CALDERWOOD & HARKNESS LLP 375 Park Avenue, 40th Floor
Washington, DC: 1875 K Street NW, Suite 600, Washington, DC 20006 London: One Bishops Square, London E1 6AD, United Kingdom
December 1, 2023
VIA E-MAIL AND U.S. MAIL
CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED COMMUNICATION WITHOUT PREJUDICE
Kevin Sato, Esq. Hargrove, Sato & Caldwell LLP 100 West Liberty Street, Suite 1200 Reno, NV 89501
Re: Asset Purchase Agreement dated September 22, 2022, between Ridgeline Wireless Holdings LLC and Northgate Wireless Americas Inc.; FCC File No. 0010287-EX Calderwood & Harkness Matter No. 1018-00009
Dear Mr. Sato:
I. Purpose and Context
We write on behalf of our client, Northgate Wireless Americas Inc., a Delaware corporation (Delaware File No. 7284619), which is a wholly owned subsidiary of Northgate US Holdings LLC, itself wholly owned by Northgate Telecommunications PLC (Companies House No. 08473291; LSE: NGTL) (collectively, "Northgate"), in response to your letter dated November 8, 2023, addressed to the undersigned on behalf of your client, Ridgeline Wireless Holdings LLC, a Nevada limited liability company (Nevada Secretary of State Entity No. E0428716302) ("Ridgeline"). We acknowledge timely receipt of your November 8, 2023 correspondence.
As you are aware, Calderwood & Harkness LLP represents Northgate in connection with the proposed acquisition of fourteen (14) Federal Communications Commission ("FCC") Wireless Radio Service licenses in the Meridian Technologies-3 / Band 66 spectrum block, bearing call signs WQAB201 through WQAB214 (the "Licenses"), from Ridgeline, pursuant to that certain Asset Purchase Agreement dated September 22, 2022 (the "APA"), by and between Ridgeline, as Seller, and Northgate Wireless Americas Inc., as Buyer.
This letter constitutes Northgate's substantive response to the matters raised in your November 8, 2023 correspondence. Nothing in this letter, nor in any prior or subsequent correspondence, communication, or course of dealing between the parties or their respective counsel, shall be construed as, or deemed to constitute, a waiver of any of Northgate's rights, remedies, claims, or defenses under the APA, the Escrow Agreement (as defined below), the Extension Agreement (as defined below), applicable law, or equity. This letter is transmitted without prejudice to Northgate's position in all respects.
II. Status of the Asset Purchase Agreement
A. Purchase Price Dispute — Reiteration of Northgate's Position
We begin by addressing, once again, the purchase price dispute that has been the principal impediment to the consummation of the transaction contemplated by the APA.
As you know, on or about December 14, 2022, Ridgeline delivered to Northgate a written demand seeking an upward adjustment of Fourteen Million Two Hundred Thousand Dollars ($14,200,000) to the purchase price agreed upon by the parties under the APA. Ridgeline's demand purported to increase the purchase price from One Hundred Twenty-Six Million Five Hundred Thousand Dollars ($126,500,000) to One Hundred Forty Million Seven Hundred Thousand Dollars ($140,700,000). That demand was purportedly predicated upon a competing bid from an unnamed and unidentified third party for certain of the Licenses covering FCC Economic Areas Nos. 155 and 159, which encompass portions of the State of California.
Northgate rejected this demand by letter dated December 19, 2022, and Northgate continues to reject it unequivocally. The basis for Northgate's rejection is straightforward and grounded in the plain language of the APA. Section 3.1 of the APA establishes a fixed, agreed purchase price of One Hundred Twenty-Six Million Five Hundred Thousand Dollars ($126,500,000). Section 3.1 contains no price-adjustment mechanism, no "market check" provision, no "go-shop" right, and no other contractual basis by which Ridgeline is entitled to demand an increase to the agreed purchase price following the execution of the APA. The APA, as mutually negotiated and executed by sophisticated commercial parties represented by competent counsel, reflects a binding agreement on the purchase price, and neither party is entitled to revisit that agreement unilaterally.
Northgate's position on this issue remains unchanged. The agreed purchase price of $126,500,000 was established following extensive arms-length negotiation and is supported by the independent valuation report prepared by Vantage Spectrum Consultants Inc. and authored by Dr. Raymond Kessler, dated September 12, 2022, which was provided to both parties during the pre-execution due diligence period. That report valued the License portfolio at approximately $0.845 per MHz-POP, calculated on the basis of approximately 3.84 million covered POPs across the relevant Economic Areas and approximately 39 MHz of paired spectrum, yielding approximately 149.76 million MHz-POPs. The agreed purchase price is consistent with comparable Meridian Technologies-3 secondary-market transactions during the relevant period, and Ridgeline's belated demand for a $14,200,000 upward adjustment — representing an approximately 11.2% premium — is wholly unsupported by any provision of the APA.
Accordingly, Ridgeline's demand for a price adjustment lacks any contractual basis, does not constitute a valid ground for non-performance of Ridgeline's obligations under the APA, and is rejected in its entirety.
B. Long-Stop Date — Expiration and Consequences
We turn next to the status of the Long-Stop Date under the APA.
The original Long-Stop Date established under the APA was March 15, 2023. As the parties were unable to resolve the purchase price dispute prior to that date, the parties entered into that certain Extension Agreement, executed on April 22, 2023 (the "Extension Agreement"), pursuant to which the parties mutually agreed to extend the Long-Stop Date to September 30, 2023. The Extension Agreement expressly provided that the extension of the Long-Stop Date was without prejudice to either party's position regarding the purchase price dispute, and that neither party's execution of the Extension Agreement constituted a waiver of any right or remedy under the APA or applicable law.
The extended Long-Stop Date of September 30, 2023 has now passed without the closing of the transaction contemplated by the APA. To date, however, neither party has delivered a formal notice of termination pursuant to the termination provisions of the APA. Northgate's position is that the passage of the Long-Stop Date does not, in and of itself, effectuate an automatic termination of the APA. Rather, the expiration of the Long-Stop Date grants either party the right — but not the obligation — to terminate the APA by delivery of written notice in accordance with the APA's notice provisions. As of the date of this letter, no such termination notice has been delivered by either party, and accordingly the APA remains in effect, albeit with the transaction in an unconsummated state.
Northgate reserves its right to exercise any and all termination rights under the APA at such time and in such manner as it deems appropriate, in its sole discretion. Nothing in this letter, in Northgate's continued engagement in correspondence with Ridgeline's counsel, or in Northgate's silence or forbearance to date shall be construed as a waiver, relinquishment, or estoppel of any of Northgate's termination rights, claims for breach, or other remedies under the APA, the Extension Agreement, or applicable law.
C. Standstill and Non-Performance
As a factual matter, the parties have been in a standstill posture with respect to the transaction since approximately December 19, 2022, when Northgate rejected Ridgeline's demand for the $14,200,000 price adjustment. During the approximately twelve months that have elapsed since that date, no material progress has been made toward closing the transaction. The sole impediment to closing has been Ridgeline's insistence on a purchase price that exceeds the contractually agreed amount by $14,200,000 — a demand for which there is no support in the APA and which Northgate has consistently and repeatedly rejected.
It is Northgate's view that Ridgeline's refusal to proceed with closing at the agreed purchase price of $126,500,000, and Ridgeline's conditioning of its willingness to close on Northgate's acceptance of a $14,200,000 price increase that is not contemplated by or provided for under the APA, may constitute a material breach of Ridgeline's obligations under the APA, including, without limitation, Ridgeline's obligations to use commercially reasonable efforts to consummate the transactions contemplated by the APA and to cooperate in obtaining the requisite FCC consent.
Northgate expressly reserves its right to pursue all available remedies in connection with Ridgeline's conduct, including, but not limited to, claims for breach of contract, specific performance compelling the closing of the transaction at the agreed purchase price, and damages (including consequential damages, to the extent permitted by law and the APA).
III. Earnest Money Deposit
The earnest money deposit of Four Million Five Hundred Thousand Dollars ($4,500,000) — representing approximately 3.56% of the agreed purchase price of $126,500,000 — remains held in escrow by Meridian National Bank, N.A. (Escrow Officer: Sandra Okonkwo), at 333 South Hope Street, Suite 4800, Los Angeles, CA 90071, pursuant to that certain Escrow Agreement dated September 30, 2022, by and among Ridgeline, Northgate Wireless Americas Inc., and Meridian National Bank, N.A. (the "Escrow Agreement").
Northgate does not consent, and has not consented, to any release, distribution, or disbursement of the earnest money deposit to Ridgeline. Northgate expressly reserves its right to seek the return of the full deposit amount of $4,500,000 under the terms of the Escrow Agreement and the APA, and to pursue any and all legal and equitable remedies available to it in connection with the deposit.
We caution Ridgeline in the strongest terms that any attempt by Ridgeline, whether directly or through its counsel, to instruct, direct, or request Meridian National Bank, N.A. to release, distribute, or disburse the deposit or any portion thereof to Ridgeline, without the prior written consent of Northgate as required by the Escrow Agreement, would constitute a violation of the Escrow Agreement and would be vigorously contested by Northgate through all available legal means, including, if necessary, by seeking injunctive relief. We trust that Ridgeline and its counsel will respect the terms of the Escrow Agreement and refrain from any such action.
We note for the record that Northgate has continued to bear the annual escrow maintenance fee of $12,500, payable to Meridian National Bank, N.A., in connection with the ongoing escrow arrangement, and reserves its right to seek recovery of such costs as part of any claim for damages or expenses.
IV. FCC Application — Status and Northgate's Position
A. Current Status of FCC File No. 0010287-EX
As you are aware, FCC Form 603, together with a concurrent petition for declaratory ruling under Section 310(b)(4) of the Communications Act of 1934, as amended, were filed with the FCC on October 14, 2022, seeking FCC consent to the assignment of the fourteen (14) Meridian Technologies-3 (Band 66) Licenses from Ridgeline to Northgate Wireless Americas Inc. The application was assigned FCC File No. 0010287-EX.
The application was accepted for filing by the FCC Wireless Telecommunications Bureau on October 28, 2022. A public notice was issued on November 3, 2022, and the pleading cycle — including the period for petitions to deny and comments — closed on December 5, 2022. No petitions to deny were filed.
We acknowledge that an informal objection was filed on November 28, 2022, by Great Basin Rural Broadband Cooperative, raising certain concerns regarding Section 310(b)(4) foreign-ownership issues in connection with Northgate Telecommunications PLC's indirect ownership of the prospective licensee. Northgate filed a comprehensive opposition to that informal objection on December 9, 2022, demonstrating, among other things, that the proposed ownership structure is fully consistent with FCC precedent regarding foreign ownership of wireless licensees by entities organized under the laws of United Kingdom and that the requisite public interest showing had been made.
On January 19, 2023, the FCC Wireless Telecommunications Bureau issued an information request letter directed to the applicants, seeking additional information regarding certain aspects of the proposed transaction and the ownership structure of Northgate Wireless Americas Inc. Northgate filed a detailed and responsive submission on February 10, 2023, addressing each of the Bureau's inquiries.
Since approximately February 2023, the application has remained dormant. No further action has been taken by the FCC Wireless Telecommunications Bureau or any other division of the Commission. We further note that the review by the Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector, established pursuant to Executive Order 13913 (April 4, 2020), remains pending. No adverse findings, recommendations, or conditions have been communicated to Northgate or its FCC regulatory counsel to date.
B. Northgate's Intentions Regarding the FCC Application
Northgate is currently evaluating its options with respect to FCC File No. 0010287-EX, including whether to maintain the application in its current posture, to seek to reactivate the application by filing a status update or supplemental submission with the FCC Wireless Telecommunications Bureau, or to withdraw the application. Northgate has not yet made a final determination in this regard.
Northgate is aware that the FCC Wireless Telecommunications Bureau has the authority, under its rules and established practices, to consider dismissal of a pending application for failure to prosecute in circumstances where the underlying transaction has become dormant and the applicants have failed to take action to advance the application. Northgate is mindful of this consideration and is factoring it into its evaluation.
Northgate reserves its right to take any and all action with respect to FCC File No. 0010287-EX as it deems appropriate, in its sole discretion, and any such action — including the maintenance, amendment, supplementation, or withdrawal of the application — is and shall be without prejudice to Northgate's rights, claims, and remedies under the APA, the Escrow Agreement, the Extension Agreement, or applicable law.
We note that Northgate's specialist FCC regulatory co-counsel, Broadfield Whitaker LLP, under the direction of Annette Galvez, Lead Partner, is engaged in ongoing monitoring of the application's status and is prepared to take such action as may be directed by Northgate.
C. Cooperation Obligation
We take this opportunity to remind Ridgeline of its obligation under the APA to cooperate with Northgate in connection with the FCC application process, including, but not limited to, joining in any status filings, progress reports, supplemental submissions, or requests to the FCC as may be reasonably necessary or advisable in connection with FCC File No. 0010287-EX.
In particular, Northgate may in the near term request Ridgeline's cooperation in the filing of a joint request to the FCC Wireless Telecommunications Bureau to hold FCC File No. 0010287-EX in abeyance pending resolution of the parties' commercial dispute regarding the purchase price. Such a request, if made, would serve the interests of both parties by preserving the viability of the application while the parties endeavor to resolve their differences. Northgate expects that Ridgeline will fulfill its contractual cooperation obligations in this regard.
We wish to make clear that any failure or refusal by Ridgeline to cooperate with Northgate in connection with the FCC application, including any failure to join in a reasonable request for abeyance or to provide timely responses to FCC inquiries, would constitute a further breach of Ridgeline's obligations under the APA and would be treated accordingly by Northgate.
V. Buildout Compliance Concerns
We also wish to bring to your attention a matter of significant concern regarding FCC buildout compliance with respect to certain of the Licenses.
Specifically, Northgate has identified that three of the fourteen Licenses at issue — namely, WQAB212, WQAB213, and WQAB214, which cover southern Oregon Economic Areas — have not satisfied applicable interim FCC construction benchmarks. We understand that the next interim construction benchmark applicable to these Licenses is due in March 2025, approximately fifteen months from the date of this letter.
The protracted delay in consummating the transaction contemplated by the APA is exacerbating the buildout compliance risk associated with these Licenses and may ultimately jeopardize their value and viability. To the extent that the continued delay — attributable, as set forth above, to Ridgeline's unilateral and contractually unsupported demand for a price increase — results in the failure to meet FCC construction benchmarks, the consequences for the License portfolio could be severe, including the potential cancellation of the affected Licenses or other FCC enforcement action.
We note that Ridgeline, as the current holder and licensee of record for all fourteen Licenses, bears sole responsibility for compliance with FCC buildout requirements under 47 C.F.R. Part 27, including the obligation to construct and provide signal coverage or service to the requisite percentage of the population within the licensed service areas by the applicable benchmark dates. This responsibility remains with Ridgeline for so long as the Licenses have not been assigned to Northgate with FCC consent.
Northgate expressly reserves its right to assert claims against Ridgeline in connection with any degradation, diminution, or impairment of the License portfolio's value attributable to Ridgeline's failure to maintain compliance with FCC buildout requirements, or to Ridgeline's conduct in delaying or obstructing the consummation of the transaction.
VI. Demand for Specific Response
In light of the foregoing, Northgate hereby demands that Ridgeline confirm, in writing, within thirty (30) calendar days of the date of this letter — i.e., on or before December 31, 2023 — whether Ridgeline:
(a) is prepared to proceed with closing the transaction contemplated by the APA at the agreed purchase price of One Hundred Twenty-Six Million Five Hundred Thousand Dollars ($126,500,000), as established by Section 3.1 of the APA, without any upward adjustment or modification;
(b) intends to withdraw its demand, first communicated on December 14, 2022, for a Fourteen Million Two Hundred Thousand Dollar ($14,200,000) upward adjustment to the purchase price;
(c) is prepared to cooperate with Northgate in the filing of a joint request to the FCC Wireless Telecommunications Bureau to hold FCC File No. 0010287-EX in abeyance pending resolution of the parties' commercial dispute; and
(d) intends to exercise any termination right under the APA, and if so, the specific contractual basis upon which any such termination right is asserted.
In the absence of a satisfactory written response to the foregoing within the specified thirty (30) day period, Northgate will take such action as it deems necessary and appropriate to protect its interests, which may include, without limitation, one or more of the following: (i) formal termination of the APA in accordance with its terms; (ii) withdrawal of FCC File No. 0010287-EX; (iii) demand for the return of the full $4,500,000 earnest money deposit held in escrow by Meridian National Bank, N.A.; and/or (iv) commencement of litigation against Ridgeline for breach of the APA and related claims in a court of competent jurisdiction.
VII. Reservation of Rights
Northgate Wireless Americas Inc., Northgate US Holdings LLC, and Northgate Telecommunications PLC each hereby expressly and comprehensively reserve all of their respective rights, remedies, claims, and defenses, whether arising under the APA, the Escrow Agreement, the Extension Agreement, applicable law (including, without limitation, the laws of the State of Nevada, to the extent governing the APA, and the laws of the State of Delaware, the laws of England and Wales, and federal law, to the extent applicable), or equity. This reservation includes, without limitation, all rights to seek damages (including direct, consequential, and incidental damages), specific performance, injunctive relief, rescission, restitution, declaratory relief, and any other remedy available at law or in equity.
Nothing in this letter, in any prior correspondence or communication between the parties or their respective counsel, or in any course of dealing, forbearance, delay, or silence by Northgate or its representatives, shall be deemed or construed as a waiver, election, estoppel, release, or relinquishment of any right, remedy, claim, or defense of Northgate, whether now existing or hereafter arising.
Without limiting the generality of the foregoing, Northgate expressly reserves its right to seek recovery of all costs, fees, and expenses incurred in connection with the transaction contemplated by the APA, including, but not limited to: (i) legal fees and disbursements of Calderwood & Harkness LLP; (ii) legal fees and disbursements of Broadfield Whitaker LLP, Northgate's specialist FCC regulatory co-counsel; (iii) the valuation fee of One Hundred Seventy-Five Thousand Dollars ($175,000) paid to Vantage Spectrum Consultants Inc. for the preparation of the September 12, 2022 valuation report; (iv) escrow fees paid to Meridian National Bank, N.A.; and (v) all costs associated with the formation, capitalization, and ongoing maintenance of Northgate Wireless Americas Inc. and Northgate US Holdings LLC as special-purpose entities established in connection with this transaction.
VIII. Closing
We request that all future correspondence regarding this matter, including any response to this letter, be directed to the undersigned at Calderwood & Harkness LLP, 375 Park Avenue, 40th Floor, New York, NY 10152, with a copy to Harold Wren, Of Counsel, Communications & Regulatory Practice Group, at our Washington, DC office, 1875 K Street NW, Suite 600, Washington, DC 20006 (hwren@calderwoodharkness.com).
Northgate remains willing to discuss these matters further with Ridgeline and its counsel in a professional and constructive manner. However, any such discussions must proceed on the basis of the agreed contractual terms as reflected in the APA, including the agreed purchase price of $126,500,000. If Ridgeline is prepared to engage on that basis, we welcome the opportunity to explore a path toward resolution.
We look forward to your timely written response.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Simone Laroche Lead Associate, Litigation
375 Park Avenue, 40th Floor New York, NY 10152 Tel: (212) 554-7188
Email: slaroche@calderwoodharkness.com
cc (via email):
Sylvia Hartwell, Responsible Partner, Calderwood & Harkness LLP Leonard Cross, Billing Partner, Calderwood & Harkness LLP Harold Wren, Of Counsel, Communications & Regulatory, Calderwood & Harkness LLP (Washington, DC) Annette Galvez, Lead Partner, Broadfield Whitaker LLP Priya Dasgupta, General Counsel, Northgate Telecommunications PLC Thomas Brennan, SVP, Regulatory Affairs, Northgate Telecommunications PLC Claire Matsuda, VP, U.S. Operations, Northgate Wireless Americas Inc.