this Article 2. All
action taken by committees will be recorded in the minutes of
the meeting.
Section 9. Communications
Equipment. Unless otherwise restricted by the
Charter or these bylaws, members of the board of directors or
any committee may participate in and act at any meeting of the
board or committee through the use of a conference telephone or
other communications equipment by means of which all persons
participating in the meeting can hear each other, and
participation in the meeting under this Section 9 will
constitute presence in person at the meeting.
Section 10. Action
by Written Consent. Unless otherwise
restricted by the Charter or these bylaws, any action required
or permitted to be taken at any meeting of the board of
directors or any committee may be taken without a meeting if all
members of the board of directors or the committee, as the case
may be, consent to the action in writing or by electronic
transmission and the writing or writings or electronic
transmissions are filed with the minutes of proceedings of the
board or committee in accordance with the DGCL or other
applicable law.
Section 11. Organization. Meetings
of the board of directors will be presided over by the chairman
or one of the co-chairmen of the board of directors, if any, or
in the absence of the chairman or one of the co-chairmen of the
board of directors by the vice chairman of the board of
directors, if any, or in the absence of the vice chairman of the
board of directors by the chief executive officer (if the chief
executive officer is a member of the board of directors), or in
the absence of the foregoing persons by a chairman chosen at the
meeting (who shall be a member of the board of directors). The
secretary, or in the absence of the secretary, an assistant
secretary will act as secretary of the meeting, but in the
absence of the secretary and any assistant secretary, the
chairman of the meeting may appoint any person to act as the
secretary of the meeting.
ARTICLE 3
OFFICERS
Section 1. Number. Subject
to the provisions of the Charter and the Equityholders
Agreement, the officers of the Corporation will be elected by
the board of directors and may consist of a chief executive
officer, a president, and a secretary. The board of directors
may also from time to time elect other officers (including a
chairman of the board, one or more executive vice presidents,
one or more senior vice presidents, one or more vice presidents,
a chief financial officer, a treasurer, chief technology
officer, chief operating officer, chief information officer,
chief strategy officer, general counsel, any number of assistant
secretaries and other officers and assistant officers) as may be
deemed necessary or desirable or may delegate to any elected
officer of the Corporation the power to appoint and remove such
officers not elected by the board of directors and to prescribe
their respective terms of office, authorities and duties. Any
number of offices may be held by the same person unless the
Charter or these bylaws otherwise provide. In its discretion,
the board
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of directors may choose not to fill any office for any period as
it may deem advisable, except that the offices of president and
secretary will be filled as expeditiously as possible.
Section 2. Election
and Term of Office. The officers of the
Corporation will be elected annually by the board of directors
at its first meeting held after each annual meeting of
stockholders or as soon thereafter as conveniently may be
accomplished. New offices may be created and filled at any
meeting of the board of directors. Unless otherwise provided in
the resolution of the board of directors electing any officer,
each officer will hold office until a successor is duly elected
and qualified or until his or her earlier death, resignation or
removal as provided in these bylaws.
Section 3. Removal;
Resignation. Subject to the
Equityholders Agreement, any officer elected by the board
of directors may be removed by the board of directors with or
without cause whenever in its judgment the best interests of the
Corporation would be served thereby, but any removal will be
without prejudice to the contract rights, if any, of the person
removed, but the election of an officer will not of itself
create contractual rights. Any officer may resign at any time on
written notice to the board of directors, the president, the
chief executive officer or the secretary of the Corporation. The
resignation will take effect at the time specified therein (or
if not specified therein, then upon receipt thereof), and unless
otherwise specified therein no acceptance of the resignation
will be necessary to make it effective.
Section 4. Vacancies. Any
vacancy occurring in any office of the Corporation because of
death, resignation, removal, disqualification or otherwise, may
be filled for the unexpired portion of the term by the board of
directors then in office at any annual, regular or special
meeting.
Section 5. Compensation. Compensation
of the chief executive officer and all officers who report
directly to the chief executive officer will be fixed by the
compensation committee of the board of directors (subject to any
employment agreement that may then be in effect between the
Corporation and the relevant officer), and no officer will be
prevented from receiving compensation by virtue of his or her
also being a director of the Corporation. Nothing contained in
these bylaws will preclude any officer from serving the
Corporation, or any subsidiary, in any other capacity and
receiving compensation by reason of the fact that he is also
director of the Corporation.
Section 6. Chairman
of the Board. The chairman of the board,
although not an officer of the Corporation, will preside at all
meetings of the board of directors and of the stockholders at
which he or she is present and will have and may exercise the
powers as may, from time to time, be assigned to him or her by
the board or as may be provided by law. If there are co-chairmen
of the board, the co-chairmen will rotate the administrative
duties of the position, including presiding at the meetings of
the board of directors.
Section 7. Chief
Executive Officer. The chief executive
officer of the Corporation will, subject to the provisions of
these bylaws and the control of the board of directors, have
general and active management, direction, and supervision over
the business of the Corporation and over its officers. He or she
will perform all duties incident to the office of chief
executive and other duties as from time to time may be assigned
to him by the board of directors or as may be provided in these
bylaws. The chief executive officer will execute bonds,
mortgages and other contracts, except where required or
permitted by law to be otherwise signed and executed and except
where the signing and execution is expressly delegated by the
board of directors to some other officer or agent of the
Corporation. The chief executive officer will report directly to
the board of directors and will have the right to delegate any
of his powers to any other officer or employee and the authority
to appoint vice presidents of the Corporation. The chief
executive officer will, unless a chairman of the board has been
elected and is present, preside at meetings of the stockholders
and the board of directors.
Section 8. President. The
president will, subject to the provisions of these bylaws and
the control of the board of directors, have general supervision
of the operations of the Corporation, and subject to any
contractual restriction, the president will have all authority
incident to the office of president and will have other
authority and perform other duties as may from time to time be
assigned by the board of directors, any duly authorized
committee of the board of directors, the chairman of the board
or the chief executive officer. The president will, at the
request or in the absence or disability of the chairman of the
board or the chief
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executive officer, or if no chairman of the board or chief
executive officer has been elected by the board of directors,
perform the duties and exercise the powers of that officer or
officers.
Section 9. Executive
Vice Presidents. Each executive vice
president will perform all the duties as from time to time may
be assigned to him by the board of directors, the president or
the chief executive officer. At the request of the president or
in the absence of the president or if the president is unable or
refuses to act, the executive vice president, or if there is
more than one, the executive vice presidents in the order
determined by the board of directors (or if there is no
determination, then the executive vice presidents in the order
of their appointment), will perform the duties of the president,
and when so acting, will have the powers of and be subject to
the restrictions placed on the president in respect of the
performance of his or her duties.
Section 10. Senior
Vice Presidents. Each senior vice president
will perform all his or her duties as from time to time may be
assigned to him by the board of directors, the president or the
chief executive officer. There will be no duties that are
incident to the office of the senior vice president, other than
those that are specifically assigned by the board of directors,
the president or the chief executive officer. A senior vice
president may not sign or countersign certificates, contracts,
agreements and other documents and instruments in the name and
on behalf of the Corporation, unless and except to the extent
that the board of directors, president or chief executive
officer assigns responsibility to the officer.
Section 11. Chief
Financial Officer. The chief financial
officer will be responsible for the financial affairs of the
Corporation and will be the chief accounting officer for public
securities purposes. If the chief financial officer is not also
the treasurer of the Corporation, he or she will be responsible
for the supervision of the treasurer. He will perform all duties
incident to the office of chief financial officer, and other
duties as may from time to time be assigned to him by the board
of directors or as may be provided in these bylaws.
Section 12. Vice
Presidents. Each vice president will perform
the duties as from time to time may be assigned to him or her by
the board of directors, the president or the chief executive
officer. There will be no duties that are incident to the office
of vice president, other than those which are specifically
assigned by the board of directors, the president or the chief
executive officer. A vice president may not sign or countersign
certificates, contracts, agreements and other documents and
instruments in the name and on behalf of the Corporation, unless
and except to the extent that the board of directors, president
or chief executive officer assigns responsibility to the officer.
Section 13. Treasurer. The
treasurer will have charge of and be responsible for all funds,
securities, receipts and disbursements of the Corporation and
will deposit or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in banks,
trust companies or other depositories as will, from time to
time, be selected by or under authority of the board of
directors. If required by the board of directors, the treasurer
will give a bond for the faithful discharge of his or her
duties, with surety or sureties as the board of directors may
determine. The treasurer will keep or cause to be kept full and
accurate records of all receipts and disbursements in books of
the Corporation, will render to the chief executive officer and
to the board of directors, whenever requested, an account of the
financial condition of the Corporation, and, in general, will
perform all the duties incident to the office of the treasurer
of a corporation and other duties as may, from time to time, be
assigned to him or her by the board of directors or the chief
executive officer or as may be provided by law.
Section 14. Secretary
and Assistant Secretaries. The secretary will
attend all meetings of the board of directors, all meetings of
the committees and all meetings of the stockholders and record
all the proceedings of the meetings in a book or books to be
kept for that purpose. Under the supervision of the chief
executive officer, the secretary will give, or cause to be
given, all notices required to be given by these bylaws or by
law; will have the powers and perform the duties as the board of
directors, the chief executive officer, the president or these
bylaws may, from time to time, prescribe. The assistant
secretary, or if there is more than one, the assistant
secretaries in the order determined by the board of directors,
will, in the absence or disability of the secretary, perform the
duties and exercise the powers of the secretary and will perform
other duties and have other powers as the board of directors,
the president or the chief executive officer may, from time to
time, prescribe.
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Section 15. Other
Officers, Assistant Officers and
Agents. Officers and assistant officers,
other than those whose duties are provided for in these bylaws,
will have the authority and perform the duties as may from time
to time be prescribed by resolution of the board of directors
which is not inconsistent with these bylaws.
Section 16. Absence
or Disability of Officers. In the case of the
absence or disability of any officer of the Corporation and of
any person hereby authorized to act in the officers place
during the officers absence or disability, the board of
directors may by resolution delegate the powers and duties of
the officer to any other officer or to any director, or to any
other person whom it may select.
ARTICLE 4
STOCK
Section 1. Form. The
shares of the Corporation will be represented by certificates in
the form that appropriate officers of the Corporation may from
time to time prescribe, except that the board of directors may
provide by resolution or resolutions that some or all of any or
all classes or series of stock will be uncertificated shares.
Any board resolution regarding uncertificated shares will not
apply to shares represented by a certificate until the
certificate is surrendered to the Corporation. Every holder of
stock represented by certificates will be entitled to have a
certificate signed by or in the name of the Corporation by the
chairman or vice chairman of the board of directors, if any, or
the president or a vice president, and by the treasurer or an
assistant treasurer, or the secretary or an assistant secretary,
of the Corporation certifying the name of the registered holder
and the number and class of shares and series, if any,
represented thereby and the par value of each share or a
statement that the share is without par value, as the case may
be. The board of directors will have the power to appoint one or
more transfer agents or registrars for the transfer or
registration of certificates of stock of any class, and may
require stock certificates to be countersigned or registered by
one or more of the transfer agents or registrars. In case any
officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on a certificate will have
ceased to be an officer, transfer agent, or registrar before the
certificate is issued, it may be issued by the Corporation with
the same effect as if the person were an officer, transfer
agent, or registrar at the date of issue. All certificates for
shares will be consecutively numbered or otherwise identified.
The name of the person to whom the shares represented thereby
are issued, with the number of shares and date of issue, will be
entered on the books of the Corporation.
Section 2. Transfer
of Shares. Shares of stock of the Corporation
will only be transferred on the books of the Corporation by the
holder of record or by the holders attorney duly
authorized in writing, who furnishes proper evidence of
authority to transfer, and in the case of stock represented by a
certificate, upon the surrender to the Corporation of the
certificate or certificates for the shares endorsed by the
appropriate person or persons, with the evidence of the
authenticity of the endorsement, transfer, authorization, and
other matters as the Corporation may reasonably require, and
accompanied by all necessary stock transfer stamps. In that
event, it will be the duty of the Corporation to issue a new
certificate to the person entitled thereto, cancel the old
certificate or certificates, and record the transaction on its
books.
Section 3. Lost
Certificates. The board of directors may
direct a new certificate or certificates (or uncertificated
shares in lieu of a new certificate) to be issued in place of
any certificate or certificates previously issued by the
Corporation alleged to have been lost, stolen, or destroyed, on
the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen, or destroyed. When
authorizing the issuance of a new certificate or certificates
(or uncertificated shares in lieu of a new certificate), the
board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of a lost,
stolen, or destroyed certificate or certificates, or his or her
legal representative, to give the Corporation a bond sufficient
to indemnify the Corporation against any claim that may be made
against the Corporation on account of the loss, theft or
destruction of the certificate or the issuance of a new
certificate.
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Section 4. Fixing
a Record Date for Stockholder Meetings. In
order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders
or any adjournment of any meeting of stockholders, or entitled
to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for
the purpose of any other lawful action, the board of directors
may fix a record date, which record date will not precede the
date on which the resolution fixing the record date is adopted
by the board of directors, and which record date:
(A) in the case of determination of stockholders entitled
to notice of and to vote at any meeting of stockholders or
adjournment of any meeting of stockholders, will, unless
otherwise required by law, not be more than 60 nor less than
10 days before the date of the meeting and
(B) in the case of any other action, will not be more than
60 days prior to the other action.
If no record date is fixed:
(A) the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders will be at
the close of business on the day next preceding the day on which
notice is given, or, if notice is waived, at the close of
business on the day next preceding the day on which the meeting
is held and
(B) the record date for determining stockholders for any
other purpose will be at the close of business on the day on
which the board of directors adopts the resolution relating
thereto.
A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders will apply to any
adjournment of the meeting; except that the board of directors
may fix a new record date for the adjourned meeting.
Section 5. Registered
Stockholders. The names and addresses of the
holders of record of the shares of each class and series of the
Corporations capital stock, together with the number of
shares of each class and series held by each record holder and
the date of issue of the shares, will be entered into the books
of the Corporation. Prior to the surrender to the Corporation of
the certificate or certificates for a share or shares of stock
with a request to record the transfer of the share or shares,
the Corporation may, to the fullest extent permitted by law,
treat the registered owner as the person entitled to receive
dividends, to vote, to receive notifications, and otherwise to
exercise all the rights and powers of an owner.
Section 6. Regulations. The
board of directors will have the power and authority to make all
rules and regulations as it may deem reasonably expedient
concerning the issue, transfer, registration, cancellation and
replacement of certificates representing stock of the
Corporation.
ARTICLE 5
GENERAL
PROVISIONS
Section 1. Fiscal
Year. The fiscal year of the Corporation will
begin on the first day of January in each year and end on the
thirty-first day of the following December.
Section 2. Waiver
of Notice. Whenever notice is required to be
given by law or under any provision of the Charter or these
bylaws, a waiver of notice, given by the person entitled to
notice, whether before or after the time stated in the waiver of
notice, will be deemed equivalent to notice. Attendance of a
person at a meeting will constitute waiver of notice of the
meeting except when the person attends for the express purpose
of objecting at the beginning of the meeting to the transaction
of any business because the meeting is not lawfully called or
convened.
Section 3. Corporate
Seal. There will be no corporate seal.
Section 4. Section Headings. Section
headings in these bylaws are for convenience of reference only
and will not be given any substantive effect in limiting or
otherwise construing any provision in these bylaws.
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Section 5. Inconsistent
Provisions. If any provision of these bylaws
is or becomes inconsistent with any provision of the Charter,
the DGCL or other applicable law, the provision of these bylaws
will not be given any effect to the extent of the inconsistency
but will otherwise be given full force and effect.
Section 6. Books
and Records. The books and records of the
Corporation may be kept outside of the State of Delaware at the
place or places as the board of directors may from time to time
determine.
Section 7. Checks,
Notes, Proxies, Etc. All checks and drafts on
the Corporations bank accounts and all bills of exchange
and promissory notes, and all acceptances, obligations and other
instruments for the payment of money, will be signed by the
officer or officers or agent or agents as will be authorized
from time to time by the board of directors or the officer or
officers who may be delegated the authority. Proxies to vote and
consents with respect to securities of other corporations owned
by or standing in the name of the Corporation may be executed
and delivered from time to time on behalf of the Corporation by
the chairman or co-chairman of the board of directors, the chief
executive officer, or by the officers as the chairman or
co-chairman of the board of directors, the chief executive
officer or the board of directors may from time to time
determine.
ARTICLE 6
AMENDMENTS
Section 1. General. Subject
to Article 2, the Charter and agreements entered into by
the stockholders (including the Equityholders Agreement),
these bylaws may be amended, altered, or repealed and new bylaws
adopted by resolution of the board of directors. The fact that
the power to adopt, amend, alter, or repeal the bylaws has been
conferred on the board of directors will not divest the
stockholders of the same powers.
Section 2. Equityholders
Agreement. All of the provisions set forth in
these bylaws will be subject to the terms and conditions of the
Equityholders Agreement for so long as such agreement
remains in effect in accordance with its terms. Subject to
agreements entered into by the stockholders (including the
Equityholders Agreement), the stockholders will only be
able to adopt, amend, alter or repeal bylaws by an affirmative
vote of not less than 50% of the voting power of all outstanding
shares of stock of the Corporation entitled to vote generally at
an election of directors, voting together as a single class.
F-14
ANNEX G
FAIRNESS
OPINION OF MORGAN STANLEY & CO. INCORPORATED
Annex G
May 7,
2008
Board of Directors
Clearwire Corporation
4400 Carillon Point
Kirkland, WA 98033
Members of the Board:
We understand that Clearwire Corporation (the
Company), Sprint Nextel Corporation
(Sprint), Comcast Corporation (Comcast),
Time Warner Cable Inc. (TWC), Bright House Networks,
LLC (BHN), Google Inc. (Google), and
Intel Corporation (Intel, and together with Comcast,
TWC, BHN and Google, the Investors), have entered
into a Transaction Agreement and Plan of Merger, dated as of
May 7, 2008 (the Agreement), which provides,
among other things, for: (i) the conversion of each
outstanding share of Class B common stock, par value
$0.0001 per share, of the Company into one share of Class A
common stock, par value $0.0001 per share, of the Company (the
Company Class A Common Stock); (ii) the
formation by the Company of a wholly-owned Delaware corporation
(NewCo); (iii) the formation by NewCo of a
wholly-owned Delaware limited liability company (NewCo
LLC); (iv) the formation by NewCo LLC of a
wholly-owned Delaware limited liability company (Clearwire
LLC); (v) the merger (the Merger) of the
Company with and into Clearwire LLC, pursuant to which each
share of Company Class A Common Stock will be converted
into the right to receive one share (the
Consideration) of Class A common stock, par
value $0.0001 per share, of NewCo (the NewCo Class A
Common Stock); (vi) the formation by Sprint of a
wholly-owned Delaware limited liability company (Sprint
Holdco LLC); (vii) the formation by Sprint Holdco LLC
of a wholly-owned Delaware limited liability company
(Sprint Sub LLC); (viii) the consolidation of
the Sprint WiMAX Business (as defined in the Agreement) in the
Transfer Entities (as defined in the Agreement); (ix) the
contribution of all of the limited liability company interests
in the Transfer Entities by Sprint and its subsidiaries to
Sprint Holdco LLC; (x) the contribution of all of the
limited liability company interests in the Transfer Entities by
Sprint Holdco LLC to Sprint Sub LLC; (xi) following
completion of the Merger, the contribution (the
Contribution) of all of the limited liability
company interests of Sprint Sub LLC by Sprint Holdco LLC to
NewCo LLC in exchange for non-voting membership interests in
NewCo LLC and the purchase by Sprint Holdco LLC of an equal
number of shares of Class B common stock, par value $0.0001
per share, of NewCo (the NewCo Class B Common
Stock) and the execution of certain commercial agreements
with NewCo LLC; (xii) following completion of the Merger
and the Contribution, the investment (the NewCo LLC
Investment) by Comcast, TWC, BHN and Intel of
$2.7 billion in the aggregate in NewCo LLC in exchange for
voting and non-voting membership interests in NewCo LLC and the
execution of certain commercial agreements with NewCo LLC;
(xiii) following completion of the Merger and the
Contribution, the investment (together with the NewCo LLC
Investment, the Investment) by Google of
$500,000,000 in the aggregate in NewCo in exchange for shares of
NewCo Class A Common Stock; (xiv) the contribution of
the cash that NewCo receives in exchange for NewCo Class B
Common Stock pursuant to clause (xi) by NewCo to NewCo LLC
in exchange for voting membership interests in NewCo LLC;
(xv) the contribution of all of the voting membership
interests in NewCo LLC held by Comcast, TWC, BHN and Intel to
NewCo in exchange for an equal number of shares of NewCo
Class B Common Stock; and (xvi) the contribution of
the cash that NewCo receives in exchange for NewCo Class A
Common Stock pursuant to clause (xiii) by NewCo to NewCo
LLC in exchange for an equal number of voting and non-voting
membership interests in NewCo LLC, in each case in accordance
with the terms and conditions of the Agreement. The actions
contemplated by clauses (i) through (xvi) above are
referred to collectively herein as
G-1
the Transaction, and the terms of the Transaction
are more fully described in the Agreement. As used herein, the
term Investment also includes an investment by a
certain additional investor in the amount of $10,000,000 in the
aggregate in NewCo in exchange for shares of NewCo Class A
Common Stock, which investment will occur shortly after the
consummation of the transactions contemplated by the Agreement
and will be made on substantially the same terms as the
investment made by the Investors.
You have asked for our opinion as to whether the Consideration
to be received by the holders of shares of Company Class A
Common Stock pursuant to the Merger is fair from a financial
point of view to such holders.
For purposes of the opinion set forth herein, we have:
(a) reviewed certain publicly available financial
statements and other business and financial information of the
Company;
(b) reviewed certain internal financial statements and
other financial and operating data concerning the Company and
the Sprint WiMAX Business, respectively;
(c) reviewed certain financial projections for the Company
prepared by the management of the Company on a stand-alone basis
and certain financial projections for NewCo jointly prepared by
the managements of the Company and Sprint;
(d) reviewed information relating to certain strategic,
financial and operational benefits anticipated from the
Transaction prepared by the managements of the Company and
Sprint, respectively;
(e) discussed the past and current operations and financial
condition and the prospects of the Company, including
information relating to certain strategic, financial and
operational benefits anticipated from the Transaction, with
senior executives of the Company;
(f) discussed the past and current operations and financial
condition and the prospects of the Sprint WiMAX Business,
including information relating to certain strategic, financial
and operational benefits anticipated from the Transaction, with
senior executives of Sprint;
(g) reviewed the pro forma impact of the Transaction on
NewCos cash flow, consolidated capitalization and
financial ratios;
(h) reviewed the reported prices and trading activity for
the Company Class A Common Stock;
(i) compared the financial performance of the Company and
the prices and trading activity of the Company Class A
Common Stock with that of certain other publicly-traded
companies comparable to the Company and its securities;
(j) reviewed the financial terms, to the extent publicly
available, of certain comparable acquisition transactions and
the results of certain recent auctions of wireless spectrum by
the Federal Communications Commission;
(k) participated in certain discussions and negotiations
among representatives of the Company, Sprint and the Investors
and their respective financial and legal advisors;
(l) reviewed the Agreement and certain related
documents; and
(m) performed such other analyses and considered such other
factors as we have deemed appropriate.
We have assumed and relied upon, without independent
verification, the accuracy and completeness of the information
that was publicly available or supplied or otherwise made
available to us by the Company and Sprint and which formed a
substantial basis for this opinion. With respect to the
financial projections, including information relating to certain
strategic, financial and operational benefits anticipated from
the Transaction, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available
estimates and judgments of the respective managements of the
Company and Sprint of the future financial performance of the
Company, the Sprint WiMAX Business and NewCo. In addition, we
have
G-2
assumed that the Transaction will be consummated in accordance
with the terms set forth in the Agreement and the related
documents without any waiver, amendment or delay of any terms or
conditions, including, among other things, that the Transaction
will have the tax treatment as described in the Agreement. We
have assumed that in connection with the receipt of all the
necessary governmental, regulatory or other approvals and
consents required for the proposed Transaction, no delays,
limitations, conditions or restrictions will be imposed that
would have a material adverse effect on the contemplated
benefits expected to be derived in the proposed Transaction. We
have relied upon, without independent verification, the
assessment by the respective managements of the Company and
Sprint of: (i) the strategic, financial and other benefits
expected to result from the Transaction; (ii) the timing
and risks associated with the integration of the Company and the
Sprint WiMAX Business; (iii) NewCos ability to retain
key employees of the Company and the Sprint WiMAX Business,
respectively; and (iv) the validity of, and risks
associated with, the Companys and Sprint WiMAX
Business existing and future technologies, intellectual
property, products, services and business models. We are not
legal, tax or regulatory advisors. We are financial advisors
only and have relied upon, without independent verification, the
assessment of the Company and its legal, tax or regulatory
advisors with respect to legal, tax or regulatory matters. We
express no opinion with respect to the fairness of the amount or
nature of the compensation to any of the Companys
officers, directors or employees, or any class of such persons,
relative to the Consideration to be received by the holders of
shares of Company Class A Common Stock in the Merger. We
have not made any independent valuation or appraisal of the
assets or liabilities of the Company or the Sprint WiMAX
Business, nor have we been furnished with any such appraisals.
Our opinion is necessarily based on financial, economic, market
and other conditions as in effect on, and the information made
available to us as of, the date hereof. Events occurring after
the date hereof may affect this opinion and the assumptions used
in preparing it, and we do not assume any obligation to update,
revise or reaffirm this opinion.
In arriving at our opinion, we were not authorized to solicit,
and did not solicit, interest from any party other than Sprint
with respect to the acquisition, business combination or other
extraordinary transaction, involving the Company.
We have acted as financial advisor to the Board of Directors of
the Company in connection with the Transaction and will receive
a fee for our services, a substantial portion of which is
contingent upon the closing of the Transaction. In the two years
prior to the date hereof, we have provided financial advisory
and financing services for the Company and certain of the
Investors and have received fees in connection with such
services. Morgan Stanley may also seek to provide such services
to the Company, Sprint or the Investors in the future and
expects to receive fees for the rendering of these services.
Please note that Morgan Stanley is a global financial services
firm engaged in the securities, investment management and
individual wealth management businesses. Our securities business
is engaged in securities underwriting, trading and brokerage
activities, foreign exchange, commodities and derivatives
trading, prime brokerage, as well as providing investment
banking, financing and financial advisory services. Morgan
Stanley, its affiliates, directors and officers may at any time
invest on a principal basis or manage funds that invest, hold
long or short positions, finance positions, and may trade or
otherwise structure and effect transactions, for their own
account or the accounts of its customers, in debt or equity
securities or loans of the Company, Sprint, the Investors or any
other company, or any currency or commodity, that may be
involved in the Transaction, or any related derivative
instrument.
This opinion has been approved by a committee of Morgan Stanley
investment banking and other professionals in accordance with
our customary practice. This opinion is for the information of
Board of Directors of the Company and may not be used for any
other purpose without our prior written consent, except that a
copy of this opinion may be included in its entirety in any
filing the Company is required to make with the Securities and
Exchange Commission in connection with the Transaction if such
inclusion is required by applicable law. In addition, this
opinion does not in any manner address the prices at which the
NewCo Class A Common Stock will trade following
consummation of the Transaction and Morgan Stanley expresses no
opinion or recommendation as to how the shareholders of the
Company should vote at the shareholders meeting to be held
in connection with the Transaction. As indicated above, for
purposes of our analyses, we took into account the terms of the
Contribution and the Investment. However, our opinion only
addresses the
G-3
fairness, from a financial point of view, of the Consideration
to be received by the holders of shares of Company Class A
Common Stock pursuant to the Merger. Our opinion does not
address the fairness of any aspect of the Contribution, the
Investment or any other related or unrelated transaction or
agreement. In particular, Morgan Stanley expresses no opinion as
to the relative fairness of any portion of the Consideration to
be received by the holders of any existing class of common stock
of the Company.
Based on and subject to the foregoing, we are of the opinion on
the date hereof that the Consideration to be received by the
holders of shares of Company Class A Common Stock pursuant
to the Merger is fair from a financial point of view to such
holders.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
Name: Thomas F. Whayne
Title Managing Director
G-4
Annex
H
NEW
CLEARWIRE CORPORATION
2008
STOCK COMPENSATION PLAN
ARTICLE I
EFFECTIVE
DATE AND PURPOSE
1.1 Effective Date. The Board and the
board of directors of Clearwire Corporation approved the Plan
effective as of [DATE] (the Effective Date), subject
to the approval of the Plan by a majority of the stockholders of
Clearwire Corporation within twelve (12) months of the
adoption of the Plan by the Board in accordance with Code
Sections 162(m) and 422, and the treasury regulations
promulgated thereunder. No Awards may be granted hereunder or
approved by the Board or the Committee until, the consummation
of the Transaction. If the Transaction is not consummated
substantially in accordance with the terms of the Transaction
Agreement (as amended from time to time in accordance with its
terms) by January 1, 2010, this Plan shall terminate and be
of no further force or effect.
1.2 Purpose of the Plan. The Plan is
intended to further the growth and profitability of the Company
by increasing incentives and encouraging Share ownership on the
part of the Employees, Independent Contractors and Members of
the Board of the Company and its Subsidiaries and Related
Companies. The Plan is intended to permit the grant of Awards
that constitute Incentive Stock Options, Non-Qualified Stock
Options, Stock Appreciation Rights, Restricted Stock, Restricted
Stock Units and Other Stock Awards.
ARTICLE II
DEFINITIONS
The following words and phrases shall have the following
meanings unless a different meaning is plainly required by the
context:
Affiliate means any entity, directly or indirectly,
controlled by, controlling or under common control with the
Company or any corporation or other entity acquiring, directly
or indirectly, all or substantially all the assets and business
of the Company, whether by operation of law or otherwise.
Award means, individually or collectively, a grant
under the Plan of Non-Qualified Stock Options, Incentive Stock
Options, Stock Appreciation Rights, Restricted Stock, Restricted
Stock Units or Other Stock Awards.
Award Agreement means the written agreement setting
forth the terms and conditions applicable to an Award.
Base Price means the price at which a SAR may be
exercised with respect to a Share.
Board means the Companys Board of Directors,
as constituted from time to time.
Change in Control means with respect to either the
Company or the LLC (each, a Clearwire Person), any
of the following events:
(a) the sale of more than a majority of the consolidated
assets of that Clearwire Person and its Subsidiaries;
(b) any merger, consolidation, share exchange,
recapitalization, sale, issuance, disposition, transfer of
capital stock or other transaction, in each case in which any
Person or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act) acquires beneficial ownership of
more than a majority (or, in the case of Sprint Nextel
Corporation, seventy-five percent) of either:
(i) the then-outstanding shares of that Clearwire
Persons common stock or equivalent securities (determined
on an as-converted basis), or
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(ii) the combined voting power of the then-outstanding
voting securities of that Clearwire Person entitled to vote
generally in the election of directors; or
(c) solely with respect to the Company, during any period
of 24 consecutive months, a majority of the members of the Board
cease to be composed of individuals (A) who were members of
the Board on the first day of such period, (B) whose
election or nomination to the Board was approved by individuals
referred to in clause (A) above constituting at the time of
such election or nomination at least a majority of the Board or
(C) whose election or nomination to the Board was approved
by individuals referred to in clauses (A) and
(B) above constituting at the time of such election or
nomination at least a majority of the Board; PROVIDED, HOWEVER,
a member of the Board who differs from the individual who was a
member of the Board on the first day of the applicable period
will be deemed to have been a member on the first day of the
applicable period if such member was nominated or otherwise
designated by the same Equityholder (as defined in the
Equityholders Agreement) as appointed the original member
in accordance with Section 2.1 of the Equityholders
Agreement.
For the sake of clarity, consummation of the Transaction shall
not constitute a Change in Control.
Code means the Internal Revenue Code of 1986, as
amended. Reference to a specific section of the Code or
regulation thereunder shall include such section or regulation,
any valid regulation or other guidance promulgated under such
section, and any comparable provision of any future legislation
or regulation amending, supplementing or superseding such
section or regulation.
Committee means the committee of the Board described
in Article 3.
Company means New Clearwire Corporation or any
successor thereto.
Division means any of the operating units or
divisions of the Company, a Subsidiary or a Related Company that
is designated as a Division by the Committee.
Eligible Individual means any of the following
individuals who is designated by the Committee as eligible to
receive Awards subject to the conditions set forth herein:
(a) any Member of the Board, officer or Employee of the
Company, a Subsidiary or a Related Company, (b) any
individual to whom the Company, a Subsidiary or a Related
Company has extended a formal, written offer of employment, or
(c) any Independent Contractor.
Employee means an employee of the Company, a Related
Company, a Subsidiary or an Affiliate (each an
Employer) designated by the Committee.
Equityholders Agreement means the
Equityholders Agreement by and among the Company, Sprint
Nextel Corporation, Eagle River Holdings, LLC, Intel
Corporation, Comcast Corporation, Time Warner Cable Inc., Google
Inc., and BHN Spectrum Investments, LLC, as amended from time to
time.
Exchange Act means the Securities Exchange Act of
1934, as amended. Reference to a specific section of the
Exchange Act or regulation thereunder shall include such section
or regulation, any valid regulation or interpretation
promulgated under such section, and any comparable provision of
any future legislation or regulation amending, supplementing or
superseding such section or regulation.
Exercise Price means the price at which a Share
subject to an Option may be purchased upon the exercise of the
Option.
Fair Market Value on any date means (a) the
closing price in the primary trading session for a Share on such
date on the stock exchange, if any, on which Shares are
primarily traded (or if no Shares were traded on such date, then
on the most recent previous date on which any Shares were so
traded), (b) if clause (a) is not applicable, the
closing price of the Shares on such date on the Nasdaq Stock
Market at the close of the primary trading session (or if no
Shares were traded on such date, then on the most recent
previous date on which any Shares were so traded) or (c) if
neither clause (a) nor clause (b) is applicable, the
value of a Share for such date as established by the Committee,
using any reasonable method of valuation.
Grant Date means the date that the Award is granted.
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Immediate Family means the Participants
children, stepchildren, grandchildren, parents, stepparents,
grandparents, spouse, siblings (including half-brothers and
half-sisters), in-laws, and all such relationships arising
because of legal adoption.
Incentive Stock Option means an Option that is
designated as an Incentive Stock Option and is intended by the
Committee to meet the requirements of Section 422 of the
Code.
Independent Contractor means a Person, employed by
the Company, a Subsidiary or a Related Company for a specific
task, study or project who is not an Employee, including an
advisor or consultant who (i) is a natural person and
(ii) provides bona fide services to the Company, a
Subsidiary or a Related Company; provided such services are not
in connection with the offer or sale of securities in a
capital-raising transaction, and do not directly or indirectly
promote or maintain a market for the Companys securities.
LLC means Clearwire Communications LLC and any
successor thereto.
Member of the Board means an individual who is a
member of the Board or of the board of directors of a
Subsidiary, an Affiliate or a Related Company.
New Clearwire Share means a share of the
Companys Class A common stock, par value $0.0001 per
share.
Non-Qualified Stock Option means an Option that is
not an Incentive Stock Option.
Old Clearwire Share means a share of Clearwire
Corporations Class A common stock, par value $0.0001
per share.
Option means an option to purchase Shares granted
pursuant to Article 5.
Optionee means a Person to whom an Option has been
granted under the Plan.
Other Stock Award means an Award granted pursuant to
Article 8 to receive Shares on the terms specified in any
applicable Award Agreement.
Participant means an Eligible Individual with
respect to whom an Award has been granted and remains
outstanding.
Performance Awards means Performance Units,
Performance Shares or either or both of them.
Performance-Based Compensation means any Option or
Award that is intended to constitute performance based
compensation within the meaning of
Section 162(m)(4)(C) of the Code and the regulations
promulgated thereunder.
Performance Cycle means the time period specified by
the Committee at the time Performance Awards are granted during
which the performance of the Company, a Subsidiary, a Division
or a Related Company will be measured.
Performance Goals means goals established by the
Committee as contingencies for Awards to vest
and/or
become exercisable or distributable.
Performance Shares means Shares issued or
transferred to a Participant under Section 9.
Performance Units means Restricted Stock Units
subject to Performance Goals under Section 9.
Performance Period means the designated period
during which the Performance Goals must be satisfied with
respect to the Award to which the Performance Goals relate.
Period of Restriction means the period during which
Restricted Stock or an RSU is subject to forfeiture
and/or
restrictions on transferability.
Person means any individual, corporation, limited
liability company, limited or general partnership, joint
venture, association, joint-stock company, trust, estate,
unincorporated organization, government or any agency or
political subdivisions thereof.
H-3
Plan means this New Clearwire Corporation 2008 Stock
Compensation Plan, as set forth in this instrument and as
hereafter amended from time to time.
Related Company means any Person that would be
considered a single employer with the Company under
Section 414(b) or (c) of the Code if the language
at least 80 percent as used in connection with
the application of these provisions were replaced by at
least 50 percent.
Restricted Stock means a Stock Award granted
pursuant to Article 6 under which the Shares are subject to
forfeiture upon such terms and conditions as specified in the
relevant Award Agreement.
Restricted Stock Unit or RSU means a
Stock Award granted pursuant to Article 6 subject to a
period or periods of time after which the Participant will
receive Shares if the conditions contained in such Stock Award
have been met.
Service Relationship means (i) an
Employees employment relationship, (ii) an
Independent Contractors service relationship or
(iii) a Member of the Boards service as a member of
the Board. Unless otherwise provided in an Award Agreement, a
Participants Service Relationship shall not be considered
to be terminated so long as such Participant has a Service
Relationship as an Employee, Independent Contractor or Member of
the Board.
Share means an Old Clearwire Share. After
consummation of the Transaction, Share shall mean a
share of stock of the Company into which Old Clearwire Shares
were converted in connection with the Transaction, which are
anticipated to be shares of Class A common stock of the
Company, par value $0.0001 per share (each, a New
Clearwire Share).
Stock Appreciation Right or SAR means an
Award granted pursuant to Article 7, granted alone or in
tandem with a related Option which is designated by the
Committee as an SAR.
Stock Award means an Award of Restricted Stock or an
RSU pursuant to Article 6.
Subsidiary(ies) means any entity (other than the
Company) in an unbroken chain of entities, including and
beginning with the Company, if each of such entities, other than
the last entity in the unbroken chain, owns, directly or
indirectly, more than fifty percent (50%) of the voting
interests in one of the other entities in such chain.
Ten Percent Holder means an Employee (together
with Persons whose stock ownership is attributed to the Employee
pursuant to Section 424(d) of the Code) who, at the time an
Option is granted, owns stock representing more than ten percent
of the voting power of all classes of stock of the Company.
Transaction means the transactions contemplated by
the Transaction Agreement.
Transaction Agreement means the Transaction
Agreement and Plan of Merger, dated as of May 7, 2008 by
and among Clearwire Corporation, Sprint Nextel Corporation,
Comcast Corporation, Time Warner Cable Inc., Bright House
Networks, LLC, Google Inc. and Intel Corporation, as amended
from time to time.
ARTICLE III
ADMINISTRATION
3.1 The Committee. The Plan shall be
administered by the Compensation Committee of the Board. Except
as provided in or pursuant to the Equityholders Agreement,
if the Committee consists of more than one (1) member, a
quorum shall consist of not fewer than two (2) members of
the Committee and a majority of a quorum may authorize any
action. Subject to applicable law and Section 3.3 of the
Plan, the Committee may delegate its authority under the Plan to
any other Person or Persons. Reference to the Committee shall
refer to the Board if the Compensation Committee ceases to exist
and the Board does not appoint a successor Committee.
3.2 Authority and Action of the
Committee. It shall be the duty of the Committee
to administer the Plan in accordance with the Plans
provisions. The Committee shall have all powers and discretion
necessary or appropriate to administer the Plan and to control
its operation, including, but not limited to, the power to
H-4
(a) determine which Employees, Independent Contractors and
Members of the Board shall be eligible to receive Awards, and to
grant Awards, (b) prescribe the form, amount, timing and
other terms and conditions of each Award, (c) interpret the
Plan and the Award Agreements, (d) adopt such procedures as
it deems necessary or appropriate to permit participation in the
Plan by eligible Employees, Independent Contractors and Members
of the Board, (e) adopt such rules as it deems necessary or
appropriate for the administration, interpretation and
application of the Plan, (f) interpret, amend or revoke any
such procedures or rules, (g) correct any technical
defect(s) or technical omission(s), or reconcile any technical
inconsistency(ies), in the Plan
and/or any
Award Agreement, (h) accelerate the vesting or payment of
any award, (i) extend the period during which an Option may
be exercisable, and (j) make all other decisions and
determinations that may be required pursuant to the Plan
and/or any
Award Agreement or as the Committee deems necessary or advisable
to administer the Plan.
Except as provided in or pursuant to the Equityholders
Agreement, the acts of the Committee shall be either
(i) acts of a majority of the members of the Committee
present at any meeting at which a quorum is present or
(ii) acts approved in writing by all of the members of the
Committee without a meeting. A majority of the Committee shall
constitute a quorum. The Committees determinations under
the Plan need not be uniform and may be made selectively among
Participants, whether or not such Participants are similarly
situated. Each member of the Committee is entitled, in good
faith, to rely or act upon any report or other information
furnished to that member by any Employee of the Company or any
of its Subsidiaries, Affiliates, or Related Companies, the
Companys independent certified public accountants or any
executive compensation consultant or other professional retained
by the Company to assist in the administration of the Plan.
The Company shall effect the granting of Awards under the Plan,
in accordance with the determinations made by the Committee, by
execution of written agreements
and/or other
instruments in such form as is approved by the Committee.
3.3 Delegation by the Committee. The
Committee, in its sole discretion and on such terms and
conditions as it may provide, may delegate all or any part of
its authority and powers under the Plan to one or more Members
of the Board of the Company
and/or
officers of the Company; PROVIDED, HOWEVER, that the Committee
may not delegate its authority or power with respect to the
selection for participation in this Plan of an officer or other
Person subject to Section 16 of the Exchange Act or
decisions concerning the timing, pricing or amount of an Award
to such an officer or Person and the Committee may not delegate
to an Eligible Individual the authority to grant Awards to him
or herself.
3.4 Decisions Binding. All
determinations, decisions and interpretations of the Committee,
the Board, and any delegate of the Committee pursuant to the
provisions of the Plan or any Award Agreement shall be final,
conclusive, and binding on all Persons, and shall be given the
maximum deference permitted by law.
ARTICLE IV
SHARES
SUBJECT TO THE PLAN
4.1 Number of Shares. Subject to
adjustment as provided in Section 10.12, the number of
Shares available for grants of Awards under the Plan shall be
80,000,000 Shares. For the sake clarity, immediately after
consummation of the Transaction, the number of New Clearwire
Shares available for grants of Awards under the Plan shall not
exceed 80,000,000 New Clearwire Shares, subject thereafter to
adjustment as provided in Section 10.12. Shares awarded
under the Plan may be either authorized but unissued Shares,
authorized and issued Shares reacquired and held as treasury
Shares or a combination thereof. Unless prohibited by applicable
law or exchange rules, Shares issued in assumption of, or in
substitution for, any outstanding awards of any entity acquired
in any form of combination by the Company or any Subsidiary or
Affiliate shall not reduce the Shares available for grants of
Awards under this Section 4.1. Upon consummation of the
Transaction, the Old Clearwire Shares reserved hereunder shall
be converted into New Clearwire Shares, with the number of New
Clearwire Shares reserved for issuance under the Plan equaling
the number of New Clearwire Shares into which the number of Old
Clearwire Shares reserved hereunder would be converted pursuant
to the Transaction Agreement if they were then outstanding.
Subject to adjustment in accordance with Section 10.12, in
no event may more than 20,000,000 Shares be issued upon the
exercise of an Incentive Stock Option granted under the
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Plan. Subject to adjustment in accordance with
Section 10.12, the maximum number of Shares that may be
subject to Options or Stock Appreciation Rights granted to any
Eligible Individual in any
12-month
period is 4,000,000.
4.2 Lapsed Awards. To the extent that
Shares subject to an outstanding Option (except to the extent
Shares are issued or delivered by the Company in connection with
the exercise of a tandem SAR) or other Award are not issued or
delivered by reason of (i) the expiration, cancellation,
forfeiture or other termination of such Award, (ii) the
withholding of such Shares in satisfaction of applicable
federal, state or local taxes or (iii) of the settlement of
all or a portion of such Award in cash, then such Shares shall
again be available under this Plan.
ARTICLE V
STOCK
OPTIONS
5.1 Grant of Options. Subject to the
provisions of the Plan, Options may be granted to Participants
at such times, and subject to such terms and conditions, as
determined by the Committee in its sole discretion. An Award of
Options may include Incentive Stock Options, Non-Qualified Stock
Options, or a combination thereof; PROVIDED, HOWEVER, that an
Incentive Stock Option may only be granted to an Employee of the
Company or a Subsidiary and no Incentive Stock Option shall be
granted more than ten years after the earlier of (i) the
date this Plan is adopted by the Board or (ii) the date
this Plan is approved by the Clearwire Corporations
stockholders.
5.2 Award Agreement. Each Option shall be
evidenced by an Award Agreement that shall specify the Exercise
Price, the expiration date of the Option, the number of Shares
to which the Option pertains, any conditions to the exercise of
all or a portion of the Option, and such other terms and
conditions as the Committee, in its discretion, shall determine.
The Award Agreement pertaining to an Option shall designate such
Option as an Incentive Stock Option or a Non-Qualified Stock
Option. Notwithstanding any such designation, to the extent that
the aggregate Fair Market Value (determined as of the Grant
Date) of Shares with respect to which Options designated as
Incentive Stock Options are exercisable for the first time by a
Participant during any calendar year (under this Plan or any
other plan of the Company, or any parent or subsidiary as
defined in Section 424 of the Code) exceeds $100,000, such
Options shall constitute Non-Qualified Stock Options. For
purposes of the preceding sentence, Incentive Stock Options
shall be taken into account in the order in which they are
granted.
5.3 Exercise Price. Subject to the other
provisions of this Section, the Exercise Price with respect to
Shares subject to an Option shall be determined by the Committee
in its sole discretion; PROVIDED, HOWEVER, that the Exercise
Price shall be not less than one hundred percent (100%) of the
Fair Market Value of a Share on the Grant Date; and provided
further, that the Exercise Price with respect to an Incentive
Stock Option granted to a Ten Percent Holder shall not be
less than one hundred ten percent (110%) of the Fair Market
Value of a Share on the Grant Date.
5.4 Expiration Dates. Each Option shall
terminate not later than the expiration date specified in the
Award Agreement pertaining to such Option; PROVIDED, HOWEVER,
that the expiration date with respect to an Option shall not be
later than the tenth anniversary of its Grant Date and the
expiration date with respect to an Incentive Stock Option
granted to a Ten Percent Holder shall not be later than the
fifth anniversary of its Grant Date.
5.5 Exercisability of Options. Subject to
Section 5.4, Options granted under the Plan shall be
exercisable at such times, and shall be subject to such
restrictions and conditions, as the Committee shall determine in
its sole discretion. The exercise of an Option is contingent
upon payment by the Optionee of the amount sufficient to pay all
taxes required to be withheld by any governmental agency. Such
payment may be in any form approved by the Committee.
5.6 Method of Exercise. Options shall be
exercised by the Participants delivery of a written notice
of exercise to the Chief Financial Officer of the Company (or
his or her designee), setting forth the number of Shares with
respect to which the Option is to be exercised, accompanied by
full payment of the Exercise Price
H-6
with respect to each such Share and an amount sufficient to pay
all taxes required to be withheld by any governmental agency.
The Exercise Price shall be payable to the Company in full in
cash or its equivalent. The Committee, in its sole discretion,
also may permit exercise (a) by tendering previously
acquired Shares having an aggregate Fair Market Value at the
time of exercise equal to the aggregate Exercise Price of the
Shares with respect to which the Option is to be exercised, or
(b) by any other means which the Committee, in its sole
discretion, determines to both provide legal consideration for
the Shares, and to be consistent with the purposes of the Plan,
including, without limitation, through a registered
broker-dealer pursuant to such cashless exercise procedures
which are, from time to time, deemed acceptable by the
Committee. As soon as practicable after receipt of a written
notification of exercise and full payment for the Shares with
respect to which the Option is exercised, the Company shall
deliver to the Participant Share certificates (which may be in
book entry form) for such Shares with respect to which the
Option is exercised.
5.7 Restrictions on Share
Transferability. Incentive Stock Options are not
transferable, except by will or the laws of descent. The
Committee may impose such additional restrictions on any Shares
acquired pursuant to the exercise of an Option as it may deem
advisable, including, but not limited to, restrictions related
to applicable federal securities laws, the requirements of any
national securities exchange or system upon which Shares are
then listed or traded, or any blue sky or state securities laws.
ARTICLE VI
STOCK
AWARDS
6.1 Grant of Stock Awards. Subject to the
provisions of the Plan, Stock Awards may be granted to such
Participants at such times, and subject to such terms and
conditions, as determined by the Committee in its sole
discretion.
6.2 Stock Award Agreement. Each Stock
Award shall be evidenced by an Award Agreement that shall
specify the number of Shares granted, the price, if any, to be
paid for the Shares and the Period of Restriction applicable to
a Restricted Stock Award or RSU Award and such other terms and
conditions as the Committee, in its sole discretion, shall
determine.
6.3 Transferability/Share
Certificates. Shares subject to an Award of
Restricted Stock may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated during a Period
of Restriction. During the Period of Restriction, a Restricted
Stock Award may be registered in the holders name or a
nominees name at the discretion of the Company and may
bear a legend as described in Section 6.4.2. Unless the
Committee determines otherwise, shares of Restricted Stock shall
be held by the Company as escrow agent during the applicable
Period of Restriction, together with stock powers or other
instruments of assignment (including a power of attorney), each
endorsed in blank with a guarantee of signature if deemed
necessary or appropriate by the Company, which would permit
transfer to the Company of all or a portion of the Shares
subject to the Restricted Stock Award in the event such Award is
forfeited in whole or part.
6.4 Other Restrictions. The Committee, in
its sole discretion, may impose such other restrictions on
Shares subject to an Award of Restricted Stock as it may deem
advisable or appropriate.
6.4.1 General Restrictions. The Committee
may set restrictions based upon applicable federal or state
securities laws, or any other basis determined by the Committee
in its discretion.
6.4.2 Legend on Certificates. The
Committee, in its sole discretion, may legend the certificates
representing Restricted Stock during the Period of Restriction
to give appropriate notice of such restrictions. For example,
the Committee may determine that some or all certificates
representing Shares of Restricted Stock shall bear the following
legend: The sale or other transfer of the shares of stock
represented by this certificate, whether voluntary, involuntary,
or by operation of law, is subject to certain restrictions on
transfer as set forth in the New Clearwire Corporation 2008
Stock Compensation Plan (the Plan), and in a
Restricted Stock Agreement (as defined by the Plan). A copy of
the Plan and such Restricted Stock Agreement may be obtained
from the Chief Financial Officer of New Clearwire
Corporation.
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6.5 Removal of Restrictions. Shares of
Restricted Stock covered by a Restricted Stock Award made under
the Plan shall be released from escrow as soon as practicable
after the termination of the Period of Restriction and, subject
to the Companys right to require payment of any taxes, a
certificate or certificates evidencing ownership of the
requisite number of Shares shall be delivered to the Participant.
6.6 Voting Rights. During the Period of
Restriction, Participants holding Shares of Restricted Stock
granted hereunder may exercise full voting rights with respect
to those Shares, unless otherwise provided in the Award
Agreement.
6.7 Dividends and Other
Distributions. During the Period of Restriction,
Participants holding Shares of Restricted Stock shall be
entitled to receive all dividends and other distributions paid
with respect to such Shares unless otherwise provided in the
Award Agreement. Unless otherwise provided in the Award
Agreement, any such dividends or distributions shall be
deposited with the Company and shall be subject to the same
restrictions on transferability and forfeitability as the Shares
of Restricted Stock with respect to which they were paid.
ARTICLE VII
STOCK
APPRECIATION RIGHTS
7.1 Grant of SARs. Subject to the
provisions of the Plan, SARs may be granted to such Participants
at such times, and subject to such terms and conditions, as
shall be determined by the Committee in its sole discretion;
PROVIDED, HOWEVER, that any tandem SAR (i.e., a SAR granted in
tandem with an Option) related to an Incentive Stock Option
shall be granted at the same time that such Incentive Stock
Option is granted.
7.2 Base Price and Other Terms. The
Committee, subject to the provisions of the Plan, shall have
complete discretion to determine the terms and conditions of
SARs granted under the Plan. Without limiting the foregoing, the
Base Price with respect to Shares subject to a tandem SAR shall
be the same as the Exercise Price with respect to the Shares
subject to the related Option.
7.3 SAR Agreement. Each SAR grant shall
be evidenced by an Award Agreement that shall specify the Base
Price (which shall not be less than one hundred percent (100%)
of the Fair Market Value of a Share on the Grant Date), the term
of the SAR, the conditions of exercise, and such other terms and
conditions as the Committee, in its sole discretion, shall
determine.
7.4 Expiration Dates. Each SAR shall
terminate no later than the tenth anniversary of its Grant Date;
PROVIDED, HOWEVER, that the expiration date with respect to a
tandem SAR shall not be later than the expiration date of the
related Option.
7.5 Payment of SAR Amount. Unless
otherwise specified in the Award Agreement pertaining to a SAR,
a SAR may be exercised (a) by the Participants
delivery of a written notice of exercise to the Chief Financial
Officer of the Company (or his or her designee) setting forth
the number of whole SARs which are being exercised, (b) in
the case of a tandem SAR, by surrendering to the Company any
Options which are cancelled by reason of the exercise of such
SAR, and (c) by executing such documents as the Company may
reasonably request. Except as otherwise provided in the relevant
Award Agreement, upon exercise of a SAR, the Participant shall
be entitled to receive payment from the Company in an amount
determined by multiplying: (i) the amount by which the Fair
Market Value of a Share on the date of exercise exceeds the Base
Price specified in the Award Agreement pertaining to such SAR;
by (ii) the number of Shares with respect to which the SAR
is exercised.
7.6 Payment Upon Exercise of SAR. Payment
to a Participant upon the exercise of the SAR shall be made, as
determined by the Committee in its sole discretion, either
(a) in cash, (b) in Shares with a Fair Market Value
equal to the amount of the payment or (c) in a combination
thereof, as set forth in the applicable Award Agreement.
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ARTICLE VIII
OTHER
STOCK AWARDS
8.1 Grant of Other Stock Awards. Subject
to the provisions of the Plan, the Committee may develop
sub-plans or grant other equity-based awards on such terms as it
may determine, including, but not limited to, Awards designed to
comply with or take advantage of applicable local laws of
jurisdictions outside of the United States.
ARTICLE IX
PERFORMANCE
AWARDS
9.1 Performance Goals. The Committee
shall have the authority to grant Awards under this Plan that
are contingent upon the achievement of Performance Goals. Such
Performance Goals are to be specified in the relevant Award
Agreement and may be based on such criteria as the Committee may
determine. Performance Goals may be in respect of the
performance of the Company, any of its Subsidiaries, Related
Companies or Affiliates or any combination thereof on either a
consolidated, business unit or divisional level. Performance
Goals may be absolute or relative (to prior performance of the
Company or to the performance of one or more other entities or
external indices) and may be expressed in terms of a progression
within a specified range.
9.2 Performance Units. The Committee, in
its discretion, may grant Awards of Performance Units to
Eligible Individuals, the terms and conditions of which shall be
set forth in an Agreement between the Company and the Eligible
Individual. Performance Units may be denominated in Shares or a
specified dollar amount and, contingent upon the attainment of
specified Performance Goals within the Performance Cycle,
represent the right to receive payment as provided in
Section 9.4.3 of (a) in the case of Share-denominated
Performance Units, the Fair Market Value of a Share on the date
the Performance Unit was granted, the date the Performance Unit
became vested or any other date specified by the Committee,
(b) in the case of dollar-denominated Performance Units,
the specified dollar amount or (c) a percentage (which may
be more than 100%) of the amount described in clause (a) or
(b) depending on the level of Performance Objective
attainment; PROVIDED, HOWEVER, that, the Committee may at the
time a Performance Unit is granted specify a maximum amount
payable in respect of a vested Performance Unit. Each Agreement
shall specify the number of Performance Units to which it
relates, the Performance Goals which must be satisfied in order
for the Performance Units to vest and the Performance Cycle
within which such Performance Goals must be satisfied.
9.2.1 Vesting and Forfeiture. Subject to
Section 9.4.3 and the terms of relevant Award Agreement, a
Participant shall become vested with respect to the Performance
Units to the extent that the Performance Goals set forth in the
Agreement are satisfied for the Performance Cycle.
9.2.2 Payment of Awards. Subject to
Section 9.4.3, payment to Participants in respect of vested
Performance Units shall be made in accordance with the terms of
the relevant Award Agreement. Such payments may be made entirely
in Shares valued at their Fair Market Value, entirely in cash,
or in such combination of Shares and cash as the Committee in
its discretion shall determine at any time prior to such payment.
9.3 Performance Shares. The Committee, in
its discretion, may grant Awards of Performance Shares to
Eligible Individuals, the terms and conditions of which shall be
set forth in an Agreement between the Company and the Eligible
Individual. Each Agreement may require that an appropriate
legend be placed on Share certificates. Awards of Performance
Shares shall be subject to the following terms and provisions:
9.3.1 Rights of Participant. The
Committee shall provide at the time an Award of Performance
Shares is made the time or times at which the actual Shares
represented by such Award shall be issued in the name of the
Participant; PROVIDED, HOWEVER, that no Performance Shares shall
be issued until the Participant has executed an Agreement
evidencing the Award, the appropriate blank stock powers and, in
the discretion of the Committee, an escrow agreement and any
other documents which the Committee may require as a condition
to the issuance of such Performance Shares. If a Participant
shall fail to
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execute the Agreement evidencing an Award of Performance Shares,
the appropriate blank stock powers and, in the discretion of the
Committee, an escrow agreement and any other documents which the
Committee may require within the time period prescribed by the
Committee at the time the Award is granted, the Award shall be
null and void. At the discretion of the Committee, Shares issued
in connection with an Award of Performance Shares shall be
deposited together with the stock powers with an escrow agent
(which may be the Company) designated by the Committee. Except
as restricted by the terms of the Agreement, upon delivery of
the Shares to the escrow agent, the Participant shall have, in
the discretion of the Committee, all of the rights of a
stockholder with respect to such Shares, including the right to
vote the Shares and to receive all dividends or other
distributions paid or made with respect to the Shares.
9.3.2 Non-Transferability. Until any
restrictions upon the Performance Shares awarded to a
Participant shall have lapsed in the manner set forth in
Section 9.3.3, such Performance Shares shall not be sold,
transferred or otherwise disposed of and shall not be pledged or
otherwise hypothecated, nor shall they be delivered to the
Participant. The Committee may also impose such other
restrictions and conditions on the Performance Shares, if any,
as it deems appropriate.
9.3.3 Lapse of Restrictions. Subject to
Section 9.4.3, restrictions upon Performance Shares awarded
hereunder shall lapse and such Performance Shares shall become
vested at such time or times and on such terms, conditions and
satisfaction of Performance Goals as the Committee may, in its
discretion, determine at the time an Award is granted.
9.3.4 Delivery of Shares. Upon the lapse
of the restrictions on Performance Shares awarded hereunder, the
Committee shall cause a stock certificate to be delivered to the
Participant with respect to such Shares, free of all
restrictions hereunder.
9.4 Performance Goals.
9.4.1 Establishment. Performance Goals
for Performance Awards may be expressed in terms of earnings per
Share, net income, revenue growth, market share, ratings, rank,
market valuation, cash flow, cash flow per Share, adjusted
earnings before interest, taxes and depreciation, Share price,
pre-tax profits, net earnings, return on equity or assets,
sales, any combination of the foregoing or, with respect to
Performance Awards that are not intended to qualify as
performance-based compensation under Section 162(m) of the
Code, such other criteria as the Committee may determine.
Performance Goals may be absolute or relative (to prior
performance of the Company or to the performance of one or more
other entities or external indices) and may be expressed in
terms of a progression within a specified range. The foregoing
criteria shall have any reasonable definitions that the
Committee may specify, which may include or exclude any or all
of the following items: extraordinary, unusual or non-recurring
items; effects of accounting changes; effects of currency
fluctuations; effects of financing activities (e.g., effect on
earnings per share of issuing convertible debt securities);
expenses for restructuring, productivity initiatives or new
business initiatives; non-operating items; acquisition and
merger expenses; effects of divestitures
and/or
mergers and other items identified by the Committee in its
discretion. Any such performance criterion or combination of
such criteria may apply to the award opportunity in its entirety
or to any designated portion or portions of the award
opportunity, as the Committee may specify. For any Performance
Award intended to comply with Section 162(m) of the Code,
the Performance Goals with respect to a Performance Cycle shall
be established in writing by the Committee by the earlier of
(x) the date on which a quarter of the Performance Cycle
has elapsed or (y) the date which is ninety (90) days
after the commencement of the Performance Cycle, and in any
event while the performance relating to the Performance Goals
remain substantially uncertain.
9.4.2 Effect of Certain Events. At the
time of the granting of a Performance Award, or at any time
thereafter, in either case to the extent permitted under
Section 162(m) of the Code and the regulations thereunder
without adversely affecting the treatment of the Performance
Award as Performance-Based Compensation, the Committee may
provide for the manner in which performance will be measured
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against the Performance Goals (or may adjust the Performance
Goals) to reflect the impact of specified corporate
transactions, accounting or tax law changes and other
extraordinary or nonrecurring events.
9.4.3 Determination of Performance. Prior
to the vesting, payment, settlement or lapsing of any
restrictions with respect to any Performance Award that is
intended to constitute Performance-Based Compensation made to a
Participant who is subject to Section 162(m) of the Code,
the Committee shall certify in writing that the applicable
Performance Goals have been satisfied to the extent necessary
for such Award to qualify as Performance-Based Compensation.
9.5 Non-Transferability. Until the
vesting of Performance Units or the lapsing of any restrictions
on Performance Shares, as the case may be, such Performance
Units or Performance Shares shall not be sold, transferred or
otherwise disposed of and shall not be pledged or otherwise
hypothecated.
9.6 Maximum Number of Performance
Awards. Subject to adjustment in accordance with
Section 10.12, the maximum number of Shares that may be
subject to Performance Awards granted to any Eligible Individual
in any
12-month
period is 4,000,000. Subject to adjustment in accordance with
Section 10.12, the maximum amount that can be paid out in
cash to any Participant in respect of any cash-settled
Performance Award granted to such Participant in any
12-month
period that is not expressed in the form of Share equivalents is
the Fair Market Value of 4,000,000 Shares as of the date of
grant.
ARTICLE X
MISCELLANEOUS
10.1 No Effect on Employment or
Service. Nothing in the Plan shall interfere with
or limit in any way the right of the Company, any Subsidiary or
any Related Company to terminate any Participants Service
Relationship at any time, for any reason and with or without
cause.
10.2 Participation. No Person shall have
the right to be selected to receive an Award under this Plan,
or, having been so selected, to be selected to receive a future
Award.
10.3 Indemnification. Each Person who is
or shall have been a member of the Committee, or of the Board,
shall be indemnified and held harmless by the Company against
and from (a) any loss, cost, liability, or expense that may
be imposed upon or reasonably incurred by him or her in
connection with or resulting from any claim, action, suit, or
proceeding to which he or she may be a party or in which he or
she may be involved by reason of any good faith action taken or
good faith failure to act under the Plan or any Award Agreement,
and (b) from any and all amounts paid by him or her in
settlement thereof, with the Companys approval, or paid by
him or her in satisfaction of any judgment in any such claim,
action, suit, or proceeding against him or her, provided he or
she shall give the Company an opportunity, at its own expense,
to handle and defend the same before he or she undertakes to
handle and defend it on his or her own behalf. The foregoing
right of indemnification shall not be exclusive of any other
rights of indemnification to which such Persons may be entitled
under the Companys Certificate of Incorporation or
By-Laws, by contract, as a matter of law, or otherwise, or under
any power that the Company may have to indemnify them or hold
them harmless.
10.4 Successors. All obligations of the
Company under the Plan, with respect to Awards granted
hereunder, shall be binding on any successor to the Company,
whether the existence of such successor is the result of a
direct or indirect purchase, merger, consolidation or otherwise,
of all or substantially all of the business or assets of the
Company.
10.5 Beneficiary Designations. Subject to
the restrictions in Section 10.6 below, a Participant under
the Plan may name a beneficiary or beneficiaries to whom any
vested but unpaid Award shall be paid in the event of the
Participants death. For purposes of this Section, a
beneficiary may include a designated trust having as its primary
beneficiary a family member of a Participant. Each such
designation shall revoke all prior designations by the
Participant and shall be effective only if given in a form and
manner acceptable to the Committee. In the absence of any such
designation, any vested benefits remaining unpaid at the
Participants death shall be paid to the Participants
estate and, subject to the terms of the Plan and of the
applicable Award
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Agreement, any unexercised vested Award may be exercised by the
administrator or executor of the Participants estate.
10.6 Nontransferability of Awards. No
Award granted under the Plan may be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than by
will, by the laws of descent and distribution; PROVIDED,
HOWEVER, that except as provided by in the relevant Award
Agreement, a Participant may transfer, without consideration, an
Award other than an Incentive Stock Option to one or more
members of his or her Immediate Family, to a trust established
for the exclusive benefit of one or more members of his or her
Immediate Family, to a partnership in which all the partners are
members of his or her Immediate Family, or to a limited
liability company in which all the members are members of his or
her Immediate Family; provided, further, that any such Immediate
Family, and any such trust, partnership and limited liability
company, shall agree to be and shall be bound by the terms of
the Plan, and by the terms and provisions of the applicable
Award Agreement and any other agreements covering the
transferred Awards. All rights with respect to an Award granted
to a Participant shall be available during his or her lifetime
only to the Participant and may be exercised only by the
Participant or the Participants legal representative.
10.7 No Rights as Stockholder. Except to
the limited extent provided in Sections 6.6 and 6.7, no
Participant (nor any beneficiary) shall have any of the rights
or privileges of a stockholder of the Company with respect to
any Shares issuable pursuant to an Award (or exercise thereof),
unless and until certificates representing such Shares shall
have been issued, recorded on the records of the Company or its
transfer agents or registrars, and delivered to the Participant
(or beneficiary).
10.8 Withholding Requirements. Prior to
the delivery of any Shares or cash pursuant to an Award (or
exercise thereof), the Company shall have the power and the
right to deduct or withhold, or require a Participant to remit
to the Company, an amount sufficient to satisfy any federal,
state, local and foreign taxes of any kind (including, but not
limited to, the Participants Federal Insurance
Contributions Act and State Disability Insurance obligations)
which the Committee, in its sole discretion, deems necessary to
be withheld or remitted to comply with the Code
and/or any
other applicable law, rule or regulation with respect to such
Award (or exercise thereof).
10.9 Withholding Arrangements. The
Committee, in its sole discretion and pursuant to such
procedures as it may specify from time to time, may permit or
require a Participant to satisfy all or part of the tax
withholding obligations in connection with an Award by
(a) having the Company withhold otherwise deliverable
Shares, or (b) delivering to the Company already-owned
Shares having a Fair Market Value equal to the amount required
to be withheld.
10.10 No Corporate Action
Restriction. The existence of the Plan, any Award
Agreement
and/or the
Awards granted hereunder shall not limit, affect or restrict in
any way the right or power of the Board or the stockholders of
the Company to make or authorize (a) any adjustment,
recapitalization, reorganization or other change in the
Companys or any Subsidiarys or Affiliates
capital structure or business, (b) any merger,
consolidation or change in the ownership of the Company or any
Subsidiary, Affiliate or Related Company, (c) any issue of
bonds, debentures, capital, preferred or prior preference stocks
ahead of or affecting the Companys or any
Subsidiarys, Affiliates or Related Companys
capital stock or the rights thereof, (d) any dissolution or
liquidation of the Company or any Subsidiary, Affiliate or
Related Company (e) any sale or transfer of all or any part
of the Companys or any Subsidiarys, Affiliates
or Related Companys assets or business, or (f) any
other corporate act or proceeding by the Company or any
Subsidiary, Affiliate or Related Company. No Participant,
beneficiary or any other Person shall have any claim against any
Member of the Board or the Committee, the Company or any
Subsidiary, Affiliate or Related Company, or any employees,
officers, stockholders or agents of the Company or any
Subsidiary, Affiliate or Related Company, as a result of any
such action. Without the consent of holders of a majority of the
Companys common stock entitled to vote in the election of
members of the Board, the Company may not lower the exercise
price of outstanding Options or SARs, or otherwise re-price
outstanding Options or SARs.
10.11 Restrictions on Shares. Each Award
made hereunder shall be subject to the requirement that if at
any time the Company determines that the listing, registration
or qualification of the Shares subject to such Award upon any
securities exchange or under any law, or the consent or approval
of any governmental body,
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or the taking of any other action is necessary or desirable as a
condition of, or in connection with, the exercise or settlement
of such Award or the delivery of Shares thereunder, such Award
shall not be exercised or settled and such Shares shall not be
delivered unless such listing, registration, qualification,
consent, approval or other action shall have been effected or
obtained, free of any conditions not acceptable to the Company.
The Company may require that certificates evidencing Shares
delivered pursuant to any Award made hereunder bear a legend
indicating that the sale, transfer or other disposition thereof
by the holder is prohibited except in compliance with the
Securities Act of 1933, as amended, and the rules and
regulations thereunder.
10.12 Changes in Capital Structure. In
the event that any extraordinary dividend or other distribution
(whether in the form of cash, Shares, other securities, or other
property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation,
split-up,
spin-off, combination, repurchase, change of control or exchange
of Shares or other securities of the Company, or other corporate
transaction or event (each a Corporate Event)
affects the Shares, the Board shall, in such manner as it in
good faith deems equitable, adjust any or all of (i) the
number of Shares or other securities of the Company (or number
and kind of other securities or property) with respect to which
Awards may be granted, (ii) the number of Shares or other
securities of the Company (or number and kind of other
securities or property) subject to outstanding Awards, and
(iii) the Exercise Price or Base Price with respect to any
Award, or make provision for an immediate cash payment to the
holder of an outstanding Award in consideration for the
cancellation of such Award.
If the Company enters into or is or may become involved in any
Corporate Event or, a Change in Control does or may occur, the
Board shall, prior to such Corporate Event
and/or
Change in Control and effective upon such Corporate Event
and/or
Change in Control, take such action as it deems appropriate,
including, but not limited to, replacing Awards with substitute
awards in respect of the Shares, other securities or other
property of the surviving corporation or any affiliate of the
surviving corporation on such terms and conditions, as to the
number of shares, pricing and otherwise, which shall
substantially preserve the value, rights and benefits of any
affected Awards granted hereunder as of the date of the
consummation of the Corporate Event or a Change in Control.
Notwithstanding anything to the contrary in the Plan, if any
Corporate Event or Change in Control occurs, the Company shall
have the right, but not the obligation, to cancel each
Participants Awards immediately prior to such Corporate
Event and/or
Change in Control and to pay to each affected Participant in
connection with the cancellation of such Participants
Awards, an amount that the Committee, in its sole discretion, in
good faith determines to be the equivalent value of such Award
(e.g., in the case of an Option, the amount of the spread).
Upon receipt by any affected Participant of any such substitute
awards (or payment) as a result of any such Corporate Event
and/or
Change in Control, such Participants affected Awards for
which such substitute awards (or payment) were received shall be
thereupon cancelled without the need for obtaining the consent
of any such affected Participant. Any actions or determinations
of the Committee under this Section 10.12 need not be
uniform as to all outstanding Awards, nor treat all Participants
identically.
Notwithstanding any of the foregoing, and for the avoidance of
doubt, upon consummation of the Transaction, the number and type
of shares available for grants of Awards under this Plan shall
be adjusted on the same basis as other Shares generally in
connection with the Transaction.
ARTICLE XI
AMENDMENT,
TERMINATION AND DURATION
11.1 Amendment, Suspension or
Termination. The Board, in its sole discretion,
may amend, suspend or terminate the Plan, or any part thereof,
at any time and for any reason, subject to any requirement of
stockholder approval required by applicable law, rule or
regulation, including, without limitation, Sections 162(m)
and 422 of the Code and the rules of the Nasdaq Stock Market;
PROVIDED, HOWEVER, the Board may amend the Plan and any Award
Agreement, including without limitation retroactive amendments,
without stockholder approval as necessary to avoid the
imposition of any taxes under Section 409A of the Code.
Subject to the preceding sentence, the amendment, suspension or
termination of the Plan or any Award Agreement shall not,
without the consent of the Participant, materially adversely
alter or impair any rights or
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obligations under any Award theretofore granted to such
Participant. No Award may be granted during any period of
suspension or after termination of the Plan.
11.2 Duration of the Plan. The Plan
shall, subject to Section 11.1, terminate ten years after
adoption by the Board, unless earlier terminated by the Board
and no further Awards shall be granted under the Plan. The
termination of the Plan shall not affect any Awards granted
prior to the termination of the Plan.
ARTICLE XII
LEGAL
CONSTRUCTION
12.1 Gender and Number. Except where
otherwise indicated by the context, any masculine term used
herein also shall include the feminine; the plural shall include
the singular and the singular shall include the plural.
12.2 Severability. In the event any
provision of the Plan or of any Award Agreement shall be held
illegal or invalid for any reason, the illegality or invalidity
shall not affect the remaining parts of the Plan or the Award
Agreement, and the Plan
and/or the
Award Agreement shall be construed and enforced as if the
illegal or invalid provision had not been included.
12.3 Requirements of Law. The granting of
Awards and the issuance of Shares under the Plan shall be
subject to all applicable laws, rules and regulations, and to
such approvals by any governmental agencies or national
securities exchanges as may be required.
12.4 Governing Law. The Plan and all
Award Agreements shall be construed in accordance with and
governed by the laws of the State of Delaware, but without
regard to its conflict of law provisions.
12.5 Captions. Captions are provided
herein for convenience only, and shall not serve as a basis for
interpretation or construction of the Plan.
12.6 Incentive Stock Options. Should any
Option granted under this Plan be designated an Incentive
Stock Option, but fail, for any reason, to meet the
requirements of the Code for such a designation, then such
Option shall be deemed to be a Non-Qualified Stock Option and
shall be valid as such according to its terms.
* * * * * * * *
H-14
CLEARWIRE CORPORATION
ATTN: FRED WILLIAMS
4400 CARILLON POINT
KIRKLAND, WA 98033
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting
instructions and for electronic delivery of
information up until 11:59 P.M. Eastern Time the
day before the cut-off date or special meeting date. Have
your proxy card in hand when you access the web
site and follow the instructions to obtain your
records and to create an electronic voting
instruction form.
ELECTRONIC DELIVERY OF FUTURE STOCKHOLDER COMMUNICATIONS
If you would like to reduce the costs incurred by
Clearwire Corporation in mailing proxy materials,
you can consent to receiving all future proxy
statements, proxy cards and annual reports
electronically via e-mail or the Internet. To sign
up for electronic delivery, please follow the
instructions above to vote using the Internet and,
when prompted, indicate that you agree to receive
or access stockholder communications electronically
in future years.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your
voting instructions up until 11:59 P.M. Eastern
Time the day before the cut-off date or special meeting
date. Have your proxy card in hand when you call
and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it
in the postage-paid envelope we have provided or
return it to Clearwire Corporation, c/o Broadridge,
51 Mercedes Way, Edgewood, NY 11717.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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KEEP THIS PORTION FOR YOUR RECORDS |
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DETACH AND RETURN THIS PORTION ONLY |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
CLEARWIRE CORPORATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3 AND 4.
Vote on Proposals
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Please mark votes
as in this example. |
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For |
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Against |
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Abstain |
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1.
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The proposal to approve and adopt
the Transaction Agreement and Plan of Merger (the Transaction Agreement) dated as of
May 7, 2008, by and among Clearwire Corporation, Sprint Nextel Corporation, Comcast Corporation, Time Warner Cable Inc., Bright House Networks, LLC, Google
Inc. and Intel Corporation, and the transactions contemplated therein,
including the issuance of the common stock of New Clearwire Corporation.
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The proposal to adopt the restated certificate of incorporation of New Clearwire Corporation (which is
conditioned on the completion of the merger contemplated by the Transaction Agreement).
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3.
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The proposal to approve and adopt the New Clearwire Corporation 2008 Stock Compensation Plan.
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The proposal to approve the adjournment of the special meeting, if necessary, to solicit additional proxies in favor of the proposals above.
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The shares represented by this proxy when properly executed will be voted in the
manner directed herein by the undersigned stockholder(s). If no direction is made, this proxy
will be voted FOR items 1, 2, 3 and 4 and in the discretion of the proxies upon such other business as may properly come before the
special meeting or any adjournment or postponement thereof, except to the extent such discretionary
authority is withheld below.
Unless you check the box below, to the extent that you have not voted on a matter in person or by
proxy, the proxies are authorized to vote in their discretion upon any matter as may properly come
before the special meeting and any adjournment or postponement of the special meeting.
o WITHHOLD AUTHORITY
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For address changes and/or comments, please check
this box and write them on the back where indicated.
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Materials Election
As of July 1, 2007, SEC rules permit
companies to send you a Notice that proxy
information is available on the Internet,
instead of mailing you a complete set of
materials. Check the box to the right if
you want to receive a complete set of
future proxy materials by mail, at no
cost to you. If you do not take action
you may receive only a Notice.
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Please indicate if you plan to attend this special meeting.
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(NOTE: Please sign exactly as your name(s) appear(s)
hereon. All holders must sign. When signing as attorney,
executor, administrator, or other fiduciary, please
give full title as such. Joint owners should each sign
personally. If a corporation, please sign in full corporate
name, by authorized officer. If a partnership, please sign
in partnership name by authorized person.)
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Signature [PLEASE SIGN WITHIN BOX]
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Signature (Joint Owners)
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CLEARWIRE CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SPECIAL MEETING OF STOCKHOLDERS
November 20, 2008
The stockholder(s) hereby appoint(s) Benjamin G. Wolff and Broady R. Hodder, and each of
them, as proxies, each with the power to appoint his substitute, and hereby authorize(s) them to
represent and to vote all of the shares of
Common Stock of Clearwire Corporation that the stockholder(s) is/are entitled to vote at the
Special Meeting of Stockholders to be held at 9:00 a.m., Pacific Standard Time, on November 20, 2008, at
the Woodmark Hotel, Yarrow Bay Room, 1200 Carillon Point, Kirkland, Washington, and at any adjournment or
postponement thereof, upon all subjects that may properly come before the special meeting, including the matters described in the
proxy statement furnished with this proxy card, subject to the directions indicated on the reverse side of this
card, with all the power the undersigned would possess if personally present.
Signing and dating this proxy card will have the effect of revoking any proxy card that you signed on an earlier date, and will constitute a
revocation of all previously granted authority to vote for every proposal included on any proxy card.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BY THE STOCKHOLDER(S). IF NO
SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED FOR APPROVAL OF THE PROPOSALS LISTED ON THE
REVERSE SIDE AND IN THE DISCRETION OF THE PROXIES UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME
BEFORE THE SPECIAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF, EXCEPT TO THE EXTENT SUCH
DISCRETIONARY AUTHORITY IS WITHHELD BELOW.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED REPLY ENVELOPE
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(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.)
CONTINUED AND TO BE SIGNED ON REVERSE SIDE