WASHINGTON-Following an almost seven-month hiatus, NextWave Telecom Inc. has submitted answers to 43 questions posed by the Securities and Exchange Commission regarding the S-1 form it filed in June 1996 in preparation for an initial public offering.
NextWave consequently put that action on hold when the Federal Communications Commission and market forces proved negative, preferring to wait until this month to re-submit an amended S-1 and to address SEC concerns.
Because the IPO had not moved forward and stockholders were not affected in any way by NextWave’s regulatory problems, the SEC allowed the company to take its time in submitting its replies. According to Michele Farquhar, chief of the FCC’s Wireless Telecommunications Bureau, she had asked NextWave to submit its answers to these questions during the Bureau’s investigation late last year, but that request was not fulfilled.
The SEC could act on NextWave’s IPO request within the next two to four weeks, sources say, but the agency itself would not commit to any resolution period, and a spokesman there would not discuss specifics of this document.
While many of the SEC’s questions dealt with the day-to-day operations of NextWave and mirrored many inquiries put forth by the FCC during its investigation of the C-block giant prior to awarding its conditional licenses last month, there were some questions regarding executive compensation, management structure, foreign-ownership levels and costs of microwave relocation that the SEC wanted to pursue further.
The SEC asked if any key managers would be asked to sign employment contracts and if those contracts would include noncompete clauses. NextWave wrote that while it would be “highly dependent of the services of these individuals,” no employment contracts were being contemplated at this time.
The SEC also asked about executive compensation, including the issuance of stock and its value. Specifically, the SEC asked why certain NextWave employees were able to buy stock in the company at prices significantly lower than those anticipated in the IPO. As of Dec. 31, 1995, Allen Salmasi, NextWave’s chairman, president, chief executive officer and a director, was being paid $110,577 per year with $700,000 in stock options. Janice Obuchowski, vice chairwoman, executive vice president and director, was paid $34,711 along with $700,000 in stock options.
Sometime this month, NextWave will adopt an equity incentive plan that will make shares of Series B common stock available for exercise of those options. The purchase price of that stock will not be less than 85 percent of its market value.
According to the amended S-1, as of Sept. 30, options to purchase more than 18 million shares of Series B stock at prices ranging from 25 cents to $5 per share were outstanding. Salmasi, Obuchowski, Finn, Madsen and Knapp exercised their options, with Salmasi paying 27 cents for his shares ($161,000 total), and the others paying 25 cents per share for theirs. Obuchowski paid a total of $161,000.
Navation Inc., owned by the Salmasi family, also owns Series A common stock, which was paid for in a combination of cash and a promissory note; Freedom Mobility, owned by Obuchowski’s immediate family, also owns Series A stock, which was paid for in the same manner.
Because the company had virtually no value prior to the winning of its PCS licenses, NextWave said, selling shares to its principals for 25 cents was in line. In fact, the company said, if it had not sold that stock, the venture had been in danger of not meeting FCC rules regarding deposit requirements, and other C-block bidders allegedly were discussing NextWave’s right to be in the auction at all. “These factors led to the company’s conclusion that the fair market value of its Series B common stock from inception until May 5, 1996, was $0.25 per share, and stock options were granted at this exercise price during that period of time,” NextWave’s attorneys at Latham & Watkins reported. Following the close of the auction, NextWave recalculated the value of its stock to $3 per share, and then amended that value to $5 per share when it concluded its successful participation in the re-auction of several defaulted C-block properties.
Sources told RCR that there could be some tax implications here if the true value of the stock was not included as income when principals file their 1996 income taxes. If they paid 25 cents per share for stock valued at even $3 that translates into a financial gain of $2.75 per share as income, the sources said. As such, it should be taxable. The SEC could not comment on this because the S-1 still is an open issue.
Regarding microwave relocation costs that the SEC pointed out were not listed in the S-1, NextWave said it will share the costs with other A-, B-, C-, D-, E- and F-block PCS licensees of relocating some 750 microwave links now operating within its markets. The company estimated that it will cost $250,000 per link, and that the majority already have or will be moved by A-, B- and C-block winners. NextWave said as of Sept. 30, no costs had yet been incurred by the company.