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Clearwire Corporation (CLWRD) Message Board

  • starcraft_1998 starcraft_1998 Nov 7, 2012 3:43 PM Flag

    Sprint 10Q - Clearwire could be considered a subsidiary

    Clearwire
    On October 17, 2012, in accordance with the Clearwire Equityholders' Agreement, one of Clearwire's equityholders, Eagle River Holdings, LLC (Eagle River) notified Sprint and the other parties to the Equityholders' Agreement of its intent to sell its ownership in 30.9 million shares of Class A Common Stock and 2.7 million shares of Class B Interests (together, “Interests”) for a total purchase price of $100 million in cash. In response to the notification, Sprint informed Eagle River of its desire to purchase all of the Interests (or in the event that one or more of the other equityholders elects to purchase Interests, the maximum number of Interests Sprint is entitled to purchase). Upon the closing of the purchase, Sprint's ownership interest in Clearwire would be within a range of 50.0% to 50.5% dependent upon the final number of shares acquired and excluding any additional share issuances prior to the close of the purchase. Sprint's existing right under the Clearwire Equityholders' Agreement provides that Sprint can nominate seven of the thirteen directors to the Clearwire Board. One of the Sprint designees is required to be an independent director for NASDAQ listing purposes. Upon closing of the Eagle River transaction, Sprint will no longer be subject to the requirement that one of its seven designees be such an independent director of Sprint; however, Sprint will not obtain the right to control the actions of Clearwire. In addition, upon closing, the composition of the remaining board seats will be modified so that the Nominating Committee of the Clearwire Board will have the right to nominate three independent directors to the Clearwire Board, while the remaining investors under the Clearwire Equityholders' Agreement will have the right to nominate three directors. Prior to closing of the transaction, the Nominating Committee had the right to nominate two independent directors to the Clearwire Board, while the remaining investors under the Clearwire Equityholders' Agreement had the right to nominate four directors. Sprint will continue to account for its ownership interests in Clearwire under the equity method of accounting given the significant participative governance rights provided to the minority holders in Clearwire.

    As a result of the consummation of Sprint's purchase of additional Interests, Clearwire could be considered a subsidiary under certain agreements relating to our indebtedness. At that time, certain actions or defaults by Clearwire would, if viewed as a subsidiary, result in a breach of covenants, including potential cross-default provisions, under certain agreements relating to our indebtedness. The Clearwire Equityholders' Agreement provides Sprint with the right to unilaterally surrender voting securities to reduce its voting security percentage below 50% which, if exercised, would eliminate the potential for Clearwire to be considered a subsidiary of Sprint under those debt agreements and would significantly mitigate the possibility of an event, with respect to Clearwire, that would cross-default against Sprint's debt obligations. Subsequent to the consummation of Sprint's purchase of additional Interests, Sprint may exercise its right to reduce its voting security percentage below 50%. The exercise of this right does not impact our ability to nominate seven of Clearwire's thirteen Board seats.

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    • "Sprint will no longer be subject to the requirement that one of its seven designees be such an independent director of Sprint; however, Sprint will not obtain the right to control the actions of Clearwire."

      How do they figure?

      • 2 Replies to relevance2code
      • Do you think they have a legal leg to stand on, given the extent of the risk disclosures? This is a perfect case of the company yelling "buyer beware" (which limits their ability to raise equity capital, but allows them to ignore minority holders).

        ---

        Risk disclosures:

        "The interests of the controlling stockholders of Clearwire may conflict with your interests as stockholders."

        "Clearwire is a “controlled company” within the meaning of the NASDAQ Marketplace Rules and relies on exemptions from certain corporate governance requirements."

        "The corporate opportunity provisions in Clearwire’s Amended and Restated Certificate of Incorporation could enable certain of Clearwire’s stockholders to benefit from corporate opportunities that might otherwise be available to Clearwire."

        Read the fine-print if you want details on any of the above.

      • I was wondering the same, what do they exactly mean with "Sprint will not obtain the right to control the actions of Clearwire"

    • So at some point if Clearwire says, "we are going to file for bankruptcy protection" then sprint can say, "we surrender some of our shares" and all is good with the world? That doesn't seem to make sense.

      • 3 Replies to brewhaus.rm
      • Actually, Clearwire isn't allowed to declare bankruptcy without Sprint's permission. They only held the BK card when Sprint couldn't afford to consolidate them.

        ---

        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 the Company, will be required to:

        • amend the Company’s Amended and Restated Certificate of Incorporation (the “Charter”), the Company’s Bylaws or the Clearwire Communications Amended and Restated Operating Agreement (the “Operating Agreement”);

        • change the size of the Company’s board of directors;

        • liquidate the Company or Clearwire Communications or declare bankruptcy of the Company or its material subsidiaries;

        • effect any material capital reorganization of the Company or any of its material subsidiaries, other than a financing transaction in the ordinary course of business;

        • 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

        • subject to certain exceptions, issue any Class B Common Stock or any equity interests of Clearwire Communications.

      • Actually Sprint has done that once.

        They used to have 50% interest in CLWR, gave that up for fear of potential cross defaults and after the Softbank deal decided to pay a premium to get 50% interest again. All of this in 6 months if I remember correctly.

        One has to wonder what sort of out of sight deals are being cooked

      • The Softbank capital injection takes care of the potential for cross-defaults under the current indentures.

        CLWR will be a Sprint subsidiary as of their 2012 10-K (12/31/12 closing date).

        ---

        If CLWR files for bankruptcy (which they can no longer do without Sprint's permission), all that happens is that there's a court proceeding establishing the value of the assets and how the assets are distributed to stakeholders (i.e. all the bondholders and the equity interests). If there's a case made that the value of the assets exceeds the debt obligations, the equity is reinstated.

        Basically, now that there's capital at the parent - there's no reason for CLWR to declare bankruptcy, even if asset value is lower than debt value.

 

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