CALDERWOOD & HARKNESS LLP Attorneys at Law
375 Park Avenue, 40th Floor New York, NY 10152
Telephone: (212) 506-7000 Facsimile: (212) 506-7001 www.calderwoodharkness.com
December 19, 2022
VIA EMAIL AND OVERNIGHT COURIER
Kevin Sato, Esq. Hargrove, Sato & Caldwell LLP 100 West Liberty Street, Suite 1200 Reno, NV 89501
Re: Asset Purchase Agreement dated September 22, 2022, by and between Ridgeline Wireless Holdings LLC ("Ridgeline" or "Seller") and Northgate Wireless Americas Inc. ("Buyer") — Rejection of Purchase Price Adjustment Demand; Response to Ridgeline's Letter Dated December 14, 2022
Dear Mr. Sato:
I am a partner at Calderwood & Harkness LLP and serve as outside counsel to Northgate Wireless Americas Inc. ("Northgate" or "Buyer") in connection with the Asset Purchase Agreement dated September 22, 2022 (the "APA"), entered into by and between Ridgeline Wireless Holdings LLC, as Seller and Assignor, and Northgate Wireless Americas Inc., as Buyer and Assignee. I write in response to your correspondence dated December 14, 2022, transmitted on behalf of your client, Ridgeline Wireless Holdings LLC ("Ridgeline"), in which Ridgeline demands an upward adjustment to the purchase price payable under the APA. Having reviewed Ridgeline's demand with care and in consultation with our client, Northgate hereby formally and unequivocally rejects Ridgeline's demand in its entirety, for the reasons set forth below.
1. Summary of Ridgeline's Demand
In its letter dated December 14, 2022, Ridgeline asserts that a post-signing revaluation of certain Federal Communications Commission ("FCC") Wireless Radio Service licenses covering Economic Areas Nos. 155 (Sacramento–Placer) and 159 (San Francisco–Oakland–San Jose) in California warrants an upward adjustment to the agreed purchase price in the amount of Fourteen Million Two Hundred Thousand Dollars ($14,200,000). If accepted — which it is not — Ridgeline's demand would increase the total purchase price from the contractually agreed-upon sum of One Hundred Twenty-Six Million Five Hundred Thousand Dollars ($126,500,000) to One Hundred Forty Million Seven Hundred Thousand Dollars ($140,700,000), representing an increase of approximately 11.2%.
The sole basis offered by Ridgeline for this extraordinary demand is an alleged competing bid from an unnamed third party for the California licenses. We note the following deficiencies in Ridgeline's position:
• Ridgeline has not identified the purported third-party bidder by name, corporate affiliation, or any other identifying information.
• Ridgeline has not provided any documentation of the alleged competing bid, including but not limited to any letter of intent, term sheet, indication of interest, or written correspondence evidencing the existence of such a bid.
• Ridgeline has not set forth the material terms of the alleged competing bid, including the scope of assets covered, the form of consideration, the proposed timeline, or any conditions to closing.
• Most critically, Ridgeline has not cited any provision of the APA — or any other agreement between the parties — that would entitle it to a purchase price adjustment under these or any circumstances.
In the absence of any contractual basis, any supporting documentation, and any identified counterparty, Ridgeline's demand is wholly without merit. We address the specific contractual provisions below.
2. The APA Establishes a Fixed Purchase Price with No Adjustment Mechanism
The purchase price payable under the APA is fixed, definite, and not subject to adjustment. Section 3.1 of the APA provides, in relevant part:
"The aggregate purchase price for the Acquired Assets shall be One Hundred Twenty-Six Million Five Hundred Thousand Dollars ($126,500,000) (the 'Purchase Price'), payable in cash at the Closing in accordance with Section 3.2."
This language is unambiguous. The Purchase Price of $126,500,000 was negotiated at arm's length between two sophisticated commercial parties — each represented by experienced legal counsel and advised by independent financial and spectrum valuation consultants — and reflects the agreed-upon consideration for the assignment of all fourteen (14) FCC Wireless Radio Service licenses in the Advanced Wireless Services-3 (Meridian Technologies-3) / Band 66 frequency bands, bearing call signs WQAB201 through WQAB214, inclusive, covering service territories spanning portions of Nevada, eastern California, and southern Oregon.
The Purchase Price was informed by, among other things, the independent spectrum valuation report prepared by Vantage Spectrum Consultants Inc. and delivered to both parties on September 12, 2022 (the "Vantage Report"). The Vantage Report assessed the fair market value of the fourteen licenses on a per-MHz-POP basis, taking into account the approximately 3.84 million covered population units ("POPs") and 39 MHz of paired spectrum encompassed by the license portfolio, yielding approximately 149.76 million MHz-POPs. The resulting per-MHz-POP price of approximately $0.845 was the product of a comprehensive analysis of comparable transactions, market conditions, spectrum deployment potential, and technical characteristics of the license portfolio. This valuation methodology and the resulting Purchase Price were extensively negotiated between the parties over a period of approximately three months following the execution of the Letter of Intent on June 15, 2022.
We emphasize the following critical points regarding the APA's treatment of the Purchase Price:
(a) The APA contains no purchase price adjustment mechanism of any kind. There is no earn-out provision. There is no working capital true-up. There is no market-based adjustment clause. There is no escalation provision tied to post-signing changes in spectrum valuation, comparable transactions, or third-party offers.
(b) The APA contains no provision permitting unilateral modification of the Purchase Price by either party based on post-signing market conditions, changes in the competitive landscape, or the receipt of unsolicited or solicited third-party indications of interest.
(c) The APA was fully executed by both parties on September 22, 2022, and the earnest money deposit in the amount of Four Million Five Hundred Thousand Dollars ($4,500,000) — representing approximately 3.56% of the Purchase Price — was funded by Northgate into the escrow account maintained by Meridian National Bank, N.A. (the "Escrow Agent") on September 30, 2022, in accordance with the Escrow Agreement of even date. Northgate's funding of the earnest money deposit was made in reliance upon, and in consideration of, the fixed Purchase Price set forth in Section 3.1 of the APA.
In sum, the APA speaks for itself. The parties agreed to a fixed price of $126,500,000. That agreement is binding, and no provision of the APA authorizes the adjustment Ridgeline now seeks.
3. Ridgeline's Demand Is Without Contractual Basis
Northgate has undertaken a thorough review of the APA, including all schedules, exhibits, and ancillary agreements executed in connection therewith, and can identify no provision that would support Ridgeline's demand for an upward price adjustment.
The existence of a purported competing bid — which, as noted above, Ridgeline has neither substantiated nor documented in any respect — is irrelevant to the parties' contractual obligations under the APA. The APA allocates market risk between the parties through the establishment of a fixed purchase price, and neither party retained the right to reopen price negotiations based on post-signing developments in the spectrum market or the receipt of competing expressions of interest.
Moreover, the APA affirmatively prohibits the conduct that Ridgeline's demand implies. Specifically:
(a) The APA does not contain a "go-shop" provision that would have permitted Ridgeline to actively solicit competing offers for the Acquired Assets during any period following execution.
(b) The APA does not contain a "topping bid" or "superior proposal" mechanism that would have entitled Ridgeline to accept a higher offer from a third party or to use such an offer as leverage to renegotiate the Purchase Price.
(c) The APA does not contain any right of Ridgeline to solicit, encourage, facilitate, or entertain competing offers, proposals, or inquiries with respect to any of the Acquired Assets after execution.
To the contrary, Section 7.4 of the APA contains an express exclusivity covenant and customary "no-shop" and "no-talk" restrictions that require Ridgeline, during the period between execution and the earlier of the Closing or the termination of the APA, to: (i) refrain from, directly or indirectly, soliciting, initiating, encouraging, or facilitating any inquiry, proposal, or offer relating to any Alternative Transaction (as defined in Section 7.4(a)); (ii) not enter into, continue, or participate in any discussions or negotiations with any third party regarding an Alternative Transaction; and (iii) promptly notify Northgate in writing of the receipt of any unsolicited inquiry, proposal, or offer relating to an Alternative Transaction, including the identity of the person making such inquiry and the material terms thereof.
Section 7.5 of the APA further requires Ridgeline to operate the Acquired Assets in the ordinary course of business consistent with past practice during the interim period and to refrain from taking any action that would reasonably be expected to impair the value of the Acquired Assets or the ability of the parties to consummate the transactions contemplated by the APA.
We are compelled to observe that Ridgeline's demand, if pursued, could itself constitute a material breach of its obligations under Sections 7.4 and 7.5 of the APA. To the extent that Ridgeline has solicited, encouraged, or engaged in discussions regarding a competing transaction for any of the Acquired Assets, such conduct would violate the express exclusivity and no-shop covenants. To the extent that Ridgeline is leveraging an alleged third-party offer to extract an increased purchase price as a condition to proceeding with the Closing, such conduct is inconsistent with Ridgeline's obligation to use commercially reasonable efforts to consummate the transactions contemplated by the APA. Northgate reserves all of its rights with respect to any such breach, as set forth more fully in Section 5 below.
4. The Transaction Remains Pending Before the FCC
The parties' transaction is currently the subject of an active regulatory proceeding before the Federal Communications Commission. The relevant procedural history is as follows:
(a) On October 14, 2022, the parties jointly filed FCC Form 603 (Application for Assignment of Authorization) with the FCC's Wireless Telecommunications Bureau, seeking FCC consent to the assignment of the fourteen Meridian Technologies-3 / Band 66 licenses from Ridgeline to Northgate. The application was assigned FCC File No. 0010287-EX.
(b) On October 28, 2022, the FCC accepted the Form 603 application for filing and issued a public notice establishing the period for the filing of petitions to deny and other comments.
(c) Concurrently with the Form 603, Northgate Wireless Americas Inc. filed a petition for declaratory ruling pursuant to Section 310(b)(4) of the Communications Act of 1934, as amended (47 U.S.C. § 310(b)(4)), requesting FCC approval of foreign ownership interests in Northgate arising from its corporate relationship with its ultimate parent company, Northgate Telecommunications PLC, a company organized under the laws of England and Wales.
(d) The public notice comment period closed on December 5, 2022. No petitions to deny were filed during the comment period.
(e) One informal objection was filed on November 28, 2022, by Great Basin Rural Broadband Cooperative ("Great Basin"), raising concerns regarding potential competitive effects in rural service areas overlapping with certain of the Economic Areas covered by the licenses. Northgate filed a comprehensive opposition to the Great Basin informal objection on December 9, 2022, demonstrating that the objection is procedurally deficient, factually unsupported, and legally meritless.
Northgate has invested substantial time, effort, and expense in prosecuting the FCC application, including retaining specialist FCC co-counsel Broadfield Whitaker LLP to prepare, file, and advocate for the application before the Commission. Northgate has further expended considerable resources in responding to the Great Basin informal objection and in preparing supplemental filings to facilitate the FCC's review. The regulatory process is ongoing, and Northgate reasonably expects to receive FCC consent within the ordinary processing timeframe.
Ridgeline's demand for a price adjustment — and the implicit threat to withhold cooperation in the regulatory approval process unless its demand is met — threatens to disrupt the orderly progress of the FCC proceedings and to jeopardize the parties' mutual interest in obtaining timely regulatory consent. We remind Ridgeline that Section 7.3 of the APA imposes affirmative obligations on both parties to cooperate fully in the prosecution of all regulatory filings and applications necessary to consummate the transactions contemplated by the APA, including the FCC application. Any failure by Ridgeline to fulfill these cooperation obligations would constitute an additional breach of the APA.
5. Reservation of Rights
Northgate expressly reserves all of its rights, remedies, and claims under the APA, at law, and in equity, including without limitation:
(a) The right to enforce the APA according to its terms, including the right to consummate the transactions contemplated thereby at the agreed Purchase Price of One Hundred Twenty-Six Million Five Hundred Thousand Dollars ($126,500,000);
(b) The right to seek specific performance of Ridgeline's obligations under the APA, including Ridgeline's obligations to consummate the Closing, to cooperate in the FCC regulatory approval process, and to comply with its exclusivity, no-shop, and interim operating covenants, as expressly contemplated by Section 11.12 of the APA;
(c) The right to recover all damages arising from any breach by Ridgeline of its representations, warranties, covenants, or obligations under the APA, including without limitation any damages resulting from delay or disruption to the FCC application process, loss of the benefit of the bargain, costs incurred in prosecuting the FCC application, professional fees and expenses, and any other direct, indirect, or consequential damages to which Northgate may be entitled;
(d) The right to seek return of the Four Million Five Hundred Thousand Dollars ($4,500,000) earnest money deposit currently held by Meridian National Bank, N.A. as Escrow Agent in accordance with the terms of the Escrow Agreement dated September 30, 2022, in the event of a termination of the APA resulting from Ridgeline's breach; and
(e) All other rights and remedies available to Northgate under the APA, at law, or in equity, whether or not specifically enumerated herein.
Nothing in this letter, or any failure or delay by Northgate in asserting any right or remedy at this time, shall be deemed or construed as a waiver, relinquishment, or estoppel of any of Northgate's rights, remedies, or claims under the APA, the Escrow Agreement, or applicable law. All such rights, remedies, and claims are expressly preserved and may be exercised by Northgate at any time and from time to time in its sole discretion.
Notwithstanding the foregoing, Northgate remains willing and prepared to proceed to Closing on the terms set forth in the APA, including the fixed Purchase Price of $126,500,000, and to fulfill all of its obligations thereunder. Northgate urges Ridgeline in the strongest terms to withdraw its baseless demand for a price adjustment and to cooperate promptly and in good faith in completing the FCC regulatory approval process so that the transaction may be consummated in an orderly and timely manner for the benefit of both parties.
6. Request for Immediate Response
Given the significance of the matters addressed in this letter and the time-sensitive nature of the pending FCC proceedings, Northgate requests that Ridgeline confirm in writing, through counsel, within ten (10) business days of the date of this letter — that is, no later than January 4, 2023 — whether Ridgeline intends to: (i) withdraw its demand for a purchase price adjustment; and (ii) proceed with the transaction on the terms and conditions set forth in the APA, including the agreed Purchase Price of $126,500,000.
Absent timely receipt of such written confirmation, Northgate will evaluate all available options to protect its contractual rights and commercial interests, including but not limited to the initiation of formal dispute resolution proceedings in accordance with Section 11.8 of the APA and the pursuit of equitable relief before a court of competent jurisdiction.
We note that the APA provides for a Long-Stop Date of March 15, 2023, after which either party may terminate the APA if the Closing has not occurred (subject to the conditions and limitations set forth in Section 10.1(c)). Given the remaining time required for the FCC to act on the pending application and for the parties to satisfy the remaining conditions to Closing, it is imperative that both parties act promptly and cooperatively to preserve the viability of the transaction and the FCC application. Any delay caused by Ridgeline's pursuit of its unjustified demand will be attributable solely to Ridgeline and will not serve as a basis for Ridgeline to invoke the Long-Stop Date to its advantage.
We look forward to your prompt response.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Simone Laroche, Esq. Partner
Calderwood & Harkness LLP 375 Park Avenue, 40th Floor New York, NY 10152 Telephone: (212) 506-7000
Email: slaroche@calderwoodharkness.com
cc (via email):
Priya Dasgupta, General Counsel, Northgate Telecommunications PLC
Claire Matsuda, Vice President, U.S. Operations, Northgate Wireless Americas Inc.
Thomas Brennan, Senior Vice President, Regulatory Affairs, Northgate Telecommunications PLC
Sylvia Hartwell, Esq., Calderwood & Harkness LLP
Leonard Cross, Esq., Calderwood & Harkness LLP
Harold Wren, Esq., Calderwood & Harkness LLP