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UNITED
STATES SECURITIES AND EXCHANGE COMMISSION




WASHINGTON,
D.C. 20549




FORM
10-K




R
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the fiscal year ended January 2, 2010OR
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period from_____________________ to
      ___________________





Commission
      File Number 000-51958NextWave
      Wireless Inc.(Exact
      name of registrant as specified in its charter)Delaware
            
            20-5361630(State
      or other jurisdiction of
            
            (I.R.S.
      EmployerIncorporation
      or organization)
            
            Identification
      No.)





10350
Science Center Drive, Suite 210 San Diego, California 92121


(Address
of principal executive offices and ZIP code)


Registrant’s
telephone number, including area code: (858) 480-3100




Securities
registered pursuant to Section 12(b) of the Act:




Title
      of each class
            
            Name
      of each exchange on which registeredCommon
      Stock, par value $0.001 per share
            NASDAQ




Securities registered pursuant to
Section 12(g) of the Act:None




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
  Yes    No R




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934.  Yes
     No R




Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes R   No 




Indicate
by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.


Large
      Accelerated Filer 
            Accelerated
      Filer 
            Non-Accelerated
      Filer 
            Smaller
      Reporting Company R




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).   Yes     No  R


1




The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold as of the last business day of the registrant’s most recently
completed second fiscal quarter was $29,047,147.




Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of the securities under a plan confirmed
by a court.   Yes R   No 




As of
March 26, 2010, there were outstanding 157,142,624 shares of common stock of the
Registrant.




DOCUMENTS
INCORPORATED BY REFERENCE




None.





2




FORM
10-K




NEXTWAVE
WIRELESS INC.






Table
of Contents




PagePART
      IDEFINITIONSDISCLOSURE
      REGARDING FORWARD LOOKING STATEMENTSItem
      1
            
            BUSINESS
            5Item
      1A
            
            RISK
      FACTORS
            20Item
      1B
            
            UNRESOLVED
      STAFF COMMENTS
            28Item
      2
            
            PROPERTIES
            28Item
      3
            
            LEGAL
      PROCEEDINGS
            29Item 4
            
            (REMOVED AND RESERVED)
            29PART
      IIItem
      5
            
            MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
            30Item
      6
            
            SELECTED
      FINANCIAL DATA
            32Item
      7
            
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
            32Item
      8
            
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
            55Item
      9
            
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
            97Item
      9A
            
            CONTROLS
      AND PROCEDURES
            97Item
      9B
            
            OTHER
      INFORMATION
            97PART
      IIIItem
      10
            
            DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
            97Item
      11
            
            EXECUTIVE
      COMPENSATION
            102Item
      12
            
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
            106Item
      13
            
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE
            108Item
      14
            
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
            110PART
      IVItem
      15
            
            EXHIBITS
            111SIGNATURES
            114


3







DISCLOSURE REGARDING FORWARD-LOOKING
STATEMENTS




This
Annual Report on Form 10-K (“Annual Report”) and other reports, documents and
materials we will file with the Securities and Exchange Commission (the “SEC”)
contain, or will contain, disclosures that are forward-looking statements that
are subject to risks and uncertainties. All statements other than statements of
historical facts are forward-looking statements. These statements, which
represent our expectations or beliefs concerning various future events, may
contain words such as “may,” “will,” “expects,” “anticipates,” “intends,”
“plans,” “believes,” “estimates,” or other words of similar meaning in
connection with any discussion of the timing and value of future results or
future performance. These forward-looking statements are based on the current
plans and expectations of our management and are subject to certain risks,
uncertainties (some of which are beyond our control) and assumptions that could
cause actual results to differ materially from historical results or those
anticipated. These risks include, but are not limited to:




·
            we
      have substantial debt maturities in 2011 and our cash reserves and cash
      generated from operations will not be sufficient to meet these payment
      obligations;




·
            the
      value of our equity securities is dependent on our ability to successfully
      retire our debt by consummating sales of a substantial portion of our
      wireless spectrum assets for net proceeds substantially in excess of our
      cost basis for such assets or, if the opportunity arises, refinancing a
      portion of our debt at or before
maturity;




·
            we
      are highly leveraged and our operating flexibility will be significantly
      reduced by our debt covenants;




·
            the
      terms of our 7% Senior Secured Notes due 2011 (the “Senior Notes”) and
      Senior-Subordinated Secured Second Lien Notes due 2011 (the “Second Lien
      Notes”) require us to certify our compliance with a restrictive operating
      budget and any failure to comply with these terms will have adverse
      economic consequences;




·
            we
      face significant build-out obligations in July 2010 relating to certain of
      our United States wireless spectrum, such build out obligations will
      require significant capital expenditures and any failure to meet these
      build out obligations could result in the forfeiture of a substantial
      portion of our wireless spectrum
portfolio;




·
            our
      restructuring and cost reduction activities have exposed and may continue
      to expose us to contingent liabilities, accounting charges, and other
      risks;




·
            the
      failure of our Multimedia segment to sustain and grow its business in the
      current challenging economic climate may adversely impact our ability to
      comply with our operating budget and will have an adverse effect on our
      business;




·
            our
      common stock will be delisted from the NASDAQ Global Market if we do not
      meet the exception granted by the NASDAQ Hearing Panel requiring us to
      file a proxy statement for our annual meeting of stockholders that
      includes a stockholder vote on a reverse stock split by May 1, 2010 and to
      regain compliance with the minimum $1.00 per share bid price rule by July
      21, 2010;




·
            changes
      in government regulations or continued adverse global economic conditions
      could affect the value of our wireless spectrum assets;
  and




·
            we
      are subject to the other risks described under “Risk Factors” and
      elsewhere in the information contained or incorporated into this Annual
      Report.




There may
also be other factors that cause our actual results to differ materially from
the forward looking statements.




Because
of these factors, we caution you that you should not place any undue reliance on
any of our forward-looking statements. These forward-looking statements speak
only as of the date of this Annual Report and you should understand that those
statements are not guarantees of future performance or results. New risks and
uncertainties arise from time to time, and it is impossible for us to predict
those events or how they may affect us. Except as required by law, we have no
duty to, and do not intend to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.





4




PART I.




Item 1.Business.




In this Annual
Report on Form 10-K (“Annual Report”), the words “NextWave,” the “Company,”
“we,” “our,” “ours,” and “us” refer to NextWave Wireless Inc. and, except as
otherwise specified herein, to our subsidiaries. Our fiscal year ended on
January 2, 2010.




NextWave
Wireless Inc. is a holding company for mobile multimedia businesses and a
significant wireless spectrum portfolio. As a result of our global restructuring
initiative described below, our continued operations have been focused on two
key segments: Multimedia, consisting of the operations of our subsidiary
PacketVideo Corporation (“PacketVideo” or “PV”) and Strategic Initiatives,
focused on the management of our wireless spectrum interests.




PV
develops, produces, and markets advanced mobile multimedia and consumer
electronic connectivity product solutions including embedded software for mobile
handsets, client-server platforms for mobile media applications such as music
and video and software for sharing media in the connected home. At present, PV’s
customers include many of the largest mobile handset and wireless service
providers in the world including Cisco, Linksys, Motorola, Nokia, NTT DOCOMO,
Inc. (“DOCOMO”), Rogers
Wireless, Orange, Panasonic, Samsung, Sharp, Sony Ericsson, TeliaSonera, and
Verizon Wireless. As wireless service providers continue to upgrade their data
services and introduce new platforms such as AndroidTM  and iPhoneTM , we
believe that multimedia applications such as live TV, video-on-demand, and
mobile music will remain key driving forces behind global adoption of
next-generation wireless technologies and end-user devices. In addition, we
believe that consumer electronics and wireless handsets are converging around
the concept of a connected home in which media can be shared and enjoyed by
consumers on multiple screens, including the television, the PC and the mobile
handset. As a result, many telecommunications operators seek to develop common
services across their wireline and wireless businesses. Our business is focused
on developing the technologies and products that enable both operators and
device manufacturers to deliver these types of advanced mobile multimedia
services to customers. In July 2009, a subsidiary of DOCOMO purchased a 35%
interest in our PacketVideo subsidiary. Pursuant to the definitive
agreements, DOCOMO was granted certain rights in the event of future transfers
of PacketVideo stock or assets, preemptive rights in the event of certain
issuances of PacketVideo stock, and a call option exercisable under certain
conditions to purchase the remaining shares of PacketVideo at an appraised
value. In addition, DOCOMO will have certain governance and consent rights
applicable to the operations of PacketVideo. DOCOMO has expressed its intent to
exercise its call option and the parties are currently in discussions concerning
the valuation for our remaining PacketVideo shares.  DOCOMO will have
an opportunity to determine whether it wishes to proceed with its exercise of
the call option following the determination of a valuation for our
shares.  At this time, there can be no assurance as to the valuation
that will be obtained or as to DOCOMO’s ultimate decision to exercise its call
option.




Our
total spectrum holdings consist of approximately ten billion mega Hertz
points-of-presence (“MHz POPs”), covering approximately 215.9 million POPs, of
which 106.9 million POPs are covered by 20 MHz or more of spectrum, and an
additional 90.6 million POPs are covered by at least 10 MHz of spectrum. In
addition, a number of markets, including much of the New York City metropolitan
region, are covered by 30 MHz or more of spectrum. Our domestic spectrum resides
in the 2.3 GHz WCS, 2.5 GHz BRS/ EBS, and 1.7/2.1 GHz AWS bands and offers
propagation and other characteristics suitable to support high-capacity, mobile
broadband services. We have engaged Moelis & Company to market our United
States wireless spectrum holdings, and Canaccord Adams to market our Canadian
wireless spectrum holdings. We will seek to sell our wireless spectrum holdings
over time to repay our significant secured indebtedness, the aggregate principal
amount of which was $833.1 million as of January 2, 2010. As part of these
efforts, during our fiscal years 2009 and 2008 we sold a portion of our AWS
spectrum in the United States for net proceeds, after deducting direct and
incremental selling costs, of $26.4 million and $145.5 million, and recognized
gains on these sales totaling $2.7 million and $70.3 million, respectively. In
2010, we have capital expenditure needs associated with certain build-out or
substantial service requirements. These requirements apply to our licensed
wireless spectrum, which generally must be satisfied as a condition of license
renewal. The renewal deadline and the substantial service build-out deadline for
our domestic WCS spectrum is July 21, 2010. The substantial service deadline for
EBS/BRS spectrum is May 1, 2011; however, most of our EBS leases require us to
complete most build out activities in 2010, in advance of the Federal
Communications Commission (“FCC”) substantial
service deadline.  Our ability to implement our spectrum sale strategy
and to satisfy build-out requirements relating to our domestic wireless spectrum
is subject to significant risks, as described in this Annual Report under the
heading “Risk Factors.”




In
2008, we announced the commencement of our global restructuring initiative and
initiated significant financing and restructuring activities, which are
described below:




·
            In
      total, we have terminated 620 employees worldwide and vacated seven leased
      facilities.




·
            In
      October 2008, we issued Second Lien Notes in the aggregate principal
      amount of $105.3 million and Third Lien Subordinated Secured Convertible
      Notes due 2011 (the “Third Lien Notes”) in an aggregate principal amount
      of $478.3 million in exchange for all of the outstanding shares of our
      Series A Preferred Stock. We received net proceeds of $87.5 million from
      the issuance of the Second Lien Notes and did not receive any cash
      proceeds from the issuance of the Third Lien
  Notes.




5




·
            In
      the fourth quarter of 2009, the Board of Directors of WiMAX Telecom GmbH,
      the holding company for NextWave’s discontinued WiMAX Telecom business in
      Austria and Croatia, filed an insolvency proceeding in Austria in
      accordance with local law to permit the orderly wind-down of such entity.
      The court in Austria has entered an order appointing an administrator to
      manage the insolvency of WiMAX Telecom GmbH. As a result of the
      appointment of the administrator, NextWave no longer controls WiMAX
      Telecom GmbH and its subsidiaries and will not receive any proceeds from
      the assets of the WiMAX entities.




·
            We
      sold a controlling interest in our IPWireless subsidiary in December 2008
      and sold the remaining noncontrolling interest in November
      2009.




·
            We
      shut down the operations of our other network infrastructure businesses,
      which comprise our Networks segment, including the operations of our GO
      Networks and Cygnus subsidiaries and our Global Services and NextWave
      Network Support strategic business
units.




·
            We
      initiated bankruptcy liquidation proceedings for three of our network
      infrastructure subsidiaries in Israel, Denmark and Canada, which
      proceedings are intended to provide an orderly process for the
      discontinuance of operations and to advance our divestiture and cost
      reduction strategy.




·
            In
      the first quarter of 2009, we shut down our semiconductor business,
      terminated 230 employees and, subsequently, in the third quarter of 2009,
      we sold certain of our owned semiconductor business patents and patent
      applications to a third party.




·
            In
      July 2009, we issued additional Second Lien Notes in the aggregate
      principal amount of $15 million, providing us with net proceeds of $13.5
      million after original issue discount and payment of transaction related
      expenses.




·
            We
      have downsized our corporate overhead functions to match the anticipated
      reduction in overall global support requirements, including our
      information technology, legal, finance, human resources and corporate
      branding and marketing functions.




·
            We
      have integrated certain corporate administration functions into our
      PacketVideo operations in San Diego,
California.




·
            We
      have continued to pursue wireless spectrum license sales, the net proceeds
      of which will be used to reduce our outstanding indebtedness thereby
      reducing the interest costs payable in future
  years.




·
            We
      are actively pursuing the sale or wind-down of various remaining portions
      of our WiMax Telecom business and spectrum operations in South
      America.




·
            In
      the fourth quarter of 2009, we sold the majority of the assets and
      liabilities of our Inquam Broadband GmbH (“IHG”) subsidiary and entered
      into an earn out agreement with the buyer that provides for payment to us
      upon the occurrence of specified liquidity events, which include the sale,
      lease or contribution of assets to certain third parties, or distribution
      of profits or sale of equity in IHG.  We will continue to
      receive earn out payments until exhaustion of all specified liquidity
      events.




Several
factors led to our decision to implement our global restructuring initiative in
2008, including adverse worldwide economic conditions, which we believe
adversely affected manufacturers of telecommunications equipment and technology
and caused our discontinued Networks segment to experience lower than projected
contract bookings and revenues. We believe these conditions have also led to a
delay in global WiMAX network deployments, which adversely impacted the timing
and volume of projected commercial sales of WiMAX products of our discontinued
semiconductor business.




Effective
as of March 16, 2010, we entered into an Amendment and Limited Waiver (the
“Amendment and Waiver”) to the agreements governing our Senior Notes, Second
Lien Notes and Third Lien Notes.  Pursuant to the Amendment and
Waiver, the maturity date of our Senior Notes was extended from July 17, 2010 to
July 17, 2011, with an additional extension to October 17, 2011 if certain
conditions are met, including the pendency of asset sales that would yield net
proceeds sufficient to repay all then-outstanding Senior Notes.  In
addition, the maturity date of our Second Lien Notes was extended from December
31, 2010 to November 30, 2011.  As a result of the Amendment and
Waiver, the interest payable on our Senior Notes and Second Lien Notes was
increased to a rate of 15% per annum and the interest payable on our Third Lien
Notes was increased to a rate of 12% per annum initially, increasing 1% per
annum on each of December 31, 2010, March 30, 2011, June 30, 2011 and September
30, 2011 to a maximum of 16%.  After giving effect to the Amendment
and Waiver, all Notes will receive only payment-in-kind interest for the full
term of such Notes, unless we elect to pay cash interest, and the redemption
premium on the Notes was eliminated.  In addition, under the Amendment
and Waiver, we will be entitled to incur additional indebtedness under the
Senior Notes up to an aggregate principal amount of $25.0 million (and any
increases due to the payment in kind of interest thereon).  The
Amendment and Waiver reduced the requirement to maintain a minimum cash balance
from $5 million to $1 million and, after payment in full of certain designated
Senior Notes with an aggregate principal amount of $51.6 million at January 2,
2010, permits us to retain up to $37.5 million for general working capital
purposes and permitted investments, subject to reduction in the amount of any
net




6




proceeds
from the issuance of additional Senior Notes pursuant to the basket described
above. As consideration for the Amendment and Waiver, we paid an amendment fee
to eachholder
of our Senior Notes, Second Lien Notes, and Third Lien Notes  (each, a
“Holder”) through the
issuance of additional notes under the applicable note agreements in an amount
equal to 2.5% of the outstanding principal and accrued and unpaid interest on
such Holder’s existing Notes.




In
connection with the Amendment and Waiver, we entered into a binding commitment
letter (the “Commitment Letter”) with Avenue Capital Management II, L.P., acting
on behalf of its managed investment funds signatory thereto, and Solus Core
Opportunities Master Fund Ltd and its affiliates and co-investors, to provide up
to $25 million in additional financing through the purchase of additional Senior
Notes (the “Senior Incremental Notes”).   The terms of the
Commitment Letter provide that we will be entitled to borrow up to $25
million in one or more borrowings after March 16, 2010 but prior to July 31,
2010, upon 10 business days notice and subject to the execution of definitive
documentation substantially in the form of the definitive agreements governing
our existing indebtedness.  Such agreements will require us to make
customary representatives and warranties as a condition to each borrowing. As
with the other Senior Notes, amounts outstanding under the Senior Incremental
Notes will bear interest at a rate of 15% per annum, payable in kind unless we
elect to pay cash, and will be secured by a first lien on the same assets
securing our Senior Notes, on a pari passu
basis.   No commitment fee or structuring fee is payable in
connection with the Commitment Letter.




Our
current cash reserves and cash generated from operations will not be sufficient
to meet the payment obligations on our Senior Notes, Second Lien Notes and Third
Lien Notes upon their respective maturity dates in 2011. We must consummate
sales of our wireless spectrum assets yielding proceeds that are sufficient to
retire this indebtedness.  If we are unable to pay or refinance our
debt at maturity, the holders of our notes could proceed against the assets
pledged to secure these obligations, which include our spectrum assets and the
capital stock of our material subsidiaries, which would impair our ability to
continue as a going concern and could require us to file for bankruptcy
protection in the U.S.




We
believe that the completion of our asset divestiture and cost reduction actions,
our current cash and cash equivalents, projected revenues and cash flows from
our Multimedia segment, our ability to pay payment-in-kind interest in lieu of
cash interest to the holders of our secured notes, our third party arrangements
with respect to our domestic WCS spectrum build-out requirements, and access to
$25.0 million of additional incremental Senior Notes will allow us to meet our
estimated operational cash requirements at least through March 2011. Should we
be unable to achieve the revenues and/or cash flows through March 2011 as
contemplated in our current operating plan, or if we were to incur significant
unanticipated expenditures in excess of our available asset sale and incremental
Senior Notes proceeds, including in respect of our performance of the WCS
build-out, or we are unable to draw funds under the Commitment Letter, we will
seek to identify additional capital resources including the use of our remaining
$10.0 million of incremental Second Lien Notes debt basket and will implement
certain additional actions to reduce our working capital requirements including
staff reductions.




Multimedia
Segment




PacketVideo
was founded in 1998 and supplies multimedia software and services to many of the
world’s largest network operators and wireless handset manufacturers. These
companies in turn use PacketVideo’s platform to offer music and video services
on mobile handsets, generally under their own brands. To date, over 350 million
PacketVideo-powered handsets have been shipped worldwide. PacketVideo has been
contracted by some of the world’s largest carriers, such as Orange, DOCOMO,
Rogers Wireless, TeliaSonera, TELUS Mobility, and Verizon Wireless to design and
implement the embedded multimedia software capabilities contained in their
handsets. PacketVideo’s software is compatible with virtually all network
technologies including CDMA, GSM, WiMAX, LTE and WCDMA.




As mobile
platforms evolve, PacketVideo continues to provide one of the leading multimedia
solutions. PacketVideo is one of the original founding members of the Open
Handset Alliance (“OHA”), led by Google. PacketVideo’s OpenCORE platform
provides multimedia software capabilities for the OHA’s Android operating
system. We believe that by supporting the efforts of the OHA, PacketVideo is
well positioned to market its full suite of enhanced software applications to
network operators who support Android handsets on their networks.




In
addition, since 2006 PacketVideo has offered software products for use on PCs,
consumer electronics and other devices in the home. We believe that media
consumption in the home and media consumption on mobile handsets is converging.
PacketVideo’s TwonkyMedia product line is designed to capitalize on this trend.
PacketVideo has invested in the development and acquisition of a wide range of
technologies and capabilities to provide its customers with software solutions
to enable home/office digital media convergence using communication protocols
standardized by the Digital Living Network Alliance. The TwonkyMedia suite of
products provide for content search, discovery, organization and content
delivery/sharing among consumer electronics products connected to an Internet
Protocol-based network. This powerful platform is designed to provide an
enhanced user experience by intelligently responding to user preferences based
on content type and content storage location. In addition, PacketVideo’s
patented Digital Rights Management (“DRM”) solutions, already in use by many
wireless carriers globally, represent a key enabler of digital media convergence
by preventing the unauthorized access or duplication of multimedia content used
or shared by PacketVideo-enabled devices. Additionally, PacketVideo is one of
the largest suppliers of Microsoft DRM technologies for the wireless market
today.




7




Although
we believe that PacketVideo’s products are advantageous and well positioned for
success, PacketVideo’s business largely depends upon volume based sales of
devices into the market. The economic downturn in the global markets has
affected consumer spending habits. PacketVideo’s customers and distribution
partners, telecommunications companies and consumer electronics device
manufacturers, are not immune to such uncertain and adverse market conditions.
PacketVideo relies on these partners as distribution avenues for its developed
products. Additionally, competitive pressures may cause further price wars in an
effort to win or sustain business which will have an effect on overall margins
and projections. If economic conditions continue to deteriorate, this may result
in lower than expected sales volumes, resulting in lower revenue, gross margins,
and operating income. In July 2009, a subsidiary of DOCOMO purchased a 35%
noncontrolling interest in our PacketVideo subsidiary. Pursuant to the
definitive agreements, DOCOMO was granted certain rights in the event of future
transfers of PacketVideo stock or assets, preemptive rights in the event of
certain issuances of PacketVideo stock, and a call option exercisable under
certain conditions to purchase the remaining shares of PacketVideo at an
appraised value. In addition, DOCOMO will have certain governance and consent
rights applicable to the operations of PacketVideo. DOCOMO has expressed its
intent to exercise its call option and the parties are currently in discussions
concerning the valuation for our remaining PacketVideo shares.  DOCOMO
will have an opportunity to determine whether it wishes to proceed with its
exercise of the call option following the determination of a valuation for our
shares.  At this time, there can be no assurance as to the valuation
that will be obtained or as to DOCOMO’s ultimate decision to exercise its call
option.




Competitive
Strengths




Well established
industry position. We believe that our
PacketVideo subsidiary is a leading independent supplier of multimedia software
in the mobile industry, with ten years of expertise. PacketVideo’s customers
include many of the world’s largest handset manufacturers such as Fujitsu, HTC,
Motorola, Nokia, Panasonic, Samsung, Sharp, and Sony Ericsson, as well as some
of the world’s largest network operators including ATT, Orange, DOCOMO, Rogers
Wireless, TeliaSonera, TELUS Mobility, and Verizon Wireless. PV has also become
a leading provider of software for next generation connected home consumer
electronics products to companies such as Buffalo, Cisco Linksys, Denon,
Hewlett-Packard, Panasonic, Philips, Siemens, Yamaha and Western Digital. In
2008, PV became a founding member of the OHA led by Google, and supplies its
OpenCORE multimedia software for the OHA’s mobile device platform known as
Android.  As the shift to converged services occurs where multimedia
services are accessible via the television, PC and mobile handset, we believe
that PacketVideo is in a unique position to support this evolution.




A unique and
flexible portfolio of multimedia products and technologies. We expect mobile TV to
continue to grow on a global basis. There is a trend emerging among those
watching television programs to now search out the same content over the
Internet. Content providers have begun experimenting with content portals that
provide popular programming with the same shows that are available on
television. According to Juniper Research, the global base for mobile broadcast
TV services is likely to exceed $330 million by the end of 2013. Unlike the PC
software environment, there are no dominant mobile device operating systems and,
in fact, over two dozen such operating systems are currently in use by mobile
handset manufacturers worldwide. PacketVideo works with virtually all of the
most popular mobile device operating systems in use today. By maintaining this
flexible approach, we believe that PacketVideo’s next generation of mobile
broadband software will be well-positioned to enjoy continued wide scale
industry adoption. We believe that PV’s expertise in the key elements needed to
deliver mobile multimedia services puts PV in a unique position to capitalize on
this growth.




A highly
accomplished team of wireless technology professionals. PacketVideo is led by a
team of highly accomplished  wireless industry veterans with broad
experience in the development of wireless communications technologies and
solutions. Dr. James Brailean, Chief Executive Officer of PacketVideo,
co-founded PacketVideo and has built it into an industry leader over the past
ten years.




Competition




We
continue to experience intense competition for our multimedia products and
services. Our competitors range in size from Fortune 500 companies to small,
specialized single-product businesses. At present, the primary competitors for
our multimedia software products are the large OEM handset manufacturers such as
Nokia, Samsung, LG, Sony Ericsson, Motorola, Apple, RIM, HTC, Palm and others.
Many of these companies now offer their own internally developed multimedia
services (e.g., Nokia Ovi, SonyEricsson PlayNow) that come bundled with various
handset products. While these groups compete against us in the overall market
for wireless multimedia, these companies also represent the primary distribution
channel for delivering PacketVideo products. This is because PacketVideo’s
network operator customers ask these manufacturers to install or preload a
version of PacketVideo’s software customized for such mobile operator in
handsets that they purchase. In addition to the handset manufacturers, a number
of companies compete with PacketVideo at various product levels, including
Adobe, Apple, Microsoft, MobiTV, QuickPlay, Real Networks and Rovi, offering
software products and services that directly or indirectly compete with
PacketVideo.




For
the connected home set of product solutions, our primary competitors again
include internal software design teams at large electronics companies like
Apple, Cisco, Huawei, LG, Microsoft, Panasonic, Samsung and Sony.




8




The
PV Strategy




The
PV strategy is to deliver technologically advanced mobile multimedia and
products and technologies to mobile subscriber terminal manufacturers, mobile
network operators, and consumer electronics product companies, using a
two-pronged approach:




·
            Deliver
      rich-media services on PacketVideo’s CORE and OpenCORE technologies for
      next-generation platforms. Building on its
      success in developing solutions for Qualcomm BMP, Microsoft’s Windows
      Mobile platform and Symbian, PacketVideo will continue to deliver
      solutions for new platforms such as Android and iPhone, demonstrating its
      ability to rapidly develop and deliver the next-generation rich-media
      solutions required by the industry.·
            Deliver
      connected home solutions based on PacketVideo’s TwonkyMedia
      platform. PacketVideo will continue to partner with home routing
      systems, digital media renderers, network attached storage providers and
      other evolving and new connected consumer electronics devices to deliver
      digital home connectivity solutions using Digital Living Network Alliance
      (“DLNA”) certified devices, as well as proprietary connected devices, to
      allow seamless sharing of audio, video and photo content. As wireline and
      wireless premium services continue to converge, PacketVideo will continue
      to develop multi-screen services for service providers intent on
      capitalizing on rich media services.·
            Grow and
      extend the Multimedia business. We believe that the
      number of multimedia enabled smartphones as a percentage of global
      handsets shipped annually will rise significantly over the next several
      years. We will seek to maintain PacketVideo’s strong position in this
      growing market through the growth and extension of its existing multimedia
      software business and by leveraging its new multimedia convergence
      products and technologies. At present, the primary competitors for
      PacketVideo’s multimedia software products are the OEM handset
      manufacturers who increasingly seek to incorporate their own multimedia
      applications and services into the devices they sell to network operators.
      Furthermore, we believe that the deployment of mobile broadband networks
      will spawn the development of new categories of software applications that
      capitalize on the distinctive mobility features inherent in mobile
      broadband systems. While the competition from the OEM’s internal
      multimedia design teams and other independent multimedia software may
      increase in the next few years, we believe that PacketVideo will be able
      to leverage its MediaFusion platform and its family of TwonkyMedia
      products to fortify its position in the mobile multimedia and converged
      media software business.




PV
Products and Technologies




PacketVideo is a global
provider of multimedia software and services. PacketVideo’s software transforms
a mobile phone or other mobile device into a feature-rich multimedia device that
allows people to stream, download, and play video and music, receive live TV, or
engage in two way video telephony. PacketVideo’s innovations and engineering
leadership have led to breakthroughs in content encoding, content delivery
systems, and advanced multimedia-enabled handset development around the
world.




For
mobile device manufacturers, shorter product cycles and increasing demand for
advanced technologies are driving collaboration with third party solution
providers, such as PacketVideo, to aid their product development. We believe
that PacketVideo’s technical capabilities and depth of knowledge are key reasons
why PacketVideo has been chosen by the world’s largest device manufacturers and
network operators to help them quickly develop and introduce new multimedia
enabled handsets and multimedia services to the market. PacketVideo’s current
suite of device-embedded software solutions is based on a modular architecture
to enable rapid integration with the industry’s leading hardware platforms and
operating systems.




CORE Multimedia
Framework. PacketVideo’s CORE software product powers the playback of
video and music in millions of mobile phone handsets worldwide. The PacketVideo
multimedia framework is an embedded client with modular options to enable the
downloading, streaming, and playback of content files based on all major media
formats. CORE codec modules include: WMA 9/10/Pro, WMV 9, AAC, HE-AAC, HE-AAC
V2, AVC/H.264, MPEG-4, Real Audio, Real Video, MP3, MP3 PRO, AMR and
WB-AMR.




OpenCORE
Open-sourced Multimedia Sub-system. PacketVideo is a founding member of
the Open Handset AllianceTM, an initiative led by Google to create a new mobile
handset platform called Android. PacketVideo has open-sourced part of its code,
allowing handset makers and Android developers to create basic audio and video
applications. Should network operators, who adopt Android handsets wish to
create more sophisticated multimedia services, PacketVideo is well positioned to
provide these solutions.




TwonkyMedia.
TwonkyMedia is a family of customizable software products that auto-detect and
link popular devices through the home, allowing end-users to share and enjoy
various forms of mobile-multimedia content on the devices of their choice. The
TwonkyMedia server is certified by the DLNA, a consortium of more than 300
consumer electronics and technology companies. The software is interoperable
with hundreds of other DLNA-compatible home electronic and mobile devices as
well as select non-compatible devices including Microsoft’s Xbox 360 and Sony’s
PlayStation Portable.




9




PacketVideo
Mobile TV Solutions. PacketVideo’s mobile TV solutions enable mobile
broadcast TV. Features include live streaming TV, VOD, high-performance
multimedia codecs, picture-in-picture, personal video recorder, fast channel
changing, and support for PacketVideo’s own or third-party electronic service
guides.




PacketVideo DRM
Solutions. A mobile implementation of content protection and business
rules for commercial media consumption. DRM types supported include: Windows
Media DRM, OMA 1.0 and 2.0, and DTCP-IP. In addition, PacketVideo owns, and is
further developing a flexible Java DRM solution called Secure Digital Container
or SDC which has been adopted by several major operators.




MediaFusion
Server-Client Solution. MediaFusion is a platform that unites disparate
media services on the back end and presents a unified user interface on the
device, adding value to a mobile operator’s existing content delivery services
by managing and serving data about media content, rather than the media payload,
and enabling a personalized music entertainment experience for users based on
their demonstrated preferences.




PV Sales and
Marketing




PacketVideo
has ongoing marketing efforts that focus on the wireless industry and partners
specific to PacketVideo’s business success. Today, we continue to highlight rich
media embedded software development for both handset manufacturers and network
service providers. PV’s partnerships span throughout North America, Europe and
parts of Asia. We focus on global partner tradeshow events, like the annual
Mobile World Congress events and developer conferences, continually update our
products and solutions collateral, identify and meet with key analysts and
promote PV’s commercialized projects through appropriate press and news outlets.




As
certain mediums are becoming more popular and useful in disseminating important
company and product information, PacketVideo has evolved its strategy. We have
begun actively educating developers and partners through dedicated online
WebPages, directed targeted video presentations to educate our partners and the
general interested audience, created applicable blogs and advanced our
participation in consumer related articles on new initiatives like OpenCORE.
With the evolution of converged services, which address not only the mobile
handset screen but also the PC desktop screen and the set top box television
screen, we seek to promote our home connectivity products, such as TwonkyMedia
manager, to become the leading standard in home software connectivity. There is
a business to business set of marketing activities as well as business to
consumer promotions, the latter of which is new to PV’s overall promotional
strategy. The TwonkyMedia website, www.twonkymedia.com, is a rich interactive
consumer targeted website that offers in-depth information and guides to PV’s
latest evolution of the TwonkyMedia suite of products.




Strategic
Initiatives Segment




Our
strategic initiatives business segment is engaged in the management of our
global wireless spectrum holdings. Our total domestic spectrum holdings consist
of approximately ten billion MHz POPs covering approximately 215.9 million total
POPs, with 106.9 million POPs covered by 20 MHz or more of spectrum, and an
additional 90.6 million POPs covered by at least 10 MHz of spectrum. In
addition, a number of markets, including much of the New York City metropolitan
region, are covered by 30 MHz or more of spectrum. Our domestic spectrum resides
in the 2.3 GHz Wireless Communication Services (“WCS”), 2.5 GHz Broadband Radio
Service (“BRS”)/Educational Broadband Service (“EBS”), and 1.7/2.1 GHz Advanced
Wireless Service (“AWS”) AWS bands and offers propagation and other
characteristics suitable to support high-capacity, mobile broadband
services.




Our
international spectrum holdings include nationwide 3.5 GHz licenses in Slovakia
and Switzerland; a nationwide 2.0 GHz license in Norway; 2.3 GHz licenses in
Canada; and 2.5 GHz licenses in Argentina and Chile, covering 145 million
POPs.




We
continue to pursue the sale of our wireless spectrum holdings and any sale or
transfer of the ownership of our wireless spectrum holdings is subject to
regulatory approval. We expect that we will be required to successfully monetize
most of our wireless spectrum assets in order to retire our debt.




During
2009, we completed the sale of certain of our owned AWS spectrum licenses in the
United States to third parties for net proceeds, after deducting direct and
incremental selling costs, of $26.4 million, and recognized net gains on the
sales of $2.7 million. The net proceeds from the sales received after July 15,
2009 were used to redeem a portion of the Senior Notes at a redemption price of
102% of the principal amount thereof, plus accrued interest and net proceeds
received prior to July 16, 2009 were used to redeem a portion of the Senior
Notes at a redemption price of 105% of the principal amount thereof plus accrued
interest.




To
date, we have realized a positive return on the sale of the majority of our
domestic AWS spectrum licenses. However, there can be no assurance that we will
realize a similar return upon the sale of our remaining wireless spectrum
holdings. The sale price of our wireless spectrum assets will be impacted by,
among other things:




·
            the
      FCC’s final resolution of ongoing proceedings regarding interference from
      satellite digital audio radio services to our WCS spectrum
      licenses;






10





·
            the
      timing and associated costs of build out or substantial service
      requirements attached to our domestic and international spectrum licenses,
      where a failure to comply with these requirements could result in license
      forfeiture;





·
            the
      timing of closure of potential sales, particular if it is necessary to
      accelerate the planned sale of certain of our spectrum licenses in order
      to meet debt payment obligations;





·
            worldwide
      economic conditions which we believe have adversely affected manufacturers
      of telecommunications equipment and technology and led to a delay in
      global WiMAX network deployments;
and





·
            the
      availability of capital for prospective spectrum buyers which has been
      negatively impacted by the downturn in the credit and financial
      markets.




As
we have previously disclosed, our efforts to sell our wireless spectrum holdings
on favorable terms has been delayed by current market conditions, as well as
regulatory and other market activities involving potential buyers. We are
continuing to have discussions with numerous parties who have expressed interest
in our various spectrum assets. However, we believe that adverse economic
conditions continue to affect potential purchasers of our wireless spectrum, and
there can be no assurance as to the timing of further spectrum sales or the
sales prices that will be attained.






As of
January 2, 2010, summary information about our current spectrum holdings in the
United States is set forth below.




Type
      of Spectrum(1)(4)MEA(2)
            MEA
      Name
            POPs(3) (mm)
            BRS
      EBS
            WCS
            AWS
            
            Top
      Covered CMAs within MEA (POP Rank)1
            Boston
            9.3
            
            ●
            
            
            Boston
      (10), Providence (50)2
            New
      York City(5)
            31.6
            ●
            ●
            
            
            New
      York (2), Hartford (41)3
            Buffalo
            1.7
            
            ●
            
            
            Buffalo
      (45), New York 3 - Chautauqua (118)4
            Philadelphia(11)
            8.6
            ●
            ●
            
            
            Philadelphia
      (6), Wilmington (75)7
            Charlotte-Greensboro-Greenville-Raleigh
            4.0
            
            
            ●
            
            NC
      15 - Cabarrus (93), NC 4 - Henderson (139)8
            Atlanta
            1.2
            
            
            ●
            
            Savannah
      (183), Georgia 12 - Liberty (270)9
            Jacksonville
            2.7
            
            ●
            ●
            
            Jacksonville
      (37), Tallahassee (177)10
            Tampa-St.
      Petersburg-Orlando
            0.9
            
            
            ●
            
            Florida
      4 - Citrus (77), Florida 3 - Hardee (304)15
            Cleveland
            4.7
            
            ●
            
            
            Cleveland
      (26), Akron (74)16
            Detroit
            10.8
            
            ●
            
            
            Detroit
      (7), Grand Rapids (59)17
            Milwaukee
            5.6
            
            ●
            
            
            Milwaukee
      (33), Madison (115)18
            Chicago
            14.1
            ●
            ●
            
            
            Chicago
      (3), Gary (80)20
            Minneapolis-St.
      Paul
            7.2
            
            ●
            
            
            Minneapolis
      (14), Minnesota 6 - Hubbard (201)21
            Des
      Moines-Quad Cities
            2.8
            
            ●
            
            
            Des
      Moines (102), Davenport (160)27
            New
      Orleans-Baton Rouge(9)
            0.6
            ●
            
            
            
            Mobile
      (90)29
            Kansas
      City
            3.5
            
            ●
            
            
            Kansas
      City (27), Topeka (315)30
            St.
      Louis(8)
            4.6
            
            ●
            
            
            St.
      Louis (18),Springfield (178)31
            Houston
            7.3
            
            ●
            
            
            Houston(5),
      Louisiana 5 - Beauregard (130)32
            Dallas-Fort
      Worth(10)
            13.2
            ●
            ●
            ●
            
            Dallas
      (4), Austin (35)33
            Denver
            5.8
            
            ●
            
            
            Denver
      (16), Colorado Springs (87)34
            Omaha
            1.7
            
            ●
            
            
            Omaha
      (72), Lincoln (224)35
            Wichita
            1.3
            
            ●
            
            
            Wichita
      (96), Kansas 14 - Reno (394)36
            Tulsa
            1.0
            
            ●
            
            
            Tulsa
      (57), Oklahoma 4 - Norton(305)37
            Oklahoma
      City
            2.3
            
            ●
            
            
            Oklahoma
      City (44), Oklahoma 3 - Grant (287)38
            San
      Antonio
            3.9
            
            ●
            
            
            San
      Antonio (25), McAllen (73)39
            El
      Paso-Albuquerque
            2.8
            ●
            ●
            ●
            
            Albuquerque
      (70), El Paso (71)40
            Phoenix
            6.0
            
            ●
            
            
            Phoenix
      (13), Tucson (51)41
            Spokane-Billings
            2.3
            
            ●
            
            
            Spokane
      (119), Idaho 1 - Boundary (205)









11


42
            Salt
      Lake City
            3.5
            
            ●
            
            
            Salt
      Lake City (32),Provo (112)43
            San
      Francisco-Oakland-San Jose (7)
            14.7
            ●
            ●
            
            
            San
      Francisco (11), Sacramento (23)44
            Los
      Angeles-San Diego (6)
            24.9
            ●
            ●
            
            
            Los
      Angeles (1), San Diego (18)45
            Portland
            4.3
            
            ●
            
            
            Portland
      (21), Salem (146)46
            Seattle
            5.4
            
            ●
            
            
            Seattle
      (20), Tacoma (69)48
            Hawaii
            1.3
            
            ●
            
            
            Honolulu
      (54), Hawaii 3 - Hawaii (385)Total
      (excluding overlaps)
            215.9




(1)      WCS,
AWS, BRS and EBS licenses are assigned by the FCC for geographic service areas
of varying sizes and shapes. WCS licenses are assigned by the FCC according to
Major Economic Areas (“MEA”) or Regional Economic Area Groupings (“REAG”) (see
further explanation below in “Business-WCS Spectrum”). AWS licenses are assigned
by the FCC according to REAGs, EAs, or CMAs (see further explanation below in
“Business-AWS Spectrum”). BRS spectrum is licensed both according to Geographic
Service Areas with a 35-mile radius, subject to overlapping Geographic Service
Areas of co-channel stations, and according to BTAs of various sizes. Our BRS
spectrum currently is composed of licenses with 35-mile radius Geographic
Service Areas, subject to overlapping Geographic Service Areas of co-channel
stations. EBS spectrum is only licensed according to Geographic Service Areas
with a 35-mile radius, subject to overlapping Geographic Service Areas of
co-channel stations (see further explanation below in “Business-BRS and EBS
Spectrum”).




(2)      This
data in this table is presented in terms of MEAs. MEAs are named for the largest
metropolitan area contained within the licensed geographic service area, but are
significantly larger than the metropolitan area for which they are
named.




(3)      The
source for our POP figure is derived from 2006 composite data contained in
databases managed by Applied Geographic Solutions Inc. of Newbury Park,
California, except for Puerto Rico which is derived from 2000 census
figures.




(4)    Our
AWS, WCS and BRS spectrum is held directly through FCC licenses. Our EBS
spectrum has been leased on a long-term basis from current license
holders.




(5)    We
lease EBS spectrum from multiple parties in the greater New York City, New York
City metropolitan area, including geographic areas in New York, New Jersey and
Connecticut. These leases give us access to different amounts of spectrum in
specific parts of the market area. The terms of these leases range from 20 to up
to 60 years when their renewal options are included.




(6)    We
lease EBS spectrum from The Orange Catholic Foundation in the Los Angeles,
California (Orange County) area. This lease has an initial 10 year term and
contains five renewal options for 10 years each to extend the term of the
lease.




(7)    We
lease EBS spectrum from The University of California in the San Francisco,
California area. The lease has an initial 10 year term and contains 2 renewal
options for 10 years each to extend the term of the lease.




(8)    We
lease EBS spectrum from Bradley University in the Peoria, Illinois area. This
lease has an initial 10 year term and contains two renewal options for 10 years
each to extend the term of the lease.




(9)    We
sublease EBS spectrum from the North American Catholic Educational Programming
Foundation in the Mobile, Alabama area. This sublease has an initial 29 year
term and no renewal options to extend the term of the sublease.




(10)  We
lease EBS spectrum from Tarrant County College District in the Dallas, TX
area.  This lease has an initial 15 year term and contains a renewal
option for 15 years to extend the term of the lease.




(11)  We
lease EBS spectrum from Temple University in the Philadelphia, PA
area.  This lease has an initial 10 year term and contains three
renewal options for 10 years each to extend the term of the lease.




WCS
Spectrum




We have
acquired WCS spectrum from third parties pursuant to privately negotiated
purchase agreements. The 2.3 GHz WCS band is divided into four frequency blocks,
A through D. Blocks A and B have 10 MHz of spectrum each and blocks C and D have
5 MHz each. We have acquired WCS licenses in the A, B, C and D frequency blocks.
The WCS A and B blocks are licensed in 52 individual geographic regions covering
the United States, including the Gulf of Mexico, and are called Major Economic
Areas (“MEA”). The WCS C and D blocks are licensed in six larger geographic
regions, also covering the United States and are called Regional Economic Area
Groupings (“REAGs”). Both MEAs and REAGs are of various sizes in terms of
population and geographic coverage.




WCS
licenses are allocated by the FCC for “flexible use.” This means that the
spectrum can be used to provide any type of fixed, portable, mobile (except
aeronautical mobile) or radiolocation services to individuals and businesses,
including the wireless broadband services we intend to offer. Any such offerings
are subject to compliance with technical rules in Part 27, Title 47 of
the




12




Code of
Federal Regulations (“CFR”), as well as any applicable border treaties or
agreements governing operations near the Canadian and Mexican
borders.




In 2010, we have capital
expenditure needs associated with certain build-out or substantial service
requirements. These requirements apply to our licensed wireless spectrum, which
generally must be satisfied as a condition of license renewal. The renewal
deadline and the substantial service build-out deadline for our domestic WCS
spectrum is July 21, 2010.  We have entered into a third party
arrangement pursuant to which the third party has agreed to meet our build-out
requirements. However, at this time there can be no assurance that such party
will be able to pay for the build out or complete its contractual requirements
on time. Accordingly, we will seek to identify additional capital resources and
personnel to enable us to perform such build-out obligations in the event such
party is not able to perform. Our reliance on a third party to meet our
substantial service requirements may subject us to risks of non-renewal in the
event that such party does not perform its obligations and if we are unable to
fund such obligations.




BRS and EBS
Spectrum




We have
acquired BRS spectrum licenses from third parties pursuant to privately
negotiated purchase agreements. Rights to lease and use EBS spectrum are
acquired by commercial interests like us from educational entities through
privately negotiated lease agreements. EBS licensees are permitted to enter into
lease agreements with a maximum term of 30 years; lease agreements with terms
longer than 15 years must contain a “right of review” by the EBS licensee every
five years beginning in year 15. Because some of our long-term leases were
executed prior to the effective date of these new leasing requirements, our
long-term leases afford us exclusive leasehold access to the leased EBS spectrum
for a total period of time ranging from 20 years up to 60 years when all renewal
options are included.




Under
current regulations, after giving effect to an FCC-mandated transition of the
spectrum to a new band configuration, which must be complete by October 19, 2010
(barring disputes in the transition process), the total spectrum bandwidth
licensed by the FCC for BRS and EBS spectrum is 194 MHz. Approximately 75% of
this spectrum is licensed for the EBS and 25% is licensed for the BRS. Under FCC
Rules, regulations and policies (“FCC Rules”), up to 95% of the spectrum
dedicated to each EBS license can be leased for commercial purposes subject to
compliance with FCC Rules. After transitioning the BRS and EBS spectrum to the
new band plan, individual channels and channel groups of BRS and EBS spectrum
will range from 5.5 MHz to 23.5 MHz of spectrum. Most, but not all, BRS and EBS
“channel groups” contain four channels and 23.5 MHz of spectrum.




Until
1996, BRS spectrum was licensed according to Geographic Service Areas with a
35-mile radius. These “incumbent” licenses continue to exist today, but are
subject to overlapping Geographic Service Areas of co-channel stations. In 1996,
the FCC conducted an auction and assigned licenses for available BRS spectrum
according to BTAs of various sizes. These BTA licenses were granted subject to
the prior rights of the incumbent BRS license holders. We have acquired licenses
from incumbent BRS licensees, licensed for 35-mile Geographic Service Areas,
subject to overlapping Geographic Service Areas of co-channel stations. We may
in the future acquire BRS spectrum licensed for BTAs.




EBS
spectrum is licensed only for Geographic Service Areas with a 35-mile radius,
subject to overlapping Geographic Service Areas of co-channel stations. In the
future, vacant EBS spectrum may be assigned by BTAs, or some other licensing
construct chosen by the FCC. EBS spectrum is licensed exclusively to accredited
educational institutions, governmental organizations engaged in the formal
education of enrolled students (e.g., school districts), and nonprofit
organizations whose purposes are educational.




The FCC’s
rules for BRS and EBS spectrum were substantially revised in 2004 to provide
more flexibility in how the spectrum is licensed and used; proceedings to revise
the rules continue today. Use of the spectrum has evolved to include fixed and
mobile, digital, two-way systems capable of providing high-speed, high-capacity
broadband service, including two-way Internet access service via low-power,
cellularized communication systems and single-cell high-power systems. On March
20, 2008, the FCC released an additional order to reform FCC Rules related to
BRS and EBS spectrum. Although these new, amended rules became effective on June
9, 2008, they are subject to petitions for reconsideration. For a more detailed
description of these new rules, see “Government Regulation - BRS/EBS License
Conditions.”




AWS
Spectrum




We
acquired 154 AWS licenses in FCC Auction No. 66 and currently hold 14 AWS
licenses. The FCC granted AWS spectrum pursuant to Economic Area (“EA”)
licenses, REAG licenses and CMA licenses. The AWS auction involved a total of
1,122 licenses: 36 REAG licenses, 352 EA licenses, and 734 CMA licenses. EA,
REAG and CMA licenses vary widely in terms of population and geographic
coverage.




In
terms of spectral size, the AWS spectrum is divided into six spectrum blocks, A
through F. There are three 10 MHz blocks, each consisting of paired 5 MHz
channels, and three 20 MHz blocks, each consisting of paired 10 MHz channels. We
have acquired both 20 MHz and 10 MHz licenses.




AWS
licenses are allocated by the FCC for flexible use. This means that the spectrum
can be used to provide any type of fixed, portable or mobile services to
individuals and businesses, including the wireless broadband services. Any such
offerings are




13




subject
to compliance with technical rules in Part 27, Title 47 of the CFR as well as
any applicable border treaties or agreement governing operations near the
Canadian and Mexican borders.




International
Spectrum




On March
2, 2007, we acquired WCS spectrum in Canada. Our Canadian licenses cover
approximately 14.6 million POPs and include 30 MHz of spectrum in all service
areas for which licenses were acquired for a total of 438 million MHz POPs. The
licenses vary widely in terms of population and geographic coverage, but include
major cities, such as Montreal, Ottawa, Edmonton, Quebec and Winnipeg.
NextWave’s Canadian WCS licenses are held by our Canadian subsidiary, 4253311
Canada Inc. The licenses carry a 10-year license term with renewal expectancy of
subsequent 10-year terms absent breach of license conditions. Because the
licenses were issued by Industry Canada through two separate auctions, 63
licenses have an expiration date of November of 2014, while 25 licenses have an
expiration date of April of 2015. The licenses are “radiocommunication user”
licenses and cannot be used to provide service for compensation before the
licenses are converted to either “radiocommunication service provider” licenses
or “radiocommunication carrier” licenses. Conversion of the licenses will
require compliance with Canadian ownership and control restrictions. In
addition, each Canadian WCS license is subject to a 5 year usage implementation
requirement, demonstrating that the spectrum is being used at a level that is
acceptable to Industry Canada. Again, because the licenses were issued at two
different times, there are two different implementation deadlines, November 2009
for 63 licenses, and April 2010 for the other 25 licenses. On July 2, 2009, we
received a three year extension of the implementation requirement from the
Canadian regulatory authority, making the new deadlines November of 2012 and
April of 2013.




In
Switzerland, Callix Consulting AG, as of May 20, 2008, holds 3.5 GHz
spectrum, following a transfer from Inquam GmbH which originally owned such
license awarded on May 2, 2007 by the Swiss Federal Communications Commission.
This includes 42 MHz of spectrum covering the country’s entire population of 7.5
million people for a total of 315 million MHz POPs in Switzerland. The license
term is 10 years and renewal is possible but terms and conditions of license
renewal are not set. The license is technology/service neutral and use for
mobile services is permitted. The license requires a build-out of 120 base
stations transmitters by September 2010.




In
Slovakia, WiMAX Telecom s.r.o. holds, following the acquisition of Amtel
Networks in 2006 and the subsequent merger with WiMAX Telecom s.r.o., two
licenses of 28 MHz each, covering Slovakia’s entire population of approximately
5.5 million people. The licenses term is until year-end 2016. Terms and
conditions for the renewal are not yet set. The licenses are technology/service
neutral. In line with EU regulation it is expected that the Slovakian regulator
formally permits the use of the spectrum for mobile services. The licenses
entail build-out obligations by mid 2006 and respectively by mid 2007, which
fulfillment the regulator confirmed following inspections.




In
Norway, Inquam Norway AS , as of June 26, 2008, holds a nationwide 2.0 GHz
license, valid until December 31, 2022, following a transfer from Inquam GmbH
which originally owned such license awarded by Norwegian Telecom Authority
on December 21, 2007.




In
October 2007, we acquired Websky Argentina SA, an Argentine corporation and its
subsidiaries, which hold licensed frequencies in Argentina and has obtained
spectrum licenses for an aggregate of 42 MHz spectrum in the 2.5 GHz band
covering the Buenos Aires metro region and 180 kilometers surrounding the city
and covers 15.5 million POPs for a total of 651 million MHz POPs. Transfer of
control of the spectrum licenses held by Websky Argentina SA remains subject to
regulatory approval. The licenses are also subject to regulatory requirements
regarding the ongoing provision of commercial services with which we are
currently in compliance.




In April
2008, we acquired all of the outstanding equity interests of Southam Chile SA, a
Chilean corporation, and Sociedad Televisora CBC Limitada, a Chilean limited
liability company (collectively, “Southam Chile”). The two companies hold
spectrum licenses in the 2.5 GHz band in seven different regions across Chile,
including Santiago. The spectrum licenses cover 8 million POPs and comprise 162
million MHz POPs. They each also hold digital television and intermediate
services licenses for these same regions. The Southam Chile SA licenses are
subject to a regulatory requirement to construct and operate network facilities
by June of 2009, which has been extended by the Chilean regulator until May
2011. The Sociedad Televisora CBC Limitada licenses are subject to a similar
regulatory requirement to construct and operate network facilities by December
of 2009, which has been extended by the Chilean regulator until November
2011.




Intellectual
Property




In order
to protect our proprietary rights in our products and technologies, we rely
primarily upon a combination of patent, trademark, trade secret and copyright
law as well as confidentiality, non-disclosure and assignment of inventions
agreements. Our continuing operations have six U.S. patents, one of which is the
subject of extensive foreign filing. As part of our product and technology
development process, we identify potential patent claims and file patent
applications when appropriate in order to seek protection for our intellectual
property assets. We have numerous patent applications pending in the United
States and in foreign jurisdictions. Our registered PacketVideo trademark is the
only trademark that is currently material to our business. We have additional
trademarks and trademark applications that may become significant to our
business based on the development and success of our product lines.




14




In
addition, we have typically entered into nondisclosure, confidentiality and
assignment of inventions agreements with our employees, consultants and with
some of our suppliers and customers who have access to sensitive information. We
cannot assure that the steps taken by us to protect our proprietary rights will
be adequate to prevent misappropriation of our technology or independent
development and/or the sale by others of products with features based upon, or
otherwise similar to, those of our products.




Although
we believe that our technology has been independently developed and that none of
our intellectual property infringes on the rights of others, we cannot assure
that third parties will not assert infringement claims against us or seek an
injunction on the sale of any of our products in the future. If an infringement
were found to exist, we may attempt to acquire the requisite licenses or rights
to use such technology or intellectual property. However, we cannot assure that
such licenses or rights could be obtained on terms that would not have a
material adverse effect on us, if at all.




We
license and will continue to seek licenses to certain technologies from others
for use in connection with some of our products and technologies. While none of
our current license agreements are material at the time of this Annual Report,
the inability to obtain such licenses or loss of these licenses could impair our
ability to develop and market finished products to end-users. If we are unable
to obtain or maintain the licenses that we need, we may be unable to develop and
market our products or processes, or we may need to obtain substitute
technologies of lower quality or performance characteristics or at greater
cost.




Government
Regulation




Overview




Communications
industry regulation changes rapidly, and such changes could adversely affect us.
The following discussion describes some of the major communications-related
regulations that affect us, but numerous other substantive areas of regulation
not discussed here also may influence our business.




In
the United States, communications services are regulated to varying degrees at
the federal level by the FCC and at the state level by public utilities
commissions. Internationally, similar regulatory structures exist at the
national and regional level. Our business is impacted by such regulation in a
number of areas, including the licensing, leasing and use of spectrum, and the
technical parameters, certification, marketing, operation and disposition of
wireless devices. Applicable consumer protection regulations also are enforced
at the federal and state levels.




The
following summary of applicable regulations does not describe all present and
proposed federal, state and local legislation and regulations affecting the
communications industry in the United States or internationally. Some
legislation and regulations are the subject of ongoing judicial proceedings,
proposed legislation and administrative proceedings that could change the manner
in which our industry is regulated and the manner in which we operate. We cannot
predict the outcome of any of these matters or their potential impact on our
business. See “Risk Factors - Risks Relating to Government
Regulation.”




Licensing and Use of U.S. Wireless
Spectrum




In
the United States, the FCC regulates the licensing, construction, use, renewal,
revocation, acquisition, lease and sale of our domestic licensed wireless
spectrum holdings. Our domestic wireless spectrum holdings currently include
licensed spectrum in the WCS, AWS and BRS bands, and leased spectrum in the EBS
band. Our international wireless spectrum holdings, which currently include
licensed spectrum in the 3.5 GHz, 2.5 GHz, 2.3 GHz and 2.0 GHz bands, are
regulated by national regulatory authorities that have similar responsibilities
to those of the FCC.




Certain
general regulatory requirements apply to all licensed wireless spectrum. For
example, certain build-out or “substantial service” requirements apply to most
of our licensed wireless spectrum, which generally must be satisfied as a
condition of license renewal. In the United States, the Communications Act of
1934, as amended (the “Communications
Act”) and FCC
Rules also require FCC prior approval for the acquisition, assignment or
transfer of control of FCC licenses. Similar regulatory requirements regarding
regulatory approval of license transfers exist internationally. In addition, FCC
Rules permit spectrum leasing arrangements for a range of wireless licenses
after FCC notification or prior approval depending upon the type of spectrum
lease. The FCC, and the equivalent national regulatory authority in other
countries where we holds spectrum licenses, sets rules, regulations and policies
to, among other things:




·
            grant
      licenses in bands allocated for wireless broadband
    services;·
            regulate
      the technical parameters and standards governing wireless services, the
      certification, operation and marketing of radio frequency devices and the
      placement of certain transmitting facilities;·
            impose
      build-out or performance requirements as a condition to license
      renewals;·
            approve
      applications for license renewals;·
            approve
      assignments and transfers of control of
  licenses;






15





·
            approve
      leases covering use of licenses held by other persons and
      organizations;·
            resolve
      harmful radiofrequency interference between users of various spectrum
      bands;·
            impose
      fines, forfeitures and license revocations for violations of rules;
      and·
            impose
      other obligations that are determined to be in the public
      interest.




Additionally,
more specific regulatory requirements that apply to WCS, AWS, BRS and EBS
spectrum are described below. Compliance with all of the foregoing regulatory
requirements, and those listed below, increases our cost of doing business. For
a description of an interference issue which may impact use of WCS, BRS and EBS
spectrum, see “Risk Factors - Risks Relating to Government Regulation-Wireless
Devices” utilizing WCS, BRS and EBS spectrum may be susceptible to interference
from Satellite Digital Audio Radio Services (“SDARS”).




WCS License
Conditions




WCS
licensees must comply with all applicable legal and technical rules imposed by
the FCC, including those found in Part 27 of Title 47 of the CFR. WCS licenses
are granted for ten-year license terms, and licensees are required under
applicable Part 27 rules to demonstrate that they are providing “substantial
service” in their license area within the initial license term. Substantial
service is defined as service which is sound, favorable, and substantially above
a level of mediocre service which just might minimally warrant “renewal.” For
WCS licensees, the FCC extended the substantial service build-out deadline until
July 21, 2010. Failure to make the substantial service demonstration by that
date, without seeking and obtaining an extension from the FCC, would result in
license forfeiture. In June of 2009, we filed for an additional extension of the
WCS substantial service build-out deadline, but the FCC has not yet acted on
that request.  Extensions of time to meet substantial service
demonstrations are not routinely granted by the FCC.  See “Risk
Factors - Risks Relating to Government Regulation.”




BRS/EBS License
Conditions




Like WCS
licenses, BRS and EBS licenses are granted for ten-year license terms, and
licensees must comply with all applicable legal and technical rules imposed by
the FCC, including those found in Part 27 of Title 47 of the CFR. Unlike WCS
licenses, BRS and EBS licenses were granted at different times and, therefore,
do not have a uniform expiration date. BRS and EBS licensees must also
demonstrate that they are providing “substantial service” in their license areas
by May 1, 2011.




From 2004
to 2008, the FCC adopted a number of rule changes which create more flexible
BRS/EBS spectrum rules to facilitate the growth of new and innovative wireless
technologies and services, including fixed and mobile wireless broadband
services. Although the proceedings to reform BRS/EBS rules have largely been
completed, they remain subject to legal challenges and petitions for
reconsideration and, thus, are subject to additional revisions. The FCC ordered
the 2.5 GHz band to be reconfigured into three segments: upper- and lower-band
segments for low-power operations, and a middle-band segment for high-power
operations. The BRS/EBS band configuration eliminates the use of interleaved
channels by licensees in favor of contiguous channel blocks. By creating
contiguous channel blocks, and grouping high- and low-power users into separate
portions of the BRS/EBS band, the new band plan reduces the likelihood of
interference caused by incompatible uses and creates incentives for the
development of low-power, cellularized broadband operations, which were
inhibited by the prior band plan. The BRS/EBS band plan will allow licensees to
use the 2496-2690 MHz spectrum in a more economical and efficient manner and
will support the introduction of next-generation wireless technologies. The new
rules preserve the operations of existing licensees, including educational
institutions currently offering instructional TV programming, but require that
licensees transition to the new band plan by October 19, 2010 (barring disputes
in the transition process), which includes relocating licensees from their
current channel assignments to new spectrum designations in the
band.




AWS License
Conditions




AWS
licensees must comply with all applicable legal and technical rules imposed by
the FCC, including those found in Part 27 of Title 47 of the CFR. All of our AWS
licenses are granted for a 15-year license term, with a renewal term of
ten-years. AWS licensees are required to demonstrate that they are providing
“substantial service” in their license area within the initial 15-year license
term. For our AWS licenses, the renewal deadline and the substantial service
build-out deadline is December 18, 2021. Failure to make the substantial service
demonstration, without seeking and obtaining an extension from the FCC, would
result in license forfeiture. Extensions of time to meet substantial service
demonstrations are not routinely granted by the FCC.




The
AWS spectrum includes a large number of incumbent federal government and
non-government operations that must be relocated to other spectrum. AWS
licensees are required to coordinate their operations to avoid interfering with
these incumbent stations until relocation is complete. A small number of these
incumbent stations must be protected indefinitely. In certain cases,
the




16




AWS
licensee must pay for the relocation of incumbent stations within the AWS
licensee’s license area. AWS licensees are effectively prohibited from deploying
TDD systems in the AWS spectrum.




New
Spectrum Opportunities and Spectrum Auctions




Ongoing
FCC proceedings and initiatives may affect the availability of spectrum for
commercial wireless services. These proceedings may make more wireless spectrum
available to us and other new wireless competitors, and may affect the demand
for our spectrum. At this time, we have no plans to obtain additional spectrum
through secondary markets acquisitions, leases or whatever mechanisms the FCC
may establish including participation in FCC auctions.




Tower Siting




Wireless
systems must comply with various federal, state and local regulations that
govern the siting, marking, lighting and construction of transmitter towers and
antennas, including regulations promulgated by the FCC and Federal Aviation
Administration (the “FAA”). FCC Rules
subject certain tower locations to environmental and historic preservation
statutory requirements. To the extent governmental agencies impose additional
requirements on the tower siting process, the time and cost to construct and
deploy towers could be negatively impacted. The FAA has proposed modifications
to its rules that would impose certain notification requirements upon entities
seeking to (i) construct or modify any tower or transmitting structure located
within certain proximity parameters of any airport or heliport, and/or (ii)
construct or modify transmission facilities using the 2500-2700 MHz
radiofrequency band, which encompasses virtually all of the BRS/EBS frequency
band. If adopted, these requirements could impose new administrative burdens
upon users of BRS/EBS spectrum.




Employees




As of
January 2, 2010, we employed 333 full time employees, 9 part time and temporary
employees and engaged 100 contractors.




Our History




History of our Predecessor Company
and the NextWave Telecom Group




Our
predecessor company NextWave Wireless Inc. (“Old NextWave Wireless”) was formed
in 1996 as a wholly owned operating subsidiary of NextWave Telecom, Inc.
(“NTI”). NTI sought to develop a nationwide CDMA-based PCS network. In 1998, NTI
and its subsidiaries, including Old NextWave Wireless (the “NextWave Telecom
group”), filed for protection under Chapter 11 of the United States Bankruptcy
Code. During the seven-year pendency of the Chapter 11 case, Old NextWave
Wireless continued its involvement in the build-out of NTI’s PCS network.
Substantially all of the assets related to this build-out, except PCS licenses,
were abandoned when NTI was sold to finance the plan of reorganization of the
NextWave Telecom group described below.




During
the pendency of the Chapter 11 case, NTI began to explore opportunities to
create the technology for a broadband wireless network utilizing BRS spectrum in
the 2.5 GHz frequency range. The capitalization of a new wireless technology
company to pursue these opportunities was discussed with the stakeholders of the
NextWave Telecom group and was made part of the plan of reorganization described
below.




On
March 1, 2005, the United States Bankruptcy Court (the “Bankruptcy
Court”)
confirmed the plan of reorganization of the NextWave Telecom group, including
Old NextWave Wireless. In connection with the consummation of the plan of
reorganization, NTI and its subsidiaries settled all outstanding claims of the
FCC and obtained a release of claims pursuant to Section 1141 of the Bankruptcy
Code. The plan of reorganization was funded with the proceeds from the sale of
PCS spectrum licenses and provided for the payment in full of all the creditors
of the NextWave Telecom group and the $550 million cash funding of Old NextWave
Wireless as a new wireless broadband technology company. Membership units of Old
NextWave Wireless, which had been converted into a limited liability company in
late 2004, were distributed to the former stockholders of NTI, together with
cash and note consideration issued pursuant to the plan. Upon this distribution,
on April 13, 2005, our predecessor Old NextWave Wireless emerged as NextWave
Wireless LLC.




Corporate
Conversion Merger




To enable
our listing on The NASDAQ Global Market in January 2007, we converted from a
Delaware limited liability company to a Delaware corporation. The conversion was
effectuated in November 2006 through the merger of a wholly owned subsidiary of
ours with and into NextWave Wireless LLC. In the merger, NextWave Wireless LLC’s
equity holders received one share of our common stock for every six membership
interests that they held. No fractional shares of our common stock were issued
in connection with the corporate conversion merger. Instead, holders of LLC
interests who would otherwise have been entitled to a fraction of a share of
common stock were paid cash equal to $1.00 per LLC interest not exchanged for a
whole share of our common stock. Each holder of NextWave Wireless LLC’s limited
liability interests owned the same percentage of the outstanding equity of ours
before and immediately after the corporate conversion merger. In addition, we
assumed NextWave Wireless LLC’s obligations under all our stock option plans and
our subsidiaries.




17




Our
Global Restructuring Initiative




In 2008,
we announced the commencement of our global restructuring initiative and
initiated significant financing and restructuring activities, which are
described below:




·
            In
      total, we have terminated 620 employees worldwide and vacated seven leased
      facilities.




·
            In
      October 2008, we issued Second Lien Notes in the aggregate principal
      amount of $105.3million and Third Lien Subordinated Secured Convertible
      Notes due 2011 (the “Third Lien Notes”) in an aggregate principal amount
      of $478.3 million in exchange for all of the outstanding shares of our
      Series A Preferred Stock. We received net proceeds of $87.5 million from
      the issuance of the Second Lien Notes and did not receive any cash
      proceeds from the issuance of the Third Lien
  Notes.




·
            In
      the fourth quarter of 2009, the Board of Directors of WiMAX Telecom GmbH,
      the holding company for NextWave’s discontinued WiMAX Telecom business in
      Austria and Croatia, filed an insolvency proceeding in Austria in
      accordance with local law to permit the orderly wind-down of such entity.
      The court in Austria has entered an order appointing an administrator to
      manage the insolvency of WiMAX Telecom GmbH. As a result of the
      appointment of the administrator, NextWave no longer controls WiMAX
      Telecom GmbH and its subsidiaries and will not receive any proceeds from
      the assets of the WiMAX entities.




·
            We
      sold a controlling interest in our IPWireless subsidiary in December 2008
      and sold the remaining noncontrolling interest in November
      2009.




·
            We
      shut down the operations of our other network infrastructure businesses,
      which comprise our Networks segment, including the operations of our GO
      Networks and Cygnus subsidiaries and our Global Services and NextWave
      Network Support strategic business
units.




·
            We
      initiated bankruptcy liquidation proceedings for three of our network
      infrastructure subsidiaries in Israel, Denmark and Canada, which
      proceedings are intended to provide an orderly process for the
      discontinuance of operations and to advance our divestiture and cost
      reduction strategy.




·
            In
      the first quarter of 2009, we shut down our semiconductor business,
      terminated 230 employees and, subsequently, in the third quarter of 2009,
      we sold certain of our owned semiconductor business patents and patent
      applications to a third party.




·
            In
      July 2009, we issued additional Second Lien Notes in the aggregate
      principal amount of $15 million, providing us with net proceeds of $13.5
      million after original issue discount and payment of transaction related
      expenses.




·
            We
      have downsized our corporate overhead functions to match the anticipated
      reduction in overall global support requirements, including our
      information technology, legal, finance, human resources and corporate
      branding and marketing functions.




·
            We
      have integrated certain corporate administration functions into our
      PacketVideo operations in San Diego,
California.




·
            We
      have continued to pursue wireless spectrum license sales, the net proceeds
      of which will be used to reduce our outstanding indebtedness thereby
      reducing the interest costs payable in future
  years.




·
            We
      are actively pursuing the sale or wind-down of various remaining portions
      of our WiMax Telecom business and spectrum operations in South
      America.




·
            In
      the fourth quarter of 2009, we sold the majority of the assets and
      liabilities of our Inquam Broadband GmbH (“IHG”) subsidiary and entered
      into an earn out agreement with the buyer that provides for payment to us
      upon the occurrence of specified liquidity events, which include the sale,
      lease or contribution of assets to certain third parties, or distribution
      of profits or sale of equity in IHG.  We will continue to
      receive earn out payments until exhaustion of all specified liquidity
      events.




Several
factors led to our decision to implement our global restructuring initiative in
2008, including adverse worldwide economic conditions, which we believe
adversely affected manufacturers of telecommunications equipment and technology
and caused our discontinued Networks segment to experience lower than projected
contract bookings and revenues. We believe these conditions have also led to a
delay in global WiMAX network deployments, which adversely impacted the timing
and volume of projected commercial sales of WiMAX products of our discontinued
semiconductor business.




Available
Information




We
are a public company and are subject to the informational requirements of the
Exchange Act. Accordingly, we file periodic reports, proxy statements and other
information with the SEC. Such reports, proxy statements and other information
may




18




be
obtained by visiting the Public Reference Room of the SEC at 100 F Street NE,
Room 1580, Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. In
addition, the SEC maintains a website (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding us and other issuers that file electronically.




Our
website address ishttp://www.nextwave.com. We make available, free of charge through our
website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K, and any amendments to these reports as soon as
reasonably practicable after we electronically file such material with, or
furnish such material to, the Securities and Exchange Commission. Our Code of
Business Conduct and Ethics is available free of charge on our
website.




The
certifications of our Chief Executive Office and Chief Financial Officer,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, about the disclosure
contained in this Annual Report are attached hereto.







19




Item 1A.Risk Factors.




Our
business involves a high degree of risk. You should carefully consider the
following risks together with all of the other information contained in this
Annual Report before making a future investment decision with respect to our
securities. If any of the following risks actually occurs, our business,
financial condition and results of operations could be materially adversely
affected, and the value of our securities could decline.




Risks Relating to Our
Business




We
have substantial debt maturities in 2011 and our cash reserves and cash
generated from operations will not be sufficient to meet these payment
obligations. There can be no assurance that asset sales or any additional
financing will be achievable on acceptable terms and any failure to pay our debt
at maturity will impair our ability to continue as a going concern.




Our
Senior Notes, having an aggregate principal amount of $168.3 million at January
2, 2010, will mature in July 2011 and our Second Lien Notes, having an aggregate
principal amount of approximately $140.8 million at January 2, 2010, will mature
in November 2011. In addition, our Third Lien Notes, having an aggregate
principal amount of $524.1 million at January 2, 2010, will mature in December
2011.  As of March 16, 2010, the aggregate remaining outstanding
principal balances of our Senior, Second and Third Lien Notes bear
payment-in-kind interest at rates of 15.0%, 15.0% and 12.0%, respectively, which
will increase the principal amount of this debt upon retirement. Our current
cash reserves and cash generated from operations will not be sufficient to meet
these payment obligations at maturity. We must consummate sales of our wireless
spectrum assets yielding proceeds that are sufficient to retire this
indebtedness. If we are unable to pay our debt at maturity, the holders of our
notes could proceed against the assets pledged to secure these obligations,
which include our spectrum assets and the capital stock of our material
subsidiaries, which would impair our ability to continue as a going concern.
Insufficient capital to repay our debt at maturity would significantly restrict
our ability to operate and could cause us to seek relief through a filing in the
United States Bankruptcy Court.  Our financial statements do not
include any adjustments related to the recovery of assets and classification of
liabilities that might be necessary should we be unable to continue as a going
concern.




Our
capital structure requires that we successfully monetize a substantial portion
of our wireless spectrum assets for net proceeds substantially in excess of our
cost basis in order to retire our debt. The value of our equity securities is
dependent on our ability to successfully retire our debt.




We are
required to use the net proceeds of asset sales to retire our debt and expect
that we will be required to successfully monetize a substantial portion of our
wireless spectrum assets for net proceeds substantially in excess of our cost
basis in order to retire our debt. There is no guarantee that we will be able to
find third parties interested in purchasing our wireless spectrum assets at
prices sufficient to retire this debt prior to maturity. We may seek to
refinance all or a portion of our debt prior to maturity but there can be no
assurance that any such refinancing transaction will be
available.  The sale price of our wireless spectrum assets will be
impacted by, among other things:




·
            the
      FCC’s final resolution of ongoing proceedings regarding interference from
      satellite digital audio radio services to our WCS spectrum
      licenses;





·
            the
      timing and allocated costs of build-out or substantial service
      requirements attached to our domestic and international spectrum licenses,
      where a failure to comply with these requirements could result in license
      forfeiture;





·
            timing
      of closure of potential sales, particularly if it is necessary to
      accelerate the planned sale of certain of our spectrum licenses in order
      to meet debt payment obligations;





·
            worldwide
      economic conditions which we believe have adversely affected manufacturers
      of telecommunications equipment and technology and led to a delay in WiMAX
      global network deployments; and





·
            availability
      of capital for prospective spectrum bidders which has been negatively
      impacted by the downturn in the credit and financial
    markets.




If
we are unable to consummate sales of our wireless spectrum assets that are
sufficient to retire our indebtedness, the holders of our notes could proceed
against the assets pledged to secure these obligations, which include our
spectrum assets and the capital stock of our material subsidiaries, which would
impair our ability to continue as a going concern and the value of our equity
securities will be impaired.




We are highly
leveraged and our operating flexibility will be significantly reduced by our
debt covenants.




As
of January 2, 2010, the aggregate principal amount of our secured indebtedness
was $833.1 million. This amount includes our Senior Notes with an aggregate
principal amount of $168.3 million, our Second Lien Notes with an aggregate
principal amount of $140.8 million and our Third Lien Notes with an aggregate
principal amount of $524.1 million. Covenants in the











20





purchase
agreements for our Senior Notes and Second Lien Notes 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 to incur, additional indebtedness or incur
  liens;·
            sell
      assets for consideration other than cash;·
            consolidate
      or merge with or into other companies;·
            issue
      shares of our common stock or securities of our
    subsidiaries;·
            make
      capital expenditures or other strategic investments in our business not
      contemplated by our operating budget ; or·
            acquire
      assets or make investments.




We
anticipate that our overall level of indebtedness and covenant restrictions
will:




·
            limit
      our ability to pursue business opportunities;·
            limit
      our flexibility in planning for, or reacting to, changes in the markets in
      which we compete;·
            place
      us at a competitive disadvantage relative to our competitors with less
      indebtedness;·
            render
      us more vulnerable to general adverse economic, regulatory and industry
      conditions; and·
            require
      us to dedicate a substantial portion of our cash flow, as well as all
      proceeds from asset sales, to service our
debt.




A
breach of any covenants contained in the note purchase agreements governing our
secured notes could result in a default under our indebtedness. If we are unable
to repay or refinance those amounts, the holders of our notes could proceed
against the assets pledged to secure these obligations, which include our
spectrum assets and substantially all of our other assets.




The terms of our
Senior Notes and Second Lien Notes require us to certify our compliance with a
restrictive operating budget and to maintain a minimum cash balance. A failure
to comply with these terms may result in an event of default which could result
in the acceleration of maturity of our indebtedness and impair our ability to
continue as a going concern.




The
terms of our Senior Notes and Second Lien Notes require us to deliver a
six-month operating budget to the noteholders on a quarterly basis, which budget
is reasonably acceptable to Avenue AIV US, L.P., an affiliate of Avenue Capital
Management II, L.P. (“Avenue Capital”). Avenue Capital holds 78.1% of the
aggregate principal amount of our Second Lien Notes and 51.1% of the aggregate
principal amount of our Senior Notes. Our operating budget requires us to cut
costs and limits the funding that we may provide to specified businesses (the
“Named Businesses”), which have already been sold or discontinued as part of our
global restructuring initiative.




We
must deliver monthly certifications relating to our cash balances to the holders
of our Senior Notes and Second Lien Notes. If we are unable to certify that our
cash balances have not deviated in a negative manner by more than 10% from
budgeted balances, default interest will accrue and, if such condition persists,
(i) for two monthly reporting periods, if we have not satisfied our obligations
to cease funding to the Named Business within the required timeframes or (ii)
three monthly reporting periods, if we have satisfied such obligations, an event
of default would occur under our Senior Notes, Second Lien Notes, and, if the
maturity of the foregoing indebtedness were to be accelerated, an event of
default would occur under our Third Lien Notes. In addition, we must certify
that we have maintained a minimum cash balance of $1 million, and any failure to
maintain such minimum cash balance will result in an immediate event of default
under our Senior Notes, Second lien Notes, and, if the maturity of the foregoing
indebtedness were to be accelerated, our Third Lien Notes. Upon an acceleration
of our debt following an event of default, the holders of our notes could
proceed against the assets pledged to secure these obligations, which include
our spectrum assets and the capital stock of our material subsidiaries, which
would impair our ability to continue as a going concern.




Our restructuring
and cost reduction activities expose us to contingent liabilities, accounting
charges, and other risks.




We
have realized significant operating losses during each reporting period since
our inception in 2005 and expect to realize further operating losses in the
future. In an effort to reduce our working capital requirements, in the third
quarter of 2008, we




21




commenced
the implementation of a global restructuring initiative, pursuant to which we
have divested, either through sale, dissolution or closure, our network
infrastructure businesses and our semiconductor business. We have also taken
other cost reduction actions described in more detail in Note 1 to our Condensed
Consolidated Financial Statements contained in this Annual Report. During 2009,
we incurred employee termination costs of $4.9 million, lease abandonment and
related facility closure costs of $0.8 million and other restructuring costs of
$3.3 million, including costs related to the divestiture and closure of
discontinued businesses and contract termination charges.




Our
restructuring activities and cost reduction efforts are subject to risks
including the effect of accounting charges which may be incurred, expenses of
employee severance or contract terminations or defaults, or legal claims by
employees or creditors. In addition, we may face difficulty in retaining
critical employees, customers or suppliers who may believe that a continued
relationship with us is of greater risk due to our restructuring activities. If
we cannot successfully complete our restructuring efforts, our expenses will
continue to exceed our revenue and available funding resources and we will not
be able to continue as a going concern and could potentially be forced to seek
relief through a filing under the United States Bankruptcy Code.




The failure of
our Multimedia segment to sustain and grow its business in the current
challenging economic climate may adversely impact our ability to comply with our
operating budget and will have an adverse effect on our
business.




Revenues
of our Multimedia segment business have been impacted by global economic
conditions and a decline in handset sales. If the operating performance of our
Multimedia segment were to continue to deteriorate, our ability to meet the
targeted cash balance levels set forth in our operating budget, and required to
be certified to the holders of our Second Lien Notes and Senior Notes, may be
impacted. Given the divestiture and/or discontinuation of operations of our
network infrastructure subsidiaries, all of our operating revenues are generated
by our Multimedia segment. Current economic conditions make it extremely
difficult for our customers, our vendors and us to accurately forecast and plan
future business activities, and they could cause U.S. and foreign businesses to
slow spending on the products and services offered by our Multimedia segment,
which would delay and lengthen sales cycles. Furthermore, during challenging
economic times our customers may face issues gaining timely access to sufficient
credit, which could result in an impairment of their ability to make timely
payments to us. We cannot predict the timing, strength or duration of any
economic slowdown or subsequent economic recovery, worldwide, or in the wireless
communications markets. If the economy or markets in which we operate continue
to deteriorate, the business, financial condition and results of operations of
our Multimedia segment will likely be materially and adversely affected. If our
Multimedia segment experiences a significant decline in its revenues or
operating margins, this will have a significant adverse effect on our business
and our ability to comply with our debt covenants.




Our common stock
will be delisted from the NASDAQ Global Market if we do notmeet the
exception granted by the NASDAQ Hearing Panel requiring us to file a proxy
statement for our annual meeting of stockholders that includes a stockholder
vote on a reverse stock split by May 1, 2010 and to regain compliance with the
minimum $1.00 per share bid price rule by July 21, 2010.




On
October 7, 2008, we received a Staff Deficiency Letter from NASDAQ notifying us
that we were not in compliance with NASDAQ’s Marketplace Rule 5450(a)(1), or the
Rule, because the closing bid price for our common stock had, for the preceding
30 consecutive business days, closed below the minimum $1.00 per share
requirement for continued listing. In accordance with NASDAQ Marketplace Rule
5810(c)(3)(A), we were provided a period of 180 calendar days to regain
compliance. On October 16, 2008, NASDAQ announced that they had suspended the
enforcement of the Rule until January 19, 2009, and as a result, the period
during which we had to regain compliance was extended to July 10, 2009. On
July 15, 2009, NASDAQ announced that they had determined to continue the
temporary suspension of the Rule until July 31, 2009, and as a result, the
period during which we had to regain compliance was extended to January 21,
2010. On January 22, 2010, we received a Staff Determination letter from the
Listing Qualifications Department of NASDAQ indicating that our common stock
would be subject to delisting from The NASDAQ Global Market because of
non-compliance with the Rule, unless we requested a hearing before a NASDAQ
Listing Qualifications Panel (the “Panel”) by the close of business on January
29, 2010.  We requested a hearing on the matter and such hearing
occurred on February 25, 2010. On March 26, 2010, the Panel granted our
request for continued listing, subject to the conditions that on or before May
1, 2010, we must inform the Panel that we have filed a proxy statement for our
annual meeting of stockholders including a vote on a reverse stock split in a
ratio sufficient to meet the $1.00 per share requirement for continued listing
and on or before July 21, 2010, we must have evidenced a closing bid price of
$1.00 or more for a minimum of ten prior consecutive trading days.  If
we are unable to meet these exception requirements, the Panel will issue a final
determination to delist and suspend trading of our common stock.




We have become
and may continue to be the target of securities class action suits and
derivative suits which could result in substantial costs and divert management
attention and resources.




Securities
class action suits and derivative suits are often brought against companies
following periods of volatility in the market price of their securities.
Defending against these suits can result in substantial costs to us and divert
the attention of our management.




22




On
September 16, 2008, a putative class action lawsuit, captioned “Sandra
Lifschitz, On Behalf of Herself and All Others Similarly Situated, Plaintiff, v.
NextWave Wireless Inc. et al., Defendants,” was filed in the U.S. District Court
for the Southern District of California against us and certain of our officers.
The suit alleges that the defendants made false and misleading statements and/or
omissions in violation of Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated
thereunder. The suit seeks unspecified damages, interest, costs, attorneys’
fees, and injunctive, equitable or other relief on behalf of a purported class
of purchasers of our common stock during the period from March 30, 2007 to
August 7, 2008. A second putative class action lawsuit captioned “Benjamin et
al. v. NextWave Wireless Inc. et al.” was filed on October 21, 2008 alleging the
same claims on behalf of purchasers of our common stock during an extended class
period, from November 27, 2006 through August 7, 2008. On February 24, 2009, the
Court issued an Order consolidating the two cases and appointing a lead
plaintiff pursuant to the Private Securities Litigation Reform Act. On May 15,
2009, the lead plaintiff filed an Amended Complaint, and on June 29, 2009, we
filed a Motion to Dismiss that Amended Complaint. On March 5, 2010, the Court
granted our Motion to Dismiss without prejudice and permitted the lead plaintiff
21 days from the date of the Order to file an Amended Complaint. On March 26,
2010, the lead plaintiff filed a Second Amended Consolidated Complaint. NextWave
intends to file a Motion to Dismiss in response, but at this time there can be
no assurance as to the ultimate outcome of this litigation.




We operate in an
extremely competitive environment which could materially adversely affect our
ability to win market acceptance of our products and achieve
profitability.




We
continue to experience intense competition for our products and services. Our
competitors range in size from Fortune 500 companies to small, specialized
single-product businesses. At present, the primary competitors for our
multimedia software products are the internal multimedia design teams at large
OEM handset manufacturers such as Nokia, Samsung, LG, Sony Ericsson, Motorola,
Apple, RIM, HTC, Palm and others. Many of these companies now offer their own
internally developed multimedia services (e.g., Nokia Ovi, SonyEricsson PlayNow)
that come bundled with various handset products. While these groups compete
against us in the overall market for wireless multimedia, these companies also
represent the primary distribution channel for delivering PacketVideo products.
This is because PacketVideo’s mobile operator customers ask these manufacturers
to install or preload a version of PacketVideo’s software customized for such
mobile operator in handsets that they purchase. In addition to the handset
manufacturers, a number of companies compete with PacketVideo at various product
levels, including Adobe, Microsoft, MobiTV, NXP Software, Real Networks, Sasken,
Streamezzo, SurfKitchen, and UIEvolution, offering software products and
services that directly or indirectly compete with PacketVideo.




For
the connected home set of product solutions, our primary competitors again
include internal software design teams at large consumer electronics companies
like Sony, Microsoft, Cisco, Linksys, Samsung and Panasonic. In addition, we
face competition from a number of other companies such as Apple, Macrovision,
Microsoft, Monsoon Networks, the Orb, and Real Networks. Our ability to generate
adequate revenues to meet our operating budget will depend, in part, upon our
ability to effectively compete with these competitors.




Our Multimedia
business is dependent on a limited number of customers.




Our
Multimedia segment generates all of our revenues from continuing operations and
is dependent on a limited number of customers. For the year ended January 2,
2010, revenues from three customers in our Multimedia segment accounted for 37%,
23% and 10%, respectively, of our revenues from continuing operations. For the
year ended December 27, 2008, revenues from three customers in our Multimedia
segment accounted for 38%, 17% and 14%, respectively, of our revenues from
continuing operations.




Our customer
agreements do not contain minimum purchase requirements and can be cancelled on
terms that are not beneficial to us.




Our
customer agreements with wireless service providers and mobile phone and device
manufacturers are not exclusive and many contain no minimum purchase
requirements or flexible pricing terms. Accordingly, our customers may
effectively terminate these agreements by no longer purchasing our products or
reducing the economic benefits of those arrangements. In many circumstances, we
have indemnified these customers from certain claims that our products and
technologies infringe third-party intellectual property rights. Our customer
agreements have a limited term of one to five years, in some cases with
evergreen or automatic renewal, provisions upon expiration of the initial term.
These agreements set out the terms of our distribution relationships with the
customers but generally do not obligate the customers to market or distribute
any of our products or applications. In addition, in some cases customers can
terminate these agreements early or at any time, without cause.




Defects or errors
in our products and services or in products made by our suppliers could harm our
relations with our customers and expose us to liability. Similar problems
related to the products of our customers or licensees could harm our
business.




Our
products and technologies are inherently complex and may contain defects and
errors that are detected only when the products are in use. Further, because our
products and technologies serve as critical functions in our customers’
products, such defects or errors could have a serious impact on our customers,
which could damage our reputation, harm our customer relationships and expose us
to liability. Defects in our products and technologies or those used by our
customers or licensees, equipment failures




23




or other
difficulties could adversely affect our ability and that of our customers and
licensees to ship products on a timely basis as well as customer or licensee
demand for our products. Any such shipment delays or declines in demand could
reduce our revenues and harm our ability to achieve or sustain desired levels of
profitability. We and our customers or licensees may also experience component
or software failures or defects which could require significant product recalls,
reworks and/or repairs which are not covered by warranty reserves and which
could consume a substantial portion of the capacity of our third-party
manufacturers or those of our customers or licensees. Resolving any defect or
failure related issues could consume financial and/or engineering resources that
could affect future product release schedules. Additionally, a defect or failure
in our products and technologies or the products of our customers or licensees
could harm our reputation and/or adversely affect the growth of our
business.




PacketVideo
believes it has quality embedded software and has spent a decade improving upon
its processes and performance. While we are not immune to product issues,
developing for existing platforms that are constantly being upgraded and new
platforms that have not fully been tested in the commercial market require much
experience. Some of our technology may launch with a platform that does not do
well in the market and some of our technology may launch on popular platforms
that may have been modified due to aggressive timelines upon which PacketVideo
has very little influence over. It is the nature of our business to continuously
try to improve upon our deliverables.




With
regards to the connected home products, the market is new, the products are not
standardized and PacketVideo has no control over the design of the products with
which it must connect. Moreover, PacketVideo must work with each individual
consumer electronics manufacturer to ensure seamless connectivity and given the
size of the consumer electronics device market, a large number of resources is
constantly required.




We may be unable
to protect our own intellectual property and could become subject to claims of
infringement, which could adversely affect the value of our products and
technologies and harm our reputation.




As
a technology company, we expect to incur expenditures to create and protect our
intellectual property and, possibly, to assert infringement by others of our
intellectual property. Other companies or entities also may commence actions or
respond to an infringement action that we initiate by seeking to establish the
invalidity or unenforceability of one or more of our patents or to dispute the
patentability of one or more of our pending patent applications. In the event
that one or more of our patents or applications are challenged, a court may
invalidate the patent, determine that the patent is not enforceable or deny
issuance of the application, which could harm our competitive position. If any
of our patent claims are invalidated or deemed unenforceable, or if the scope of
the claims in any of these patents is limited by court decision, we could be
prevented from licensing such patent claims. Even if such a patent challenge is
not successful, it could be expensive and time consuming to address, divert
management attention from our business and harm our reputation. Effective
intellectual property protection may be unavailable or limited in certain
foreign jurisdictions.




We
also expect to incur expenditures to defend against claims by other persons
asserting that the technology that is used and sold by us infringes upon the
right of such other persons. From time to time, we have received, and expect to
continue to receive, notices from our competitors and others claiming that their
proprietary technology is essential to our products and seeking the payment of a
license fee. Any claims, with or without merit, could be time consuming to
address, result in costly litigation and/or the payment of license fees, divert
the efforts of our technical and management personnel or cause product release
or shipment delays, any of which could have a material adverse effect upon our
ability to commercially launch our products and technologies and on our ability
to achieve profitability. If any of our products were found to infringe on
another company’s intellectual property rights or if we were found to have
misappropriated technology, we could be required to redesign our products or
license such rights and/or pay damages or other compensation to such other
company. If we were unable to redesign our products or license such intellectual
property rights used in our products, we could be prohibited from making and
selling such products. In any potential dispute involving other companies’
patents or other intellectual property, our customers and partners could also
become the targets of litigation. Any such litigation could severely disrupt the
business of our customers and partners, which in turn could hurt our relations
with them and cause our revenues to decrease.




We are subject to
risks associated with our international operations.




We
operate or hold spectrum licenses through various subsidiaries and joint
ventures in Argentina, Canada, Chile, Norway, Slovakia and Switzerland and have
additional operations located in Finland, France, India, Japan and
Switzerland.




Our
activities outside the United States operate in different competitive and
regulatory environments than we face in the United States, with many of our
competitors having a dominant incumbent market position and/or greater operating
experience in the specific geographic market. 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.




In
addition, owning and operating wireless spectrum licenses in overseas
jurisdictions may be subject to a changing regulatory environment. In
particular, our ownership of wireless broadband spectrum in Argentina remains
subject to obtaining governmental approval. Additionally, we have initiated
insolvency proceedings for our WiMAX Telecom GmbH business in




24




Austria
and the retention by WiMAX Telecom GmbH of its wireless broadband spectrum
licenses in Austria will be compromised due to such proceedings. We cannot
assure you that changes in foreign regulatory guidelines for the issuance or use
of wireless licenses, foreign ownership of spectrum licenses, the adoption of
wireless standards or the enforcement and licensing of intellectual property
rights will not adversely impact our operating results. Due to these competitive
and regulatory challenges, 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.




Risks
Relating to Government Regulation




If
we do not comply with build-out requirements relating to our domestic and
international spectrum licenses, such licenses could be subject to
forfeiture.




Certain
“build-out” or “substantial service” requirements apply to our licensed wireless
spectrum, which generally must be satisfied as a condition of license renewal.
In particular, the renewal deadline and the substantial service build-out
deadline for our domestic WCS spectrum is July 21, 2010; for our domestic BRS
and EBS spectrum, the substantial service build-out deadline is May 1, 2011; and
for our domestic AWS spectrum, the substantial service build-out deadline is
December 18, 2021. Failure to make the substantial service demonstration
domestically, without seeking and obtaining an extension from the FCC, would
result in license forfeiture.




With
respect to the WCS substantial service build-out deadline, in June of 2009, we
filed for an additional extension of the deadline, but the FCC has not yet acted
on that request.  Extensions of time to meet substantial service
demonstrations are not routinely granted by the FCC. We have entered into a
third party arrangement pursuant to which in exchange for access to certain of
our WCS spectrum, the third party has committed financial and other resources to
meet our build-out requirements, but at this time the third party has failed to
meet certain performance milestones and will be unable to provide all of the
funding required to comply with its obligations to complete the build-out
requirements.  Accordingly, we have obtained additional capital to
enable us to supplement the third party’s funds and to add additional personnel
to the project so that the third party can complete the performance of such
build out obligations. Even with this additional funding and personnel, there
can be no assurance that such party will be able to complete its contractual
requirements to finish the build out. Our reliance on a third party to meet our
substantial service requirements may subject us to risks of non-renewal in the
event that such party does not perform its obligations and if we are unable to
complete such obligations ourselves.




With
respect to our domestic BRS spectrum, we plan to construct a commercial system
using the spectrum to meet the FCC substantial service
requirement.  If we are unable to complete the construction of the
system so that we  can provide the service by the substantial service
deadline, the affected license(s) would be subject to non-renewal for failure to
make the substantial service showing to the FCC by the deadline.




With
respect to our domestic EBS spectrum, at this time we do not plan to construct
or to partner with a third party to construct a commercial system using the
spectrum to meet the FCC substantial service requirement.  Instead, we
have arranged with our EBS licensees to either (a) have the EBS licensee
continue to use the spectrum to provide educational services in the cases where
the EBS licensee is currently providing such service or (b) provide educational
services on a network that will be installed by us, at our cost, either of which
option is intended to deliver educational services over the spectrum in
compliance with the FCC’s educational safe harbor to meet the substantial
service showing by the deadline.  Our reliance on the EBS licensees to
provide the educational service may subject us to risk of non-renewal in the
event the EBS licensee fails to provide the service.  In addition, if
we are unable to complete the construction of the system so that the EBS
licensee can provide the service by the substantial service deadline, the
affected license(s) would be subject to non-renewal for failure to make the
substantial service showing to the FCC by the deadline.




The FCC’s
rules for meeting the substantial service requirements are written generally so
as to enable flexibility in providing service.   However, because
the rules are subject to interpretation, the FCC has discretion in determining
if the substantial service showing is adequate to meet the rules and there is a
risk that the FCC may not approve the substantial service showing and any of our
licenses that did not meet the substantial service requirement would then be
subject to non-renewal.




We also
have certain build-out requirements internationally, and failure to make those
service demonstrations could also result in license forfeiture. For example, in
Canada, our 2.3 GHz licenses are subject to mid-term in-use demonstration
requirements in November of 2012 and in April of 2013.




Our use of EBS
spectrum is subject to privately negotiated lease agreements. Changes in FCC
Rules governing such lease agreements, contractual disputes with EBS licensees,
or failures by EBS licensees to comply with FCC Rules could impact our use of
the spectrum.




With
few exceptions, commercial enterprises are restricted from holding licenses for
EBS spectrum. Eligibility for EBS spectrum is limited to accredited educational
institutions, governmental organizations engaged in the formal education of
enrolled students (e.g., school districts), and nonprofit organizations whose
purposes are educational. Access to EBS spectrum can only be gained by
commercial enterprises through privately-negotiated EBS lease agreements. FCC
regulation of EBS leases, private




25




interpretation
of EBS lease terms, private contractual disputes, and failure of an EBS licensee
to comply with FCC regulations all could impact our use of EBS spectrum and the
value of our leased EBS spectrum. The FCC Rules permit EBS licensees to enter
into lease agreements with a maximum term of 30 years; lease agreements with
terms longer than 15 years must contain a right of review” by the EBS licensee
every five years beginning in year 15. The right of review must afford the EBS
licensee with an opportunity to review its educational use requirements in light
of changes in educational needs, technology, and other relevant factors and to
obtain access to such additional services, capacity, support, and/or equipment
as the parties shall agree upon in the spectrum leasing arrangement to advance
the EBS licensee’s educational mission. A spectrum leasing arrangement may
include any mutually agreeable terms designed to accommodate changes in the EBS
licensee’s educational use requirements and the commercial lessee’s wireless
broadband operations. In addition, the terms of EBS lease agreements are subject
to contract interpretation and disputes could arise with EBS licensees. There
can be no assurance that EBS leases will continue for the full lease term, or be
extended beyond the current term, or be renewed or extended on terms that are
satisfactory to us. Similarly, since we are not eligible to hold EBS licenses,
we must rely on EBS licensees with whom we contract to comply with FCC Rules.
The failure of an EBS licensee from whom we lease spectrum to comply with the
terms of their FCC authorization or FCC Rules could result in termination,
forfeiture or non-renewal of their authorization, which would negatively impact
the amount of spectrum available for our use.




We
have no guarantee that the licenses we hold or lease will be
renewed.




The
FCC generally grants wireless licenses for terms of ten or 15 years, which are
subject to renewal and revocation. FCC Rules require all wireless licensees to
comply with applicable FCC Rules and policies and the Communications Act, in
order to retain their licenses. For example, licensees must meet certain
construction requirements, including making substantial service demonstrations,
in order to retain and renew FCC licenses. Failure to comply with FCC
requirements with respect to any license could result in revocation or
non-renewal of a license. In general, most wireless licensees who meet their
construction and/or substantial service requirements are afforded renewal
expectancy; however, all FCC license renewals can be challenged in various ways,
regardless of whether such challenges have any legal merit. Under FCC Rules,
licenses continue in effect during the pendency of timely filed renewal
applications. Challenges to license renewals, while uncommon, may impact the
timing of renewal grants and may impose legal costs. Accordingly, there is no
guarantee that licenses we hold or lease will remain in full force and effect or
be renewed.




We
hold 30 licenses issued by the FCC for WCS spectrum. Renewal applications for
all 2.3 GHz WCS licenses, including those issued to us, were due to be filed
with the FCC on July 21, 2007. We filed our WCS renewal applications on April
23, 2007. Under FCC Rules, licenses continue in effect during the pendency of
timely file renewal applications. At least three parties about which we are
aware made filings purporting to be “competing applications” in response to the
renewal applications we, AT&T, and perhaps others filed. The basis on which
the third-party filings were made was the alleged failure of WCS licensees to
deploy service on WCS spectrum and satisfy substantial service requirements by
July 21, 2007. However, on December 1, 2006, the FCC issued a waiver order
extending the substantial service deadline for WCS licensees to July 21, 2010.
The FCC’s rules contain no procedures for processing “competing applications”
filed for WCS spectrum and the FCC has not accepted them for filing. We have no
knowledge of the status of these filings and cannot predict how the FCC may
address them or how these filings may impact our renewal
applications.




Interference
could negatively impact our use of wireless spectrum we hold, lease or
use.




Under
applicable FCC and equivalent international rules, users of wireless spectrum
must comply with technical rules that are intended to eliminate or diminish
harmful radiofrequency interference between wireless users. Licensed spectrum is
generally entitled to interference protection, subject to technical rules
applicable to the radio service, while unlicensed spectrum has no interference
protection rights and must accept interference caused by other
users.




Wireless devices
utilizing WCS, BRS and EBS spectrum may be susceptible to interference from
Satellite Digital Audio Radio Services (“SDARS”).




Since 1997, the FCC has considered a proposal
to permanently authorize terrestrial repeaters for SDARS operations adjacent to
the C and D blocks of the WCS band. The FCC has permitted a large number of
these SDARS terrestrial repeaters to operate on a special temporary
authorization since 2001. Permanently authorizing SDARS repeaters adjacent to
the WCS band could cause interference to WCS, BRS and EBS receivers. The extent
of the interference from SDARS repeaters is unclear and is subject to the FCC’s
final resolution of pending proceedings. Because WCS C and D block licenses are
adjacent to the SDARS spectrum, the potential for interference to this spectrum
is of greatest concern. There is a lesser magnitude concern regarding
interference from SDARS to WCS A and B block licenses, and BRS and EBS licenses.
Central to the FCC’s evaluation of this proposal has been the technical
specifications for the operation of such repeaters. SDARS licensees are seeking
rule changes that would both unfavorably alter WCS technical operating
requirements and permit all existing SDARS repeaters to continue to operate at
their current operating parameters. Through their representative association,
the WCS Coalition, the majority of affected WCS licensees, including NextWave,
also have proposed technical rules for SDARS terrestrial repeaters and WCS
operations to the FCC. Final technical rules will determine the potential
interference conditions and requirements for mitigation. If SDARS repeaters
result in interference to our WCS, BRS or EBS spectrum, our ability to realize
value from this spectrum may be impaired.




26




Increasing
regulation of the tower industry may make it difficult to deploy new towers and
antenna facilities which could adversely affect the value of certain of our
wireless spectrum assets.




The
FCC, together with the FAA, regulates tower marking and lighting. In addition,
tower construction and deployment of antenna facilities is impacted by federal,
state and local statutes addressing zoning, environmental protection and
historic preservation.




The
FCC adopted significant changes to its rules governing historic preservation
review of new tower projects, which makes it more difficult and expensive to
deploy towers and antenna facilities. The FCC also is considering changes to its
rules regarding when routine environmental evaluations will be required to
determine compliance of antenna facilities with its radiofrequency radiation
exposure limits. If adopted, these regulations could make it more difficult to
deploy facilities. In addition, the FAA has proposed modifications to its rules
that would impose certain notification requirements upon entities seeking to (i)
construct or modify any tower or transmitting structure located within certain
proximity parameters of any airport or heliport, and/or (ii) construct or modify
transmission facilities using the 2500-2700 MHz radiofrequency band, which
encompasses virtually all of the BRS/EBS frequency band. If adopted, these
requirements could impose new administrative burdens upon use of BRS/EBS
spectrum.





















27









Item
1B. Unresolved Staff
Comments.




None.




Item 2. Properties.





We are
headquartered in San Diego, California. We currently occupy the indicated square
footage in the owned and leased facilities described below:





Number
              of  Buildings
            
            Location
            
            Status
            
            Total  Square  Footage
            
            Primary
      Use4
            
            United
      States
            
            Leased
            
            44,265
            
            Administrative,
      finance and legal offices, research and development, and sales and
      marketing.4
            
            Europe
            
            Leased
            
            19,043
            
            Administrative
      offices, research and development and sales and
  marketing.2
            
            Asia
            
            Leased
            
            9,191
            
            Administrative
      offices, research and development, sales and marketing, service functions
      and network operating centers.2
            
            Latin
      America
            
            Leased
            
            2,636
            
            Administrative
      offices, sales and marketing, service functions, manufacturing and network
      operating centers.1
            
            United
      States
            
            Owned
            
            30,000
            
            Warehouse
      (currently held for sale).Total
      square footage
            
            
            
            105,135





We
believe that our properties are adequate for our business as presently
conducted.












28







Item
3.  Legal
Proceedings.




On
September 16, 2008, a putative class action lawsuit, captioned “Sandra
Lifschitz, On Behalf of Herself and All Others Similarly Situated, Plaintiff, v.
NextWave Wireless Inc. et al., Defendants,” was filed in the U.S. District Court
for the Southern District of California against us and certain of our officers.
The suit alleges that the defendants made false and misleading statements and/or
omissions in violation of Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934 and Rule 10b-5 promulgated thereunder. The suit seeks unspecified
damages, interest, costs, attorneys’ fees, and injunctive, equitable or other
relief on behalf of a purported class of purchasers of our common stock during
the period from March 30, 2007 to August 7, 2008. A second putative class action
lawsuit captioned “Benjamin et al. v. NextWave Wireless Inc. et al.,” was filed
on October 21, 2008 alleging the same claims on behalf of purchasers of our
common stock during an extended class period, between November 27, 2006 through
August 7, 2008. On February 24, 2009, the Court issued an Order consolidating
the two cases and appointing a lead plaintiff pursuant to the Private Securities
Litigation Reform Act. On May 15, 2009, the lead plaintiff filed an Amended
Complaint, and on June 29, 2009, we filed a Motion to Dismiss that Amended
Complaint. On March 5, 2010, the Court granted our Motion to Dismiss without
prejudice and permitted the lead plaintiff 21 days from the date of the Order to
file an Amended Complaint.  On March 26, 2010, the lead plaintiff
filed a Second Amended Consolidated Complaint. NextWave intends to file a Motion
to Dismiss in response, but at this time there can be no assurance as to the
ultimate outcome of this litigation.




We were
notified on July 11, 2008 that the former stockholders of GO Networks filed a
demand for arbitration in connection with the February 2008 milestone. In the
demand, the stockholder representative claimed that we owed compensation to the
former stockholders of GO Networks on the basis of GO Networks purportedly
having partially achieved the February 2008 milestone under the acquisition
agreement. The stockholder representative sought damages of $10.4 million.
Further, on December 5, 2008, the stockholder representative amended his demand
and added claims pertaining to the August 2008 milestone. In the claims, the
stockholder representative asserted, among other claims, that we acted in bad
faith in a manner that prevented the achievement of the milestone, and he sought
damages of $12.8 million in connection with these additional claims. We disputed
that the February 2008 milestone has been met and denied any wrongdoing with
respect to the August 2008 milestone. In September 2009, the parties executed a
settlement agreement and filed a notice dismissing the matter with
prejudice.  On October 5, 2009, the American Arbitration Association
closed its file on the matter.




We are
also currently involved in other legal proceedings in the ordinary course of our
business operations. We estimate the range of liability related to pending
litigation where the amount and range of loss can be estimated. We record our
best estimate of a loss when the loss is considered probable. Where a liability
is probable and there is a range of estimated loss with no best estimate in the
range, we record the minimum estimated liability related to the claim. As
additional information becomes available, we assess the potential liability
related to our pending litigation and revise our estimates. As of January 2,
2010, other than the matters described above, we have not recorded any
significant accruals for contingent liabilities associated with our legal
proceedings based on our belief that a liability, while possible, is not
probable. Further, any possible range of loss cannot be estimated at this time.
Revisions to our estimate of the potential liability could materially impact
future results of operations.




I

tem 4. (Removed and Reserved).











29




PART
II






Item
5. Market for Registrant’s Common Equity; Related Stockholder Matters and Issuer
Purchases of Equity Securities.






The
principal market for our common stock is the NASDAQ Global Market, on which it
began trading in the first quarter of 2007.






Market
Information






The
following table reflects the high and low sales prices, or high and low bid
prices, as applicable, rounded to the nearest penny, of our common stock as
reported by The NASDAQ Global Market, as applicable, for each quarterly period
in 2009 and 2008. Our common stock was listed on The NASDAQ Global Market,
beginning on January 3, 2007 under the symbol “WAVE,” where it continues to
trade.




High
            
            
            Low2009:Fourth
      Quarter
            
            $
            1.09
            
            
            $
            0.40Third
      Quarter
            
            
            1.45
            
            
            
            0.30Second
      Quarter
            
            
            0.72
            
            
            
            0.13First
      Quarter
            
            
            0.39
            
            
            
            0.082008:Fourth
      Quarter
            
            $
            0.65
            
            
            $
            0.08Third
      Quarter
            
            
            4.04
            
            
            
            4.62Second
      Quarter
            
            
            7.15
            
            
            
            4.15First
      Quarter
            
            
            5.91
            
            
            
            4.48




On
October 7, 2008, we received a Staff Deficiency Letter from NASDAQ notifying us
that we were not in compliance with NASDAQ’s Marketplace Rule 5450(a)(1), or the
Rule, because the closing bid price for our Common Stock had, for the preceding
30 consecutive business days, closed below the minimum $1.00 per share
requirement for continued listing. In accordance with NASDAQ Marketplace Rule
5810(c)(3)(A), we were provided a period of 180 calendar days to regain
compliance. On October 16, 2008, NASDAQ announced that they had suspended the
enforcement of the Rule until January 19, 2009, and as a result, the period
during which we had to regain compliance was extended to July 10, 2009. On
July 15, 2009, NASDAQ announced that they had determined to continue the
temporary suspension of the Rule until July 31, 2009, and as a result, the
period during which we had to regain compliance was extended to January 21,
2010. On January 22, 2010, we received a Staff Determination letter from the
Listing Qualifications Department of NASDAQ indicating that our common stock
would be subject to delisting from The NASDAQ Global Market because of
non-compliance with the Rule, unless we requested a hearing before a NASDAQ
Listing Qualifications Panel (the “Panel”) by the close of business on January
29, 2010.  We requested a hearing on the matter and such hearing
occurred on February 25, 2010. On March 26, 2010, the Panel granted our
request for continued listing, subject to the conditions that on or before May
1, 2010, we must inform the Panel that we have filed a proxy statement for our
annual meeting of stockholders including a vote on a reverse stock split in a
ratio sufficient to meet the $1.00 per share requirement for continued listing
and on or before July 21, 2010, we must have evidenced a closing bid price of
$1.00 or more for a minimum of ten prior consecutive trading days.  If
we are unable to meet these exception requirements, the Panel will issue a final
determination to delist and suspend trading of our common stock.




Dividend
Policy




We have
never paid a dividend on our common stock and do not anticipate paying one in
the foreseeable future. Pursuant to the terms of the Purchase Agreements
governing our Senior Notes, Second Lien Notes and Third Lien Notes, we are
restricted from paying dividends and making distributions to holders of our
capital stock. In the event we are permitted to pay a dividend on our common
stock, the payment of any future dividends will be at the discretion of our
Board and will depend upon, among other things, our financial condition and
capital needs, legal or contractual restrictions on the payment of dividends and
other factors deemed pertinent by our Board.




For
additional information on payment of and restrictions on dividends, please also
refer to our audited consolidated financial statements and the notes thereto
included elsewhere in this Annual Report.




Repurchases of Common
Stock




We did
not repurchase any of our common stock during the fiscal year ended January 2,
2010.





Holders




As
of February 28, 2010, there were 1,032 holders of record of our common
stock.








30


Certain
provisions in our Amended and Restated Certificate of Incorporation and Bylaws
may have the effect of delaying, deferring or preventing a change of control of
our Company. These provisions include that our directors serve staggered terms,
and, pursuant to Delaware law, can only be removed for cause; stockholders
cannot act by written consent and can only amend or repeal the bylaws by a
supermajority vote of the issued and outstanding voting shares and our board of
directors is authorized to issue preferred stock without stockholder approval.
In addition, vacancies on our Board of Directors are filled only through a
majority vote of the Board of Directors, and directors and officers are
indemnified against losses that they may incur in investigations and legal
proceedings resulting from their services to us, including in connection with
takeover defense measures.




Securities Authorized for Issuance
Under Equity Compensation Plans




We
granted options exercisable to purchase 15,419,632 shares of common stock
through 400 stock option awards under all of our compensation plans during the
fiscal year ended January 2, 2010.




Information
about our equity compensation plans at January 2, 2010 is as
follows:




Equity Compensation Plan
Information




Plan
      Category
            
            Number
      of Securities to be issued upon exercise of outstanding options, warrants
      and rights
            
            Weighted
      Average exercise price of outstanding options, warrants and
      rights
            
            Number
      of securities remaining available for future issuance under equity
      compensation plansEquity
      compensation plans approved by security holders (1)
            
            17,844,966
            
            $
            1.95
            
            518,537Equity
      compensation plans not approved by security holders (2)
            
            3,397,256
            
            $
            6.14
            
            9,770,000Total
            
            21,242,222
            
            $
            2.62
            
            10,288,537  (1)
            
            In
      June 2006, NextWave Wireless LLC unit holders approved 20 million Units
      (approximately 3,333,333 shares of our common stock) issuable upon the
      exercise of options to be granted pursuant to the NextWave Wireless LLC
      2005 Units Plan (the “2005 Units Plan”). The remaining Units issuable
      pursuant to the 2005 Units Plan were approved by the Bankruptcy Court in
      April 2005 in connection with the plan of reorganization of NextWave
      Telecom, Inc. and its subsidiaries, including NextWave Wireless
      LLC. On November 13, 2006, NextWave Wireless LLC merged with and into
      NextWave Wireless Inc, and the 2005 Units Plan was assumed by NextWave
      Wireless Inc., becoming the 2005 Stock Incentive Plan. In May of
      2007, NextWave Wireless Inc. shareholders approved an amendment to the
      2005 Stock Incentive Plan to increase the number of shares of common stock
      available for issuance from 12,500,000 to 27,500,000. Thus,
      15,333,333 shares of our common stock issued or available for issuance
      pursuant to grants under the 2005 Stock Incentive Plan have been approved
      by stockholders.(2)
            
            The
      remaining 9,166,666 shares of common stock issuable pursuant to the grant
      of options under the 2005 Stock Incentive Plan were approved in April 2005
      by the Bankruptcy Court in connection with the plan of reorganization as
      described above. The 2005 Stock Incentive Plan provides for the
      issuance of nonqualified stock options, or restricted, performance-based,
      bonus, phantom or other stock-based awards to directors, employees and
      consultants of NextWave. Thus, 9,166,666 shares of our common stock issued
      or available for issuance pursuant to grants under the 2005 Stock
      Incentive Plan have not been approved by
  shareholders.




In
July 2005, NextWave acquired PacketVideo Corporation, which became our
wholly-owned subsidiary following the closing of the acquisition.  In
August 2005, the Board of Directors of PacketVideo Corporation adopted the
PacketVideo Corporation 2005 Equity Incentive Plan (the “PacketVideo Plan”),
pursuant to which employees of PacketVideo Corporation  were
authorized to receive up to 1,375,000 shares of our common stock upon the
exercise of stock options and similar rights (after giving effect to the
conversion described below).  The PacketVideo Plan was subsequently
amended on two occasions to increase the aggregate number of authorized shares
to a total of 1,833,333 shares of our common stock. Pursuant to the terms of the
PacketVideo Plan, on January 3, 2007, when we listed our common stock on the
Nasdaq Global Market, each outstanding option, exercised or not, under the
PacketVideo Plan was automatically converted from an option or other award to
purchase PacketVideo common stock into an option or other award to purchase
shares of NextWave common stock.  The PacketVideo Plan was not
approved by our stockholders.




Under the
NASDAQ Marketplace Rules, listed issuers are permitted to grant compensatory
equity to new employees for the purpose of inducing such persons to enter into
an employment relationship with the issuer without stockholder
approval.  The 2007 New Employee Stock Incentive Plan described below
was adopted by NextWave without stockholder approval pursuant to the inducement
exemption.




31




In
February 2007, NextWave adopted the 2007 New Employee Stock Incentive Plan to
offer shares of NextWave common stock for equity awards to our new hires and the
new hires of our subsidiaries, including new employees who have joined us in
connection with acquisitions.  The 2007 New Employee Stock Incentive
Plan is administered by the Compensation Committee of the Board of Directors of
NextWave, and provides for the grant of up to 2,500,000 shares of NextWave
common stock to our new hires as compensatory equity aimed at inducing such
persons to enter into an employment relationship with us.  This plan
was then amended to provide up to 5,000,000 shares of NextWave common stock to
our new hires.




As of
January 2, 2010, options to acquire a total of 112,982 shares of common stock
are issued and outstanding under the 2007 New Employee Stock Incentive Plan,
leaving 4,887,018 options available for future grant under the
plan.




Item
6.  Selected Financial Data.




Not
applicable.




Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.




In
addition to historical information, the following discussion contains
forward-looking statements that are subject to risks and uncertainties. Our
actual results could differ substantially from those anticipated by such
forward-looking information due to a number of factors, including but not
limited to risks described in the section entitled Risk Factors and elsewhere in
this Annual Report. Additionally, the following discussion and analysis should
be read in conjunction with the consolidated financial statements and the notes
thereto included elsewhere in this Annual Report.




We
operate on a 52-53 week fiscal year ending on the Saturday nearest to December
31 of the current calendar year or the following calendar
year.  Normally, each fiscal year consists of 52 weeks, but every five
or six years the fiscal year consists of 53 weeks. Fiscal year 2009 is a 53-week
year ending January 2, 2010 and fiscal year 2008 is a 52-week year ending on
December 27, 2008.




OVERVIEW




2009
Highlights




·
            Our
      revenues from continuing operations from our mobile multimedia segment for
      2009 totaled $60.2 million compared to $63.0 million for
    2008.




·
            During
      2009 and 2008, we completed sales of certain of our owned AWS spectrum
      licenses in the United States to third parties for net proceeds, after
      deducting direct and incremental selling costs, of $26.4 million and
      $145.5 million, and recognized net gains on the sales of $2.7 million and
      $70.3 million, respectively. The net proceeds from the sales received
      after July 15, 2009 were used to redeem a portion of the Senior Notes at a
      redemption price of 102% of the principal amount thereof plus accrued
      interest and net proceeds received prior to July 16, 2009 were used to
      redeem a portion of the Senior Notes at a redemption price of 105% of the
      principal amount thereof plus accrued
interest.




·
            During
      2009 we issued additional Second Lien Notes due 2010 (the “Second Lien
      Incremental Notes”) in the aggregate principal amount of $15.0 million, on
      the same financial and other terms applicable to our existing Second Lien
      Notes. The Second Lien Incremental Notes were issued with an original
      issuance discount of 5% resulting in gross proceeds of $14.3 million.
      After payment of transaction related expenses, we received net proceeds of
      $13.5 million to be used solely in connection with the ordinary course
      operations of our business and not for any acquisition of assets or
      businesses or other uses.




·
            During
      2009 we sold a 35% noncontrolling interest in our PacketVideo subsidiary
      to NTT DOCOMO, Inc. ("DOCOMO"), a customer of PacketVideo, for $45.5
      million. The net proceeds from this transaction were used in July 2009 to
      redeem a portion of the Senior Notes at a redemption price of 105% of the
      principal amount thereof plus accrued
interest.




·
            During
      2009 we sold certain of our owned Semiconductor business patents and
      patent applications to Wi-Lan Inc, a Canadian intellectual property
      company, for a cash payment of $2.5 million and recognized $2.5 million as
      a gain from business divestitures during
2009.




·
            During
      2009 we sold the remaining noncontrolling interest in our IPWireless
      subsidiary and recognized a $1.0 million gain from business
      divestitures.




·
            During
      the fourth quarter of 2009 we initiated bankruptcy liquidation proceedings
      for WiMAX Telecom GmbH, the holding company for our discontinued WiMAX
      Telecom business in Austria and Croatia, to provide an orderly process for
      the discontinuance of operations and to advance our divestiture and cost
      reduction strategy.




·
            In
      November 2009, we sold the majority of the assets and liabilities of our
      Inquam Broadband GmbH subsidiary (“IBG”) to Inquam Holding GmbH (“IHG”), a
      new limited liability company formed by the former managing director of
      IBG, a related party, for a nominal amount and recognized a $21.4 million
      net loss from business divestitures.  In connection with the
      sale, we entered into an earn out agreement with IHG that provides for
      payment to us upon the occurrence of specified
  liquidity


32




events,
which include the sale, lease or contribution of assets to certain third
parties, or distribution of profits or sale of equity in IHG.  We will
continue to receive earn out payments until exhaustion of all specified
liquidity events.




Our
Business and Operating Segments




NextWave
Wireless Inc. is a holding company for mobile multimedia businesses and a
significant wireless spectrum portfolio. As a result of our global restructuring
initiative, our continuing operations are focused on two key segments:
Multimedia, consisting of the operations of our 65% owned subsidiary
PacketVideo, and Strategic Initiatives, focused on the management of our
wireless spectrum interests.




In the
second half of 2008, we commenced the implementation of our global restructuring
initiative in an effort to reduce our working capital requirements, narrow our
business focus and reorganize our operating units. Key results of this
initiative include an approximately 53% reduction in our global workforce, the
divestiture of our IPWireless network infrastructure business, the
discontinuation of operations at our GO Networks, Cygnus, Global Services and
NextWave Networks Products Support infrastructure businesses and our
Semiconductor business, and the closure of several facilities throughout the
world. In July 2009, we sold our owned Semiconductor business patents and patent
applications to Wi-Lan Inc., a Canadian intellectual property company for $2.5
million.




In
November 2009, we sold the majority of the assets and liabilities of IBG to IHG,
a new limited liability company formed by the former managing director of IBG, a
related party, for a nominal amount and recognized a $21.4 million net loss from
business divestitures.  In connection with the sale in November 2009,
we entered into various ancillary transitional agreements with IHG, none of
which are material to us.  Upon closing of the sale, we have no
remaining obligations to provide financing to support the ongoing operations of
IHG.  Also, in connection with the sale, we entered into an earn out
agreement with IHG that provides for payments to us upon the occurrence of
specified liquidity events, which include the sale, lease or contribution of
assets to certain third parties, or distribution of profits or sale of equity in
IHG.  We will continue to receive earn out payments until exhaustion
of all specified liquidity events.




Multimedia
Segment




PacketVideo
was founded in 1998 and supplies multimedia software and services to many of the
world’s largest network operators and wireless handset manufacturers. These
companies in turn use PacketVideo’s platform to offer music and video services
on mobile handsets, generally under their own brands. To date, over 350 million
PacketVideo-powered handsets have been shipped worldwide. PacketVideo has been
contracted by some of the world’s largest carriers, such as Orange, DOCOMO,
Rogers Wireless, TeliaSonera, TELUS Mobility, and Verizon Wireless to design and
implement the embedded multimedia software capabilities contained in their
handsets. PacketVideo’s software is compatible with virtually all network
technologies including CDMA, GSM, WiMAX, LTE and WCDMA.




As mobile
platforms evolve, PacketVideo continues to provide one of the leading multimedia
solutions. PacketVideo is one of the original founding members of the Open
Handset Alliance (“OHA”), led by Google. PacketVideo’s OpenCORE platform serves
as the multimedia software subsystem for the OHA’s mobile device Android TM
platform. In a similar vein, PacketVideo has been recognized for its support of
the LiMO FoundationTM and their platform initiatives. We believe that by
supporting the efforts of the OHA and LiMO FoundationTM, PacketVideo is well
positioned to market its full suite of enhanced software applications to Android
and LiMO application developers.




In
addition, since 2006 PacketVideo has offered software products for use on PCs,
consumer electronics and other devices in the home. We believe that media
consumption in the home and media consumption on mobile handsets is converging.
PacketVideo’s TwonkyMedia product line is designed to capitalize on this trend.
PacketVideo has invested in the development and acquisition of a wide range of
technologies and capabilities to provide its customers with software solutions
to enable home/office digital media convergence using communication protocols
standardized by the Digital Living Network Alliance. The TwonkyMedia suite of
products that provide for content search, discovery, organization and content
delivery/sharing amongst consumer electronics products connected to an Internet
Protocol-based network. This powerful platform is designed to provide an
enhanced user experience by intelligently responding to user preferences based
on content type, day-part, and content storage location. In addition,
PacketVideo’s patented Digital Rights Management (“DRM”) solutions, already in
use by many wireless carriers globally, represent a key enabler of digital media
convergence by preventing the unauthorized access or duplication of multimedia
content used or shared by PacketVideo-enabled devices. Additionally, PacketVideo
is one of the largest suppliers of Microsoft DRM technologies for the wireless
market today.




Although
we believe that PacketVideo’s products are advantageous and well positioned for
success, PacketVideo’s business largely depends upon volume based sales of
devices into the market. The economic downturn in the global markets has
affected consumer spending habits. PacketVideo’s customers and distribution
partners, telecommunications companies and consumer electronics device
manufacturers, are not immune to such uncertain and adverse market conditions.
PacketVideo relies on these partners as distribution avenues for its developed
products. Additionally, competitive pressures may cause further price wars in an
effort to win or sustain business which will have an effect on overall margins
and projections. If economic conditions continue to deteriorate, this may result
in lower than expected sales volumes, resulting in lower revenue, gross margins,
and operating


33




income.
In July 2009, a subsidiary of DOCOMO purchased a 35% noncontrolling interest in
our PacketVideo subsidiary. Pursuant to the definitive agreements, DOCOMO was
granted certain rights in the event of future transfers of PacketVideo stock or
assets, preemptive rights in the event of certain issuances of PacketVideo
stock, and a call option exercisable under certain conditions to purchase the
remaining shares of PacketVideo at an appraised value. In addition, DOCOMO will
have certain governance and consent rights applicable to the operations of
PacketVideo. DOCOMO has expressed its intent to exercise its call option and the
parties are currently in discussions concerning the valuation for our remaining
PacketVideo shares.  DOCOMO will have an opportunity to determine
whether it wishes to proceed with its exercise of the call option following the
determination of a valuation for our shares.  At this time, there can
be no assurance as to the valuation that will be obtained or as to DOCOMO’s
ultimate decision to exercise its call option.




Strategic
Initiatives Segment




Our
strategic initiatives business segment is engaged in the management of our
global wireless spectrum holdings. Our total domestic spectrum holdings consist
of approximately ten billion MHz points-of-presence (“POPs”), covering
approximately 215.9 million total POPs, with 106.9 million POPs covered by 20
MHz or more of spectrum, and an additional 90.6 million POPs covered by at least
10 MHz of spectrum. In addition, a number of markets, including much of the New
York City metropolitan region, are covered by 30 MHz or more of spectrum. Our
domestic spectrum resides in the 2.3 GHz Wireless Communication Services
(“WCS”), 2.5 GHz Broadband Radio Service (“BRS”)/Educational Broadband Service
(“EBS”), and 1.7/2.1 GHz Advanced Wireless Service (“AWS”) AWS bands and offers
propagation and other characteristics suitable to support high-capacity, mobile
broadband services.




Our
international spectrum held for continuing operations include 2.3 GHz licenses
in Canada, covering 15 million POPs.




We
continue to pursue the sale of our wireless spectrum holdings and any sale or
transfer of the ownership of our wireless spectrum holdings is subject to
regulatory approval. We expect that we will be required to successfully monetize
most of our wireless spectrum assets in order to retire our debt.




During
2009, we completed the sale of certain of our owned AWS spectrum licenses in the
United States to third parties for net proceeds, after deducting direct and
incremental selling costs, of $26.4 million, and recognized net gains on the
sales of $2.7 million. The net proceeds from the sales received after July 15,
2009 were used to redeem a portion of the Senior Notes at a redemption price of
102% of the principal amount thereof plus accrued interest and net proceeds
received prior to July 16, 2009 were used to redeem a portion of the Senior
Notes at a redemption price of 105% of the principal amount thereof plus accrued
interest.




To date,
we have realized a positive return on the sale of the majority of our domestic
AWS spectrum licenses. However, there can be no assurance that we will realize a
similar return upon the sale of our remaining wireless spectrum holdings. The
sale price of our wireless spectrum assets will be impacted by, among other
things:




·
            the
      FCC’s final resolution of ongoing proceedings regarding interference from
      satellite digital audio radio services to our WCS spectrum
      licenses;




·
            the
      timing and associated costs of build out or substantial service
      requirements attached to our domestic and international spectrum licenses,
      where a failure to comply with these requirements could result in license
      forfeiture;




·
            timing
      of closure of potential sales, in particular if it is necessary to
      accelerate the planned sale of certain of our spectrum licenses in order
      to meet debt payment obligations;




·
            worldwide
      economic conditions which we believe have adversely affected manufacturers
      of telecommunications equipment and technology and led to a delay in
      global network deployments; and




·
            availability
      of capital for prospective spectrum buyers, which has been negatively
      impacted by the downturn in the credit and financial
    markets.




As we
have previously disclosed, our efforts to sell our wireless spectrum holdings on
favorable terms has been delayed by current market conditions, as well as
regulatory and other market activities involving potential buyers. We are
continuing to have discussions with numerous parties who have expressed interest
in our various spectrum assets. However, we believe that adverse economic
conditions continue to affect potential purchasers of our wireless spectrum, and
there can be no assurance as to the timing of further spectrum sales or the
sales prices that will be attained.




Discontinued
Operations




The
results of operations of our GO Networks, IPWireless and Cygnus subsidiaries,
and our Global Services and NextWave Network Product Support strategic business
units, our Semiconductor segment and our WiMAX Telecom, Inquam and South
American businesses, have been reported as discontinued operations in the
consolidated financial statements for all periods presented, prior to sale or
dissolution of the respective business.


34




Our
discontinued international spectrum holdings include nationwide 3.5 GHz licenses
in Slovakia and Switzerland; a nationwide 2.0 GHz license in Norway; and 2.5 GHz
licenses in Argentina and Chile, collectively covering 130 million
POPs.




In
November 2009, we sold certain of our assets, including nationwide 3.5 GHz
licenses in Germany, held by our Inquam Broadband GmbH subsidiary.




In
October 2009, the Board of Directors of WiMAX Telecom GmbH, the holding company
for NextWave’s discontinued WiMAX Telecom business in Austria and Croatia, filed
an insolvency proceeding in Austria in accordance with local law to permit the
orderly wind-down of such entity. The court in Austria has entered an order
appointing an administrator to manage the insolvency of WiMAX Telecom GmbH. As a
result of the appointment of the administrator, NextWave no longer controls
WiMAX Telecom GmbH and its subsidiaries and will not receive any proceeds from
the assets of the WiMAX entities. NextWave has obtained a waiver of events of
default resulting from the insolvency filing under its Senior 7% Senior Secured
Notes due 2010 (the “Senior Notes”), Senior-Subordinated Secured Second Lien
Notes due 2010 (the “Second Lien Notes”) and Third Lien Subordinated Secured
Convertible Notes due 2011 (the “Third Lien Notes”), including a rescission of
the acceleration of maturity triggered as a result of such filing. Upon
acceptance by the courts of the bankruptcy petitions for our network
infrastructure businesses in Israel, Canada and Denmark in the fourth quarter of
2008, a court-appointed trustee assumed control over the assets and liabilities
with the intent of liquidating the assets for the benefit of the creditors.
Accordingly, we deconsolidated these six subsidiaries and no longer include
their results of operations or financial position in our consolidated financial
statements on a prospective basis.




On
December 24, 2008, we sold a controlling interest in our IPWireless subsidiary,
deconsolidated IPWireless upon closing of the sale and no longer include the
results of operations or financial position of IPWireless in our consolidated
financial statement on a prospective basis.




During
the second half of 2008 we shut down the operations of our GO Networks and
Cygnus subsidiaries and our Global Services and NextWave Network Support
strategic business units.




RESULTS
OF OPERATIONS




The
results of operations of our Networks segment, which includes our GO Networks,
IPWireless and Cygnus subsidiaries, and our Global Services and NextWave Network
Product Support strategic business units, our Semiconductor segment and our
WiMAX Telecom, Inquam and South American businesses, have been reported as
discontinued operations in the consolidated financial statements for all periods
presented.




Comparison
of Our Fiscal Year Ended January 2, 2010 (Fiscal Year “2009”) to Our Fiscal Year
Ended December 27, 2008 - Continuing Operations




Revenues


Years
      Ended(in
      millions)
            
            January
      2,
                2010
            
            
            December
      27, 2008
            
            
            Increase
                (Decrease)Revenues
            
            $
            50.7
            
            
            $
            63.0
            
            
            $
            (12.3
            )Revenues
      – related party
            
            
            9.5
            
            
            
            —
            
            
            
            9.5Total
      revenues
            
            $
            60.2
            
            
            $
            63.0
            
            
            $
            (2.8
            )




Total
revenues from continuing operations for 2009 were $60.2 million, as compared to
$63.0 million for 2008, a decrease of $2.8 million. Total revenues for both
periods primarily consist of revenues generated by our Multimedia segment. The
decrease in revenues was attributable to an acceleration of $7.1 million in
revenues during 2008 resulting from a change in contract terms and cancellation
of a non-recurring development project, a decrease in revenues of $1.0 million
attributable to other non-recurring business and a decrease in revenues of $4.8
million relating to other customer cancellations. The decrease in revenues from
2008 was partially offset by increased non-recurring technology development
revenues of $5.8 million primarily resulting from the receipt of final
acceptance from Google on technology development services performed in support
of the OHA in 2009, an increase of $2.1 million in revenues associated with a
technology collaboration agreement with DOCOMO, $2.0 million in revenues from
the sale of perpetual licenses to original equipment manufacturers (“OEM”)s and
an increase of $0.2 million in royalty revenues during 2009 resulting from an
increase in unit sales of mobile subscribers, wireless operators and device
manufacturers.




Related
party revenues represent sales of a version of PacketVideo’s multimedia player
to DOCOMO for installation into DOCOMO handset models. In July 2009, DOCOMO
became a related party when its subsidiary purchased a 35% noncontrolling
interest in our PacketVideo subsidiary.




Sales to
three Multimedia customers, Verizon Wireless, DOCOMO and Google, accounted for
37%, 23%, and 10%, respectively, of our total revenues from continuing
operations during 2009. Sales to Google primarily represent the completion of
technology development deliverables in support of the OHA. We do not anticipate
recognizing significant revenues associated with transactions with Google in
future quarters. Sales to three Multimedia customers, Verizon Wireless, DOCOMO
and Sony Ericsson, accounted for 38%, 17%, and 14%, respectively, of our total
revenues from continuing operations during 2008.


35









In
general, the financial consideration received from wireless carriers and mobile
phone and wireless device manufacturers is primarily derived from a combination
of technology development contracts, royalties, software support and maintenance
and wireless broadband products.




Operating
Expenses


Years
      Ended(in
      millions)
            
            January
      2,
                2010
            
            
            December
      27, 2008
            
            
            Increase
                (Decrease)Cost
      of revenues
            
            $
            21.7
            
            
            $
            18.8
            
            
            $
            2.9Cost
      of revenues – related party
            
            
            0.5
            
            
            
            —
            
            
            
            0.5Engineering,
      research and development
            
            
            21.9
            
            
            
            27.8
            
            
            
            (5.9
            )Sales
      and marketing
            
            
            8.8
            
            
            
            12.6
            
            
            
            (3.8
            )General
      and administrative
            
            
            44.5
            
            
            
            62.2
            
            
            
            (17.7
            )Asset
      impairment charges
            
            
            9.6
            
            
            
            6.8
            
            
            
            2.8Restructuring
      charges
            
            
            3.8
            
            
            
            7.6
            
            
            
            (3.8
            )Total
      operating expenses
            
            $
            110.8
            
            
            $
            135.8
            
            
            $
            (25.0
            )




Cost
of Revenues




Total
cost of revenues from continuing operations as a percentage of the associated
revenues for 2009 was 37%, as compared to 30% for 2008. The decrease in gross
margin during 2009 reflects the recognition of relatively high margin revenue
for Sony Ericsson during 2008 which did not recur in 2009. Additionally, certain
upfront and estimated future costs related to new products were recognized in
2009 which lowered overall gross margins, however we ultimately expect gross
margins on these products to improve as they mature beyond their initial phases.
This decrease in gross margin was partially offset by $0.5 million increase in
royalty revenues, which have minimal associated cost of revenues.




Total
cost of revenues from continuing operations, which consists entirely of cost of
revenues generated by our Multimedia segment, primarily includes direct
engineering labor expenses, allocated overhead costs, costs associated with
offshore contract labor costs, other direct costs related to the execution of
technology development contracts and amortization of purchased intangible
assets.




Included
in total cost of revenues during 2009 and 2008 is $2.9 million and $3.1 million
of amortization of purchased intangible assets. Also included in total cost of
revenues during 2009 and 2008 is $0.9 million and $0.4 million, respectively, of
share-based compensation expense.




We
believe that total cost of revenues as a percentage of revenue for future
periods will be affected by, among other things, sales volumes, competitive
conditions, product mix, changes in average selling prices, and our ability to
make productivity improvements through continual cost reduction
programs.




Engineering,
Research and Development




The $5.9
million decrease in engineering, research and development expenses during 2009,
as compared to 2008, is attributable primarily to a $2.8 million decrease in
third party contract expenses and other operating expenses of our Multimedia
segment resulting from cost reduction efforts during 2009, and reductions in our
engineering, research and development expenses resulting from the global
restructuring initiative we implemented in the second half of 2008, which
included reductions in workforce and certain overhead and discretionary costs.
The compensation related costs incurred in relation to the employees terminated
in connection with the restructuring are included in restructuring
charges.




Included
in engineering, research and development expenses during each of 2009 and 2008
is $1.2 million of share-based compensation expense.




Sales
and Marketing




The $3.8
million decrease in sales and marketing expenses from continuing operations
during 2009, as compared to 2008, is primarily attributable to a $2.1 million
decrease in the sales and marketing expenses of our Multimedia segment as a
result of cost reduction actions implemented in the first quarter of 2009 and a
$1.7 million decrease in our marketing expenses resulting from the global
restructuring initiative we implemented in the second half of 2008, which
included reductions in workforce and certain overhead and discretionary costs.
The compensation related costs incurred in relation to the employees terminated
in connection with the restructuring are included in restructuring
charges.




Included
in sales and marketing expenses during each of 2009 and 2008 is $1.1 million of
amortization of purchased intangible assets. Also included in sales and
marketing expenses during each of 2009 and 2008 is $0.3 million of share-based
compensation expense.


36




General
and Administrative




Of the
$17.7 million decrease in general and administrative expenses from continuing
operations during 2009, as compared to 2008, $19.9 million is attributable
primarily to the cost reductions resulting from the global restructuring
initiative we implemented in the second half of 2008, which included reductions
in workforce and certain overhead and discretionary costs, and the closure of
certain facilities.  The costs incurred in connection with our global
restructuring initiative, including compensation related costs incurred related
to terminated employees, costs incurred related to vacated leased facilities and
other restructuring related costs, are included in restructuring charges. This
decrease was partially offset by a $2.2 million arbitration settlement expensed
during 2009 that was paid in October 2009 through the issuance of 2.5 million
shares of our common stock to the former shareholders of GO
Networks.




Included
in general and administrative expenses during 2009 and 2008 is $7.7 million and
$7.4 million, respectively, of amortization of finite-lived wireless spectrum
licenses and $0.3 million and $0.5 million, respectively, of amortization of
purchased intangible assets. Also included in general and administrative
expenses during 2009 and 2008 is $3.0 million and $3.2 million, respectively, of
share-based compensation expense.




Asset
Impairment Charges




Through
our continued efforts to sell our remaining AWS domestic wireless spectrum
licenses during 2009, we determined that the carrying value of these spectrum
licenses exceeded their fair value based primarily on bids received and
negotiations with third parties regarding the sale of these licenses.
Accordingly, during 2009, we wrote-down the carrying value of our domestic AWS
spectrum licenses to their estimated fair value and recognized an asset
impairment charge of $9.4 million.




Additionally,
during 2009, we recognized an asset impairment charge of $0.2 million related to
certain long-lived and prepaid assets utilized by our corporate administration
functions.




During
2008, we recognized an asset impairment charge of $6.8 million primarily related
to leasehold improvements at vacated leased facilities.




We may
incur additional asset impairment charges in the future as we continue to
implement asset divestiture actions.




Restructuring
Charges




In
connection with the implementation of our global restructuring initiative,
during 2009, our corporate support function incurred $0.3 million in employee
termination costs, $0.9 million in lease abandonment and related facility
closure costs and $2.6 million of legal and administrative costs related to the
divestiture and closure of discontinued businesses.




During
2008, our continuing operations terminated 55 employees worldwide and vacated
four leased facilities.  As a result, our continuing operations
incurred $1.8 million in employee termination costs, $1.6 million in lease
liability and related facility closure costs and $4.2 million in other related
costs, including contract termination costs, selling costs and legal
fees.




Gain
on Sale of Wireless Spectrum Licenses




During
2009 and 2008, we completed sales of certain of our owned AWS spectrum licenses
in the United States to third parties for net proceeds, after deducting direct
and incremental selling costs, of $26.4 million and $145.5 million, and
recognized net gains on the sales of $2.7 million and $70.3 million,
respectively.




Interest
Income




Interest
income from continuing operations during 2009 was $0.5 million, as compared to
$3.0 million during 2008, a decrease of $2.5 million resulting from the decline
in our unrestricted cash and cash equivalents balances held by continuing
operations during 2009.




Interest
income in the future will be affected by changes in short-term interest rates
and changes in our cash and cash equivalents balances, which may be materially
impacted by divestitures and other financial activities.




Interest
Expense




Interest
expense from continuing operations during 2009 was $164.2 million, as compared
to $99.3 million during 2008, an increase of $64.9 million. The increase is
primarily attributable to $26.9 million of interest expense and interest
accretion of the debt discount and issuance costs related to our Second Lien
Notes, which were issued in October 2008, and $71.7 million in interest expense
and interest accretion of the debt discount related to our Third Lien Notes,
which were issued in October 2008, partially offset by $22.9 million in lower
interest expense related to our Senior Notes resulting from redemptions of the
Senior Notes since the fourth quarter of 2008 using the proceeds from sales of
wireless spectrum licenses and $10.5 million which is attributable to consent
fees paid during 2008 to withdraw $75.0 million from the cash reserve account
related to our Senior Notes.


37




Interest
expense from continuing operations will be impacted over the next twelve months
by increased interest rates on our Senior Notes, Second Lien Notes and Third
Lien Notes as well as the timing and amount of redemptions of our Senior Notes
using the proceeds from asset sales and other financial activities.




Other
Income and Expense, Net




Other
expense, net, from continuing operations during 2009 was $8.7 million, as
compared to $2.3 million during 2008, an increase of $6.4 million. The increase
in net expense reflects primarily changes in the estimated fair value of our
embedded derivatives of $5.0 million and higher net foreign currency exchange
losses of $1.3 million.




Income
Tax Benefit




During
2009 and 2008 substantially all of our U.S. subsidiaries had net losses for tax
purposes and, therefore, no material income tax provision or benefit was
recognized for these subsidiaries. Certain of our controlled foreign
corporations had net income for tax purposes based on cost sharing and transfer
pricing arrangements with our United States subsidiaries in relation to research
and development expenses incurred.




Our
effective income tax rate for continuing operations during 2009 was (0.1)%
resulting in a $0.1 million income tax benefit, on our pre-tax loss of $220.3
million, The net income tax benefit consists of a $1.1 million benefit from the
change in the effective income tax rate on the deferred tax liabilities
associated with indefinite life intangible assets, partially offset by a
provision of $0.7 million that was primarily related to income taxes of certain
controlled foreign corporations and a provision of $0.3 million that was related
to foreign withholding tax on royalty payments received from our PacketVideo
customers.




Our
effective income tax rate for continuing operations for 2008 was (1.8)%
resulting in a $1.8 million income tax benefit on our pre-tax loss of $101.2
million. The income tax benefit consists of a $2.4 million benefit from the
change in the effective income tax rate on the deferred tax liabilities
associated with indefinite-lived intangible assets and a $0.1 million tax
benefit related to foreign withholding tax on royalty payments received from our
PacketVideo customers, partially offset by income taxes related to our
controlled foreign corporations $0.7 million.




Noncontrolling
Interest




On July
2, 2009, we sold a 35% noncontrolling interest in our PacketVideo subsidiary to
DOCOMO, a customer of PacketVideo.  During 2009, the net loss from
continuing operations attributed to the noncontrolling interest in our
subsidiary totaled $0.1 million and represents DOCOMO’s share of PacketVideo’s
net loss from July 2, 2009.




Segment
Results




Our two
continuing reportable segments are Multimedia and Strategic Initiatives. As
described elsewhere, as a result of the implementation of our global
restructuring initiative in 2008, we have divested our Networks and
Semiconductor segments, and are continuing to divest our WiMAX Telecom and South
American businesses, either through sale, dissolution or closure. Accordingly,
we have reported the results of operations for our entire Networks and
Semiconductor segments and our WiMAX Telecom, Inquam and South American
businesses, which were included in our Strategic Initiatives segment, as
discontinued operations for all periods presented.




Results
for our continuing operating segments for 2009 and 2008 are as
follows:




(in
      millions)
            
            Multimedia
            
            
            Strategic
      Initiatives
            
            
            Other
      or Unallocated
            
            
            ConsolidatedFor the Years Ended:January
      2, 2010Revenues
      from external customers
            
            $
            50.7
            
            
            $
            —
            
            
            $
            —
            
            
            $
            50.7Revenues
      – related party
            
            
            9.5
            
            
            
            —
            
            
            
            —
            
            
            
            9.5Loss
      from operations
            
            
            (3.8
            )
            
            
            (10.4
            )
            
            
            (33.7
            )
            
            
            (47.9
            )Significant
      non-cash items included in loss from operations above:Depreciation
      and amortization expense
            
            
            5.7
            
            
            
            7.7
            
            
            
            0.5
            
            
            
            13.9Share-based
      compensation expense
            
            
            3.6
            
            
            
            —
            
            
            
            1.8
            
            
            
            5.4Asset
      impairment charges
            
            
            —
            
            
            
            9.4
            
            
            
            0.2
            
            
            
            9.6Restructuring
      charges
            
            
            —
            
            
            
            —
            
            
            
            3.8
            
            
            
            3.8December
      27, 2008Revenues
      from external customers
            
            $
            63.0
            
            
            $
            —
            
            
            $
            —
            
            
            $
            63.0Income
      (loss) from operations
            
            
            (3.4
            )
            
            
            61.5
            
            
            
            (60.7
            )
            
            
            (2.6
            )Significant
      non-cash items included in loss from operations above:Depreciation
      and amortization expense
            
            
            6.2
            
            
            
            7.4
            
            
            
            4.0
            
            
            
            17.6Share-based
      compensation expense
            
            
            2.0
            
            
            
            —
            
            
            
            3.1
            
            
            
            5.1Asset
      impairment charges
            
            
            —
            
            
            
            —
            
            
            
            6.8
            
            
            
            6.8Restructuring
      charges
            
            
            0.2
            
            
            
            —
            
            
            
            7.4
            
            
            
            7.6







38




Multimedia




Total
revenues for the Multimedia segment decreased $2.8 million during 2009,
respectively, when compared to the same period in 2008.




The
decrease in revenues was attributable to an acceleration of $7.1 million in
revenues during 2008 resulting from a change in contract terms and cancellation
of a non-recurring development project, a decrease in revenues of $1.0 million
attributable to other non-recurring business and a decrease in revenues of $4.8
million relating to other customer cancellations. The decrease in revenues from
2008 was partially offset by increased non-recurring technology development
revenues of $5.8 million primarily resulting from the receipt of final
acceptance from Google on technology development services performed in support
of the OHA in 2009, an increase of $2.1 million in revenues associated with a
technology collaboration agreement with DOCOMO, $2.0 million in revenues from
the sale of perpetual licenses to OEMs and an increase of $0.2 million in
royalty revenues during 2009 resulting from an increase in unit sales of mobile
subscribers, wireless operators and device manufacturers.




Loss from
operations for the Multimedia segment increased $0.4 million during 2009 and was
attributable to the decrease in revenues of $2.8 million described above,
partially offset by decreases in operating expenses as a result of cost
reduction actions implemented during of 2009.




Strategic
Initiatives




Loss from
operations for the Strategic Initiatives segment increased $71.9 million during
2009 when compared to the same period in 2008. The increase during 2009 is
primarily attributable to $9.4 million in asset impairment charges related to
certain of our domestic AWS spectrum licenses and lower net gains on our sales
of wireless spectrum licenses of $67.6 million, partially offset by lower
operating expenses resulting from cost reduction actions implemented in the
first six months of 2009.




Other
or Unallocated




The loss
from operations classified as Other or Unallocated decreased $27.0 million
during 2009, and is primarily attributable to the corporate cost reductions
resulting from the global restructuring initiative we implemented in the second
half of 2008, which included reductions in workforce and certain overhead and
discretionary costs, and the closure of certain facilities. These decreases were
partially offset by a $2.2 million arbitration settlement paid in October 2009
through the issuance of 2.5 million shares of our common stock to the former
shareholders of GO Networks.




Comparison
of Our Fiscal Year Ended January 2, 2010 (Fiscal “2009”) to Our Fiscal Year
Ended December 27, 2008 - Discontinued Operations




The
results of operations of our discontinued Networks and Semiconductor segments
and WiMAX Telecom, Inquam and South American businesses, which were previously
in our Strategic Initiatives segment, are as follows:


(in
      millions)
            
            Year
      Ended
                January
      2,
                2010
            
            
            Year
      Ended
                December
      27, 2008
            
            
            Increase
      (Decrease)Revenues
            
            $
            5.7
            
            
            $
            62.2
            
            
            $
            (56.5
            )Operating
      expenses:Cost
      of revenues
            
            
            5.8
            
            
            
            61.8
            
            
            
            (56.0
            )Engineering,
      research and development
            
            
            2.1
            
            
            
            116.5
            
            
            
            (114.4
            )Sales
      and marketing
            
            
            1.2
            
            
            
            22.7
            
            
            
            (21.5
            )General
      and administrative
            
            
            7.3
            
            
            
            28.3
            
            
            
            (21.0
            )Asset
      impairment charges
            
            
            31.6
            
            
            
            40.2
            
            
            
            (8.6
            )Restructuring
      charges
            
            
            5.1
            
            
            
            7.8
            
            
            
            (2.7
            )Total
      operating expenses
            
            
            53.1
            
            
            
            277.3
            
            
            
            (224.2
            )Loss
      on business divestitures
            
            
            (22.6
            )
            
            
            (118.4
            )
            
            
            95.8Loss
      from operations
            
            
            (70.0
            )
            
            
            (333.5
            )
            
            
            263.5Other
      income (expense), net
            
            
            (0.3
            )
            
            
            0.7
            
            
            
            (1.0
            )Loss
      before income taxes
            
            
            (70.3
            )
            
            
            (332.8
            )
            
            
            262.5
            )Income
      tax benefit
            
            
            0.2
            
            
            
            2.9
            
            
            
            (2.7
            )Net
      loss from discontinued operations
            
            $
            (70.1
            )
            
            $
            (329.9
            )
            
            $
            259.8




Revenues




The $56.5
million decrease in revenues from discontinued operations during 2009 was
primarily attributable to our divestiture of our IPWireless subsidiary in
December 2008.


39




Cost
of Revenues




The $56.0
million decrease in cost of revenues from discontinued operations during 2009
was primarily attributable to our divestiture of our IPWireless subsidiary and
the discontinuation of operations at our GO Networks subsidiary in the fourth
quarter of 2008.




We used
third-party subcontractors to manufacture the products sold by our Networks
segment and these costs made up the substantial majority of cost of
revenues.




Included
in cost of revenues from discontinued operations during 2009 and 2008 is $0 and
$10.2 million, respectively, of amortization of purchased intangible
assets.




Engineering,
Research and Development




The
$114.4 million decrease in engineering, research and development expenses from
discontinued operations during 2009 is primarily attributable to our divestiture
of our IPWireless subsidiary and the discontinuation of operations at our GO
Networks subsidiary in the fourth quarter of 2008, and the shutdown of the
operations of our semiconductor business in the first quarter of 2009. The
compensation related costs incurred in relation to the employees terminated in
connection with the shutdown of our semiconductor business are included in
restructuring charges.




Included
in engineering, research and development expenses in 2009 and 2008 is $0 and
$0.4 million, respectively, of amortization of purchased intangible assets
primarily resulting from our acquisitions of IPWireless and GO Networks in 2007.
Also included in engineering, research and development expenses in 2009 and 2008
are $34,000 and $2.5 million, respectively, of share-based compensation
expense.




Sales
and Marketing




The $21.5
million decrease in sales and marketing expenses from discontinued operations
during 2009 is primarily attributable our divestiture of our IPWireless
subsidiary and the discontinuation of operations at our GO Networks subsidiary
in the fourth quarter of 2008, and the shutdown of the operations of our
semiconductor business in the first quarter of 2009. The compensation related
costs incurred in relation to the employees terminated in connection with the
shutdown of our semiconductor business are included in restructuring
charges.




Included
in sales and marketing expenses in 2009 and 2008 is $0 and $1.1 million,
respectively, of amortization of purchased intangible assets primarily resulting
from our acquisitions of IPWireless, GO Networks and WiMAX Telecom in 2007. Also
included in sales and marketing expenses in 2009 and 2008 is $26,000 and $1.3
million, respectively, of share-based compensation expense.




General
and Administrative




The $21.0
million decrease in general and administrative expenses from discontinued
operations during 2009 is primarily attributable to our divestiture of our
IPWireless subsidiary and the discontinuation of operations at our GO Networks
subsidiary in the fourth quarter of 2008, lower operating expenses at our WiMAX
Telecom subsidiary resulting from cost reduction actions implemented in the
first quarter of 2009 and $4.3 million is attributable to lower amortization
expense resulting primarily from our classification of our wireless spectrum
licenses in Europe as assets held for sale, which, in accordance with accounting
guidance for assets while held for sale, we are no longer
amortizing.




Included
in general and administrative expenses in 2009 and 2008 are $1.6 million and
$6.0 million, respectively, of amortization of purchased intangible assets. Also
included in general and administrative expenses in 2009 and 2008 is $0.4 million
and $(0.1) million, respectively, of share-based compensation
expense.




Asset
Impairment Charges




Through
our continued efforts to sell our wireless spectrum licenses in Europe, and
Chile, during 2009, we determined that the carrying value of these spectrum
licenses exceeded their fair value based primarily on bids received and
negotiations with third parties regarding the sale of these licenses.
Accordingly, during 2009, we wrote-down the carrying value of our wireless
spectrum licenses in Europe and Chile to their estimated fair value and
recognized asset impairment charges of $25.5 million.




In
connection with the implementation of our global restructuring initiative, we
continue to review our long-lived assets for impairment and, during 2009,
determined that indicators of impairment were present for the long-lived assets
in our discontinued WiMAX Telecom and semiconductor businesses. We performed an
impairment assessment of these assets and concluded that their carrying value
exceeded their fair value. Accordingly, during 2009, we recognized asset
impairment charges of $4.5 million.




During
2009 we wrote-off the remaining net book value of the purchased customer base
intangible asset of WiMAX Telecom as indicators of impairment existed, and, as a
result of this write-off, we recognized a non-cash asset impairment charge of
$1.6 million during 2009.


40




During
2008, in connection with the implementation of our global restructuring
initiative, we reviewed the goodwill and long-lived assets of our Networks and
Semiconductor segments and our WiMAX Telecom business for impairment and
determined that indicators of impairment were present for the goodwill,
intangible assets and certain other long-lived assets. We performed an
impairment assessment of these assets and concluded that the carrying value of
certain of the assets exceeded their fair value. Accordingly, during 2008, we
recognized an asset impairment charge of $40.2 million related to our
discontinued operations.




Restructuring
Charges




During
2009, we incurred $4.6 million of employee termination costs, and $0.7 million
in contract termination costs related to our discontinued operations, partially
offset by $0.2 million in lease abandonment credits. The employee termination
costs incurred in 2009 primarily resulted from the termination of 230 employees
upon the shutdown of our semiconductor business.




In
connection with the implementation of our global restructuring initiative, we
terminated approximately 349 employees in our Networks segment and vacated two
leased facilities. Accordingly, in 2008, we incurred employee termination costs
of $6.2 million, lease abandonment charges of $0.9 million and $0.7 million in
contract termination costs related to our discontinued operations.




Loss
on Business Divestitures




The $22.6
million net loss on business divestitures recognized during 2009 primarily
relates to our sale of the majority of the assets and liabilities of our Inquam
Broadband GmbH subsidiary and the insolvency of our discontinued WiMAX Telecom
business in Austria and Croatia.  The net losses from divestiture of
these businesses include $26.1 million of asset impairment charges previously
recognized during the first three quarter of 2009.  These losses were
partially offset by a $2.5 million gain on our sale of certain of our owned
Semiconductor business patents and patent applications to Wi-Lan Inc., a
Canadian intellectual property company, for a cash payment of $2.5 million and
$1.0 million in gains recognized related to our call option grant to IPW
Holdings to purchase our remaining noncontrolling interest in IPWireless Inc.
and IPW Holdings subsequent exercise of that option during 2009.




The
$118.4 million loss on business divestitures recognized during 2008 relates to
the losses realized upon our sale of IPWireless and the liquidation through
bankruptcy of our network infrastructure businesses in Israel, Canada and
Denmark in the fourth quarter of 2008. The loss from the divestiture of these
businesses consists of $120.3 million of previously recognized asset impairment
charges and $3.7 million of previously recognized inventory write-downs, offset
by $5.6 million from the deconsolidation of the remaining net liabilities of the
divested businesses.




Other
Income (Expense), Net




Other
expense, net, during 2009 increased from other income, net, of $0.7 million in
2008 to other expense, net, of $0.3 million, an increase in expense of $1.0
million and was primarily attributable to $1.3 million in lower net foreign
currency exchange rate gains and $0.1 million in lower interest income
recognized during 2009, partially offset by lower interest expense of $0.2
million.




Income
Tax Benefit




The
effective income tax rate for discontinued operations for 2009 was (0.2)%,
resulting in a $0.2 million income tax benefit in 2009 on pre-tax loss from
discontinued operations of $70.3 million, which primarily relates to the change
in the effective income tax rate on the deferred tax liabilities associated with
indefinite-lived intangible assets.




The
effective income tax rate for discontinued operations for 2008 was (0.9)%,
resulting in a $2.9 million income tax benefit in 2008 on pre-tax loss from
discontinued operations of $332.8 million, which primarily relates to the change
in the effective income tax rate on the deferred tax liabilities associated with
indefinite-lived intangible assets.




LIQUIDITY
AND CAPITAL RESOURCES




We have
funded our operations, business combinations, strategic investments and wireless
spectrum license acquisitions primarily with the $550.0 million in cash received
in our initial capitalization in April 2005, the net proceeds of $295.0 million
from the issuance of the Senior Notes in July 2006, the net proceeds of $351.1
million from our issuance of Series A Preferred Stock in March 2007 and the net
proceeds of $101.0 million from our issuance of the Second Lien Notes in October
2008 and July 2009. Our total unrestricted cash and cash equivalents held by
continuing operations totaled $20.2 million at January 2, 2010. We had net
working capital deficit of $8.0 million at January 2, 2010.




In an
effort to reduce our future working capital requirements and in order to comply
with the terms of our Senior Notes, Second Lien Notes and Third Lien Notes, in
the second half of 2008, our Board of Directors approved the implementation of a
global restructuring initiative, pursuant to which we have divested, either
through sale, dissolution or closure, our network infrastructure businesses and
our semiconductor business. We have also taken other cost reduction actions. The
actions completed as a result of our global restructuring initiative are
described in more detail in Note 1 to our Condensed Consolidated Financial
Statements in this Annual Report under the heading “Restructuring
Initiative and Discontinued Operations.”


41




Effective
as of March 16, 2010, we entered into an Amendment and Limited Waiver (the
“Amendment and Waiver”) to the agreements governing our Senior Notes, Second
Lien Notes and Third Lien Notes.  Pursuant to the Amendment and
Waiver, the maturity date of our Senior Notes was extended from July 17, 2010 to
July 17, 2011, with an additional extension to October 17, 2011 if certain
conditions are met, including the pendency of asset sales that would yield net
proceeds sufficient to repay all then-outstanding Senior Notes.  In
addition, the maturity date of our Second Lien Notes was extended from December
31, 2010 to November 30, 2011.  As a result of the Amendment and
Waiver, the interest payable on our Senior Notes and Second Lien Notes was
increased to a rate of 15% per annum and the interest payable on our Third Lien
Notes was increased to a rate of 12% per annum initially, increasing 1% per
annum on each of December 31, 2010, March 30, 2011, June 30, 2011 and September
30, 2011 to a maximum of 16%.  After giving effect to the Amendment
and Waiver, all Notes will receive only payment-in-kind interest for the full
term of such Notes, unless we elect to pay cash interest, and the redemption
premium on the Notes was eliminated.  In addition, under the Amendment
and Waiver, we will be entitled to incur additional indebtedness under the
Senior Notes up to an aggregate principal amount of $25.0 million (and any
increases due to the payment in kind of interest thereon).  The
Amendment and Waiver reduced the requirement to maintain a minimum cash balance
from $5 million to $1 million and, after payment in full of certain designated
Senior Notes (the “Priority Notes”) with an aggregate principal amount of $51.6
million at January 2, 2010, permits us to retain up to $37.5 million for general
working capital purposes and permitted investments, subject to reduction in the
amount of any net proceeds from the issuance of additional Senior Notes pursuant
to the $25.0 million in additional financing described below. As consideration
for the Amendment and Waiver, we paid an amendment fee to each Holder through
the issuance of additional Notes under the applicable Note Agreements in an
amount equal to 2.5% of the outstanding principal and accrued and unpaid
interest on such Holder’s existing Notes.




In
connection with the Amendment and Waiver, we entered into a binding commitment
letter (the “Commitment Letter”) with Avenue Capital Management II, L.P., acting
on behalf of its managed investment funds signatory thereto, and Solus Core
Opportunities Master Fund Ltd and its affiliates and co-investors, to provide up
to $25 million in additional financing through the purchase of additional Senior
Notes (the “Senior Incremental Notes”).   The terms of the
Commitment Letter provide that we will be entitled to borrow up to $25
million in one or more borrowings after March 16, 2010 but prior to July 31,
2010, upon 10 business days notice and subject to the execution of definitive
documentation substantially in the form of the definitive agreements governing
our existing indebtedness.  Such agreements will require us to make
customary representatives and warranties as a condition to each
borrowing.  As with the other Senior Notes, amounts outstanding under
the Senior Incremental Notes will bear interest at a rate of 15% per annum,
payable in kind unless we elects to pay cash, and will be secured by a first
lien on the same assets securing our Senior Notes, on a pari passu
basis.   No commitment fee or structuring fee is payable in
connection with the Commitment Letter.




At
January 2, 2010, our Senior Notes, having an aggregate principal amount of
$168.3 million will mature in July 2011, and our Second Lien Notes, having an
aggregate principal amount of approximately $140.8 million will mature in
November 2011. In addition, our Third Lien Notes, having an aggregate principal
amount of $524.1 million at January 2, 2010, will mature in December
2011.  The increase in payment in-kind interest rates on the Notes
effective March 16, 2010 will increase the principal amount of this debt upon
retirement. Our current cash reserves and cash generated from operations will
not be sufficient to meet these payment obligations. We must consummate sales of
our wireless spectrum assets yielding proceeds that are sufficient to retire
this indebtedness. If we are unable to pay our debt at maturity, the holders of
our notes could proceed against the assets pledged to secure these obligations,
which include our spectrum assets and the capital stock of our material
subsidiaries, which would impair our ability to continue as a going concern.
Insufficient capital to repay our debt at maturity would significantly restrict
our ability to operate and could cause us to seek relief through a filing in the
United States Bankruptcy Court.




In 2010,
we have capital expenditure needs associated with certain build-out or
substantial service requirements. These requirements apply to our licensed
wireless spectrum, which generally must be satisfied as a condition of license
renewal. The renewal deadline and the substantial service build-out deadline for
our domestic WCS spectrum is July 21, 2010. The substantial service deadline for
EBS/BRS spectrum is May 1, 2011, however, most of our EBS leases require us to
complete most build out activities in 2010, in advance of the FCC’s substantial
service deadline.  We also have certain build-out requirements
internationally through 2013, and failure to make those service demonstrations
could also result in license forfeiture.  With respect to our domestic
WCS spectrum we have entered into a third party arrangement pursuant to which
the third party has agreed to meet our build-out requirements. However, at this
time there can be no assurance that such party will be able to pay for the build
out or complete its contractual requirements on time. Accordingly, we will seek
to identify additional capital resources and personnel to enable us to perform
such build-out obligations in the event such party is not able to perform. Our
reliance on a third party to meet our substantial service requirements may
subject us to risks of non-renewal in the event that such party does not perform
its obligations and if we are unable to fund such obligations.




We
believe that the completion of our asset divestiture and cost reduction actions,
our current cash and cash equivalents, projected revenues and cash flows from
our Multimedia segment, our ability to pay payment-in-kind interest in lieu of
cash interest to the holders of our secured notes, our third party arrangements
with respect to our domestic WCS spectrum build-out requirements, and access to
$25.0 million of additional incremental Senior Notes will allow us to meet our
estimated operational cash requirements at least through March 2011. Should we
be unable to achieve the revenues and/or cash flows through March 2011 as
contemplated in our current operating plan, or if we were to incur significant
unanticipated expenditures in excess of our


42




available
asset sale and incremental Senior Notes proceeds, including in respect of our
performance of the WCS build-out, or we are unable to draw funds under the
Commitment Letter, we will seek to identify additional capital resources
including the use of our remaining $10.0 million of incremental Second Lien
Notes debt basket and will implement certain additional actions to reduce our
working capital requirements including staff reductions.




Our long
term operating success will depend on our ability to execute our divestiture
programs in a timely manner so as to meet our debt payment requirements, to
successfully build-out and develop our wireless spectrum portfolio in a timely
manner, and to obtain favorable cash flow from the growth and market penetration
of our PacketVideo subsidiary, to the extent we retain our remaining interest in
this subsidiary.




The
following table presents working capital, cash and cash
equivalents:


(in
      millions)
            
            January
      2,
                2010
            
            
            December
      27,
                2008
            
            
            Increase
      (Decrease)Working
      capital (deficit)
            
            $
            (8.0
            )
            
            $
            21.2
            
            
            $
            (29.2
            )Cash
      and cash equivalents – continuing operations
            
            
            20.2
            
            
            
            60.7
            
            
            
            (40.5
            )Cash
      and cash equivalents –  discontinued operations
            
            
            0.3
            
            
            
            0.8
            
            
            
            (0.5
            )Total
      cash and cash equivalents
            
            $
            20.5
            
            
            $
            61.5
            
            
            $
            (41.0
            )




Uses
of Cash and Cash Equivalents




The
following table presents our utilization of cash and cash equivalents for the
two fiscal years ended January 2, 2010:


Years
      Ended(in
      millions)
            
            January
      2,
                2010
            
            
            December
      27,
                2008Beginning
      cash and cash equivalents
            
            $
            61.5
            
            
            $
            166.7Net
      operating cash used by continuing operations
            
            
            (50.2
            )
            
            
            (89.5
            )Proceeds
      from the sale of noncontrolling interest in PacketVideo
            
            
            45.5
            
            
            
            —Proceeds
      from the sale of wireless spectrum licenses
            
            
            26.4
            
            
            
            145.5Proceeds
      from long-term obligations, net of issuance costs
            
            
            13.5
            
            
            
            109.0Decrease
      in restricted cash
            
            
            —
            
            
            
            52.5Payments
      on long-term obligations, excluding wireless spectrum lease
      obligations
            
            
            (61.4
            )
            
            
            (138.5
            )Cash
      paid for acquisition of wireless spectrum licenses and subsequent lease
      obligations
            
            
            (1.1
            )
            
            
            (8.0
            )Purchases
      of property and equipment
            
            
            (1.9
            )
            
            
            (2.8
            )Cash
      paid for business combinations, net of cash acquired
            
            
            —
            
            
            
            (0.3
            )Other,
      net
            
            
            1.0
            
            
            
            (3.3
            )Net
      operating, investing and financing cash used by discontinued
      operations
            
            
            (12.8
            )
            
            
            (169.8
            )Ending
      cash and cash equivalents
            
            
            20.5
            
            
            
            61.5Less:
      ending cash and cash equivalents - discontinued operations
            
            
            (0.3
            )
            
            
            (0.8
            )Ending
      cash and cash equivalents - continuing operations
            
            $
            20.2
            
            
            $
            60.7




Significant
Investing and Financing Activities During 2009




During
2009, we completed sales of certain of our owned AWS spectrum licenses in the
United States to third parties for net proceeds, after deducting direct and
incremental selling costs, of $26.4 million, and recognized gains on the sales
totaling $2.7 million. The net proceeds from the sales received after July 15,
2009 were used to redeem a portion of the Senior Notes at a redemption price of
102% of the principal amount thereof plus accrued interest and net proceeds
received prior to July 16, 2009 were used to redeem a portion of the Senior
Notes at a redemption price of 105% of the principal amount thereof plus accrued
interest.




During
2009 we issued additional Second Lien Notes due 2010 in the aggregate principal
amount of $15.0 million, on the same financial and other terms applicable to our
existing Second Lien Notes. The Incremental Notes were issued with an original
issuance discount of 5% resulting in gross proceeds of $14.3 million. After
payment of transaction related expenses, we received net proceeds of $13.5
million to be used solely in connection with the ordinary course operations of
our business and not for any acquisition of assets or businesses or other
uses.




During
2009 we sold a 35% noncontrolling interest in our PacketVideo subsidiary to
DOCOMO for $45.5 million. The net proceeds from this transaction were used in
July 2009 to redeem a portion of the Senior Notes at a redemption price of 105%
of the principal amount thereof plus accrued interest.




During
2009 we sold certain of our owned Semiconductor business patents and patent
applications to Wi-Lan Inc, a Canadian intellectual property company, for a cash
payment of $2.5 million and recognized $2.5 million as a gain from business
divestitures during 2009.


43




Critical
Accounting Policies and Estimates




Our
discussion and analysis of our results of operations and liquidity and capital
resources are based on our consolidated financial statements which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and disclosure of contingent assets and liabilities. On
an ongoing basis, we evaluate our estimates and judgments, including those
related to revenue recognition, valuation of intangible assets and investments,
and litigation. We base our estimates on historical and anticipated results and
trends and on various other assumptions that we believe are reasonable under the
circumstances, including assumptions as to future events. These estimates form
the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. By their nature,
estimates are subject to an inherent degree of uncertainty. Actual results that
differ from our estimates could have a significant adverse effect on our
operating results and financial position. Our accounting policies are described
in more detail in Note 1 to our consolidated financial statements included
elsewhere in this Annual Report. We believe that the following significant
accounting policies and assumptions may involve a higher degree of judgment and
complexity than others.




Revenue
Recognition




Our
continuing and discontinued operations have derived revenues from the following
sources:




·
            Contracts
      to provide multimedia software products for mobile and home electronic
      devices and related royalties through our PacketVideo
      subsidiary;




·
            Sales
      of wireless broadband and mobile broadcast network products and services
      by our IPWireless and GO Networks subsidiaries, which are included in
      discontinued operations for all periods presented. The wireless broadband
      and mobile broadcast network products sold by IPWireless and GO Networks
      often included embedded software;
and




·
            Customer
      subscriptions for the WiMAX network operated by our WiMAX Telecom
      subsidiary, which is included in discontinued operations for all periods
      presented.




For
arrangements that do not contain software or embedded software that is
incidental to the arrangement, we recognize revenue in accordance with the
revenue recognition accounting guidance, when persuasive evidence of an
arrangement exists, delivery has occurred, the fee is fixed or determinable and
collectability is reasonably assured.




For
software arrangements, or in cases where the software is considered more than
incidental and is essential to the functionality of the hardware or the
infrastructure products, revenue is recognized pursuant to software revenue
recognition and construction-type and production-type contracts accounting
guidance.




For post
launch hosting arrangements, revenue is recognized on a pro rata basis based on
the term of the contract.




Our
revenue arrangements can include multiple deliverables, software or technology
license, non-recurring engineering services and post-contract customer support.
For these arrangements, we consider the revenue recognition - multiple-element
arrangements accounting guidance. Accordingly, we evaluate each deliverable in
the arrangement to determine whether it represents a separate unit of
accounting. If objective and reliable evidence of fair value exists (“vendor
specific objective evidence”) for all units of accounting in the arrangement,
revenue is allocated to each unit of accounting or element based on those
relative fair values. If vendor specific objective evidence of fair value exists
for all undelivered elements, but not for delivered elements, the residual
method would be used to allocate the arrangement consideration. If elements
cannot be treated as separate units of accounting because vendor specific
objective evidence of the undelivered elements does not exist, they are combined
into a single unit of accounting and the associated revenue is deferred until
all combined elements have been delivered or until there is only one remaining
element to be delivered. To date, we have not been able to establish vendor
specific objective evidence for any of the elements included in our revenue
arrangements, as the software and hardware products or services have not yet
been sold separately, nor has a standard price list been established. As a
result, once the software or technology is delivered and the only undelivered
element is services, the entire non-contingent contract value is recognized
ratably over the remaining service period. Costs directly attributable to
providing these services are also deferred and amortized over the remaining
service period of the respective revenues.




Services
sold separately are generally billed on a time and materials basis at
agreed-upon billing rates, and revenue is recognized as the services are
performed.




We earn
royalty revenues on licensed embedded multimedia products sold by our licensees.
Generally, royalties are paid by licensees on a contingent, per unit, or fixed
fee usage basis. The licensees generally report and pay the royalty in the
quarter subsequent to the period of delivery or usage. We recognize royalty
revenues based on royalties reported by licensees. When royalty arrangements
also provide for ongoing post-contract customer support that does not meet the
criteria to be recognized upon delivery of the software, the royalty is
recognized ratably from the date the royalty report is received through the
stated remaining term of the post-contract customer support. In limited
situations, we have determined that post-contract customer support revenue can
be recognized upon delivery of the software because the obligation to provide
post-contract customer support is for one year or less, the estimated cost of
providing the post-contract customer support during the arrangement is
insignificant and unspecified upgrades


44




or
enhancements offered for the particular post-contract customer support
arrangement historically have been and are expected to continue to be minimal
and infrequently provided. In these instances, we have accrued all the estimated
costs of providing the services upfront, which to date have been
insignificant.




If we
receive non-refundable advanced payments from licensees that are allocable to
future contracts periods or could be creditable against other obligations of the
licensee to us, the recognition of the related revenue is deferred until such
future periods or until such creditable obligations lapse.




In
instances where we have noted extended payment terms, revenue is recognized in
the period the payment becomes due. If an arrangement includes specified upgrade
rights, revenue is deferred until the specified upgrade has been
delivered.




We do not
generally allow for product returns and we have no history of significant
product returns. Accordingly, no allowance for returns has been
provided.




The
timing and amount of revenue recognition depends upon a variety of factors,
including the specific terms of each arrangement and the nature of our
deliverables and obligations. Determination of the appropriate amount of revenue
recognized involves judgments and estimates that our management believes are
reasonable.




Wireless
Spectrum Licenses




We
capitalize as intangible assets wireless spectrum licenses that we acquire from
third parties or through government auctions. For wireless spectrum licenses
purchased directly from third parties or through spectrum auctions, the cost
basis of the wireless spectrum asset includes the purchase price paid for the
license at the time of acquisition plus legal costs incurred to acquire the
license. For wireless spectrum licenses acquired through a business combination
or through the acquisition of a business where the assets of the business are
comprised almost entirely of wireless spectrum, the cost basis of the wireless
spectrum asset is determined through an allocation of the total purchase price
to the tangible and identifiable intangible assets and liabilities of the
acquired business or asset(s) and includes any deferred tax liabilities
determined in accordance with accounting provisions for acquired temporary
differences in certain purchase transactions that are not accounted for as
business combinations. For leased wireless spectrum rights, the asset and
related liability are recorded at the net present value of future cash outflows
using our incremental borrowing rate at the time of acquisition.




We have
determined that certain of our wireless spectrum licenses meet the definition of
indefinite-lived intangible assets because the licenses are either perpetual or
may be renewed periodically for a nominal fee, provided that we continue to meet
the service and geographic coverage provisions. We have also determined that
there are currently no legal, regulatory, contractual, competitive, economic or
other factors that limit the useful lives of these wireless spectrum licenses.
As of January 2, 2010, indefinite-lived wireless spectrum licenses that are not
held for sale and that are not subject to amortization totaled $340.2
million.




Wireless
spectrum licenses for which we have acquired lease rights from third parties are
considered to have finite lives. The wireless license asset is then amortized
over the contractual life of the lease. We have also acquired the rights to
wireless spectrum licenses in Europe where the renewal terms are not yet well
established. We amortize these assets on a straight-line basis over the initial
license period. Amortization expense on wireless spectrum licenses is charged to
general and administrative expense. As of January 2, 2010, amortized wireless
spectrum licenses, net of accumulated amortization, that are not held for sale
totaled $69.0 million.




During
the year ended January 2, 2010, our wireless spectrum licenses, net, decreased
by $83.1 million, which was primarily due to the sale of AWS and German spectrum
licenses with a cost basis of $24.8 million, impairments of our domestic,
European and Chilean wireless spectrum licenses totaling $55.7 million and
amortization expense of $8.6 million, offset by the effect of fluctuations in
exchange rates of $6.0 million.




Valuation
of Goodwill




We
perform an annual review for impairment, or more frequently if impairment
indicators arise. Goodwill is considered to be impaired if we determine that the
carrying value of the goodwill exceeds its fair value.




We test
goodwill for impairment annually on the first day of our fiscal fourth quarter
at a reporting unit level using a two-step process. The first step of the
impairment test involves comparing the fair values of the applicable reporting
units with their aggregate carrying values, including goodwill. If the carrying
amount of a reporting unit exceeds the reporting unit’s fair value, we then
perform the second step of the goodwill impairment test to determine the amount
of the impairment loss. The second step of the goodwill impairment test involves
comparing the implied fair value of the affected reporting unit’s goodwill with
the carrying value of that goodwill. If the carrying amount of goodwill exceeds
the implied fair value of that goodwill, an impairment loss is recognized in an
amount equal to that excess. We determined that our reporting units are one
level below our identified operating segments because discrete financial
information is available.




We
primarily determine fair value under an income approach that utilizes a
discounted cash flow model. The discounted cash flow model determines fair value
based on the present value of projected cash flows over a specific projection
period and a residual value related to future cash flows beyond the projection
period. Both values are discounted to reflect the degree of
risk


45




inherent
in an investment in the reporting unit and achieving the projected cash flows. A
weighted average cost of capital of a market participant is used as the discount
rate. The residual value is generally determined by applying a constant terminal
growth rate to the estimated net cash flows at the end of the projection period.
Alternatively, the present value of the residual value may be determined by
applying a market multiple at the end of the projection period.




At
October 2009, the substantial majority of our goodwill of continuing operations
primarily resided in our PacketVideo reporting unit. For our 2009 annual
impairment assessment, the discounted cash flows used to estimate fair value of
the PacketVideo reporting unit were based on discrete financial forecasts of
future operating results over the upcoming five years that were developed by
management for planning purposes. Cash flows beyond these periods were estimated
using a terminal growth rate of 5%. The future cash flows were discounted to
present value using a discount rate of 16.8%. Based on the analysis, we
concluded that our goodwill was not impaired. We cannot assure you that the
underlying assumptions used to forecast the cash flows will materialize as
estimated. For example, if our projections of unit sales growth and increased
market penetration of mobile subscriber services by PacketVideo’s customer base
do not materialize, the fair value of our PacketVideo reporting unit may fall
below its carrying value. Therefore, we cannot assure you that when we complete
future reviews of our goodwill for impairment that a material impairment charge
will not be recorded.




Valuation
of Indefinite-Lived Intangible Assets




We
perform an annual review for impairment of amortization of our indefinite-lived
intangible assets, or more frequently if impairment indicators arise.
Indefinite-lived intangible assets are considered to be impaired if we determine
that the carrying value of the asset exceeds its fair value.




We test
indefinite-lived intangible assets for impairment annually on the first day of
our fiscal fourth quarter by making a determination of the fair value of the
intangible asset. If the fair value of the intangible asset is less than its
carrying value, an impairment loss is recognized in an amount equal to the
difference. We also evaluate the remaining useful life of our intangible assets
that are not subject to amortization on an annual basis to determine whether
events and circumstances continue to support an indefinite useful life. If an
intangible asset that is not being amortized is subsequently determined to have
a finite useful life, that asset is tested for impairment. After recognition of
the impairment, if any, the asset is amortized prospectively over its estimated
remaining useful life and accounted for in the same manner as other intangible
assets that are subject to amortization.




We
determined the fair value of our wireless spectrum licenses utilizing both a
market approach and an income approach. Under the market approach, we determined
fair value through an analysis of sales and offerings of comparable assets,
including the sales of our AWS licenses during 2009 and FCC auctions of similar
wireless spectrum. Sales and offering prices for the comparable assets are
adjusted to reflect differences between our wireless spectrum licenses and the
comparable assets, such as location, time and terms of sale, use and utility,
trends in technology and consumer demand, and regulatory issues, that may
potentially affect the value of our wireless spectrum.




Under the
income approach, we determined fair value utilizing a discounted cash flow model
which measures fair value based on the present value of projected cash flows
over a specific projection period and a residual value related to future cash
flows beyond the projection period. Both values are discounted to reflect the
degree of risk inherent in an investment in the asset and achieving the
projected cash flows. A weighted average cost of capital of a market participant
is used as the discount rate. The residual value is generally determined by
applying a constant terminal growth rate to the estimated net cash flows at the
end of the projection period. The projected cash flows, market penetration rate,
terminal growth rate and weighted average cost of capital used in the model
assume a new entrant in the market and the associated network build-out
requirements. The discounted cash flow model assumed a discount rate of 19%,
which represents the weighted-average cost of capital of a market participant
plus an additional discount for risks specific to our domestic wireless
spectrum, and a terminal growth rate of 3%. A hypothetical 100 basis point
increase in the discount rate and 300 basis point decrease in the terminal
growth rate would not have caused the fair value of our indefinite-lived
wireless spectrum licenses to fall below their carrying value.




Of our
indefinite-lived wireless spectrum licenses at January 2, 2010, $334.0 million
represents the carrying value of domestic WCS spectrum licenses. Wireless
devices utilizing WCS spectrum are currently susceptible to interference from
SDARS. The FCC is considering a proposal to permanently authorize terrestrial
repeaters for SDARS operations adjacent to the C and D blocks of the WCS band.
Permanently authorizing SDARS repeaters adjacent to the WCS band could cause
interference to WCS, BRS and EBS receivers although the extent of the
interference from SDARS repeaters is unclear. In our determination of the fair
value of our WCS spectrum licenses, we assumed a favorable outcome to this
matter as we believe it is the most reasonably likely result of the FCC
proceedings. Were we to receive an unfavorable ruling from the FCC, the fair
value of our WCS spectrum licenses would be negatively impacted and there can be
no assurance that we would be able to recover their carrying value.




Through
our continued efforts to sell our remaining domestic spectrum licenses and our
wireless spectrum licenses in Europe and Chile during 2009, we determined that
the carrying value of certain of these spectrum licenses exceeded their fair
value based primarily on bids received and negotiations with third parties
regarding the sale of these licenses. Accordingly, during 2009, we wrote-down
the carrying value of our wireless spectrum licenses in Europe and Chile to
their estimated fair value and recognized asset impairment charges of $55.7
million.  During the year ended January 2, 2010, $20.9 million was
reclassified to the loss on


46




business
divestitures reported in discontinued operations, $9.3 million is reported in
continuing operations and $25.5 million is reported in discontinued
operations.




At
January 2, 2010, the aggregate carrying value of our other indefinite-lived
intangible assets held by continuing operations, which consist of purchased
tradenames and trademarks, was $2.4 million. For our 2009 annual impairment
assessment of other indefinite-lived intangible assets, we primarily determined
fair value under an income approach that utilizes a discounted cash flow model.
The discounted cash flows used to estimate fair value were based on discrete
financial forecasts of five years future operating results over the upcoming
five years that were developed by management for planning purposes. Cash flows
beyond these periods were estimated using a terminal growth rate of 5%. The
future cash flows were discounted to present value using a discount rate of
16.8%. Based on this analysis, we concluded that our other indefinite-lived
intangible assets were not impaired.




Impairment
of Long-Lived Assets




We review
long-lived assets to be held and used, including acquired intangible assets
subject to amortization and property and equipment, for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets may not be fully recoverable. Conditions that would necessitate an
impairment assessment include a significant decline in the market price of an
asset or asset group, a significant adverse change in the extent or manner in
which an asset or asset group is being used, the loss of legal ownership or
title to the asset, significant negative industry or economic trends or the
presence of other indicators that would indicate that the carrying amount of an
asset or asset group is not recoverable.




A
long-lived asset is considered to be impaired if the estimated undiscounted
future cash flows resulting from the use of the asset and its eventual
disposition are not sufficient to recover the carrying value of the
asset.




In
connection with the implementation of our global restructuring initiative, we
reviewed our long-lived assets for impairment and determined that indicators of
impairment were present for the long-lived assets in our Networks and
Semiconductor segments as well as certain other long-lived assets. Accordingly,
we performed an assessment to determine if the carrying value of these
long-lived assets was recoverable through estimated undiscounted future cash
flows resulting from the use of the assets and their eventual
disposition.




Included
in the long-lived assets of our Networks segment, which is included in
discontinued operations, is an office building we own in Nevada that we are
actively marketing for sale through a national brokerage firm. In June 2008, we
classified the building as an asset held for sale and ceased depreciating this
asset.




For the
long-lived asset recoverability assessment performed during 2009, the
undiscounted cash flows used to estimate the recoverability of the asset
carrying values were based on the estimated future net cash flows to be
generated from the sale of the assets, less estimated costs to sell. Based on
this analysis, we concluded that our long-lived assets were not
impaired.




Valuation
of Share-Based Awards




We
account for the grant of employee share-based awards under share-based payments
accounting provisions, whereby we estimate the fair value of our share-based
stock awards on the date of grant using the Black-Scholes option-pricing model.
The Black-Scholes option-pricing model requires the use of certain input
variables, as follows:




Expected Volatility.
Volatility is a measure of the amount the stock price will fluctuate during the
expected life of an award. For share-based awards issued to acquire shares of
NextWave common stock we determine expected volatility based primarily on our
historical stock price volatility.  For share-based awards issued to
acquire shares of PacketVideo common stock we determine expected volatility
based primarily on an average of PacketVideo’s peer companies’ expected stock
price volatilities due to lack of trading history of PacketVideo common
stock.




Risk-Free Interest Rate. Our
assumption of the risk-free interest rate is based on the implied yield
available on U.S. constant rate treasury securities in effect at the time of the
grant with remaining terms equivalent to the respective expected terms of the
share-based award.




Expected Dividend Yield.
Because we have not paid any cash dividends since our inception and do not
anticipate paying dividends in the foreseeable future, we assume a dividend
yield of zero.




Expected Award Life. For
share-based awards issued to acquire shares of NextWave common stock, we
determine the expected award life based on our historical experience and the
expected award lives applied by certain of our peer companies to determine the
expected life of each grant.  Because PacketVideo has a limited
history of stock option exercises, we determine the expected award life of each
grant for PacketVideo common share-based awards based primarily on the
“simplified method” described in accounting guidance for share-based payments,
and the expected award lives applied by certain of PacketVideo’s peer
companies.




At the
date of grant, we also estimate the likelihood that the award will ultimately
vest (the “pre-vesting forfeiture rate”), and revise the estimate, if necessary,
in future periods if the actual forfeiture rate differs. We determine the
pre-vesting forfeiture


47




rate of
an award based on industry and employee turnover data as well as an historical
pre-vesting forfeitures occurring over the previous year. Under the true-up
accounting provisions for share-based payments, we recognize share-based
compensation expense if the actual forfeiture rate is lower than estimated and a
recovery of previously recognized share-based compensation expense if the actual
forfeiture rate is higher than estimated.




We
believe it is important for investors to be aware of the high degree of
subjectivity involved when using option pricing models to estimate share-based
compensation. Option-pricing models were developed for use in estimating the
value of traded options that have no vesting or hedging restrictions, are fully
transferable and do not cause dilution. Because our share-based payments have
characteristics significantly different from those of freely traded options, and
because changes in the subjective input assumptions can materially affect our
estimates of fair values, in our opinion, existing valuation models, including
the Black-Scholes option-pricing model, may not provide reliable measures of the
fair values of our share-based compensation. Consequently, there is a risk that
our estimates of the fair values of our share-based compensation awards on the
grant dates may bear little resemblance to the actual values realized upon the
exercise, expiration, early termination or forfeiture of those share-based
payments in the future. Certain share-based payments, such as employee stock
options, may expire worthless or otherwise result in zero intrinsic value as
compared to the fair values originally estimated on the grant date and reported
in our financial statements. Alternatively, value may be realized from these
instruments that is significantly in excess of the fair values originally
estimated on the grant date and reported in our financial statements. There
currently is no market-based mechanism or other practical application to verify
the reliability and accuracy of the estimates stemming from these valuation
models, nor is there a means to compare and adjust the estimates to actual
values. Although the fair value of employee share-based awards is determined in
accordance with share-based payment accounting provisions, using an
option-pricing model, that value may not be indicative of the fair value
observed in a willing buyer and willing seller market transaction. If factors
change and we employ different assumptions in future periods than those
currently applied, the share-based compensation expense that we recognize in the
future may differ significantly from what we have reported
historically.




Wireless
Spectrum Held for Sale




We
anticipate that certain of our remaining wireless spectrum licenses will be sold
within the next twelve months. Accordingly, at January 2, 2010, we classified
these wireless spectrum holdings with a carrying value of $62.9 million as
assets held for sale, and, in accordance with accounting guidance for assets
while held for sale, we are no longer amortizing these assets. Any net proceeds
from these sales will be used to redeem a portion of the Senior Notes.
Additionally, at January 2, 2010, we classified $62.9 million of the long term
obligations as current obligations based on our estimated repayment obligation
upon the sale of our Held for Sale assets as required by the Senior Notes,
Second Lien Notes, and Third Lien Notes.




Fair
Value Measurements




We
determine the fair value measurements of the applicable assets and liabilities
based on a three-tier fair value hierarchy, which prioritizes the inputs used in
measuring fair value. These tiers include: Level 1, defined as observable inputs
such as quoted market prices in active markets; Level 2, defined as inputs other
than quoted prices in active markets that are either directly or indirectly
observable; and Level 3, defined as unobservable inputs in which little or no
market data exists, therefore requiring an entity to develop its own
assumptions. The following summarizes the assets and liabilities that we measure
at fair value on a recurring basis and the assets and liabilities that we
measured at fair value on a nonrecurring basis during the period and their
respective input levels based on the fair value hierarchy.




Auction Rate
Securities. With the liquidity issues experienced in the global credit
and capital markets, auction rate securities have experienced multiple failed
auctions as the amount of securities submitted for sale has exceeded the amount
of purchase orders, and as a result, our auction rate securities are currently
not liquid. Accordingly, at January 2, 2010, we estimated the fair value of our
auction rate securities, which we have classified as trading securities under
debt and equity securities accounting guidance, using a discounted cash flow
model (Level 3 inputs), which measures fair value based on the present value of
projected cash flows over a specific period. The values are then discounted to
reflect the degree of risk inherent in the security and achieving the projected
cash flows. The discounted cash flow model used to determine the fair value of
the auction rate securities utilized a discount rate of 2.5%, which represents
an estimated market rate of return and an estimated period until sale and/or
successful auction of the security of one year. The determination of the fair
value of our auction rate securities also considered, among other things, the
collateralization underlying the individual securities and the creditworthiness
of the counterparty.  The discounted cash flow model used to measure
the fair value of our auction rate securities is sensitive to fluctuations in
the discount rate and estimated recover period assumptions. For instance, a 100
basis point fluctuation in the discount rate would result in an approximately
$0.8 million change in fair value, and a 2-year fluctuation in the recovery
period would result in an approximately $1.1 million change in fair
value.




Auction Rate Securities
Rights. Our auction rate securities rights allow us to sell our auction
rate securities at par value to UBS at any time during the period of June 30,
2010 through July 2, 2012. We have elected to measure the fair value of the
auction rate securities rights under financial instruments accounting guidance,
which we believe will mitigate volatility in our reported earnings due to the
inverse relationship between the fair value of the auction rate securities
rights and the underlying auction rate securities. At January 2, 2010, we
estimated the fair value of our auction rate securities rights using a
discounted cash flow model,


48




similar
to the auction rate securities (Level 3 inputs). The discounted cash flow model
utilized a discount rate of 1.0% and an estimated period until recovery of less
than one year, which represents the period until the earliest date that we can
exercise our auction rate securities rights.




Embedded Derivatives.
Our obligation to redeem the Second Lien Notes and Third Lien Notes upon an
asset sale and a change in control constitute embedded derivatives under
derivatives and hedging accounting guidance. Accordingly, we have bifurcated the
estimated fair value of each embedded derivative from the fair value of the
Second Lien Notes and Third Lien Notes upon issuance, and recognized subsequent
changes in the fair value of the embedded derivatives against income. We
measured the estimated fair value of the Second Lien Notes and Third Lien Notes
embedded derivatives using a probability-weighted discounted cash flow model
(Level 3 inputs). The discounted cash flow model utilizes management assumptions
of the probability of occurrence of redemption of the Second Lien Notes and
Third Lien Notes upon an asset sale and a change in control.




Wireless Spectrum
Licenses. Through our continued efforts to sell our remaining domestic
AWS spectrum licenses and our wireless spectrum licenses in Europe and Latin
America, we determined that the carrying value of these spectrum licenses
exceeded their fair value based primarily on bids received and negotiations with
third parties regarding the sale of these licenses. We estimated the fair value
of these wireless spectrum licenses based on advanced negotiations and submitted
bids from third parties for the purchase of the licenses (Level 2 Inputs).
Accordingly, during the year ended January 2, 2010, we wrote-down the carrying
value of our domestic AWS spectrum licenses and our wireless spectrum licenses
in Europe and Latin America to their estimated fair value and recognized asset
impairment charges of asset impairment charges of $55.7 million, of which $20.9
million was reclassified to the loss on business divestitures reported in
discontinued operations, $9.3 million is reported in continuing operations and
$25.5 million is reported in discontinued operations.




Property and Equipment,
Net. In connection with the implementation of our global restructuring
initiative, we continue to review our long-lived assets for impairment and,
during the year ended January 2, 2010, determined that indicators of impairment
were present for the long-lived assets in our Semiconductor segment as well as
certain other long-lived assets. Accordingly, based on the accounting guidance
for impairment or disposal of long-lived assets, we performed an assessment to
determine if the carrying value of these long-lived assets was recoverable
through estimated undiscounted future cash flows resulting from the use of the
assets and their eventual disposition (Level 3 inputs). Based on the impairment
assessment performed, we determined that the carrying value of our property and
equipment exceeded its estimated fair value and accordingly we recognized asset
impairment charges of $9.5 million, of which $5.2 million was reclassified to
the loss on business divestitures reported in discontinued operations, $4.1
million is reported as asset impairment charges in discontinued operations and
$0.2 million is reported as asset impairment charges in continuing
operations.




Third Lien
Notes.  In October 2008, we issued the Third Lien Notes in the
aggregate principal amount of $478.3 million in exchange for all of the
outstanding shares of our Series A Preferred Stock. We did not receive any
proceeds from the issuance of the Third Lien Notes. At issuance, we measured the
Third Lien Notes at their estimated fair value using a discounted cash flow
model (Level 3 inputs). The discounted cash flow model used to determine the
fair value of the Third Lien Notes utilized a discount rate of 25.5%, which
represents our estimated incremental borrowing rate, including the value
assigned to the detachable stock warrants and the consent fees paid to the
purchasers of the Second Lien Notes which were deducted from the
proceeds.




Litigation


On
September 16, 2008, a putative class action lawsuit, captioned “Sandra
Lifschitz, On Behalf of Herself and All Others Similarly Situated, Plaintiff, v.
NextWave Wireless Inc. et al., Defendants,” was filed in the U.S. District Court
for the Southern District of California against us and certain of our officers.
The suit alleges that the defendants made false and misleading statements and/or
omissions in violation of Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934 and Rule 10b-5 promulgated thereunder. The suit seeks unspecified
damages, interest, costs, attorneys’ fees, and injunctive, equitable or other
relief on behalf of a purported class of purchasers of our common stock during
the period from March 30, 2007 to August 7, 2008. A second putative class action
lawsuit captioned “Benjamin et al. v. NextWave Wireless Inc. et al.,” was filed
on October 21, 2008 alleging the same claims on behalf of purchasers of our
common stock during an extended class period, between November 27, 2006 through
August 7, 2008. On February 24, 2009, the Court issued an Order consolidating
the two cases and appointing a lead plaintiff pursuant to the Private Securities
Litigation Reform Act. On May 15, 2009, the lead plaintiff filed an Amended
Complaint, and on June 29, 2009, we filed a Motion to Dismiss that Amended
Complaint. On March 5, 2010, the Court granted our Motion to Dismiss without
prejudice and permitted the lead plaintiff 21 days from the date of the Order to
file an Amended Complaint.  On March 26, 2010, the lead plaintiff
filed a Second Amended Consolidated Complaint. NextWave intends to file a Motion
to Dismiss in response, but at this time there can be no assurance as to the
ultimate outcome of this litigation.




We were
notified on July 11, 2008 that the former stockholders of GO Networks filed a
demand for arbitration in connection with the February 2008 milestone. In the
demand, the stockholder representative claimed that we owed compensation to the
former stockholders of GO Networks on the basis of GO Networks purportedly
having partially achieved the February 2008 milestone under the acquisition
agreement. The stockholder representative sought damages of $10.4 million.
Further, on December 5, 2008, the stockholder representative amended his demand
and added claims pertaining to the August 2008 milestone. In the claims, the
stockholder representative asserted, among other claims, that we acted in bad
faith in a manner that prevented the


49




achievement
of the milestone, and he sought damages of $12.8 million in connection with
these additional claims. We disputed that the February 2008 milestone has been
met and denied any wrongdoing with respect to the August 2008 milestone. In
September 2009, the parties executed a settlement agreement and filed a notice
dismissing the matter with prejudice.  On October 5, 2009, the
American Arbitration Association closed its file on the matter.




We are
also currently involved in other legal proceedings in the ordinary course of our
business operations. We estimate the range of liability related to pending
litigation where the amount and range of loss can be estimated. We record our
best estimate of a loss when the loss is considered probable. Where a liability
is probable and there is a range of estimated loss with no best estimate in the
range, we record the minimum estimated liability related to the claim. As
additional information becomes available, we assess the potential liability
related to our pending litigation and revise our estimates. As of January 2,
2010, other than the matters described above, we have not recorded any
significant accruals for contingent liabilities associated with our legal
proceedings based on our belief that a liability, while possible, is not
probable. Further, any possible range of loss cannot be estimated at this time.
Revisions to our estimate of the potential liability could materially impact
future results of operations.




Income
Taxes




In
accordance with accounting provision for uncertainty in income taxes, we apply a
recognition threshold and measurement standard for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. We also determine whether the benefits of our tax positions are more
likely than not of being sustained upon audit based on the technical merits of
the tax position. We did not have any unrecognized tax benefits or related
accrued interest or penalties as of January 2, 2010.




Contractual
Obligations




The
following table summarizes our cash contractual obligations for continuing and
discontinued operations at January 2, 2010 as well as significant changes to
cash contractual obligations entered into subsequent to that date, and the
effect that such obligations are expected to have on our liquidity and cash
flows in future periods.




Payments
      Due by Fiscal Year Period(in
      thousands)
            
            Total
            
            
            2010
            
            
            Years
                2011-2012
            
            
            Years
                2013-2014
            
            
            Years
      2015 and ThereafterContinuing
      Operations:Long-term
      obligations(1)(2)
            
            $
            898,249
            
            
            $
            77,199
            
            
            $
            791,125
            
            
            $
            8,420
            
            
            $
            21,505Services
      and other purchase agreements
            
            
            14,342
            
            
            
            3,746
            
            
            
            2,316
            
            
            
            —
            
            
            
            8,280Operating
      leases
            
            
            5,400
            
            
            
            1,490
            
            
            
            2,259
            
            
            
            1,187
            
            
            
            464Other(3)
            
            
            250
            
            
            
            250
            
            
            
            —
            
            
            
            —
            
            
            
            —918,241
            
            
            
            82,685
            
            
            
            795,700
            
            
            
            9,607
            
            
            
            30,249Discontinued
      Operations:Long-term
      obligations
            
            
            4,205
            
            
            
            —
            
            
            
            —
            
            
            
            2,733
            
            
            
            1,472Operating
      leases
            
            
            391
            
            
            
            84
            
            
            
            152
            
            
            
            136
            
            
            
            194,596
            
            
            
            84
            
            
            
            152
            
            
            
            2,869
            
            
            
            1,491Total
            
            $
            922,837
            
            
            $
            82,769
            
            
            $
            795,852
            
            
            $
            12,476
            
            
            $
            31,740





(1)
            Amounts
      presented do not include cash interest payments on the Senior Notes or the
      future issuance of additional Senior Notes, Second Lien Notes and Third
      Lien Notes in payment of interest. Except for the Priority Notes, we have
      assumed that the remaining principal balance of the Senior Notes as well
      as the Second Lien Notes and Third Lien Notes will not be repaid until
      their respective maturity dates.




(2)
            On
      March 16, 2010 we entered into the Amendment and Waiver of our Senior
      Note, Second Lien Note and Third Lien Note agreements. The Amendment and
      Waiver: extends the maturity of the Senior Notes to July 17, 2011, with an
      additional extension to October 17, 2011 if certain conditions are met;
      extends the maturity of the Second Lien Notes to November 30, 2011;
      increases the interest payable on the Senior Notes and Second Lien Notes
      to a rate of 15% per annum beginning March 16, 2010; increases the
      interest payable on the Third Lien Notes to a rate of 12% per annum
      beginning March 16, 2010, increasing 1% per annum on each of December 31,
      2010, March 30, 2011, June 30, 2011 and September 30, 2011 to a maximum of
      16%; provides that all Notes will receive only payment-in-kind interest
      for the full term of such Notes, unless we elect to pay cash interest;
      permits the incurrence of the Senior Incremental Notes of up to $25.0
      million; reduces the requirement to maintain a minimum cash balance from
      $5.0 million to $1.0 million; provides for the payment of the Priority
      Notes; upon repayment in full of the Priority Notes, permits us to retain
      up to $37.5 million for general working capital purposes and permitted
      investments, subject to reduction in the amount of any net proceeds from
      the issuance of Senior Incremental Notes; and, eliminates the redemption
      premium on all Notes.




As an
inducement to the Holders to enter into the Amendment and Waiver, we agreed to
pay an amendment fee to each Holder through the issuance of the Fee Notes under
the respective Note Agreements in an amount equal to 2.5% of the
outstanding


50




principal
and accrued and unpaid interest on such Holder’s existing Notes as of March 16,
2010. The Fee Notes will be payable by the issuance of approximately $4.3
million in Senior Notes, $3.6 million in Second Lien Notes and $13.3 million in
Third Lien Notes and will accrue interest and become payable in accordance with
the terms of the Note Agreements and are otherwise Notes for all purposes and
subject to all terms, conditions and obligations of the Note
Agreements.




(3)
            As
      of January 2, 2010 we have accrued for $0.3 million in cash expected to be
      paid in March 2010 to the selling shareholders of GO Networks, as a result
      of an arbitration settlement.




Off-Balance
Sheet Arrangements and Related Party Transactions




In
connection with the March 16, 2010 Amendment and Waiver, we entered into the
Commitment Letter with Avenue Capital Management II, L.P., acting on behalf of
its managed investment funds signatory thereto, and Solus Core Opportunities
Master Fund Ltd and its affiliates and co-investors (“Solus”), to provide up to
$25.0 million in additional financing through the purchase of the Senior
Incremental Notes.  Avenue Capital Management II, L.P., is an
affiliate of Avenue Capital. Robert Symington, a portfolio manager with Avenue
Capital, is a member of our Board of Directors. As of January 2, 2010, Avenue
Capital and its affiliates beneficially owned shares representing
approximately 36.1% of our issued and outstanding common stock, approximately
$82.3 million, or 51.1% of the aggregate principal amount of our Senior Notes,
approximately $93.9 million, or 78.1% of the aggregate principal amount of our
Second Lien Notes and approximately $134.7 million, or 28.2% of the aggregate
principal amount of our Third Lien Notes.  As of January 2, 2010,
Solus beneficially owned shares representing approximately 9.9% of our issued
and outstanding common stock, approximately $27.3 million, or 16.9% of the
aggregate principal amount of our Senior Lien Notes, approximately $27.3
million, or 21.9% of the aggregate principal amount of our Second Lien Notes and
approximately $55.2 million, or 11.5% of the aggregate principal amount of our
Third Lien Notes.  The terms of the Commitment Letter provide that we
will be entitled to borrow up to $25.0 million in one or more borrowings after
March 16, 2010 but prior to July 31, 2010, upon 10 business days
notice.  As with the other Senior Notes, amounts outstanding under the
Senior Incremental Notes will bear interest at a rate of 15% per annum, payable
in kind unless we elect to pay cash, and will be secured by a first lien on the
same assets securing the our Senior Notes, on a pari passu
basis.   No commitment fee or structuring fee is payable in
connection with the Commitment Letter.




As
consideration for the Amendment and Waiver, we paid an amendment fee to each of
Avenue Capital, Solus, Douglas F. Manchester, a member of our Board of Directors
and Navation, Inc. (“Navation”), an entity owned by Allen Salmasi, our Chairman,
through the issuance of additional Notes under the applicable Note Agreements in
an amount equal to 2.5% of the outstanding principal and accrued and unpaid
interest on such holder’s existing Notes as of March 16, 2010.  The
Fee Notes were paid on March 16, 2010 by the issuance of Senior Notes, Second
Lien Notes and Third Lien Notes to Avenue Capital, Solus, Mr. Manchester and
Navation, and will accrue interest and become payable in accordance with the
terms of the respective Note Agreements.  Avenue Capital received $2.3
million in Senior Notes, $2.8 million in Second Lien Notes and $3.8 million in
Third Lien Notes.  Solus received $0.7 million in Senior Notes, $0.8
million in Second Lien Notes and $1.5 million in Third Lien
Notes.  Mr. Manchester and Navation each received $1.9 million in
Third Lien Notes.  The transactions contemplated by the Amendment and
Waiver and the Commitment Letter were approved and recommended to our Board of
Directors by an independent committee consisting of members of the Board of
Directors who do not have any direct or indirect economic interest in the
Notes.




In July
2009, we issued additional Second Lien Notes due 2010 in the aggregate principal
amount of $15.0 million, on the same financial and other terms applicable to our
existing Second Lien Notes. The Incremental Purchaser was Avenue AIV US, L.P.,
an affiliate of Avenue Capital. In connection with the issuance of the
Incremental Notes in July 2009, we issued warrants to purchase 7.5 million
shares of our common stock at an exercise price of $0.01 per share to the
purchaser of the Incremental Notes. The grant-date fair value of the warrants,
which totaled $3.5 million, was recorded to additional paid-in capital and
reduced the carrying value of the Second Lien Notes, and is recognized as
additional interest expense over the remaining term of the Second Lien Notes.
During the year ended January 2, 2010 Avenue AIV US, L.P. exercised all of these
warrants to purchase 7.4 million shares of common stock for 0.1 million net
common shares withheld.




Under the
terms of the purchase agreements for our Senior Notes and Second Lien Notes, we
were required to enter into binding agreements to effect asset sales generating
net proceeds of at least $350 million no later than March 31, 2009 and
consummate such sales no later than six months following execution of such
agreements, unless closing is delayed solely due to receipt of pending
regulatory approvals (the “Asset Sale Condition”). We did not meet the Asset
Sale Condition. As a result, pursuant to the terms of the note purchase
agreements, the interest rate on the Senior Notes increased by 200 basis points
effective March 31, 2009 and, on April 8, 2009, we issued additional warrants to
purchase an aggregate of 10.0 million shares of our common stock at an exercise
price of $0.01 per share to the purchasers of the Second Lien Notes. Of the
warrants issued, 7.5 million were issued to Avenue AIV US, L.P. The grant-date
fair value of the warrants, which totaled $1.7 million, was recorded to
additional paid-in capital and reduced the carrying value of the Second Lien
Notes, and is recognized as additional interest expense over
the


51




remaining
term of the Second Lien Notes. During the year ended January 2, 2010 Avenue AIV
US, L.P. exercised all of these warrants to purchase 7.4 million shares of
common stock for 0.1 million net common shares withheld.




Of the
Second Lien Notes issued in October 2008, Second Lien Notes in the aggregate
principal amount of $78.9 million were purchased by Avenue AIV US, L.P. The
issuance of the Second Lien Notes and related transactions were approved by an
independent committee of our Board of Directors. Additionally, in connection
with the Second Lien Notes issuance, we issued warrants to purchase of 30.0
million shares of our common stock and paid $5.6 million in fees to Avenue AIV
US, L.P. During the year ended January 2, 2010 Avenue AIV US, L.P. exercised all
of these warrants to purchase 29.4 million shares of common stock for 0.6
million net common shares withheld.




Of our
Series A Preferred Stock issued and sold in March 2007, 14%, 14% and 28% of the
shares were sold respectively, to Navation, Manchester Financial Group and
affiliates of Avenue Capital. These parties also participated on a pro rata
basis in the exchange of our Series A Preferred Stock for the Third Lien Notes
in November 2008, which was approved by an independent committee of our Board of
Directors.




In
November 2009, we sold the majority of the assets and liabilities of our Inquam
Broadband GmbH subsidiary (“IBG”) to Inquam Holding GmbH (“IHG”), a new limited
liability company formed by the former managing director of IBG, for a nominal
amount and recognized a $21.4 million net loss from business
divestitures.  In connection with the sale in November 2009, we
entered into various ancillary transitional agreements with IHG, none of which
are material to us.  Upon closing of the sale, we have no remaining
obligations to provide financing to support the ongoing operations of
IHG.  Also, in connection with the sale, we entered into an earn out
agreement with IHG that provides for payment to us upon the occurrence of
specified liquidity event, which includes the sale, lease or contribution of
assets to certain third parties, distribution of profits or sale of equity in
IHG.  We will continue to receive earn out payments until exhaustion
of all specified liquidity events.




On July
2, 2009, we sold a 35% noncontrolling interest in our PacketVideo subsidiary to
NTT DOCOMO, Inc. (“DOCOMO”), a customer of PacketVideo, for $45.5 million.
PacketVideo sells a version of its multimedia player to DOCOMO for installation
into DOCOMO handset models.Under the terms of the Stock Purchase Agreement,
DOCOMO was granted certain rights in the event of future transfers of
PacketVideo stock or assets, preemptive rights in the event of certain issuances
of PacketVideo stock, and a call option exercisable under certain conditions to
purchase the remaining shares of PacketVideo at the then current fair value. In
addition, DOCOMO will have certain governance and consent rights applicable to
the operations of PacketVideo. In order to facilitate the DOCOMO investment,
NextWave’s noteholders provided certain waivers, including a release of
PacketVideo’s guaranty of NextWave indebtedness. From the date of sale of the
noncontrolling interest in July 2009 through January 2, 2010, PacketVideo
recognized $9.5 million and $0.5 million in related party revenues and cost of
revenues, respectively, from DOCOMO in the consolidated statements of
operations.




We sold a
controlling interest in our IPWireless subsidiary in December 2008 and sold the
remaining noncontrolling interest in November 2009 to IPW Holdings and an
affiliate of IPW Holdings. IPW Holdings was formed by the senior management team
of IPWireless, including Dr. William Jones, PhD. Dr. Jones resigned from his
positions as a member of our board of directors and the chief executive officer
of our NextWave Networks Products division concurrent with the closing of the
sale. The terms of the sale were approved by an independent committee of our
board of directors, which was advised by financial advisors in connection with
the structure of the transaction and the fairness of the consideration. We
received cash payments totaling $1.0 million and $1.1 million during the years
ended January 2, 2010 and December 27, 2008, respectively, in connection with
these transactions.




As of
January 2, 2010, we did not have any relationships with unconsolidated entities
or financial partnerships, such as entities often referred to as structured
finance or special purpose entities, which would have been established for the
purpose of facilitating off-balance sheet arrangements or other contractually
narrow or limited purposes. As such, we are not materially exposed to any
financing, liquidity, market or credit risk that could arise if we had engaged
in such relationships.




Recent
Accounting Pronouncements




In
October 2009, the Financial Accounting Standards Board (“FASB”) issued an
Accounting Standards Update (“ASU”) for revenue recognition related to
multiple-deliverable revenue arrangements. This ASU provides amendments to the
existing criteria for separating consideration in multiple-deliverable
arrangements. The amendments establish a selling price hierarchy for determining
the selling price of a deliverable, eliminate the residual method of allocation
of arrangement consideration to all deliverables and require the use of the
relative selling price method in allocation of arrangement consideration to all
deliverables, require the determination of the best estimate of a selling price
in a consistent manner, and significantly expand the disclosures related to the
multiple-deliverable revenue arrangements. The amendments are effective for our
fiscal year 2011 with early adoption permitted. We are currently evaluating the
impact of adopting these amendments on our consolidated financial
statements.




In
October 2009, the FASB issued an ASU for software revenue recognition. This
standard removes tangible products from the scope of software revenue
recognition guidance and also provides guidance on determining whether software
deliverables in an arrangement that includes a tangible product, such as
embedded software, are within the scope of the software revenue
guidance.


52




This
amendment is effective for our fiscal year 2011 with early adoption permitted.
We are currently evaluating the impact of adopting this amendment on our
consolidated financial statements.




In August
2009, the FASB issued an ASU that provides clarification that in circumstances
in which a quoted price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using one or
more of the valuation techniques that use the quoted price of the identical
liability when traded as an asset, quoted prices for similar liabilities or
similar liabilities when traded as assets, or other valuation techniques that
are consistent with the accounting principles, including an income approach or a
market approach. Adoption of this updated accounting guidance during our fourth
quarter of 2009 did not have a material impact on our consolidated financial
statements.




In June
2009, the FASB issued updated accounting guidance which amends current
accounting guidance on the consolidation of variable interest entities, to
require us to perform an analysis of our existing investments to determine
whether our variable interest or interests give us a controlling financial
interest in a variable interest entity. This analysis identifies the primary
beneficiary of a variable interest entity as the enterprise that has both the
power to direct the activities of significant impact on a variable interest
entity and the obligation to absorb losses or receive benefits from the variable
interest entity that could potentially be significant to the variable interest
entity. It also amends current accounting guidance to require ongoing
reassessments of whether an enterprise is the primary beneficiary of a variable
interest entity. The updated accounting guidance is effective for our fiscal
year beginning January 3, 2010. Our adoption of the updated accounting guidance
is not expected to have a material impact on our consolidated financial
statements.




In June
2009, the FASB issued The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles. The FASB Accounting
Standards Codification is intended to be the source of authoritative U.S.
generally accepted accounting principles (“GAAP”) and reporting standards as
issued by the FASB. Its primary purpose is to improve clarity and use of
existing standards by grouping authoritative literature under common topics.
This update is effective for financial statements issued for interim and annual
periods ending after September 15, 2009. The Codification does not change or
alter existing GAAP and there was no significant impact on our consolidated
financial position or results of operations upon the adoption.




In April
2009, the FASB amended the other-than-temporary impairment guidance to improve
the presentation and disclosure of other-than-temporary impairments on debt and
equity securities in the financial statements. As permitted by the standard, we
elected to early adopt the new accounting guidance in the first quarter of 2009.
Our adoption of this new guidance did not have a material impact on our
consolidated financial statements.




In April
2009, the FASB provided additional guidance for estimating fair values of assets
and liabilities when the volume and level of activity for the asset or liability
have significantly decreased and requires that companies provide interim and
annual disclosures of the inputs and valuation technique(s) used to measure fair
value. As permitted by the additional guidance, we elected to early adopt the
additional guidance in the first quarter of 2009. Our adoption of the additional
guidance did not have a material impact on our consolidated financial
statements.




In April
2009, the FASB amended disclosure requirement about the fair value of financial
instruments, to require disclosures about fair value of financial instruments
for interim reporting periods of publicly traded companies as well as in annual
financial statements. As permitted by the standard, we elected to early adopt
the new disclosure requirement in the first quarter of 2009. The new interim
disclosures are included in Note 11.




In June
2008, the FASB ratified accounting for derivatives and hedging activities, which
specifies that a contract that would otherwise meet the definition of a
derivative, but is both (a) indexed to an entity’s own stock and (b) classified
in stockholders’ equity in the statement of financial position would not be
considered a derivative financial instrument. The new accounting guidance
provides a new two-step model to be applied in determining whether a financial
instrument or an embedded feature is indexed to an issuer’s own stock and thus
able to qualify for the scope exception. Our adoption of new accounting guidance
in our first quarter of 2009 did not have a material impact on our consolidated
financial statements.




In May
2008, the FASB issued new accounting guidance for accounting for convertible
debt instruments that may be settled upon conversion (including partial cash
settlement). The new accounting guidance, which was effective in our first
quarter of 2009, requires the initial proceeds from convertible debt that may be
settled in cash to be bifurcated between a liability component and an equity
component. Our Third Lien Notes do not allow for cash settlement upon conversion
and therefore are excluded from the scope of this new accounting guidance.
Accordingly, our adoption of the new accounting guidance did not have a material
impact on our consolidated financial statements.




In March
2008, the FASB issued new accounting guidance which requires enhanced
qualitative disclosures about objectives and strategies for using derivatives,
quantitative disclosures about fair value amounts of gains and losses on
derivative instruments, and disclosures about credit-risk-related contingent
features in derivative agreements. We do not currently transact in derivative
instruments or engage in hedging activities and therefore our adoption of this
new guidance in the first quarter of 2009 did not have an impact on our
consolidated financial statements.


53









In
December 2007, the FASB issued amended accounting guidance for noncontrolling
interests in consolidated financial statements. The amended accounting guidance
establishes accounting and reporting standards for ownership interests in
subsidiaries held by parties other than the parent, the amount of consolidated
net income attributable to the parent and to the noncontrolling interest,
changes in a parent’s ownership interest, and the valuation of retained
noncontrolling equity investments when a subsidiary is deconsolidated. The
amended accounting guidance also establishes presentation and disclosure
requirements that clearly identify and distinguish between the interests of the
parent and the interests of the noncontrolling owners. Our adoption of the
amended accounting guidance in 2009 did not have a material impact on our
consolidated financial statements.  Our adoption of the presentation
and disclosure requirements has been applied on a retrospective basis for all
periods presented in the consolidated financial statements and notes
thereto.


































54




Item
8. Financial Statements and Exhibits




Index to
Consolidated Financial Statements


PageConsolidated
      Financial StatementsReport
      of Independent Registered Public Accounting Firm
            56Consolidated
      Balance Sheets as of January 2, 2010 and December 27, 2008
            57Consolidated
      Statements of Operations for the Two Fiscal Years Ended January 2,
      2010
            58Consolidated
      Statement of Changes in Redeemable Convertible Preferred Stock and
      Stockholders’ Equity (Deficit) for the Two Fiscal Years Ended January 2,
      2010
            59Consolidated
      Statements of Cash Flows for the Two Fiscal Years Ended January 2,
      2010
            60Notes
      to Consolidated Financial Statements
            61



























55




Report
of Independent Registered Public Accounting Firm









The Board
of Directors and Stockholders of


NextWave
Wireless Inc.




We have
audited the accompanying consolidated balance sheets of NextWave Wireless Inc.
as of January 2, 2010 and December 27, 2008, and the related consolidated
statements of operations, redeemable convertible preferred stock and
stockholders’ equity (deficit) and cash flows for each of the two fiscal years
in the period ended January 2, 2010. These financial statements are the
responsibility of the Company’s 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. We were not engaged to perform an
audit of the Company’s 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
Company’s 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, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.




In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of NextWave Wireless Inc.
at January 2, 2010 and December 27, 2008, and the consolidated results of its
operations and its cash flows for each of the two fiscal years in the period
ended January 2, 2010, in conformity with U.S. generally accepted accounting
principles.









/s/ ERNST
& YOUNG LLP




San
Diego, California


April 1,
2010


56


NEXTWAVE
WIRELESS INC.


CONSOLIDATED
BALANCE SHEETS


(in
thousands, except par value data)


January
      2, 2010
            
            
            December
      27,
                2008ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            20,157
            
            
            $
            60,720Restricted
      cash and marketable securities
            
            
            24,477
            
            
            
            24,870Accounts
      receivable, net of allowance for doubtful accounts of $23 and $95 at
      January 2, 2010 and December 27, 2008, respectively
            
            
            5,115
            
            
            
            4,530Wireless
      spectrum licenses held for sale
            
            
            62,868
            
            
            
            112,741Deferred
      contract costs
            
            
            1,632
            
            
            
            2,785Prepaid
      expenses and other current assets
            
            
            4,467
            
            
            
            2,847Current
      assets of discontinued operations
            
            
            9,520
            
            
            
            24,956Total
      current assets
            
            
            128,236
            
            
            
            233,449Wireless
      spectrum licenses, net – continuing operations
            
            
            409,156
            
            
            
            415,707Wireless
      spectrum licenses, net – discontinued operations
            
            
            —
            
            
            
            26,708Goodwill
            
            
            38,899
            
            
            
            38,653Other
      intangible assets, net
            
            
            14,674
            
            
            
            18,933Property
      and equipment, net
            
            
            3,729
            
            
            
            4,091Other
      assets, including assets measured at fair value of $1,227 and $4,210 at
      January 2, 2010 and December 27, 2008, respectively
            
            
            8,096
            
            
            
            19,845Noncurrent
      assets of discontinued operations
            
            
            —
            
            
            
            124Total
      assets
            
            $
            602,790
            
            
            $
            757,510LIABILITIES
      AND STOCKHOLDERS’ DEFICITCurrent
      liabilities:Accounts
      payable
            
            $
            1,952
            
            
            $
            7,343Accrued
      expenses
            
            
            13,358
            
            
            
            24,668Current
      portion of long-term obligations
            
            
            86,154
            
            
            
            136,567Deferred
      revenue
            
            
            4,786
            
            
            
            17,378Deferred
      revenue – related party
            
            
            6,797
            
            
            
            —Other
      current liabilities
            
            
            10,803
            
            
            
            1,890Current
      liabilities of discontinued operations
            
            
            12,383
            
            
            
            24,387Total
      current liabilities
            
            
            136,233
            
            
            
            212,233Deferred
      income tax liabilities
            
            
            89,701
            
            
            
            89,062Long-term
      obligations, net of current portion
            
            
            641,950
            
            
            
            496,297Other
      liabilities
            
            
            10,563
            
            
            
            16,034Commitments
      and contingenciesStockholders’
      deficit:Preferred
      stock, $0.001 par value; 25,000 shares authorized; 355 shares designated
      as Series A Senior Convertible Preferred Stock; no other shares issued or
      outstanding
            
            
            —
            
            
            
            —Common
      stock, $0.001 par value; 400,000 shares authorized; 157,037 and 103,092
      shares issued and outstanding at January 2, 2010 and December 27, 2008,
      respectively
            
            
            157
            
            
            
            103Additional
      paid-in-capital
            
            
            884,321
            
            
            
            838,865Accumulated
      other comprehensive income
            
            
            14,437
            
            
            
            5,255Accumulated
      deficit
            
            
            (1,190,520
            )
            
            
            (900,339
            )Stockholders’
      deficit attributed to NextWave
            
            
            (291,605
            )
            
            
            (56,116
            )Noncontrolling
      interest in subsidiary
            
            
            15,948
            
            
            
            —Total
      stockholders’ deficit
            
            
            (275,657
            )
            
            
            (56,116
            )Total
      liabilities and stockholders’ deficit
            
            $
            602,790
            
            
            $
            757,510








The
accompanying notes are an integral part of these consolidated financial
statements.


57


NEXTWAVE
WIRELESS INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(in
thousands, except per share data)


Years
      EndedJanuary
      2, 2010
            
            
            December
      27,
                2008Revenues
            
            $
            50,693
            
            
            $
            63,009Revenues
      – related party
            
            
            9,537
            
            
            
            —Total
      revenues
            
            
            60,230
            
            
            
            63,009Operating
      expenses:Cost
      of revenues
            
            
            21,735
            
            
            
            18,819Cost
      of revenues – related party
            
            
            468
            
            
            
            —Engineering,
      research and development
            
            
            21,923
            
            
            
            27,762Sales
      and marketing
            
            
            8,832
            
            
            
            12,597General
      and administrative
            
            
            44,426
            
            
            
            62,249Asset
      impairment charges
            
            
            9,550
            
            
            
            6,837Restructuring
      charges
            
            
            3,841
            
            
            
            7,582Total
      operating expenses
            
            
            110,775
            
            
            
            135,846Gain
      on sale of wireless spectrum licenses
            
            
            2,664
            
            
            
            70,283Loss
      from operations
            
            
            (47,881
            )
            
            
            (2,554
            )Other
      income (expense):Interest
      income
            
            
            473
            
            
            
            3,048Interest
      expense
            
            
            (164,151
            )
            
            
            (99,338
            )Other
      income (expense), net
            
            
            (8,715
            )
            
            
            (2,314
            )Total
      other income (expense), net
            
            
            (172,393
            )
            
            
            (98,604
            )Loss
      from continuing operations before income taxes
            
            
            (220,274
            )
            
            
            (101,158
            )Income
      tax benefit
            
            
            100
            
            
            
            1,777Net
      loss from continuing operations
            
            
            (220,174
            )
            
            
            (99,381
            )Loss
      from discontinued operations, net of losses on divestiture of discontinued
      operations of $22,643 and $118,360 and income tax benefits of $171 and
      $2,883, respectively
            
            
            (70,111
            )
            
            
            (329,876
            )Net
      loss
            
            
            (290,285
            )
            
            
            (429,257
            )Add
      net loss attributed to noncontrolling interest in subsidiaries –
      continuing operations
            
            
            104
            
            
            
            —Net
      loss attributed to NextWave
            
            $
            (290,181
            )
            
            $
            (429,257
            )Amounts
      attributed to NextWave common shares:Loss
      from continuing operations, net of tax
            
            $
            (220,070
            )
            
            $
            (99,381
            )Less:
      Preferred stock imputed dividends
            
            
            —
            
            
            
            (22,769
            )Accretion
      of issuance costs on preferred stock
            
            
            —
            
            
            
            (230
            )Exchange
      of Series A Preferred Stock for Third Lien Notes
            
            
            —
            
            
            
            104,349Loss
      from continuing operations, including preferred stock dividends, costs and
      exchange
            
            
            (220,070
            )
            
            
            (18,031
            )Loss
      from discontinued operations, net of tax
            
            
            (70,111
            )
            
            
            (329,876
            )Net
      loss attributed to NextWave common shares
            
            $
            (290,181
            )
            
            $
            (347,907
            )Net
      loss per share attributed to NextWave common shares – basic and
      diluted:Continuing
      operations, including preferred stock dividends, costs and
      exchange
            
            $
            (1.40
            )
            
            $
            (0.17
            )Discontinued
      operations
            
            
            (0.44
            )
            
            
            (2.99
            )Net
      loss
            
            $
            (1.84
            )
            
            $
            (3.16
            )Weighted
      average shares used in per share calculation
            
            
            157,742
            
            
            
            110,224





The
accompanying notes are an integral part of these consolidated financial
statements.


58


NEXTWAVE
WIRELESS INC.


CONSOLIDATED
STATEMENT OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’
EQUITY (DEFICIT)


(in
thousands)


NextWave
      ShareholdersSeries
      A
                Preferred
      Stock
            
            
            Common
      Stock
            
            
            Additional
              Paid-In
            
            
            Accumulated
      Other
              Compre-
              hensive
            
            
            Accumulated
            
            
            Stockholders’
              Equity
            
            
            Noncontrolling
      Interest in
            
            
            Stockholders’
              Equity
            
            
            Compre-
              hensiveShares
            
            
            Amount
            
            
            Shares
            
            
            Amount
            
            
            Capital
            
            
            Income
      (Loss)
            
            
            Deficit
            
            
            (Deficit)
            
            
            Subsidiary
            
            
            (Deficit)
            
            
            LossBalance
      at December 29, 2007
            
            
            355
            
            
            $
            371,986
            
            
            
            92,667
            
            
            $
            93
            
            
            $
            686,918
            
            
            $
            12,836
            
            
            $
            (471,082
            )
            
            $
            228,765
            
            
            $
            —
            
            
            $
            228,765Net
      shares issued as additional purchase consideration in acquisition of
      IPWireless
            
            
            —
            
            
            
            —
            
            
            
            8,968
            
            
            
            9
            
            
            
            36,490
            
            
            
            —
            
            
            
            —
            
            
            
            36,499
            
            
            
            —
            
            
            
            36,499Shares
      issued under stock incentive plans
            
            
            —
            
            
            
            —
            
            
            
            1,457
            
            
            
            1
            
            
            
            8,788
            
            
            
            —
            
            
            
            —
            
            
            
            8,789
            
            
            
            —
            
            
            
            8,789Share-based
      compensation expense
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            12,896
            
            
            
            —
            
            
            
            —
            
            
            
            12,896
            
            
            
            —
            
            
            
            12,896Imputed
      dividends on Series A Preferred Stock
            
            
            —
            
            
            
            22,769
            
            
            
            —
            
            
            
            —
            
            
            
            (22,769
            )
            
            
            —
            
            
            
            —
            
            
            
            (22,769
            )
            
            
            —
            
            
            
            (22,769
            )Accretion
      of issuance costs on Series A Preferred Stock
            
            
            —
            
            
            
            230
            
            
            
            —
            
            
            
            —
            
            
            
            (230
            )
            
            
            —
            
            
            
            —
            
            
            
            (230
            )
            
            
            —
            
            
            
            (230
            )Exchange
      of Series A Preferred Stock for Third Lien Notes
            
            
            (355
            )
            
            
            (394,985
            )
            
            
            —
            
            
            
            —
            
            
            
            104,349
            
            
            
            —
            
            
            
            —
            
            
            
            104,349
            
            
            
            —
            
            
            
            104,349Fair
      value of warrants issued in connection with the issuance of Second Lien
      Notes
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            12,423
            
            
            
            —
            
            
            
            —
            
            
            
            12,423
            
            
            
            —
            
            
            
            12,423Unrealized
      net gains on marketable securities
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            9
            
            
            
            —
            
            
            
            9
            
            
            
            —
            
            
            
            9
            
            
            $
            9Foreign
      currency translation adjustment
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (7,590
            )
            
            
            —
            
            
            
            (7,590
            )
            
            
            —
            
            
            
            (7,590
            )
            
            
            (7,590
            )Net
      loss
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (429,257
            )
            
            
            (429,257
            )
            
            
            —
            
            
            
            (429,257
            )
            
            
            (429,257
            )Balance
      at December 27, 2008
            
            
            —
            
            
            
            —
            
            
            
            103,092
            
            
            
            103
            
            
            
            838,865
            
            
            
            5,255
            
            
            
            (900,339
            )
            
            
            (56,116
            )
            
            
            —
            
            
            
            (56,116
            )
            
            $
            (436,838
            )Sale
      of noncontrolling interest in our PacketVideo subsidiary
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            30,954
            
            
            
            —
            
            
            
            —
            
            
            
            30,954
            
            
            
            15,072
            
            
            
            46,026Shares
      issued under stock incentive plans
            
            
            —
            
            
            
            —
            
            
            
            1,238
            
            
            
            1
            
            
            
            425
            
            
            
            —
            
            
            
            —
            
            
            
            426
            
            
            
            —
            
            
            
            426Shares
      issued for warrants exercised
            
            
            —
            
            
            
            —
            
            
            
            46,538
            
            
            
            47
            
            
            
            (47
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Share-based
      compensation expense
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            5,136
            
            
            
            —
            
            
            
            —
            
            
            
            5,136
            
            
            
            778
            
            
            
            5,914Shares
      issued for achievement of IPWireless revenue milestones in
      2007
            
            
            —
            
            
            
            —
            
            
            
            3,669
            
            
            
            4
            
            
            
            1,611
            
            
            
            —
            
            
            
            —
            
            
            
            1,615
            
            
            
            —
            
            
            
            1,615Shares
      issued for arbitration settlement
            
            
            —
            
            
            
            —
            
            
            
            2,500
            
            
            
            2
            
            
            
            2,198
            
            
            
            —
            
            
            
            —
            
            
            
            2,200
            
            
            
            —
            
            
            
            2,200Fair
      value of warrants issued in connection with the issuance of Second Lien
      Notes
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            5,179
            
            
            
            —
            
            
            
            —
            
            
            
            5,179
            
            
            
            —
            
            
            
            5,179Foreign
      currency translation adjustment
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            9,182
            
            
            
            —
            
            
            
            9,182
            
            
            
            202
            
            
            
            9,384
            
            
            
            9,384Net
      loss
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (290,181
            )
            
            
            (290,181
            )
            
            
            (104
            )
            
            
            (290,285
            )
            
            
            (290,285
            )Balance
      at January 2, 2010
            
            
            —
            
            
            $
            —
            
            
            
            157,037
            
            
            $
            157
            
            
            $
            884,321
            
            
            $
            14,437
            
            
            $
            (1.190,520
            )
            
            $
            (291,605
            )
            
            $
            15,948
            
            
            $
            (275,657
            )
            
            $
            (280,901
            )





The
accompanying notes are an integral part of these consolidated financial
statements.


59


NEXTWAVE
WIRELESS INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(in
thousands)


Years
      EndedJanuary
      2, 2010
            
            
            December
      27,
                2008OPERATING
      ACTIVITIESNet
      loss
            
            $
            (290,285
            )
            
            $
            (429,257
            )Loss
      from discontinued operations, net of tax
            
            
            (70,111
            )
            
            
            (329,876
            )Loss
      from continuing operations
            
            
            (220,174
            )
            
            
            (99,381
            )Adjustments
      to reconcile loss from continuing operations to net cash used in operating
      activities of continuing operations:Amortization
      of intangible assets
            
            
            12,053
            
            
            
            12,327Depreciation
            
            
            1,823
            
            
            
            5,286Non-cash
      share-based compensation
            
            
            5,409
            
            
            
            5,069Non-cash
      interest expense
            
            
            153,762
            
            
            
            46,934Gain
      on sale of spectrum licenses
            
            
            (2,664
            )
            
            
            (70,283
            )Asset
      impairment charges
            
            
            9,550
            
            
            
            6,837Net
      (gains) losses incurred on strategic investment
            
            
            (138
            )
            
            
            1,392Other
      non-cash adjustments
            
            
            (311
            )
            
            
            2,407Changes
      in operating assets and liabilities:Accounts
      receivable
            
            
            (516
            )
            
            
            1,915Deferred
      contract costs
            
            
            1,263
            
            
            
            722Prepaid
      expenses and other current assets
            
            
            (1,618
            )
            
            
            610Other
      assets
            
            
            2,373
            
            
            
            76Accounts
      payable and accrued liabilities
            
            
            1,571
            
            
            
            3,793Deferred
      revenue
            
            
            (6,412
            )
            
            
            (7,512
            )Other
      current liabilities
            
            
            (6,141
            )
            
            
            293Net
      cash used in operating activities of continuing operations
            
            
            (50,170
            )
            
            
            (89,515
            )INVESTING
      ACTIVITIESProceeds
      from maturities of marketable securities
            
            
            —
            
            
            
            106,385Proceeds
      from sales of marketable securities
            
            
            —
            
            
            
            115,672Purchases
      of marketable securities
            
            
            —
            
            
            
            (112,167
            )Proceeds
      from the sale of noncontrolling interest in PacketVideo to a related
      party
            
            
            45,500
            
            
            
            —Proceeds
      from the sale of wireless spectrum licenses
            
            
            26,423
            
            
            
            145,522Cash
      paid for business combinations, net of cash acquired
            
            
            —
            
            
            
            (268
            )Payments
      for wireless spectrum licenses
            
            
            —
            
            
            
            (43
            )Purchase
      of property and equipment
            
            
            (1,925
            )
            
            
            (2,826
            )Other,
      net
            
            
            (42
            )
            
            
            (1,206
            )Net
      cash provided by investing activities of continuing
    operations
            
            
            69,956
            
            
            
            251,069FINANCING
      ACTIVITIESProceeds
      from long-term obligations, net of costs to issue
            
            
            13,496
            
            
            
            109,009Net
      cash released from restricted cash account securing long-term
      obligations
            
            
            —
            
            
            
            52,487Payments
      on long-term obligations
            
            
            (62,456
            )
            
            
            (146,434
            )Proceeds
      from the sale of common shares
            
            
            426
            
            
            
            1,737Net
      cash provided by (used in) financing activities of continuing
      operations
            
            
            (48,534
            )
            
            
            16,799Cash
      used by discontinued operations:Net
      cash used in operating activities of discontinued
    operations
            
            
            (16,223
            )
            
            
            (154,140
            )Net
      cash provided by (used in) investing activities of discontinued
      operations
            
            
            3,466
            
            
            
            (14,933
            )Net
      cash used in financing activities of discontinued
    operations
            
            
            (88
            )
            
            
            (752
            )Net
      cash used by discontinued operations
            
            
            (12,845
            )
            
            
            (169,825
            )Effect
      of foreign currency exchange rate changes on cash
            
            
            588
            
            
            
            (61
            )Net
      increase (decrease) in cash and cash equivalents
            
            
            (41,005
            )
            
            
            8,467Cash
      and cash equivalents, beginning of period
            
            
            61,517
            
            
            
            53,050Cash
      and cash equivalents, end of period
            
            
            20,512
            
            
            
            61,517Less
      cash and cash equivalents of discontinued operations, end of
      period
            
            
            (355
            )
            
            
            (797
            )Cash
      and cash equivalents of continuing operations, end of
    period
            
            $
            20,157
            
            
            $
            60,720





The
accompanying notes are an integral part of these consolidated financial
statements.


60


NEXTWAVE
WIRELESS INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




1.
            Description
      of Business and Summary of Significant Accounting Policies and Significant
      Accounts




Description
of Business




NextWave
Wireless Inc. (together with its subsidiaries, “NextWave”, “we”, “our” or “us”)
is a wireless technology company that develops, produces and markets mobile
multimedia and consumer electronic connectivity products including
device-embedded software for mobile handsets, client-server media platforms,
media sharing software for consumer electronics and pocket-sized mobile
broadcast receivers, and manages and maintains worldwide wireless spectrum
licenses. Our customers include many of the world’s largest mobile handset
manufacturers and wireless service providers.




Basis
of Presentation and Liquidity




The
accompanying consolidated financial statements have been prepared assuming that
we will continue as a going concern. This basis of accounting contemplates the
recovery of our assets and the satisfaction of our liabilities in the normal
course of business. We generated net losses attributable to NextWave of $290.2
million and $429.3 million for the years ended January 2, 2010 and December 27,
2008, respectively, and have an accumulated deficit of $1.2 billion at January
2, 2010. We used cash from operating activities of our continuing operations of
$50.2 million and $89.5 million during the years ended January 2, 2010 and
December 27, 2008, respectively. Our total unrestricted cash and cash
equivalents held by continuing operations at January 2, 2010 totaled $20.2
million. We had net working capital deficit of $8.0 million at January 2,
2010.




We have
funded our operations, business combinations, strategic investments and wireless
spectrum license acquisitions primarily with the $550.0 million in cash received
in our initial capitalization in April 2005, the net proceeds of $295.0 million
from our issuance of our 7% Senior Secured Notes (the “Senior Notes”) in July
2006, the net proceeds of $351.1 million from our issuance of Series A Senior
Convertible Preferred Stock (the “Series A Preferred Stock”) in March 2007,
which, in October 2008, we exchanged for Third Lien Subordinated Secured
Convertible Notes due 2011 (the “Third Lien Notes”) in the aggregate principal
amount of $478.3 million, and the net proceeds of $101.0 million from our
issuance of Senior Subordinated Secured Second Lien Notes (the “Second Lien
Notes”) in October 2008 and July 2009. We did not receive any proceeds from the
issuance of the Third Lien Notes.




Effective
as of March 16, 2010, we entered into an Amendment and Limited Waiver (the
“Amendment and Waiver”) to the agreements governing our Senior Notes, Second
Lien Notes and Third Lien Notes.  Pursuant to the Amendment and
Waiver, the maturity date of our Senior Notes was extended from July 17, 2010 to
July 17, 2011, with an additional extension to October 17, 2011 if certain
conditions are met, including the pendency of asset sales that would yield net
proceeds sufficient to repay all then-outstanding Senior Notes.  In
addition, the maturity date of our Second Lien Notes was extended from December
31, 2010 to November 30, 2011.  As a result of the Amendment and
Waiver, the interest payable on our Senior Notes and Second Lien Notes was
increased to a rate of 15% per annum and the interest payable on our Third Lien
Notes was increased to a rate of 12% per annum initially, increasing 1% per
annum on each of December 31, 2010, March 30, 2011, June 30, 2011 and September
30, 2011 to a maximum of 16%.  After giving effect to the Amendment
and Waiver, all Notes will receive only payment-in-kind interest for the full
term of such Notes, unless we elect to pay cash interest, and the redemption
premium on the Notes was eliminated.  In addition, under the Amendment
and Waiver, we will be entitled to incur additional indebtedness under the
Senior Notes up to an aggregate principal amount of $25.0 million (and any
increases due to the payment in kind of interest thereon).  The
Amendment and Waiver reduced the requirement to maintain a minimum cash balance
from $5 million to $1 million and, after payment in full of certain designated
Senior Notes with an aggregate principal amount of $51.6 million at January 2,
2010, permits us to retain up to $37.5 million for general working capital
purposes and permitted investments, subject to reduction in the amount of any
net proceeds from the issuance of additional Senior Notes pursuant to the $25.0
million in additional financing described below. As consideration for the
Amendment and Waiver, we paid an amendment fee to each Holder through the
issuance of additional Notes under the applicable Note Agreements in an amount
equal to 2.5% of the outstanding principal and accrued and unpaid interest on
such Holder’s existing Notes.




In
connection with the Amendment and Waiver, we entered into a binding commitment
letter (the “Commitment Letter”) with Avenue Capital Management II, L.P., acting
on behalf of its managed investment funds signatory thereto, and Solus Core
Opportunities Master Fund Ltd and its affiliates and co-investors, to provide up
to $25 million in additional financing through the purchase of additional Senior
Notes (the “Senior Incremental Notes”).   The terms of the
Commitment Letter provide that we will be entitled to borrow up to $25
million in one or more borrowings after March 16, 2010 but prior to July 31,
2010, upon 10 business days notice and subject to the execution of definitive
documentation substantially in the form of the definitive agreements governing
our existing indebtedness.  Such agreements will require us to make
customary representatives and warranties as a condition to each
borrowing.  As with the other Senior Notes, amounts outstanding under
the Senior Incremental Notes will bear interest at a rate of 15% per annum,
payable in kind unless we elects to pay cash, and will be secured by a first
lien on the same assets securing our Senior Notes, on a pari passu
basis.   No commitment fee or structuring fee is payable in
connection with the Commitment Letter.




On April
1, 2009, we obtained an amendment and waiver from the holders of our Senior
Notes, Second Lien Notes, and Third Lien Notes that waived certain events of
default relating to timely delivery of a new operating budget, permits us to
issue up to


61




$25
million of indebtedness on a pari passu basis with our Second Lien Notes, and
allows us to pay certain holders of our Senior Notes payment-in-kind interest at
a rate of 14% through March 16, 2010. As of January 2, 2010, we have accrued for
$14.1 million in payment-in-kind interest which has been added to the
outstanding principal balance of our Senior Notes in the consolidated balance
sheet.




On July
2, 2009, we issued additional Second Lien Notes due 2010 (the “Second Lien
Incremental Notes”) in the aggregate principal amount of $15.0 million, on the
same financial and other terms applicable to our existing Second Lien Notes. The
Second Lien Incremental Notes were issued with an original issuance discount of
5% resulting in gross proceeds of $14.3 million. After payment of transaction
related expenses, we received net proceeds of $13.5 million to be used solely in
connection with the ordinary course of operations of our business and not for
any acquisition of assets or businesses or other uses. The purchaser of the
Second Lien Incremental Notes was Avenue AIV US, L.P., an affiliate of Avenue
Capital Management II, L.P. (“Avenue Capital”). Robert Symington, a Senior
Portfolio Manager with Avenue Capital, is a member of our Board of Directors. In
July 2009, we issued warrants to purchase 7.5 million shares of our common stock
at an exercise price of $0.01 per share to the purchaser of the Second Lien
Incremental Notes. The warrants are exercisable at any time from the date of
issuance until June 2012.




In an
effort to reduce our future working capital requirements and in order to comply
with the terms of our Senior Notes, Second Lien Notes and Third Lien Notes, in
the second half of 2008, our Board of Directors approved the implementation of a
global restructuring initiative, pursuant to which we have divested, either
through sale, dissolution or closure, our network infrastructure businesses and
our semiconductor business. The actions completed as a result of our global
restructuring initiative are described in more detail below under the heading
“Restructuring Initiative and Discontinued Operations”.




In 2010,
we have capital expenditure needs associated with certain build-out or
substantial service requirements. These requirements apply to our licensed
wireless spectrum, which generally must be satisfied as a condition of license
renewal. The renewal deadline and the substantial service build-out deadline for
our domestic WCS spectrum is July 21, 2010. The substantial service deadline for
EBS/BRS spectrum is May 1, 2011; however, most of our EBS leases require us to
complete most build out activities in 2010, in advance of the FCC’s substantial
service deadline.  We also have certain build-out requirements
internationally through 2013, and failure to make those service demonstrations
could also result in license forfeiture.  With respect to our domestic
WCS spectrum we have entered into a third party arrangement pursuant to which
the third party has agreed to meet our build-out requirements. However, at this
time there can be no assurance that such party will be able to pay for the build
out or complete its contractual requirements on time. Accordingly, we will seek
to identify additional capital resources and personnel to enable us to perform
such build-out obligations in the event such party is not able to perform. Our
reliance on a third party to meet our substantial service requirements may
subject us to risks of non-renewal in the event that such party does not perform
its obligations and if we are unable to fund such obligations.




We
believe that the completion of our asset divestiture and cost reduction actions,
our current cash and cash equivalents, projected revenues and cash flows from
our Multimedia segment, our ability to pay payment-in-kind interest in lieu of
cash interest to the holders of our secured notes, our third party arrangements
with respect to our domestic WCS spectrum build-out requirements, and access to
$25.0 million of additional incremental Senior Notes will allow us to meet our
estimated operational cash requirements at least through March
2011.  Should we be unable to achieve the revenues and/or cash flows
through March 2011 as contemplated in our current operating plan, or if we were
to incur significant unanticipated expenditures in excess of our available asset
sale and incremental Senior Notes proceeds, including in respect of our
performance of the WCS build-out, or we are unable to draw funds under the
Commitment Letter, or we are unable to draw funds under the Commitment Letter,
we will seek to identify additional capital resources including the use of our
remaining $10.0 million of incremental Second Lien Notes debt basket and will
implement certain additional actions to reduce our working capital requirements
including staff reductions.




Restructuring
Initiative and Discontinued Operations




In 2008,
we announced the commencement of our global restructuring initiative and
initiated significant financing and restructuring activities, which are
described below:




·
            In
      total, we have terminated 620 employees worldwide and vacated seven leased
      facilities.




·
            In
      October 2008, we issued Second Lien Notes in the aggregate principal
      amount of $105 million and Third Lien Subordinated Secured Convertible
      Notes due 2011 (the “Third Lien Notes”) in an aggregate principal amount
      of $478.3 million in exchange for all of the outstanding shares of our
      Series A Preferred Stock. We received net proceeds of $87.5 million from
      the issuance of the Second Lien Notes and did not receive any cash
      proceeds from the issuance of the Third Lien
  Notes.




·
            In
      the fourth quarter of 2009, the Board of Directors of WiMAX Telecom GmbH,
      the holding company for NextWave’s discontinued WiMAX Telecom business in
      Austria and Croatia, filed an insolvency proceeding in Austria in
      accordance with local law to permit the orderly wind-down of such entity.
      The court in Austria has entered an order appointing an administrator to
      manage the insolvency of WiMAX Telecom GmbH. As a result of the
      appointment of the administrator, NextWave no longer controls WiMAX
      Telecom GmbH and its subsidiaries and will not receive any proceeds from
      the assets of the WiMAX
entities.


62




·
            We
      sold a controlling interest in our IPWireless subsidiary in December 2008
      and sold the remaining noncontrolling interest in November
      2009.




·
            We
      shut down the operations of our other network infrastructure businesses,
      which comprise our Networks segment, including the operations of our GO
      Networks and Cygnus subsidiaries and our Global Services and NextWave
      Network Support strategic business
units.




·
            We
      initiated bankruptcy liquidation proceedings for three of our network
      infrastructure subsidiaries in Israel, Denmark and Canada, which
      proceedings are intended to provide an orderly process for the
      discontinuance of operations and to advance our divestiture and cost
      reduction strategy.




·
            In
      the first quarter of 2009, we shut down our semiconductor business,
      terminated 230 employees and, subsequently, in the third quarter of 2009,
      we sold certain of our owned semiconductor business patents and patent
      applications to a third party.




·
            In
      July 2009, we issued additional Second Lien Notes in the aggregate
      principal amount of $15 million, providing us with net proceeds of $13.5
      million after original issue discount and payment of transaction related
      expenses.




·
            We
      have downsized our corporate overhead functions to match the anticipated
      reduction in overall global support requirements, including our
      information technology, legal, finance, human resources and corporate
      branding and marketing functions.




·
            We
      have integrated certain corporate administration functions into our
      PacketVideo operations in San Diego,
California.




·
            We
      have continued to pursue wireless spectrum license sales, the net proceeds
      of which will be used to reduce our outstanding indebtedness thereby
      reducing the interest costs payable in future
  years.




·
            We
      are actively pursuing the sale or wind-down of various remaining portions
      of our WiMax Telecom business and spectrum operations in South
      America.




·
            In
      the fourth quarter of 2009, we sold the majority of the assets and
      liabilities of our Inquam Broadband GmbH (“IHG”) subsidiary and entered
      into an earn out agreement with the buyer that provides for payment to us
      upon the occurrence of specified liquidity events, which include the sale,
      lease or contribution of assets to certain third parties, or distribution
      of profits or sale of equity in IHG.  We will continue to
      receive earn out payments until exhaustion of all specified liquidity
      events.




Several
factors led to our decision to implement our global restructuring initiative in
2008, including adverse worldwide economic conditions, which we believe
adversely affected manufacturers of telecommunications equipment and technology
and caused our discontinued Networks segment to experience lower than projected
contract bookings and revenues. We believe these conditions have also led to a
delay in global WiMAX network deployments, which adversely impacted the timing
and volume of projected commercial sales of WiMAX products of our discontinued
semiconductor business.




Considering
the actions described above, we have classified the businesses comprising our
Networks and Semiconductors segments as well as our WiMAX Telecom, Inquam and
South American businesses, which are included in our Strategic Initiatives
segment, as discontinued operations for all periods presented.




The
carrying amounts of the assets and liabilities of our discontinued operations
are as follows:


(in
      thousands)
            
            January
      2,
                2010
            
            
            December
      27, 2008Cash
      and cash equivalents
            
            $
            355
            
            
            $
            797Restricted
      cash
            
            
            415
            
            
            
            642Accounts
      receivable, net of allowance for doubtful accounts of $182 and
      $1,389
            
            
            448
            
            
            
            365Inventory,
      prepaid expenses and other assets
            
            
            5,303
            
            
            
            7,544Wireless
      spectrum licenses, net
            
            
            —
            
            
            
            26,708Goodwill
            
            
            —
            
            
            
            9Intangible
      assets, net
            
            
            —
            
            
            
            2,181Property
      and equipment, net
            
            
            2,999
            
            
            
            13,541Asset
      of discontinued operations
            
            
            9,520
            
            
            
            51,787Wireless
      spectrum licenses included in wireless spectrum licenses held for
      sale
            
            
            14,934
            
            
            
            36,094Total
      assets of discontinued operations
            
            $
            24,454
            
            
            $
            87,881Accounts
      payable
            
            $
            1,907
            
            
            $
            2,757Accrued
      expenses
            
            
            837
            
            
            
            4,251Deferred
      revenue, current portion of long-term obligations and other current
      liabilities
            
            
            781
            
            
            
            7,431Deferred
      income tax liabilities
            
            
            4,529
            
            
            
            4,711Long-term
      obligations, net of current portion
            
            
            4,205
            
            
            
            3,933Other
      liabilities
            
            
            124
            
            
            
            1,304Total
      liabilities of discontinued operations
            
            $
            12,383
            
            
            $
            24,387







63




The
results of operations of our discontinued operations are as
follows:


Years
      Ended(in
      thousands)
            
            January
      2, 2010
            
            
            December
      27,
                2008Revenues
            
            $
            5,687
            
            
            $
            62,213Operating
      expenses:Cost
      of revenues
            
            
            5,811
            
            
            
            61,796Engineering,
      research and development
            
            
            2,098
            
            
            
            116,529Sales
      and marketing
            
            
            1,159
            
            
            
            22,710General
      and administrative
            
            
            7,202
            
            
            
            28,318Asset
      impairment charges
            
            
            31,595
            
            
            
            40,219Restructuring
      charges
            
            
            5,157
            
            
            
            7,773Total
      operating expenses
            
            
            53,022
            
            
            
            277,345Net
      losses on business divestitures
            
            
            (22,643
            )
            
            
            (118,360
            )Loss
      from operations
            
            
            (69,978
            )
            
            
            (333,492
            )Other
      income (expense), net
            
            
            (304
            )
            
            
            733Loss
      before income taxes
            
            
            (70,282
            )
            
            
            (332,759
            )Income
      tax benefit
            
            
            171
            
            
            
            2,883Net
      loss from discontinued operations attributed to NextWave
            
            $
            (70,111
            )
            
            $
            (329,876
            )




Principles
of Consolidation




Our
consolidated financial statements include the assets, liabilities and operating
results of our wholly-owned and majority-owned subsidiaries as of January 2,
2010 and December 27, 2008 and for each of the three fiscal years in the period
ended January 2, 2010. Noncontrolling interest during 2009 represents the
noncontrolling shareholder’s proportionate share of the net equity in our
consolidated subsidiary, PacketVideo Corporation (“PacketVideo”).  All
significant intercompany accounts and transactions have been eliminated in
consolidation.




Fiscal
Year End




We
operate on a 52-53 week fiscal year ending on the Saturday nearest to December
31 of the current calendar year or the following calendar
year.  Normally, each fiscal year consists of 52 weeks, but every five
or six years the fiscal year consists of 53 weeks. Fiscal year 2009 is a 53-week
year ending January 2, 2010.  Fiscal year 2008 is a 52-week year
ending on December 27, 2008.  The next 53-week year will occur in
2015.




Use
of Estimates




The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the 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. Actual results could differ from those estimates. On an
ongoing basis, we evaluate our estimates, including those related to revenue
recognition, income taxes and the valuation of marketable securities,
share-based awards, goodwill, wireless spectrum licenses, intangible assets and
other long-lived assets. Actual results could differ from those
estimates.




Revenues,
Cost of Revenues and Deferred Contract Costs




Our
continuing and discontinued operations have derived revenues from the following
sources:




·
            contracts
      to provide multimedia software products for mobile and home electronic
      devices and related royalties through our PacketVideo
      subsidiary;




·
            sales
      of wireless broadband and mobile broadcast network products and services
      by our IPWireless and GO Networks subsidiaries, which are included in
      discontinued operations for all periods presented. The wireless broadband
      and mobile broadcast network products sold by IPWireless and GO Networks
      often included embedded software;
and




·
            customer
      subscriptions for the WiMAX network operated by our WiMAX Telecom
      subsidiary, which is included in discontinued operations for all periods
      presented.




For
arrangements that do not contain software or embedded software that is
incidental to the arrangement, we recognize revenue when persuasive evidence of
an arrangement exists, delivery has occurred, the fee is fixed or determinable
and collectability is reasonably assured.


64




For
software arrangements, or in cases where the software is considered more than
incidental and is essential to the functionality of the hardware or the
infrastructure products, revenue is recognized pursuant to software revenue
recognition and construction-type and production-type contracts accounting
guidance.




For post
launch hosting arrangements, revenue is recognized on a pro rata basis based on
the term of the contract.




Our
revenue arrangements can include multiple deliverables, software or technology
license, non-recurring engineering services and post-contract customer support.
For these arrangements, we consider the revenue recognition - multiple-element
arrangements accounting guidance. Accordingly, we evaluate each deliverable in
the arrangement to determine whether it represents a separate unit of
accounting. If objective and reliable evidence of fair value exists (“vendor
specific objective evidence”) for all units of accounting in the arrangement,
revenue is allocated to each unit of accounting or element based on those
relative fair values. If vendor specific objective evidence of fair value exists
for all undelivered elements, but not for delivered elements, the residual
method would be used to allocate the arrangement consideration. If elements
cannot be treated as separate units of accounting because vendor specific
objective evidence of the undelivered elements does not exist, they are combined
into a single unit of accounting and the associated revenue is deferred until
all combined elements have been delivered or until there is only one remaining
element to be delivered. To date, we have not been able to establish vendor
specific objective evidence for any of the elements included in our revenue
arrangements, as the software and hardware products or services have not yet
been sold separately, nor has a standard price list been established. As a
result, once the software or technology is delivered and the only undelivered
element is services, the entire non-contingent contract value is recognized
ratably over the remaining service period. Costs directly attributable to
providing these services are also deferred and amortized over the remaining
service period of the respective revenues.




Services
sold separately are generally billed on a time and materials basis at
agreed-upon billing rates, and revenue is recognized as the services are
performed.




We earn
royalty revenues on licensed embedded multimedia products sold by our licensees.
Generally, royalties are paid by licensees on a contingent, per unit, or fixed
fee usage basis. The licensees generally report and pay the royalty in the
quarter subsequent to the period of delivery or usage. We recognize royalty
revenues based on royalties reported by licensees. When royalty arrangements
also provide for ongoing post-contract customer support that does not meet the
criteria to be recognized upon delivery of the software, the royalty is
recognized ratably from the date the royalty report is received through the
stated remaining term of the post-contract customer support. In limited
situations, we have determined that post-contract customer support revenue can
be recognized upon delivery of the software because the obligation to provide
post-contract customer support is for one year or less, the estimated cost of
providing the post-contract customer support during the arrangement is
insignificant and unspecified upgrades or enhancements offered for the
particular post-contract customer support arrangement historically have been and
are expected to continue to be minimal and infrequently provided. In these
instances, we have accrued all the estimated costs of providing the services
upfront, which to date have been insignificant.




If we
receive non-refundable advanced payments from licensees that are allocable to
future contracts periods or could be creditable against other obligations of the
licensee to us, the recognition of the related revenue is deferred until such
future periods or until such creditable obligations lapse.




In
instances where we have noted extended payment terms, revenue is recognized in
the period the payment becomes due. If an arrangement includes specified upgrade
rights, revenue is deferred until the specified upgrade has been
delivered.




We do not
generally allow for product returns and we have no history of significant
product returns. Accordingly, no allowance for returns has been
provided.




The
timing and amount of revenue recognition depends upon a variety of factors,
including the specific terms of each arrangement and the nature of our
deliverables and obligations. Determination of the appropriate amount of revenue
recognized involves judgments and estimates that our management believes are
reasonable.




Warranty
Obligations




The
products sold by our discontinued operations typically carry a one-year hardware
warranty. We establish reserves for estimated product warranty costs at the time
revenue is recognized based upon our historical warranty experience and any
known product warranty issues.




Sales
Taxes Collected




Sales
taxes collected from customers and remitted to various governmental agencies are
excluded from revenues in our consolidated statement of operations.




Shipping
Revenues and Costs




Product
shipping costs incurred by our discontinued operations and billed to our
customers are included in hardware revenues and the related costs of shipping
products to our customers are expensed as incurred and are included in cost of
revenues of our discontinued operations.


65




Engineering,
Research and Development




Engineering,
research and development costs are expensed as incurred, except for burdened
direct costs associated with deferred revenue from contract engineering services
performed by us which are deferred and amortized over the remaining service
period of the respective revenues.




Costs
incurred internally in researching and developing a software product are charged
to expense until technological feasibility has been established for the product.
Once technological feasibility is established, all software costs are
capitalized until the product is available for general release to customers.
Judgment is required in determining when technological feasibility of a product
is established. As a result of the manner in which we develop software,
technological feasibility is often reached only when a working model of the
software is completed and has been confirmed by testing, which is generally
shortly before the products are available for general release to customers.
Through January 2, 2010, costs incurred after technological feasibility is
established have been insignificant, and accordingly, we have expensed all
research and development costs when incurred.




Income
Taxes




We
recognize income tax expense based on estimates of our consolidated taxable
income (loss) taking into account the various legal entities through which, and
jurisdictions in which, we operate. As such, income tax expense may vary from
the customary relationship between income tax expense and income (loss) before
taxes.




Accumulated
Other Comprehensive Income




Accumulated
other comprehensive income includes unrealized foreign currency translation
adjustments that are excluded from the consolidated statements of operations and
are reported as a separate component in stockholders’ deficit.




Accumulated
other comprehensive income consists of the following:


(in
      thousands)
            
            January
      2,
                2010
            
            
            December
      27, 2008Cumulative
      foreign currency translation adjustments:Attributed
      to NextWave
            
            $
            14,437
            
            
            $
            5,255Attributed
      to Noncontrolling interest
            
            
            202
            
            
            
            —Total
      accumulated other comprehensive income
            
            $
            14,639
            
            
            $
            5,255




Net
Loss Per Common Share Information




Basic and
diluted net loss per common share for the two fiscal years ended January 2, 2010
is computed by dividing net loss applicable to common shares by the weighted
average number of common shares outstanding during the year, without
consideration of common stock equivalents.  Our weighted average
number of common shares outstanding includes the weighted average number of 49.9
million and 9.6 million for warrants exercisable for shares of our common stock
that were outstanding during the years ended January 2, 2010 and December 27,
2008, respectively, as they are issuable for an exercise price of $0.01 each. At
January 2, 2010, 12.5 million of these warrants remained
outstanding.




The
following securities that could potentially dilute earnings per share in the
future are not included in the determination of diluted loss per share as they
are antidilutive. The share amounts are determined using a weighted average of
the common stock equivalents outstanding during the respective
periods.


Years
      Ended(in
      thousands)
            January
      2, 2010
            December
      27,
                2008Third
      Lien Notes / Series A Preferred Stock
            45,250
            36,582Outstanding
      stock options
            17,572
            21,376




Cash
and Cash Equivalents and Restricted Cash and Marketable Securities




We
consider all highly liquid investments with original maturities of three months
or less to be cash equivalents. Cash equivalents at January 2, 2010 and December
27, 2008 consisted primarily of money market funds. The carrying amounts
approximate fair value due to the short maturities of these
instruments.




At
January 2, 2010, our restricted marketable securities have been categorized as
trading securities and are reported at fair value. We estimated the fair value
of our auction rate securities, which we have classified as trading securities
under debt and equity securities accounting guidance, using a discounted cash
flow model (Level 3 inputs), which measures fair value based on the present
value of projected cash flows over a specific period. Trading securities are
reported at fair value, with gains and losses resulting from changes in fair
value recognized in other income (expense), net, in the consolidated statement
of operations. Unrealized gains and losses on available-for-sale marketable
securities are reported in other comprehensive income in stockholders’ equity
(deficit), unless the decline in value is deemed to be other-than-temporary, in
which case the loss is charged to expense.


66




Realized
gains and losses are included in interest income in the consolidated statements
of operations. The cost of securities sold is based on the specific
identification method. There were no significant gross realized gains or losses
related to sales of marketable securities for any of the periods
presented.




Our
restricted marketable securities at January 2, 2010 and December 27, 2008
consist of $24.0 million and $20.8 million, respectively, of auction rate
securities.  The fair value of the auction rate securities equaled
their respective amortized costs at January 2, 2010 and December 27,
2008.




The
auction rate securities that we held at January 2, 2010 and December 27, 2008
are Education Loan Trust (insured by FFELP), Utah State Board of Regents
(insured by FFELP), Indiana Secondary Market Education Loans (insured by FFELP),
Illinois Student Assistance Commission, and Kentucky Higher Education Student
Loan Corporation (insured by FFELP). All of our auction rate securities have
contractual maturities exceeding 10 years.




We
periodically review the fair value of our marketable securities to determine if
declines in the fair value of individual securities are other-than-temporary in
nature. To determine if a decline in the fair value of an investment is
other-than-temporary, we consider several factors including, among others, the
period of time and extent to which the estimated fair value has been less than
cost, overall market conditions, the historical and projected future financial
condition of the issuer of the security and our ability and intent to hold the
security for a period of time sufficient to allow for a recovery of the market
value. If we believe the decline in the fair value of an individual security is
other-than-temporary, we write-down the carrying value of the security to its
estimated fair value and recognize the write-down as a charge in our statement
of operations.




Considering
our inability to sell our remaining auction rate securities at auction, the
deterioration of overall market conditions and our near-term liquidity needs, we
concluded that the decline in the fair value of our auction rate securities was
other-than-temporary. Accordingly, during 2008, we wrote-down our auction rate
securities to their estimated fair value and recognized a loss of $4.5 million
which is included in other income (expense), net, in the accompanying
consolidated statement of operations.




In August
2008, we entered into a non-recourse loan with UBS under which we were advanced
$21.5 million. The loan is collateralized by 85% of the aggregate principal
amount of our auction rate securities portfolio managed by UBS. Under the terms
of the loan agreement, as our auction rate securities are sold, the line of
credit will be immediately and automatically repaid using the proceeds from the
sale. The line of credit bears interest at the prevailing 30-day LIBOR rate plus
25 basis points, which approximates the interest rate payable to us on our
auction rate securities. The collateralized loan of $21.4 million and $21.5
million is included in current portion of long-term obligations in the
accompanying consolidated balance sheets at January 2, 2010 and December 27,
2008, respectively. As 85% of the aggregate principal amount of our auction rate
securities portfolio managed by UBS is pledged as collateral against the loan
and the proceeds from the sale of the auction rate securities will be used to
repay the loan, we have classified our auction rate securities balance as
restricted marketable securities in the accompanying January 2, 2010
consolidated balance sheet. Although the loan is payable upon demand by UBS,
repayment can only occur through a liquidation of the underlying collateralized
auction rate securities.




In
November 2008, we accepted UBS’s offer to participate in their auction rate
securities rights offering, which allows us to sell our auction rate securities
at par value to UBS at any time during the period of June 30, 2010 through July
2, 2012. The auction rate securities rights are not transferrable, not offered
for sale and have only been offered to UBS clients with eligible auction rate
securities holdings. Under the terms of the auction rate securities rights, we
have also given UBS the discretion to purchase or sell our auction rate
securities at any time after our acceptance of the auction rate securities
rights and without other prior notice, whereby we will receive the par value of
the auction rate securities within one day of settlement of the
transaction.




We have
elected to measure the fair value of the auction rate securities rights
according to the required disclosures about the fair value of financial
instruments, which we believe will mitigate volatility in our reported earnings
due to the inverse relationship between the fair value of the auction rate
securities rights and the underlying auction rate securities. Accordingly, at
January 2, 2010 and December 27, 2008, we measured the fair value of the auction
rate securities rights and recognized the difference between the fair value of
the auction rate securities rights and the underlying auction rate securities of
$1.2 million and $4.2 million, respectively, to other income (expense), net, as
an offset to the impairment loss recognized on the auction rate securities. The
excess fair value of the auction rate securities rights over the auction rate
securities is reported in other current assets in the accompanying consolidated
balance sheets. With our recognition of the fair value of the auction rate
securities rights and the reclassification of our auction rate securities from
available-for-sale to trading, we reported a net $0.2 million impairment loss on
the auction rate securities in the accompanying consolidated statement of
operations for the year ended December 27, 2008. The transfer from
available-for-sale to trading securities was a one-time election permitted by
accounting standards for certain investments in debt and equity
securities.




In March
2008, we amended the original purchase agreement for our Senior Notes, whereby
we were permitted to withdraw up to the full amount of the $75.0 million cash
reserve account established in 2007 as collateral for our Senior Notes for use
in funding our business plan, subject to the payment of a consent fee of $3.5
million per $25.0 million withdrawn. During 2008, we withdrew the full $75.0
million from the cash reserve account. Accordingly, during 2008, we paid consent
fees totaling $10.5 million, which are included in interest expense in the
accompanying consolidated statement of operations.


67




Accounts
Receivable and Allowance for Doubtful Accounts




Accounts
receivable are recorded according to contractual agreements. Credit terms for
payment of products and services are extended to customers in the normal course
of business and no collateral is required. The allowance for doubtful accounts
is estimated based on our historical losses, the existing economic conditions,
and the financial stability of our customers. Receivables are written-off in the
period that they are deemed uncollectible. At January 2, 2010, gross accounts
receivable held by continuing operations consisted of $5.2 million and $0.3
million in billed and unbilled receivable, respectively.  At December
27, 2008, gross accounts receivable held by continuing operations consisted of
$3.6 million and $1.0 million in billed and unbilled receivables,
respectively.




Inventory




Inventories
are stated at the lower of cost (first-in, first-out) or market. We establish
allowances for estimated obsolete and unmarketable inventory based upon
assumptions about future market demand. Lower of cost or market adjustments
reduce the carrying value of the related inventory and take into considerations
reduction in sales prices, excess inventory levels and obsolete inventory. These
adjustments are done on a part-by-part basis. Once established, these
adjustments are considered permanent and are not reversed until the related
inventory is sold or disposed of. At January 2, 2010 and December 27, 2008, our
continuing operations held no inventory.




Property
and Equipment




Property
and equipment is recorded at cost and depreciated using the straight-line method
over the estimated useful life. Leasehold improvements are amortized over the
shorter of their estimated useful lives or the remaining term of the related
lease. Direct external costs of developing software for internal use are
capitalized through implementation of the software. Maintenance, repairs, and
minor renewals and betterments are charged to expense as incurred.




Wireless
Spectrum Licenses




We
capitalize as intangible assets wireless spectrum licenses that we acquire from
third parties or through government auctions. For wireless spectrum licenses
purchased directly from third parties or through spectrum auctions, the cost
basis of the wireless spectrum asset includes the purchase price paid for the
license at the time of acquisition plus legal costs incurred to acquire the
license. For wireless spectrum licenses acquired through a business combination
or through an asset acquisition, the cost basis of the wireless spectrum asset
is determined through an allocation of the total purchase price to the tangible
and identifiable intangible assets and liabilities of the acquired business or
asset(s) and includes any deferred tax liabilities determined in accordance with
accounting standards for acquired temporary differences in certain purchase
transactions that are not accounted for as business combinations. For leased
wireless spectrum rights, the asset and related liability are recorded at the
net present value of future cash outflows using our incremental borrowing rate
at the time of acquisition.




We have
determined that certain of our wireless spectrum licenses meet the definition of
indefinite-lived intangible assets because the licenses are either perpetual or
may be renewed periodically for a nominal fee, provided that we continue to meet
the service and geographic coverage provisions. We have also determined that
there are currently no legal, regulatory, contractual, competitive, economic or
other factors that limit the useful lives of these wireless spectrum
licenses.




Wireless
spectrum licenses for which we have acquired lease rights from third parties are
considered to have finite lives. The wireless license asset is then amortized
over the contractual life of the lease. We have also acquired the rights to
wireless spectrum licenses in Europe where the renewal terms are not yet well
established. We amortize these assets on a straight-line basis over the initial
license period. Amortization expense on wireless spectrum licenses is charged to
general and administrative expense.




Spectrum
Clearing Obligations




We own
Advanced Wireless Services (“AWS”) spectrum that we acquired via the Federal
Communications Commission (“FCC”) Auction #66. Our AWS spectrum currently is
used by U.S. federal government and/or incumbent commercial licensees. FCC rules
require winning bidders to avoid interfering with these existing users or to
clear the incumbent users from the spectrum through specified relocation
procedures. We have not incurred any spectrum clearing costs to
date.




Valuation
of Goodwill and Indefinite-Lived Intangibles




We
perform an annual review for impairment, or more frequently if impairment
indicators arise. Goodwill and indefinite-lived intangible assets are considered
to be impaired if we determine that their carrying values exceed their fair
values. We test goodwill for impairment annually at a reporting unit level using
a two-step process. The first step of the impairment test involves comparing the
fair values of the applicable reporting units with their aggregate carrying
values, including goodwill. If the carrying amount of a reporting unit exceeds
the reporting unit’s fair value, we then perform the second step of the goodwill
impairment test to determine the amount of the impairment loss. The second step
of the goodwill impairment test involves comparing the implied fair value of the
affected reporting unit’s goodwill with the carrying value of that goodwill. If
the carrying amount of goodwill exceeds the implied fair value of that goodwill,
an impairment loss is recognized in an amount equal to that excess.




We test
indefinite-lived intangible assets, such as indefinite-lived wireless spectrum
licenses, at the unit of accounting level by making a determination of the fair
value of the intangible asset. If the fair value of the intangible asset is less
than its carrying


68




value, an
impairment loss is recognized in an amount equal to the difference. We also
evaluate the remaining useful life of our intangible assets that are not subject
to amortization on an annual basis to determine whether events and circumstances
continue to support an indefinite useful life. If an intangible asset that is
not being amortized is subsequently determined to have a finite useful life,
that asset is tested for impairment. After recognition of the impairment, if
any, the asset is amortized prospectively over its estimated remaining useful
life and accounted for in the same manner as other intangible assets that are
subject to amortization.




Impairment
of Long-Lived Assets




We review
long-lived assets to be held and used, including acquired intangible assets
subject to amortization and property and equipment, for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets may not be fully recoverable. Conditions that would necessitate an
impairment assessment include a significant decline in the market price of an
asset or asset group, a significant adverse change in the extent or manner in
which an asset or asset group is being used, the loss of legal ownership or
title to the asset, significant negative industry or economic trends or the
presence of other indicators that would indicate that the carrying amount of an
asset or asset group is not recoverable. A long-lived asset is considered to be
impaired if the estimated undiscounted future cash flows resulting from the use
of the asset and its eventual disposition are not sufficient to recover the
carrying value of the asset.




Deferred
Financing Costs, Debt Discount and Detachable Debt-Related Warrants




Costs
incurred to issue debt are deferred and included in other noncurrent assets in
the accompanying consolidated balance sheets. We amortize debt issuance costs
over the expected term of the related debt using the effective interest method.
Debt discounts and the fair value of any warrants issued in conjunction with the
debt are recorded as a reduction to the debt balance and accreted over the
expected term of the debt to interest expense using the effective interest
method.




Share-Based
Compensation




We
recognize the fair value of share-based compensation awards in results of
operations over the requisite service period of the individual grants, which
generally equals the vesting period. Compensation expense for awards with graded
vesting is recognized on a straight-line basis with adjustments to at least
equal the measured cost of the vested tranches.




We
estimate the fair value of stock options awards on the grant date using the
Black-Scholes option pricing model. Determining the fair value of stock-based
awards at the grant date under this model requires judgment, including
estimating our volatility, employee stock option exercise behaviors and
forfeiture rates. The assumptions used in calculating the fair value of
stock-based awards represent our best estimates, but these estimates involve
inherent uncertainties and the application of management judgment.




Share-based
compensation expense related to non-employee options, warrants and restricted
shares is measured using the fair value method as prescribed by accounting
standards for equity instruments that are issued to other than employees for
acquiring, or in conjunction with selling goods or services.




Foreign
Currency




Monetary
assets and liabilities of our foreign subsidiaries whose functional currency is
the U.S. dollar are remeasured into U.S. dollars at the exchange rate in effect
at the balance sheet date. Revenues, expenses, gains and losses associated with
monetary assets and liabilities are translated at the rates of exchange that
approximate the rates in effect at the transaction date. Non-monetary assets and
liabilities and related elements of revenues, expenses, gains and losses are
remeasured at historical exchange rates. Resulting exchange gains or losses are
recognized in the consolidated statements of operations in other income and
expense, net.




Assets
and liabilities of our foreign subsidiaries whose functional currency is other
than the U.S. dollar are translated into U.S. dollars at exchange rates in
effect as of the balance sheet date and monthly results of operations are
translated into U.S. dollars at the average rates of exchange for that month.
Gains or losses resulting from these foreign currency translations are recorded
in accumulated other comprehensive income (loss) in the consolidated balance
sheets.




Net
foreign currency exchange gains (losses) included in our loss from continuing
operations in our consolidated statements of operations totaled $(0.6) million
and $0.4 million for the years ended January 2, 2010 and December 27, 2008,
respectively.




Guarantees




As
guarantor, we recognize a liability for the fair value of certain guarantees at
the inception of a guarantee and provide disclosures about our obligations under
certain guarantees that we have issued.




Recent
Accounting Pronouncements




In
October 2009, the Financial Accounting Standards Board (“FASB”) issued an
Accounting Standards Update (“ASU”) for revenue recognition related to
multiple-deliverable revenue arrangements. This ASU provides amendments to the
existing criteria for separating consideration in multiple-deliverable
arrangements. The amendments establish a selling price hierarchy for determining
the selling price of a deliverable, eliminate the residual method of allocation
of arrangement consideration to all deliverables and require


69




the use
of the relative selling price method in allocation of arrangement consideration
to all deliverables, require the determination of the best estimate of a selling
price in a consistent manner, and significantly expand the disclosures related
to the multiple-deliverable revenue arrangements. The amendments are effective
for our fiscal year 2011 with early adoption permitted. We are currently
evaluating the impact of adopting these amendments on our consolidated financial
statements.




In
October 2009, the FASB issued an ASU for software revenue recognition. This
standard removes tangible products from the scope of software revenue
recognition guidance and also provides guidance on determining whether software
deliverables in an arrangement that includes a tangible product, such as
embedded software, are within the scope of the software revenue guidance. This
amendment is effective for our fiscal year 2011 with early adoption permitted.
We are currently evaluating the impact of adopting this amendment on our
consolidated financial statements.




In August
2009, the FASB issued an ASU that provides clarification that in circumstances
in which a quoted price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using one or
more of the valuation techniques that use the quoted price of the identical
liability when traded as an asset, quoted prices for similar liabilities or
similar liabilities when traded as assets, or other valuation techniques that
are consistent with the accounting principles, including an income approach or a
market approach. Adoption of this updated accounting guidance during our fourth
quarter of 2009 did not have a material impact on our consolidated financial
statements.




In June
2009, the FASB issued updated accounting guidance which amends current
accounting guidance on the consolidation of variable interest entities, to
require us to perform an analysis of our existing investments to determine
whether our variable interest or interests give us a controlling financial
interest in a variable interest entity. This analysis identifies the primary
beneficiary of a variable interest entity as the enterprise that has both the
power to direct the activities of significant impact on a variable interest
entity and the obligation to absorb losses or receive benefits from the variable
interest entity that could potentially be significant to the variable interest
entity. It also amends current accounting guidance to require ongoing
reassessments of whether an enterprise is the primary beneficiary of a variable
interest entity. The updated accounting guidance is effective for our fiscal
year beginning January 3, 2010. Our adoption of the updated accounting guidance
is not expected to have a material impact on our consolidated financial
statements.




In June
2009, the FASB issued The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles. The FASB Accounting
Standards Codification is intended to be the source of authoritative U.S.
generally accepted accounting principles (“GAAP”) and reporting standards as
issued by the FASB. Its primary purpose is to improve clarity and use of
existing standards by grouping authoritative literature under common topics.
This update is effective for financial statements issued for interim and annual
periods ending after September 15, 2009. The Codification does not change or
alter existing GAAP and there was no significant impact on our consolidated
financial position or results of operations upon the adoption.




In April
2009, the FASB amended the other-than-temporary impairment guidance to improve
the presentation and disclosure of other-than-temporary impairments on debt and
equity securities in the financial statements. As permitted by the standard, we
elected to early adopt the new accounting guidance in the first quarter of 2009.
Our adoption of this new guidance did not have a material impact on our
consolidated financial statements.




In April
2009, the FASB provided additional guidance for estimating fair values of assets
and liabilities when the volume and level of activity for the asset or liability
have significantly decreased and requires that companies provide interim and
annual disclosures of the inputs and valuation technique(s) used to measure fair
value. As permitted by the additional guidance, we elected to early adopt the
additional guidance in the first quarter of 2009. Our adoption of the additional
guidance did not have a material impact on our consolidated financial
statements.




In April
2009, the FASB amended disclosure requirement about the fair value of financial
instruments, to require disclosures about fair value of financial instruments
for interim reporting periods of publicly traded companies as well as in annual
financial statements. As permitted by the standard, we elected to early adopt
the new disclosure requirement in the first quarter of 2009. The new disclosures
are included in Note 11.




In June
2008, the FASB ratified accounting for derivatives and hedging activities, which
specifies that a contract that would otherwise meet the definition of a
derivative, but is both (a) indexed to an entity’s own stock and (b) classified
in stockholders’ equity in the statement of financial position would not be
considered a derivative financial instrument. The new accounting guidance
provides a new two-step model to be applied in determining whether a financial
instrument or an embedded feature is indexed to an issuer’s own stock and thus
able to qualify for the scope exception. Our adoption of new accounting guidance
in our first quarter of 2009 did not have a material impact on our consolidated
financial statements.




In May
2008, the FASB issued new accounting guidance for accounting for convertible
debt instruments that may be settled upon conversion (including partial cash
settlement). The new accounting guidance, which was effective in our first
quarter of 2009, requires the initial proceeds from convertible debt that may be
settled in cash to be bifurcated between a liability component and an equity
component. Our Third Lien Notes do not allow for cash settlement upon conversion
and therefore are excluded from the scope of this new accounting guidance.
Accordingly, our adoption of the new accounting guidance did not have a material
impact on our consolidated financial statements.


70




In March
2008, the FASB issued new accounting guidance which requires enhanced
qualitative disclosures about objectives and strategies for using derivatives,
quantitative disclosures about fair value amounts of gains and losses on
derivative instruments, and disclosures about credit-risk-related contingent
features in derivative agreements. We do not currently transact in derivative
instruments or engage in hedging activities and therefore our adoption of this
new guidance in the first quarter of 2009 did not have an impact on our
consolidated financial statements.




In
December 2007, the FASB issued amended accounting guidance for noncontrolling
interests in consolidated financial statements. The amended accounting guidance
establishes accounting and reporting standards for ownership interests in
subsidiaries held by parties other than the parent, the amount of consolidated
net income attributable to the parent and to the noncontrolling interest,
changes in a parent’s ownership interest, and the valuation of retained
noncontrolling equity investments when a subsidiary is deconsolidated. The
amended accounting guidance also establishes disclosure requirements that
clearly identify and distinguish between the interests of the parent and the
interests of the noncontrolling owners. Our adoption of the amended accounting
guidance in 2009 did not have a material impact on our consolidated financial
statements.  Our adoption of the presentation and disclosure
requirements has been applied on a retrospective basis for all periods presented
in the consolidated financial statements and notes thereto.




2.
            Wireless
      Spectrum Licenses




Wireless
spectrum licenses consist of the following:


January
      2, 2010
            
            
            December
      27, 2008(dollars
      in thousands)
            
            Weighted
      Average Life
                (in
      years)
            
            
            Gross
      Carrying Amount
            
            
            Accumulated
      Amortization
            
            
            Weighted
      Average Life
                (in
      years)
            
            
            Gross
      Carrying Amount
            
            
            Accumulated
      AmortizationAmortized
      and leased wireless spectrum licenses held by:Continuing
      operations
            
            
            15.1
            
            
            $
            93,042
            
            
            $
            (24,055
            )
            
            
            15.1
            
            
            $
            93,043
            
            
            $
            (16,392
            )Discontinued
      operations
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            13.4
            
            
            
            30,881
            
            
            
            (4,173
            )Total
            
            
            15.1
            
            
            
            93,042
            
            
            
            (24,055
            )
            
            
            14.7
            
            
            
            123,924
            
            
            
            (20,565
            )Wireless
      spectrum licenses not subject to amortization held by continuing
      operations
            
            
            
            
            
            
            340,169
            
            
            
            
            
            
            
            
            
            
            
            339,056Total
      wireless spectrum licenses, net, held by:Continuing
      operations
            
            
            
            
            
            
            409,156
            
            
            
            
            
            
            
            
            
            
            
            415,707Discontinued
      operations
            
            
            
            
            
            
            —
            
            
            
            
            
            
            
            
            
            
            
            26,708Total
            
            
            
            
            
            
            409,156
            
            
            
            
            
            
            
            
            
            
            
            442,415Wireless
      spectrum licenses held for sale
            
            
            
            
            
            
            62,868
            
            
            
            
            
            
            
            
            
            
            
            112,741Total
      wireless spectrum licenses
            
            
            
            
            
            $
            472,024
            
            
            
            
            
            
            
            
            
            
            $
            555,156




Of the
wireless spectrum licenses not subject to amortization and wireless spectrum
licenses held for sale at January 2, 2010, $95.1 million represents deferred tax
liabilities determined in accordance with accounting standards for acquired
temporary differences in certain purchase transactions that are not accounted
for as business combinations. The estimated aggregate amortization expense for
amortized and leased wireless spectrum licenses as of January 2, 2010 is
expected to be $7.7 million, $7.6 million, $7.4 million, $7.4 million, $7.4
million and $31.5 million during fiscal years 2010, 2011, 2012, 2013, 2014 and
thereafter, respectively.




Dispositions




We
continue to market for sale our wireless spectrum holdings. Any sale or transfer
of the ownership of our wireless spectrum holdings is generally subject to
regulatory approval. We are required to use the net proceeds from the sale of
our wireless spectrum licenses to redeem our Senior Notes, Second Lien Notes and
Third Lien Notes.




During
2009, we completed sales of certain of our owned Advanced Wireless Services
(“AWS”) spectrum licenses in the United States to third parties for net
proceeds, after deducting direct and incremental selling costs, of $26.4 million
and recognized net gains on the sales of $2.7 million. The net proceeds from the
sales received after July 15, 2009 were used to redeem a portion of the Senior
Notes at a redemption price of 102% of the principal amount thereof plus accrued
interest and net proceeds received prior to July 16, 2009 were used to redeem a
portion of the Senior Notes at a redemption price of 105% of the principal
amount thereof plus accrued interest. The premiums paid upon redemption are
charged to interest expense in the accompanying consolidated statements of
operations.




During
2008, we completed the sale of certain of our owned AWS spectrum licenses in the
United States to third parties for net proceeds, after deducting direct and
incremental selling costs, of $145.5 million, and recognized gains on these
sales totaling $70.3 million. The net proceeds from the sales were used to
redeem a portion of the Senior Notes at a redemption price of 105% of the
principal amount thereof plus accrued interest.




We
anticipate that certain of our remaining wireless spectrum licenses will be sold
within the next twelve months. Accordingly, at January 2, 2010, we classified
wireless spectrum holdings with a carrying value of $62.9 million as assets held
for sale, and, in accordance with accounting guidance for assets while held for
sale, we are no longer amortizing these assets. Any net


71




proceeds
from these sales will be used to redeem a portion of the Senior Notes at a
redemption price of 102% of the principal amount thereof plus accrued interest.
As of January 2, 2010, the aggregate net carrying value of our remaining
wireless spectrum license assets that are not considered held for sale was
$409.2 million, which includes $79.1 million of asset value allocated as a
result of related deferred tax liabilities determined in accordance with
accounting guidance for acquired temporary differences in certain purchase
transactions that are not accounted for as business combinations. Unpaid
spectrum lease obligations related to our wireless spectrum holdings aggregated
$42.3 million at January 2, 2010, of which $4.2 million, $4.1 million, $4.1
million, $4.3 million, $4.1 million and $21.5 million is payable during fiscal
years 2010, 2011, 2012, 2013, 2014 and thereafter, respectively.




Impairment
Charges




We
determine fair value of our wireless spectrum licenses utilizing both a market
approach and an income approach. Under the market approach, we determine fair
value through an analysis of sales and offerings of comparable assets, including
the recent sales of our AWS licenses and recent FCC auctions of similar wireless
spectrum. Sales and offering prices for the comparable assets are adjusted to
reflect differences between our wireless spectrum licenses and the comparable
assets, such as location, time and terms of sale, use and utility, trends in
technology and consumer demand, and regulatory issues, that may potentially
affect the value of our wireless spectrum.




Under the
income approach, we determine fair value utilizing a discounted cash flow model
which measures fair value based on the present value of projected cash flows
over a specific projection period and a residual value related to future cash
flows beyond the projection period. Both values are discounted to reflect the
degree of risk inherent in an investment in the asset and achieving the
projected cash flows. A weighted average cost of capital of a market participant
is used as the discount rate. The residual value is generally determined by
applying a constant terminal growth rate to the estimated net cash flows at the
end of the projection period. The projected cash flows, market penetration rate,
terminal growth rate and weighted average cost of capital used in the model
assume a new entrant in the market and the associated network build-out
requirements.




Through
our continued efforts to sell our remaining domestic spectrum licenses and our
wireless spectrum licenses in Europe and Chile during 2009, we determined that
the carrying value of certain of these spectrum licenses exceeded their fair
value based primarily on bids received and negotiations with third parties
regarding the sale of these licenses, which led to our decision not to pursue
build out obligations in Europe during this time period. Accordingly, during
2009, we wrote-down the carrying value of our domestic spectrum licenses and our
wireless spectrum licenses in Europe and Chile to their estimated fair value and
recognized asset impairment charges of $55.7 million, of which $20.9 million was
reclassified to the loss on business divestitures reported in discontinued
operations, $9.3 million is reported in continuing operations and $25.5 million
is reported in discontinued operations.  Upon the sale of our German
spectrum and the insolvency of our discontinued WiMAX Telecom business in
Austria and Croatia (Note 1) in the fourth quarter of 2009, we reclassified
$20.9 million of spectrum impairment charges recognized through the third
quarter of 2009 to the loss from business divestitures reported in discontinued
operations.




Based on
the 2008 annual impairment assessment performed in October 2008, we determined
that the carrying value of our wireless spectrum licenses in Argentina and Chile
exceeded their fair value, based primarily on advanced negotiations with third
parties regarding the sale of these assets. Accordingly, we wrote-down the
carrying value of our Argentina and Chile wireless spectrum licenses to their
estimated fair value and recognized an asset impairment charge of $13.6 million
which is reported in discontinued operations. Other than the wireless spectrum
licenses in Argentina and Chile, we concluded that our remaining wireless
spectrum licenses were not impaired. As a result of the impairment of our
wireless spectrum licenses in Argentina and Chile, we reduced the associated
deferred tax liabilities, determined in accordance with accounting standards for
acquired temporary differences in certain purchase transactions that are not
accounted for as business combinations, on a pro rata basis resulting in the
recognition of a deferred income tax benefit of $4.3 million, which is reported
in discontinued operations. Accordingly, the net impact to loss from
discontinued operations of the impairment of our wireless spectrum licenses in
Argentina and Chile during 2008 was $9.3 million.




Acquisitions




In April
2008, we acquired all of the outstanding equity interests of Southam Chile SA, a
Chilean corporation, and Sociedad Televisora CBC Limitada, a Chilean limited
liability company (collectively, “Southam Chile”), for cash, including closing
costs, totaling $4.8 million, assumed liabilities of $3.8 million and additional
cash payments of up to $1.7 million upon the occurrence of certain specified
events prior to the third anniversary of the acquisition date. The assets of
Southam Chile were comprised almost entirely of wireless spectrum licenses and,
therefore, the acquisition was accounted for as an asset purchase rather than as
the purchase of a business based on accounting guidance on determining whether a
nonmonetary transaction involves receipt of productive assets or of a business.
The value assigned to the acquired wireless spectrum license asset includes the
cash purchase price of $4.6 million, closing costs of $0.2 million and $3.8
million in assumed liabilities.




In
February 2008, we acquired wireless spectrum licenses located in the San
Francisco, California metro area for initial cash payments and future lease
obligations totaling $28.1 million. The lease agreements have a maximum term of
30 years, including renewals, and will require monthly and annual payments
aggregating $8.0 million over the initial terms of the leases. Amounts paid as
deposits for these agreements totaled $20.0 million at December 29, 2007 and
were included in other noncurrent assets in the accompanying consolidated
balance sheet. The value assigned to the leased wireless spectrum license asset
includes the cash deposit of $20.0 million and the present value of the future
lease payments of $4.9 million.


72









3.
            Asset
      Impairment Charges




Goodwill
and Indefinite-Lived Intangible Assets




We
perform our annual impairment assessment of goodwill and indefinite-lived
intangible assets as of October of each fiscal year at the reporting unit level
using a two-step process. We determined that our reporting units are one level
below our identified operating segments because discrete financial information
is available. The first step of the impairment test involves comparing the fair
values of the applicable reporting units with their aggregate carrying values,
including goodwill. If the carrying amount of a reporting unit exceeds the
reporting unit’s fair value, we then perform the second step of the goodwill
impairment test to determine the amount of the impairment loss. The second step
of the goodwill impairment test involves comparing the implied fair value of the
affected reporting unit’s goodwill with the carrying value of that goodwill. If
the carrying amount of goodwill exceeds the implied fair value of that goodwill,
an impairment loss is recognized in an amount equal to that excess.




At
October 2009, the substantial majority of our goodwill and indefinite-lived
intangible assets of continuing operations, excluding indefinite-lived wireless
spectrum licenses, primarily resided in our PacketVideo reporting unit. For our
2009 annual impairment assessment, we primarily determined fair value under an
income approach that utilizes a discounted cash flow model. The discounted cash
flow model measures fair value based on the present value of projected cash
flows over a specific projection period and a residual value related to future
cash flows beyond the projection period. Both values are discounted to reflect
the degree of risk inherent in an investment in the reporting unit and achieving
the projected cash flows. A weighted average cost of capital of a market
participant is used as the discount rate. The residual value is generally
determined by applying a constant terminal growth rate of a market participant
to the estimated net cash flows at the end of the projection period. Based on
the valuation performed, we concluded that the fair value of the PacketVideo
reporting unit exceeded its carrying value and, accordingly, goodwill and
indefinite-lived intangible assets of continuing operations were not
impaired.




The
projected cash flows utilized in the discounted cash flow model are derived from
our internal forecast of the future operating results and cash flows of our
PacketVideo reporting unit, our strategic business plans and anticipated future
economic and market conditions. There are inherent estimates and assumptions
underlying this information and management’s judgment are required in the
application of this information to the determination of the fair value of the
PacketVideo reporting unit. No assurance can be given that the underlying
estimates and assumptions will materialize as anticipated.




In 2008,
we sold a controlling interest in our IPWireless subsidiary for an upfront cash
payment of $1.1 million. We determined the fair value of our IPWireless
reporting unit based on the cash proceeds received and liabilities assumed in
the sale and concluded that the carrying value of the IPWireless reporting unit
exceeded its fair value. As a result, we compared the implied fair value of the
IPWireless reporting unit’s goodwill with the carrying value of that goodwill
and concluded that the carrying amount of goodwill exceeded the implied fair
value of that goodwill, resulting in an asset impairment charge of $113.0
million.




In 2008
we shutdown our Cygnus reporting unit and determined that the fair value of the
Cygnus reporting unit was nominal. As a result, we compared the implied fair
value of the Cygnus reporting unit’s goodwill with the carrying value of that
goodwill and concluded that the carrying amount of goodwill exceeded the implied
fair value of that goodwill, resulting in an asset impairment charge of $4.7
million.




Upon the
deconsolidation of our Cygnus Canada subsidiary as a result of the acceptance of
the bankruptcy petition during 2008, the goodwill asset impairment charge
totaling $2.3 million was recorded in the loss from business divestitures
reported in discontinued operations.




Other
Long-Lived Assets




In
connection with our global restructuring initiative, we continue to review our
long-lived assets for impairment and, in 2009, determined that indicators of
impairment were present for certain long-lived assets. Accordingly, based on the
accounting guidance for the impairment or disposal of long-lived assets, we
performed an assessment to determine if the carrying value of these long-lived
assets was recoverable through estimated undiscounted future cash flows
resulting from the use of the assets and their eventual
disposition.




The
impaired assets primarily consist of fixed assets utilized in our discontinued
WiMAX Telecom and Global Services businesses and research and development
equipment utilized in our discontinued semiconductor business. Accordingly, the
year ended January 2, 2010, we recognized additional asset impairment charges of
$9.5 million, of which $5.2 million was reclassified to the loss on business
divestitures reported in discontinued operations, $4.1 million is reported as
asset impairment charges in discontinued operations and $0.2 million is reported
as asset impairment charges in continuing operations.




Upon the
insolvency of our discontinued WiMAX Telecom business in Austria (Note 1) in the
fourth quarter of 2009, we reclassified $5.2 million of impairment charges
related to fixed assets that were recognized through the third quarter of 2009
against the loss from business divestitures reported in discontinued
operations.




During
the year ended January 2, 2010 we wrote-off the remaining net book value of the
purchased customer base intangible asset of WiMAX Telecom since we determined
that indicators of impairment existed, and, as a result of this write-off, we
recognized a non-cash charge of $1.6 million, which is reported as an asset
impairment charge in discontinued operations.


73




In
connection with the implementation of our global restructuring initiative in
2008, we reviewed our long-lived assets for impairment and determined that
indicators of impairment were present for the long-lived assets in our Networks
and Semiconductor segments as well as certain other long-lived assets.
Accordingly, we performed an assessment to determine if the carrying value of
these long-lived assets was recoverable through estimated undiscounted future
cash flows resulting from the use of the assets and their eventual
disposition.




For the
long-lived asset recoverability assessment performed during 2008, the
undiscounted cash flows used to estimate the recoverability of the asset
carrying values were based on the estimated future net cash flows to be
generated from the sale or licensing of the assets, less estimated costs to
sell. Based on the analysis, we concluded that the carrying value of certain of
our long-lived assets was not recoverable. The impaired assets primarily consist
of the amortizable purchased intangible assets of our IPWireless, GO Networks
and Cygnus businesses, our Nevada office building and the equipment contained
therein, which is currently held for sale, and leasehold improvements and fixed
assets at vacated facilities. Accordingly, during 2008, we recognized asset
impairment charges of $36.0 million, of which $5.0 million was reclassified to
the loss on business divestitures reported in discontinued operations, $24.2
million is reported as asset impairment charges in discontinued operations and
$6.8 million is reported as asset impairment charges in continuing
operations.




There are
inherent estimates and assumptions underlying the projected cash flows utilized
in the recoverability assessment and management’s judgment are required in the
application of this information to the determination of the recovery value of
the assets. No assurance can be given that the underlying estimates and
assumptions will materialize as anticipated.




4.
            Restructuring
      Charges




As
previously described, in the second half of 2008, we commenced the
implementation of a global restructuring initiative, pursuant to which we have
divested, either through sale, dissolution or closure, our network
infrastructure businesses and our semiconductor business. In connection with our
global restructuring initiative, we have terminated 620 employees worldwide and
vacated seven leased facilities, of which 230 employees were terminated and two
leased facilities were vacated during 2009.




The
following summarizes the restructuring activity for the two years ended January
2, 2010 and the related restructuring liabilities:


(in
      thousands)
            
            Balance
      at Beginning of Year
            
            
            Charges
      to Expense
            
            
            Cash
      Payments
            
            
            Other(1)
            
            
            Balance
      at End of
                YearFor the Year Ended January 2,
      2010Employee
      termination costs
            
            $
            237
            
            
            $
            4,934
            
            
            $
            (5,171
            )
            
            $
            —
            
            
            $
            —Lease
      abandonment and facility closure costs
            
            
            1,616
            
            
            
            984
            
            
            
            (1,611
            )
            
            
            761
            
            
            
            1,750Other
      related costs, including contract termination costs, selling costs and
      legal fees
            
            
            2,668
            
            
            
            3,265
            
            
            
            (5,584
            )
            
            
            —
            
            
            
            349Total
            
            $
            4,521
            
            
            $
            9,183
            
            
            $
            (12,366
            )
            
            $
            761
            
            
            $
            2,099Continuing
      operations(2)
            
            $
            3,492
            
            
            $
            4,026
            
            
            
            
            
            
            
            
            
            
            $
            1,833Discontinued
      operations
            
            
            1,029
            
            
            
            5,157
            
            
            
            
            
            
            
            
            
            
            
            266Total
            
            $
            4,521
            
            
            $
            9,183
            
            
            
            
            
            
            
            
            
            
            $
            2,099For the Year Ended December 27,
      2008Employee
      termination costs
            
            
            
            
            
            $
            8,021
            
            
            $
            (7,105
            )
            
            $
            (679
            )
            
            $
            237Lease
      abandonment and facility closure costs
            
            
            
            
            
            
            2,613
            
            
            
            (1,149
            
            
            
            152
            
            
            
            1,616Other
      related costs, including contract termination costs, selling costs and
      legal fees
            
            
            
            
            
            
            4,812
            
            
            
            (3,644
            )
            
            
            1,500
            
            
            
            2,668Total
            
            
            
            
            
            $
            15,446
            
            
            $
            (11,898
            )
            
            $
            973
            
            
            $
            4,521Continuing
      operations(3)
            
            
            
            
            
            $
            7,673
            
            
            
            
            
            
            
            
            
            
            $
            3,492Discontinued
      operations
            
            
            
            
            
            
            7,773
            
            
            
            
            
            
            
            
            
            
            
            1,029Total
            
            
            
            
            
            $
            15,446
            
            
            
            
            
            
            
            
            
            
            $
            4,521





(1)
            Other
      adjustments during the year ended January 2, 2010 represent the
      reclassification of $1.2 million in deferred charges to long-term
      obligations resulting from the renegotiation of one of our abandoned lease
      liabilities, partially offset by $0.4 million in the reversal of prepaid
      rent and deferred charges.  Other adjustments during the year
      ended December 27, 2008 represent $0.7 million in employee termination
      costs that were assumed by the acquirer upon sale of our subsidiary, $0.2
      million in the reversal of deferred charges and $1.5 million in
      liabilities of our divested subsidiary that were retained by
      us.


(2)
            Included
      in the restructuring charges of continuing operations for the year ended
      January 2, 2010 are $0.3 million for employee termination costs, net
      charges of $0.9 million for lease abandonment and facility closure costs
      related to certain facilities, $2.6 million for costs related to the
      divestiture and closure of discontinued businesses and $0.2 million for
      interest accretion on our long-term obligation of one of our abandoned
      lease liabilities.


(3)
            Included
      in the restructuring charges of continuing operations for the year ended
      December 27, 2008 is $1.8 million for employee termination costs, $1.6
      million of lease abandonment and facility closure costs related to certain
      shared facilities and costs
related


74


to the
divestiture and closure of discontinued businesses totaling $4.2 million.
Restructuring charges of continuing operations also includes $0.1 million of
interest expense accretion on our liability for lease abandonment and facility
closure costs.




5.
            Business
      Divestitures




In
November 2009, we sold the majority of the assets and liabilities of our Inquam
Broadband GmbH subsidiary (“IBG”) to Inquam Holding GmbH (“IHG”), a new limited
liability company formed by the former managing director of IBG, a related party
(see Note 16), for a nominal amount and recognized a $21.4 million net loss from
business divestitures.  In connection with the sale in November 2009,
we entered into various transitional agreements with IHG aggregating $0.5
million.  Upon closing of the sale, we have no remaining obligations
to provide financing to support the ongoing operations of IHG.  Also,
in connection with the sale, we entered into an earn out agreement with IHG that
provides for payment to us upon the occurrence of specified liquidity event,
which includes the sale, lease or contribution of assets to certain third
parties, distribution of profits or sale of equity in IHG.




On
October 30, 2009, the Board of Directors of WiMAX Telecom GmbH, the holding
company for NextWave’s discontinued WiMAX Telecom business in Austria and
Croatia, filed an insolvency proceeding in Austria in accordance with local law
to permit the orderly wind-down of such entity. The court in Austria has entered
an order appointing an administrator to manage the insolvency of WiMAX Telecom
GmbH. As a result of the appointment of the administrator, NextWave no longer
controls WiMAX Telecom GmbH and its subsidiaries and will not receive any
proceeds from the assets of the WiMAX entities. NextWave has obtained a waiver
of events of default resulting from the insolvency filing under its Senior
Notes, Second Lien Notes and Third Lien Notes, including a rescission of the
acceleration of maturity triggered as a result of such filing. Accordingly, we
deconsolidated these three subsidiaries and will no longer include their results
of operations or financial position in our consolidated financial statements on
a prospective basis.




In July
2009, we sold our owned Semiconductor business patents and patent applications
to Wi-Lan Inc, a Canadian intellectual property company, for a cash payment of
$2.5 million and recognized $2.5 million as a gain from business divestitures
during the year ended January 2, 2010.




We sold a
controlling interest in our IPWireless subsidiary in December 2008 for $1.1
million and sold the remaining noncontrolling interest in November 2009 for $0.4
million to IPW Holdings, Inc. (“IPW Holdings”), a related party (see Note 16)
and an affiliate of IPW Holdings. In June 2009, we granted to IPW Holdings and
an affiliate of IPW Holdings a call option to purchase our remaining
noncontrolling interest in IPWireless Inc. for $0.4 million. As consideration
for granting the call option, we received a cash payment of $0.1 million. In
connection with the execution of the call option agreement we also received a
cash payment of $0.5 million during 2009 for reimbursement of
transaction-related expenses associated with our sale the controlling interest
in IPWireless in December 2008. We recognized $1.0 million as a gain from
business divestitures during the year ended January 2, 2010.




In
connection with the sale in December 2008, we entered into various ancillary
transitional and intellectual property licensing agreements with IPWireless,
none of which are material to us. Additionally, the employees of IPWireless
waived any continuing rights under the IPWireless Employee Stock Bonus Plan
established by NextWave. Upon closing of the sale, we have no remaining
obligations to provide financing to support the ongoing operations of
IPWireless.




Although
we believe the re-constituted IPWireless after the initial sale in December 2008
represented a variable interest entity, we concluded that were not the primary
beneficiary as we did not maintain a majority ownership interest, we did not
have the ability to exert significant influence over the decision-making process
at IPWireless, our share of the future losses or residual returns was limited to
our ownership interest which was not the majority and we had no further
obligations to provide financial support. Accordingly, we deconsolidated
IPWireless upon closing of the sale in December 2008 and no longer included the
results of operations or financial position of IPWireless in our consolidated
financial statements subsequent to that date. The carrying value of our
investment in IPWireless at December 27, 2008 of $0.4 million is included in
other noncurrent assets in the accompanying consolidated balance sheet. We
accounted for our residual ownership during 2009 through the date that we sold
the remaining noncontrolling interest using the equity method of accounting and
recognized $0.4 million as a loss in other income (expense), net, in the
consolidated statement of operations representing our share of the net losses of
IPWireless which reduced our residual investment.




Upon
acceptance by the courts of the bankruptcy petitions for our network
infrastructure businesses in Israel, Canada and Denmark in the fourth quarter of
2008, a court-appointed trustee assumed control over the assets and liabilities
with the intent of liquidating the assets for the benefit of the creditors.
Accordingly, we deconsolidated these three subsidiaries and will no longer
include their results of operations or financial position in our consolidated
financial statements on a prospective basis.




During
the year ended January 2, 2010, we recognized a net loss from business
divestitures totaling $22.6 million, which consists of $26.1 million of asset
impairment charges and $0.9 million of losses from the sales of our businesses,
partially offset by $3.6 million in gains from business divestitures and $0.8
million from the deconsolidation of the remaining net liabilities and favorable
net foreign currency translation adjustments of the remaining divested
businesses.




During
the year ended December 27, 2008, we recognized a loss from business
divestitures of $118.4 million, which consists of $120.3 million of asset
impairment charges and $3.7 million of inventory write-downs, offset by $5.6
million from the deconsolidation of the remaining net liabilities of the
divested businesses.


75









6.
            Goodwill
      and Intangible Assets




Goodwill
and intangible assets of continuing operations, excluding wireless spectrum
licenses, consist of the following:


January
      2, 2010
            
            
            December
      27, 2008(dollars
      in thousands)
            
            Weighted
      Average Life
                (in
      years)
            
            
            Gross
      Carrying Amount
            
            
            Accumulated
      Amortization
            
            
            Weighted
      Average Life
                (in
      years)
            
            
            Gross
      Carrying Amount
            
            
            Accumulated
      AmortizationAmortized
      intangible assets:Purchased
      technology
            
            
            6.5
            
            
            $
            17,587
            
            
            $
            9,939
            
            
            
            6.6
            
            
            $
            17,440
            
            
            $
            7,044Purchased
      customer base
            
            
            7.5
            
            
            
            7,875
            
            
            
            4,115
            
            
            
            7.5
            
            
            
            7,840
            
            
            
            3,055Non-compete
      agreements
            
            
            3.8
            
            
            
            3,101
            
            
            
            3,101
            
            
            
            3.8
            
            
            
            3,095
            
            
            
            2,734Purchased
      tradenames and trademarks
            
            
            9.1
            
            
            
            1,076
            
            
            
            359
            
            
            
            9.1
            
            
            
            1,052
            
            
            
            230Other
            
            
            5.7
            
            
            
            276
            
            
            
            127
            
            
            
            6.0
            
            
            
            238
            
            
            
            696.6
            
            
            $
            29,915
            
            
            $
            17,641
            
            
            
            6.6
            
            
            $
            29,665
            
            
            $
            13,132Intangible
      assets not subject to amortization:Goodwill
            
            
            
            
            
            $
            38,899
            
            
            
            
            
            
            
            
            
            
            $
            38,653Purchased
      tradenames and trademarks
            
            
            
            
            
            
            2,400
            
            
            
            
            
            
            
            
            
            
            
            2,400$
            41,299
            
            
            
            
            
            
            
            
            
            
            $
            41,053




Changes
in our goodwill are as follows:




(in
      thousands)
            
            Balance
      at Beginning of Year
            
            
            Adjustments(1)
            
            
            Foreign
      Currency Translation Effect
            
            
            Balance
      at End of YearYear
      Ended January 2, 2010:Continuing OperationsMultimedia
      segment
            
            $
            38,653
            
            
            $
            —
            
            
            $
            246
            
            
            $
            38,899Discontinued
      OperationsStrategic
      Initiatives segment
            
            
            9
            
            
            
            (10
            )
            
            
            1
            
            
            
            —Consolidated
      total
            
            $
            38,662
            
            
            $
            (10
            )
            
            $
            247
            
            
            $
            38,899Year
      Ended December 27, 2008:Continuing OperationsMultimedia
      segment
            
            $
            39,456
            
            
            $
            (244
            )
            
            $
            (559
            )
            
            $
            38,653Discontinued OperationsNetworks
      segment
            
            
            130,974
            
            
            
            (130,974
            )
            
            
            —
            
            
            
            —Strategic
      Initiatives segment
            
            
            626
            
            
            
            (617
            )
            
            
            —
            
            
            
            9Total
      discontinued operations
            
            
            131,600
            
            
            
            (131,591
            )
            
            
            —
            
            
            
            9Consolidated
      total
            
            $
            171,056
            
            
            $
            (131,835
            )
            
            $
            (559
            )
            
            $
            38,662





(1)
            The
      adjustment during the year ended January 2, 2010 reflects our goodwill
      write-off in conjunction with classifying our Inquam businesses, which is
      included in our Strategic Initiatives segment, as discontinued operations
      and held for sale during 2009.  The adjustments during the year
      ended December 27, 2008 in the Multimedia and Strategic Initiatives
      segments primarily reflect the completion of the purchase price allocation
      and asset valuations for acquisitions in prior periods. The adjustment
      during the year ended December 27, 2008 in the Networks segment reflects
      the goodwill write-off in conjunction with the disposal of our Networks
      business.




The
estimated aggregate amortization expense for amortized intangible assets,
excluding wireless spectrum licenses, as of January 2, 2010 is expected to be
$3.9 million, $3.5 million, $2.9 million, $1.6 million, $0.2 million and $0.2
million during fiscal years 2010, 2011, 2012, 2013, 2014 and thereafter,
respectively.




7.
            Other
      Financial Statement Captions




Property
and Equipment






Property
and equipment, net, of continuing operations consists of the
following:




(dollars
      in thousands)
            
            Estimated
                Useful
      Life
                (in
      years)
            
            
            January
      2,
                2010
            
            
            December
      27,
                2008Furniture
      and equipment
            
            
            3-7
            
            
            $
            8,998
            
            
            $
            7,958Purchased
      software
            
            
            3
            
            
            
            6,823
            
            
            
            8,195Leasehold
      improvements
            
            
            5
            
            
            
            632
            
            
            
            1,878Construction
      in progress
            
            
            
            
            
            
            25
            
            
            
            10816,478
            
            
            
            18,139Less:
      Accumulated depreciation
            
            
            
            
            
            
            (12,749
            )
            
            
            (14,048
            )Total
      property and equipment, net
            
            
            
            
            
            $
            3,729
            
            
            $
            4,091







76




Property
and equipment that has been impaired but not yet disposed as of December 27,
2008 is reflected gross in the table above.




Accrued
Expenses




Accrued
expenses of continuing operations consist of the following:




(in
      thousands)
            
            January
      2,
                2010
            
            
            December
      27,
                2008Accrued
      compensation and related expenses
            
            $
            4,347
            
            
            $
            6,685Accrued
      consulting and purchase commitments
            
            
            3,691
            
            
            
            2,509Accrued
      professional fees
            
            
            2,804
            
            
            
            4,365Accrued
      interest
            
            
            2,167
            
            
            
            6,747Accrued
      restructuring
            
            
            349
            
            
            
            2,332Accrued
      acquisition consideration and related costs
            
            
            —
            
            
            
            2,015Other
            
            
            —
            
            
            
            15Total
      accrued expenses
            
            $
            13,358
            
            
            $
            24,668




8.
            Long-Term
      Obligations




Long-term
obligations held by continuing operations consist of the following:




(dollars
      in thousands)
            
            January
      2,
                2010
            
            
            December
      27,
                20087%
      Senior Secured Notes due July 2011, net of unamortized discount of $6,177
      and $20,713 at January 2, 2010 and December 27, 2008,
      respectively
            
            $
            162,076
            
            
            $
            193,47414%
      Senior-Subordinated Secured Second Lien Notes due November 2011, net of
      unamortized discount of $13,182 and $16,951 at January 2, 2010 and
      December 27, 2008, respectively
            
            
            127,573
            
            
            
            91,5057.5%
      Third Lien Subordinated Secured Convertible Notes due December 2011, net
      of unamortized discount of $134,230 and $185,382 at January 2, 2010 and
      December 27, 2008, respectively
            
            
            389,869
            
            
            
            300,685Wireless
      spectrum leases, net of unamortized discounts of $16,556 and $18,973 at
      January 2, 2010 and December 27, 2008, respectively; weighted average
      imputed interest rates of 10.87% and 10.32% at January 2, 2010 and
      December 27, 2008, respectively; expiring from 2011 through 2036 with one
      to five renewal options ranging from 10 to 15 years each
            
            
            25,768
            
            
            
            24,419Collateralized
      non-recourse bank loan with interest at 30-day LIBOR plus 0.25%; principal
      and interest due upon sale of auction rate securities; secured by auction
      rate securities
            
            
            21,406
            
            
            
            21,459Other
            
            
            1,412
            
            
            
            1,322Long-term
      obligations
            
            
            728,104
            
            
            
            632,864Less
      current portion
            
            
            (86,154
            )
            
            
            (136,567
            )Long-term
      portion
            
            $
            641,950
            
            
            $
            496,297




Payments
due on these obligations and those held by discontinued operations during each
of the five years subsequent to January 2, 2010 are as follows:




(in
      thousands)
            
            Continuing
      Operations
            
            
            Discontinued
      Operations
            
            
            TotalFiscal
      Years:2010
            
            $
            88,462
            
            
            $
            —
            
            
            $
            88,4622011
            
            
            251,687
            
            
            
            —
            
            
            
            251,6872012
            
            
            528,175
            
            
            
            —
            
            
            
            528,1752013
            
            
            4,299
            
            
            
            1,261
            
            
            
            5,5602014
            
            
            4,121
            
            
            
            1,472
            
            
            
            5,593Thereafter
            
            
            21,505
            
            
            
            1,472
            
            
            
            22,977Total
      payments
            
            
            898,249
            
            
            
            4,205
            
            
            
            902,454Less
      unamortized discount
            
            
            (170,145
            )
            
            
            —
            
            
            
            (170,145
            )Less
      current portion
            
            
            (86,154
            )
            
            
            —
            
            
            
            (86,154
            )Total
      long-term obligations
            
            $
            641,950
            
            
            $
            4,205
            
            
            $
            646,155




Effective
as of March 16, 2010, we entered into the Amendment and Limited Waiver
(Note 1) to the agreements governing our Senior Notes, Second Lien Notes and
Third Lien Notes.  Pursuant to the Amendment and Waiver, the maturity
date of our Senior Notes was extended from July 17, 2010 to July 17, 2011, with
an additional extension to October 17, 2011 if certain conditions are met,
including the pendency of asset sales that would yield net proceeds sufficient
to repay all then-outstanding Senior Notes.  In addition, the maturity
date of our Second Lien Notes was extended from December 31, 2010 to November
30, 2011.  As a result of the Amendment and Waiver, the interest
payable on our Senior Notes and Second Lien Notes was increased to a rate of 15%
per annum


77




beginning
March 16, 2010 and the interest payable on our Third Lien Notes was increased to
a rate of 12% per annum beginning March 16, 2010, increasing 1% per annum on
each of December 31, 2010, March 30, 2011, June 30, 2011 and September 30, 2011
to a maximum of 16%.  After giving effect to the Amendment and Waiver,
all Notes will receive only payment-in-kind interest for the full term of such
Notes, unless we elect to pay cash interest, and the redemption premium on the
Notes was eliminated. As a result of the Amendment and Waiver, we classified
$62.9 million of the long term obligations as current obligations based on our
estimated repayment obligation upon the sale of our Held For Sale assets as
required by the Senior Notes, Second Lien Notes, and Third Lien Notes. In
addition, under the Amendment and Waiver, we will be entitled to incur
additional indebtedness under the Senior Notes up to an aggregate principal
amount of $25.0 million (and any increases due to the payment in kind of
interest thereon).  The Amendment and Waiver reduced the requirement
to maintain a minimum cash balance from $5 million to $1 million and, after
payment in full of certain designated Senior Notes (the “Priority Notes”) with
an aggregate principal amount of $51.6 million at January 2, 2010, permits us to
retain up to $37.5 million for general working capital purposes and permitted
investments, subject to reduction in the amount of any net proceeds from the
issuance of additional Senior Notes pursuant to the $25.0 million additional
financing described below. As consideration for the Amendment and Waiver, we
paid an amendment fee to each Holder through the issuance of additional Notes
under the applicable Note Agreements in an amount equal to 2.5% of the
outstanding principal and accrued and unpaid interest on such Holder’s existing
Notes as of March 16, 2010. The Fee Notes were paid on March 16, 2010 by the
issuance of $4.3 million in Senior Notes, $3.6 million in Second Lien Notes and
$13.3 million in Third Lien Notes and will accrue interest and become payable in
accordance with the terms of the respective Note Agreements.




In
connection with the Amendment and Waiver, we entered into a binding commitment
letter (the “Commitment Letter”) with Avenue Capital Management II, L.P., acting
on behalf of its managed investment funds signatory thereto, and Solus Core
Opportunities Master Fund Ltd and its affiliates and co-investors, to provide up
to $25.0 million in additional financing through the purchase of additional
Senior Notes (the “Senior Incremental Notes”).  The terms of the Commitment
Letter provide that we will be entitled to borrow up to $25.0 million in
one or more borrowings after March 16, 2010 but prior to July 31, 2010, upon 10
business days notice and subject to the execution of definitive documentation
substantially in the form of the definitive agreements governing our existing
indebtedness.  Such agreements will require us to make customary
representatives and warranties as a condition to each borrowing. As with the
other Senior Notes, amounts outstanding under the Senior Incremental Notes will
bear interest at a rate of 15% per annum, payable in kind unless we elects to
pay cash, and will be secured by a first lien on the same assets securing our
Senior Notes, on a pari passu basis.   No commitment fee or
structuring fee is payable in connection with the Commitment
Letter.




7%
Senior Secured Notes due July 2011




In July
2006, we issued our Senior Notes due July 17, 2011 in the aggregate principal
amount of $350.0 million at a 15% original issue discount. Interest is payable
semiannually in cash. The Senior Notes are secured by a first priority lien on
North American wireless spectrum licenses with a book value of $368.1 million as
well as pledges of shares in our material subsidiaries and the proceeds from any
disposal of foreign spectrum holdings.




We may
redeem the Senior Notes at any time at our option and we are required to redeem
the Senior Notes using the net proceeds from any asset sales, including sales of
our wireless spectrum licenses. We are also required to offer to redeem the
Senior Notes upon the occurrence of a change in control. Accordingly, during the
years ended January 2, 2010 and December 27, 2008, we used the proceeds from the
sale of our noncontrolling interest in our PacketVideo subsidiary in 2009 (Note
16) and the sales of our AWS spectrum licenses (Note 2) to redeem $60.0 million
and $135.8 million, respectively, of the principal balance of the Senior Notes
plus accrued interest thereon. In accordance with the terms of the Senior Notes,
we paid redemption premiums totaling $2.9 million and $6.8 million during the
years ended January 2, 2010 and December 27, 2008, respectively, representing 5%
of the principal amount redeemed prior to July 16, 2009 and 2% of the principal
amount redeemed subsequent to July 15, 2009, which was charged to interest
expense in the consolidated statements of operations.




The costs
incurred to issue the Senior Notes were deferred and are included in prepaid
expenses and other current assets and other noncurrent assets in the
consolidated balance sheet. We are amortizing the deferred financing costs over
the expected term of the Senior Notes using the effective interest
method.  We recognized charges to interest expense of $15.0 million
and $11.9 million during the years ended January 2, 2010 and December 27, 2008,
respectively, for the debt discount and debt issuance costs associated with the
redeemed principal.




In
connection with the issuance of the Senior Notes, we issued detachable warrants
to purchase an aggregate of 4.1 million shares of our common stock at an
exercise price of $0.01 per share to the purchasers of the Senior Notes. During
the year ended January 2, 2010 warrants to purchase 1.9 million shares of common
stock were exercised for 46,000 net common shares withheld. No warrants remain
outstanding at January 2, 2010 under this issuance.




In March
2008, we amended the purchase agreement for the Senior Notes in order to allow
us to withdraw up to the full amount of the $75.0 million cash reserve account
established as collateral for the Senior Notes for use in funding our business
plan, subject to the payment of a consent fee of $3.5 million per $25.0 million
withdrawn. During 2008, we withdrew the full $75.0 million from the cash reserve
account and paid consent fees totaling $10.5 million, which are included in
interest expense in the accompanying consolidated statement of
operations.


78




Under the
terms of the purchase agreements for our Senior Notes and Second Lien Notes, we
were required to enter into binding agreements to effect asset sales generating
net proceeds of at least $350 million no later than March 31, 2009 and
consummate such sales no later than six months following execution of such
agreements, unless closing is delayed solely due to receipt of pending
regulatory approvals (the “Asset Sale Condition”). We did not meet the Asset
Sale Condition. As a result, pursuant to the terms of the note purchase
agreements, the interest rate on the Senior Notes increased by 200 basis points
effective March 31, 2009 and, on April 8, 2009, we issued additional warrants to
purchase an aggregate of 10.0 million shares of our common stock at an exercise
price of $0.01 per share to the purchasers of the Second Lien Notes. Of the
warrants issued, 7.5 million were issued to Avenue AIV US, L.P., a related party
(Note 16). During the year ended January 2, 2010 Avenue AIV US, L.P exercised
all of these warrants to purchase 7.4 million shares of common stock for 0.1
million net common shares withheld.  The remaining 2.5 million
warrants are exercisable at any time through April 6, 2012. The grant-date fair
value of the warrants, which totaled $1.7 million, was recorded to additional
paid-in capital and reduced the carrying value of the Second Lien Notes, and is
recognized as additional interest expense over the remaining term of the Second
Lien Notes. We determined the grant-date fair value of these warrants using the
Black-Scholes option pricing model with the following assumptions: a stock price
volatility of 110%, an expected life equal to the contractual term of the
warrants and a risk-free interest rate of 1.3%.




On April
1, 2009, we obtained an amendment and waiver from the holders of our Senior
Notes, Second Lien Notes, and Third Lien Notes that waived certain events of
default relating to timely delivery of a new operating budget, permits us to
issue up to $25 million of indebtedness on a pari passu basis with our Second
Lien Notes, and allows us to pay certain holders of our Senior Notes
payment-in-kind interest at a rate of 14% through March 16, 2010. As of January
2, 2010, we have accrued for $14.1 million in payment-in-kind interest which has
been added to the outstanding principal balance of our Senior Notes in the
consolidated balance sheet.




Additionally,
under the terms of the purchase agreements, our monthly cash balance may not
deviate negatively by more than 10% from the forecasted cash balance previously
reported to the noteholders (the “Budget Condition”). Failure to satisfy the
Minimum Balance Condition is an event of default. Failure to satisfy the Budget
Condition (on a aggregate basis) for two consecutive month-ends is an event of
default provided, however, if the Named Business Condition is satisfied as of
such month-end, it will not be an event of default until the Budget Condition
(on an aggregate basis) continues not to be satisfied for three consecutive
month-ends. “Named Business Condition” means we shall cease to provide cash or
any other type of support for or to be liable with respect to, any of certain
specified businesses for which our Operating Budget had indicated that such
businesses would no longer require any such resources. Failure to satisfy any
part of the Named Business Condition for two consecutive months is an event of
default. An event of default results in an immediate 200 basis point increase in
the interest rate on the Senior Notes.




The March
2010 Amendment and Waiver provides that the net proceeds from specified asset
sales be used first for redemption of the Priority Notes. At January 2, 2010,
the outstanding principal balance, net of unamortized discounts, of the Priority
Notes was $49.7 million, and accordingly, based on anticipated asset sales
during 2010, we reclassified $49.7 million as current portion of long-term
obligations in the accompanying consolidated balance sheet.




At
December 27, 2008 we were required to redeem the Senior Notes using the proceeds
from any assets sales, and, accordingly, we classified $112.7 million of the
remaining unpaid principal balance of the Senior Notes at December 27, 2008 as
current portion of long-term obligations in the accompanying consolidated
balance sheet, which represents the carrying value of our wireless spectrum
assets that are classified as held for sale at December 27, 2008.




14%
Senior-Subordinated Secured Second Lien Notes due November 2011




On
October 9, 2008, we issued the Second Lien Notes in the aggregate principal
amount of $105.3 million. The Second Lien Notes were issued at a 5% original
issue discount, resulting in gross proceeds of $100.0 million. After payment of
transaction-related fees and expenses and commitment fees paid to the purchasers
at closing of $12.5 million, we received net proceeds of $87.5 million to be
used solely in connection with the ordinary course business operations and not
for any acquisition of assets or businesses or other uses. The costs incurred to
issue the Second Lien Notes were deferred and are included in other noncurrent
assets in the consolidated balance sheet. We are amortizing the deferred
financing costs, the original issue discount and the debt discount associated
with the detachable stock warrants described below over the expected term of the
Second Lien Notes using the effective interest method. Interest is payable
quarterly through the issuance of additional Second Lien Notes until repayment
of the Senior Notes and, thereafter, in cash. During the years ended January 2,
2010 and December 27, 2008, we issued additional Second Lien Notes with a
principal amount of $17.3 million and $3.2 million, respectively, in payment of
interest accrued on the Second Lien Notes during the respective periods. The
Second Lien Notes are secured by a second priority lien on wireless spectrum
licenses with a book value of $368.1 million at January 2, 2010 and pledges of
shares in our material subsidiaries, subordinated to the holders of the Senior
Notes.




On July
2, 2009, we issued additional Second Lien Notes due 2010 in the aggregate
principal amount of $15.0 million, on the same financial and other terms
applicable to our existing Second Lien Notes. The Second Lien Incremental Notes
were issued with an original issuance discount of 5% resulting in gross proceeds
of $14.3 million. After payment of transaction related expenses, we received net
proceeds of $13.5 million to be used solely in connection with the ordinary
course operations of our business and not for any acquisition of assets or
businesses or other uses. The incremental purchaser was Avenue AIV US, L.P. We
issued the Second Lien


79




Incremental
Notes as an alternative to the working capital financing contemplated by the
commitment letter we previously entered into with Navation, Inc., an entity
controlled by Allen Salmasi, our Chairman.




The
Second Lien Notes are due on the maturity date of November 30, 2011, and are
subordinated in right of payment to the Senior Notes. We may redeem the Second
Lien Notes at any time at our option and we are required to redeem the Second
Lien Notes using the proceeds from any asset sales, including sales of our
wireless spectrum licenses. We are also required to offer to redeem the Second
Lien Notes upon the occurrence of a change in control. Upon redemption, in
addition to the principal and accrued unpaid interest thereon, we must pay
additional interest based on the present value of the interest payable on the
Second Lien Notes through maturity discounted to the redemption date at the then
applicable U.S. Treasury rate plus 0.5%.




The
purchase agreement for the Second Lien Notes also contains the Minimum Balance
Condition and the Budget Condition. The implications of a failure to satisfy the
Minimum Balance Condition and the Budget Condition under the Second Lien Notes
purchase agreement results in similar consequences as the Senior
Notes.




In
connection with the issuance of the Second Lien Notes, we issued detachable
warrants to purchase an aggregate of 40.0 million shares of our common stock at
an exercise price of $0.01 per share to the purchasers of the Second Lien Notes,
of which warrants to purchase 30.0 million shares were issued to Avenue AIV US,
L.P. During the year ended January 2, 2010 Avenue AIV US, L.P exercised all of
these warrants to purchase 29.4 million shares of common stock for 0.6 million
net common shares withheld.  The remaining 10.0 million warrants are
exercisable at any time through October 9, 2011. The grant-date fair value of
the warrants of $12.4 million was recorded to additional paid-in capital and
reduced the carrying value of the Second Lien Notes. We determined the
grant-date fair value of the warrants using the Black-Scholes option pricing
model with the following assumptions: a stock price volatility of 50%, an
expected life equal to the contractual term of the warrants and a risk-free
interest rate of 1.9%.  In connection with the issuance of the Second
Lien Incremental Notes in July 2009 to Avenue AIV US, L.P. we issued warrants to
purchase 7.5 million shares of our common stock at an exercise price of $0.01
per share. During the year ended January 2, 2010 Avenue AIV US, L.P exercised
all of these warrants to purchase 7.4 million shares of common stock for 0.1
million net common shares withheld.  The grant-date fair value of the
warrants, which totaled $3.5 million, was recorded to additional paid-in capital
and reduced the carrying value of the Second Lien Notes, and is recognized as
additional interest expense over the remaining term of the Second Lien
Notes.  We determined the grant-date fair value of these warrants
using the Black-Scholes option pricing model with the following assumptions: a
stock price volatility of 114%, an expected life equal to the contractual term
of the warrants and a risk-free interest rate of 1.5%.




The
requirements to redeem the Second Lien Notes upon an asset sale and a change in
control constitute embedded derivatives. Accordingly, we have bifurcated the
estimated fair value of each embedded derivative from the fair value of the
Second Lien Notes upon issuance, and recognized subsequent changes in the fair
value of the embedded derivatives against income. We measured the estimated fair
value of the Second Lien Notes embedded derivatives using a probability-weighted
discounted cash flow model, which includes management assumptions of the
probability of occurrence of a redemption of the Second Lien Notes upon an asset
sale and a change in control. The initial estimated fair value of the Second
Lien Notes embedded derivatives of $0.8 million was recorded as a reduction in
the carrying value of the Second Lien Notes and the estimated fair values of the
embedded derivatives of $9.9 million and $1.0 million at January 2, 2010 and
December 27, 2008 are reported in other current liabilities and other long-term
liabilities in the accompanying consolidated balance sheets, respectively.
Changes in the estimated fair value of the embedded derivatives of $8.8 million
and $0.2 million during the years ended January 2, 2010 and December 27, 2008,
respectively, were recognized as charges to other income (expense) in the
accompanying consolidated statements of operations.




7.5%
Third Lien Subordinated Secured Convertible Notes due December 2011




On
October 9, 2008, we also issued the Third Lien Notes in the aggregate principal
amount of $478.3 million in exchange for all of the outstanding shares of our
Series A Preferred Stock. We did not receive any proceeds from the issuance of
the Third Lien Notes. At issuance, the Third Lien Notes were recorded at their
estimated fair value of $283.0 million, resulting in a $195.3 million discount,
which we are amortizing over the expected term of the Third Lien Notes using the
effective interest method. Interest is payable quarterly through the issuance of
additional Third Lien Notes until repayment of the Senior Notes and Second Lien
Notes and, thereafter, in cash. During the years ended January 2, 2010 and
December 27, 2008, we issued additional Third Lien Notes with a principal amount
of $38.0 million and $7.8 million, respectively, in payment of interest accrued
on the Third Lien Notes during the respective periods. The Third Lien Notes are
convertible at any time at the option of the holders into shares of our common
stock at a conversion rate of $11.05 per share. The Third Lien Notes are secured
by a third priority lien on wireless spectrum licenses with a book value of
$368.1 million at January 2, 2010 and pledges of shares in our material
subsidiaries, subordinated to the holders of the Senior Notes and Second Lien
Notes.




The Third
Lien Notes are due on the maturity date of December 31, 2011 and are
subordinated in right of payment to the Senior Notes and Second Lien Notes. We
may redeem the Third Lien Notes at any time at our option and we are required to
redeem the Third Lien Notes using the proceeds from any asset sales, including
sales of our wireless spectrum licenses. We are also required to offer to redeem
the Third Lien Notes upon the occurrence of a change in control. Only principal
and accrued unpaid interest thereon is due upon redemption.


80




The
purchase agreement for the Third Lien Notes does not contain the Asset Sales
Condition, the Minimum Balance Condition or the Budget Condition.




The
requirements to redeem the Third Lien Notes upon an asset sale and a change in
control constitute embedded derivatives. Accordingly, we have bifurcated the
estimated fair value of each embedded derivative from the fair value of the
Third Lien Notes upon issuance, and recognized subsequent changes in the fair
value of the embedded derivatives against income. We measured the estimated fair
value of the Third Lien Notes embedded derivatives using a probability-weighted
discounted cash flow model, which includes management assumptions of the
probability of occurrence of a redemption of the Third Lien Notes upon an asset
sale and a change in control. The initial estimated fair value of the Third Lien
Notes embedded derivatives of $9.4 million was recorded as a reduction in the
carrying value of the Third Lien Notes and the estimated fair values of the
embedded derivatives of $9.6 million and $10.8 million at January 2, 2010 and
December 27, 2008, respectively, are reported in other long-term liabilities in
the accompanying consolidated balance sheets. Changes in the estimated fair
value of the embedded derivatives of $1.4 million and $(1.4) million during the
years ended January 2, 2010 and December 27, 2008, respectively, were recognized
as credits (charges) to other income (expense) in the accompanying consolidated
statements of operations.




At
January 2, 2010, we were in compliance with all of our debt
covenants.




On April
1, 2009, we obtained a waiver from the holders of our Senior Notes, Second Lien
Notes, and Third Lien Notes that adjusts the Minimum Balance Condition from $15
million to $5 million, waives certain events of default relating to timely
delivery of a new operating budget, permits us to issue up to $25 million of
indebtedness on a pari passu basis with our Second Lien Notes, and allows us to
pay certain holders of our Senior Notes payment-in-kind interest at a rate of
14% through March 16, 2010.




Wireless
Spectrum Lease Obligations




Certain
of our wireless spectrum lease arrangements provide for the payment of royalties
based on 0.25% of gross revenues, realized on the use of the spectrum subject to
a cap ranging from 100% to 150% of the annual spectrum lease payments.
Additionally, our domestic wireless EBS spectrum lease agreements require us to
construct, operate and maintain wireless services so as to satisfy the FCC’s
substantial service deadline by May 1, 2011. Certain agreements require
us to make network connections available for the lessor’s use that are
equivalent to a specified percentage of the transmission capacity
created.




9.
            Fair
      Value Measurements




We
adopted a new fair value measurement accounting standard in the first quarter of
2008, which establishes a three-tier fair value hierarchy and prioritizes the
inputs used in measuring fair value. These tiers include: Level 1, defined as
observable inputs such as quoted market prices in active markets; Level 2,
defined as inputs other than quoted prices in active markets that are either
directly or indirectly observable; and Level 3, defined as unobservable inputs
in which little or no market data exists, therefore requiring an entity to
develop its own assumptions.




Assets
and Liabilities Measured at Fair Value on a Recurring Basis




The
following table summarizes our assets and liabilities that require fair value
measurements on a recurring basis and their respective input levels based on the
fair value hierarchy:


Fair
      Value Measurements Using:(in
      thousands)
            
            Fair
      Value
            
            
            Quoted
      Market Prices for Identical Assets
                (Level
      1)
            
            
            Significant
      Other Observable Inputs
                (Level
      2)
            
            
            Significant
      Unobservable Inputs
                (Level
      3)At January 2, 2010Cash
      and cash equivalents
            
            $
            20,512
            
            
            $
            20,512
            
            
            $
            —
            
            
            $
            —Auction
      rate securities(1)
            
            
            24,023
            
            
            
            —
            
            
            
            —
            
            
            
            24,023Auction
      rate securities rights(2)
            
            
            1,227
            
            
            
            —
            
            
            
            —
            
            
            
            1,227Embedded
      derivatives (3)
            
            
            19,504
            
            
            
            —
            
            
            
            —
            
            
            
            19,504At December 27, 2008Cash
      and cash equivalents
            
            $
            60,848
            
            
            $
            60,848
            
            
            $
            —
            
            
            $
            —Auction
      rate securities(1)
            
            
            24,870
            
            
            
            4,072
            
            
            
            —
            
            
            
            20,798Auction
      rate securities rights(2)
            
            
            4,210
            
            
            
            —
            
            
            
            —
            
            
            
            4,210Embedded
      derivatives (3)
            
            
            11,760
            
            
            
            —
            
            
            
            —
            
            
            
            11,760





(1)
            Included
      in restricted cash and marketable securities in the accompanying
      consolidated balance sheet.


(2)
            Included
      in other noncurrent assets in the accompanying consolidated balance
      sheet.


(3)
            Included
      in other current and long-term liabilities in the accompanying
      consolidated balance sheet.




Auction Rate
Securities. At January 2, 2010 and December 27, 2008, we estimated the
fair value of our auction rate securities, which we have classified as trading
securities under debt and equity securities accounting guidance, using a
discounted cash flow model (Level 3 inputs), which measures fair value based on
the present value of projected cash flows over a specific period. The values are
then discounted to reflect the degree of risk inherent in the security and
achieving the projected cash flows. The discounted




81




cash flow
model used to determine the fair value of the auction rate securities during
2009 and 2008 utilized discount rates of 2.5% and 7.0%, which represent
estimated market rates of return, and estimated periods until sale and/or
successful auction of the security of one year and five years, respectively. The
determination of the fair value of our auction rate securities also considered,
among other things, the collateralization underlying the individual securities
and the creditworthiness of the counterparty.




Auction Rate Securities
Rights. Our auction rate securities rights allow us to sell our auction
rate securities at par value to UBS at any time during the period of June 30,
2010 through July 2, 2012. We have elected to measure the fair value of the
auction rate securities rights under financial instruments accounting guidance,
which we believe will mitigate volatility in our reported earnings due to the
inverse relationship between the fair value of the auction rate securities
rights and the underlying auction rate securities. At January 2, 2010 and
December 27, 2008, we estimated the fair value of our auction rate securities
rights using a discounted cash flow model, similar to the auction rate
securities (Level 3 inputs). The discounted cash flow models in 2009 and 2008
utilized discount rates of 1.0% and 3.4% and estimated periods until recovery of
less than one year and 1.5 years, respectively, which represents the respective
periods until the earliest date that we can exercise our auction rate securities
rights.




Embedded Derivatives.
Our obligation to redeem the Second Lien Notes and Third Lien Notes upon an
asset sale and a change in control constitute embedded derivatives under
derivatives and hedging accounting guidance. Accordingly, we have bifurcated the
estimated fair value of each embedded derivative from the fair value of the
Second Lien Notes and Third Lien Notes upon issuance, and recognized subsequent
changes in the fair value of the embedded derivatives against income. We
measured the estimated fair value of the Second Lien Notes and Third Lien Notes
embedded derivatives using probability-weighted discounted cash flow models
(Level 3 inputs). The discounted cash flow models utilize management assumptions
of the probability of occurrence of a redemption of the Second Lien Notes and
Third Lien Notes upon an asset sale and a change in control.




We also
had obligations to pay contingent cash dividends and cash premiums upon
redemption or liquidation of the Series A Preferred Stock which also constituted
embedded derivatives. Through the date that we exchanged the Series A Preferred
Stock for the Third Lien Notes, we measured the fair values of these derivatives
at each reporting date and any changes in the estimated fair value of the
embedded derivative were recorded as a charge to other income in the
consolidated statements of operations. The embedded derivatives in the Series A
Preferred Stock were not traded on a public exchange. Accordingly, we determined
the fair value of the Series A Preferred Stock embedded derivatives utilizing a
binomial lattice pricing model. Certain of the inputs in the model are
observable inputs such as the yield rate, risk free rate, credit spread, stock
price and stock price volatility. However, the model also utilizes significant
inputs related to the likelihood of the occurrence of certain events triggering
redemption that are unobservable and are based upon management’s estimates
(Level 3 inputs).




The
following table summarizes the activity in assets and liabilities measured at
fair value on a recurring basis using significant unobservable inputs (Level 3
Inputs – see chart below):




Embedded
      Derivatives(in
      thousands)
            
            Auction
      Rate Securities
            
            
            Auction
      Rate Securities Rights
            
            
            Series
      A Preferred Stock
            
            
            Second
      Lien Notes
            
            
            Third
      Lien Notes
            
            
            TotalBalance
      at December 29, 2007
            
            $
            —
            
            
            $
            —
            
            
            $
            (969
            )
            
            $
            —
            
            
            $
            —
            
            
            $
            (969
            )Transfers
      to Level 3
            
            
            27,254
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            27,254Purchases,
      issuances, sales, exchanges and settlements
            
            
            (2,004
            )
            
            
            —
            
            
            
            1,725
            
            
            
            (793
            )
            
            
            (9,351
            )
            
            
            (10,423
            )Unrealized
      gains (losses) included in other expense, net
            
            
            (4,452
            )
            
            
            4,210
            
            
            
            (756
            )
            
            
            (175
            )
            
            
            (1,441
            )
            
            
            (2,614
            )Balance
      at December 27, 2008
            
            
            20,798
            
            
            
            4,210
            
            
            
            —
            
            
            
            (968
            )
            
            
            (10,792
            )
            
            
            13,248Purchases,
      issuances, sales, exchanges and settlements
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (182
            )
            
            
            (203
            )
            
            
            (385
            )Unrealized
      gains (losses) included in other expense, net
            
            
            3,225
            
            
            
            (2,983
            )
            
            
            —
            
            
            
            (8,778
            )
            
            
            1,419
            
            
            
            (7,117
            ))Balance
      at January 2, 2010
            
            $
            24,023
            
            
            $
            1,227
            
            
            $
            —
            
            
            $
            (9,928
            )
            
            $
            (9,576
            )
            
            $
            5,746




Assets
and Liabilities Measured at Fair Value on a Nonrecurring Basis




The
following table summarizes our assets and liabilities that were measured at fair
value on a nonrecurring basis during the period and their respective input
levels based on the fair value hierarchy contained in fair value measurements
and disclosures accounting guidance:




Fair
      Value Measurements Using:(in
      thousands)
            
            Fair
      Value
            
            
            Quoted
      Market Prices for Identical Assets
                (Level
      1)
            
            
            Significant
      Other Observable Inputs
                (Level
      2)
            
            
            Significant
      Unobservable Inputs
                (Level
      3)
            
            
            Total
      LossesYear Ended  January 2,
      2010Wireless
      spectrum licenses held for sale
            
            $
            62,868
            
            
            $
            —
            
            
            $
            62,868
            
            
            $
            —
            
            
            $
            55,730Property
      and equipment, net(1)
            
            
            11,727
            
            
            
            —
            
            
            
            —
            
            
            
            11,727
            
            
            
            9,477Year Ended December 27, 2008(2)Third
      Lien Notes
            
            $
            283,011
            
            
            $
            —
            
            
            $
            —
            
            
            $
            283,011
            
            
            $
            —





82






(1)
            Includes
      property and equipment of continuing operations of $3.7 million, property
      and equipment of discontinued operations of $3.0 million and property and
      equipment held for sale by discontinued operations of $5.0
      million.


(2)
            The
      FASB delayed the effective date of the fair value measurements and
      disclosures accounting guidance 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 (at least
      annually), to fiscal years beginning after November 15, 2008. Accordingly,
      we only partially adopted the fair value measurements and disclosures
      accounting guidance during 2008 and we did not apply the accounting and
      disclosure provisions to our goodwill, indefinite-lived intangible assets
      and other long-lived assets, including our wireless spectrum licenses,
      which were measured at fair value during fiscal year 2008 until our fiscal
      year 2009.




Wireless Spectrum
Licenses. Through our continued efforts to sell our remaining domestic
AWS spectrum licenses and our wireless spectrum licenses in Europe and Chile, we
determined that the carrying value of these spectrum licenses exceeded their
fair value based primarily on bids received and negotiations with third parties
regarding the sale of these licenses. We estimated the fair value of these
wireless spectrum licenses based on advanced negotiations and submitted bids
from third parties for the purchase of the licenses (Level 2 Inputs).
Accordingly, during the year ended January 2, 2010, we wrote-down the carrying
value of our domestic AWS spectrum licenses and our wireless spectrum licenses
in Europe and Chile to their estimated fair value and recognized asset
impairment charges of $55.7 million, of which $20.9 million was reclassified to
the loss on business divestitures reported in discontinued operations, $9.3
million is reported in continuing operations and $25.5 million is reported in
discontinued operations.




Property and Equipment,
Net. In connection with our global restructuring initiative, we continue
to review our long-lived assets for impairment and, during the year ended
January 2, 2010, determined that indicators of impairment were present for the
long-lived assets in our semiconductor segment as well as certain other
long-lived assets. Accordingly, based on the accounting guidance for impairment
or disposal of long-lived assets, we performed an assessment to determine if the
carrying value of these long-lived assets was recoverable through estimated
undiscounted future cash flows resulting from the use of the assets and their
eventual disposition (Level 3 inputs). Based on the impairment assessment
performed, we determined that the carrying value of our property and equipment
exceeded its estimated fair value and accordingly we recognized asset impairment
charges of $9.5 million, of which $5.2 million was reclassified to the loss on
business divestitures reported in discontinued operations, $4.1 million is
reported as asset impairment charges in discontinued operations and $0.2 million
is reported as asset impairment charges in continuing operations.




Third Lien
Notes.  In October 2008, we issued the Third Lien Notes in the
aggregate principal amount of $478.3 million in exchange for all of the
outstanding shares of our Series A Preferred Stock. We did not receive any
proceeds from the issuance of the Third Lien Notes. At issuance, we measured the
Third Lien Notes at their estimated fair value using a discounted cash flow
model (Level 3 inputs). The discounted cash flow model used to determine the
fair value of the Third Lien Notes utilized a discount rate of 25.5%, which
represents our estimated incremental borrowing rate, including the value
assigned to the detachable stock warrants and the consent fees paid to the
purchasers of the Second Lien Notes which were deducted from the
proceeds.




Fair
Value of Other Financial Instruments




The
carrying amounts of certain of our financial instruments of continuing
operations, including cash and cash equivalents, accounts receivable, accounts
payable, accrued expenses and note payable to bank, approximate fair value due
to their short-term nature. The carrying amounts and fair values of our
long-term obligations of continuing operations are as follows:


January
      2, 2010
            
            
            December
      27, 2008(in
      thousands)
            
            Carrying
      Amount
            
            
            Fair
      Value
            
            
            Carrying
      Amount
            
            
            Fair
      ValueSenior
      Notes
            
            $
            162,076
            
            
            $
            156,438
            
            
            $
            193,474
            
            
            $
            171,822Second
      Lien Notes
            
            
            127,573
            
            
            
            122,070
            
            
            
            91,505
            
            
            
            91,505Third
      Lien Notes
            
            
            389,869
            
            
            
            347,189
            
            
            
            300,685
            
            
            
            300,685Wireless
      spectrum leases
            
            
            25,769
            
            
            
            13,345
            
            
            
            24,419
            
            
            
            16,445




At
January 2, 2010, we determined the fair value of our Notes and wireless spectrum
licenses using a discounted cash flow model with a discount rate of 32.5%, which
represents our estimated incremental borrowing rate as of that date.
At December 27, 2008, we determined the fair value of our Senior Notes and
wireless spectrum licenses using a discounted cash flow model with a discount
rate of 25.5%, which represents our estimated incremental borrowing rate as of
that date.  At December 27, 2008, our Second and Third Lien Notes were
measured using their fair value upon issuance in October 2008.




10.
            Income
      Taxes




Our loss
from continuing operations before income taxes is as follows:


Years
      Ended(in
      thousands)
            
            January
      2,
                2010
            
            
            December
      27,
                2008United
      States
            
            $
            (219,455
            )
            
            $
            (99,237
            )Foreign
            
            
            (819
            )
            
            
            (1,921
            )$
            (220,274
            )
            
            $
            (101,158
            )







83




Our net
income tax benefit, solely from continuing operations, is as
follows:


Years
      Ended(in
      thousands)
            
            January
      2,
                2010
            
            
            December
      27,
                2008Current
      income tax expense:Federal
            
            $
            —
            
            
            $
            —State
            
            
            16
            
            
            
            30Foreign
            
            
            373
            
            
            
            167Total
      current income tax expense
            
            
            389
            
            
            
            197Deferred
      income tax expense (benefit):Federal
            
            
            —
            
            
            
            —State
            
            
            (949
            )
            
            
            (2,189
            )Foreign
            
            
            460
            
            
            
            215Total
      deferred income tax benefit
            
            
            (489
            )
            
            
            (1,974
            )Total
      income tax benefit
            
            $
            (100
            )
            
            $
            (1,777
            )




The tax
effects of the major items recorded as deferred income tax assets and
liabilities for continuing operations are as follows:


(in
      thousands)
            
            January
      2,
                2010
            
            
            December
      27,
                2008Current
      deferred income tax assets:Other
      current deferred income tax assets
            
            $
            8,833
            
            
            $
            12,003Total
      current deferred income tax assets
            
            
            8,833
            
            
            
            12,003Noncurrent
      deferred income tax assets:Net
      operating losses
            
            
            247,483
            
            
            
            197,982Capitalized
      start-up expenses
            
            
            98,349
            
            
            
            83,734Unrealized
      loss on investments
            
            
            88,589
            
            
            
            —Capital
      loss
            
            
            25,864
            
            
            
            27,383Other
      noncurrent deferred income tax assets
            
            
            29,421
            
            
            
            9,640Total
      noncurrent deferred income tax assets
            
            
            489,706
            
            
            
            318,739Total
      current and noncurrent deferred income tax assets
            
            
            498,539
            
            
            
            330,742Noncurrent
      deferred income tax liabilities:Indefinite-lived
      intangible assets
            
            
            (88,958
            )
            
            
            (88,589
            )Debt
      discount
            
            
            (29,378
            )
            
            
            (67,810
            )Other
      noncurrent deferred income tax liabilities
            
            
            (296
            )
            
            
            —Total
      noncurrent deferred income tax liabilities
            
            
            (118,632
            )
            
            
            (156,399
            )Valuation
      allowance
            
            
            (469,390
            )
            
            
            (262,836
            )Net
      deferred income tax liability
            
            $
            (89,483
            )
            
            $
            (88,493
            )




The
valuation allowances as of January 2, 2010 and December 27, 2008 are
attributable to deferred tax assets related primarily to income tax loss
carryforwards, mostly in the U.S., including certain states, as well as start-up
costs and other net deferred tax assets, for which it is more likely than not
that the related tax benefits will not be realized. It is our policy that the
valuation allowance be decreased or increased in the period management
determines that it is more likely than not that the deferred tax assets will be
realized or not.




Reconciliations
of the U.S. federal statutory income tax rate to our effective tax rate for
continuing operations are as follows:


Years
      Ended(in
      thousands)
            January
      2,
                2010
            
            December
      27,
                2008U.S.
      federal statutory rate
            (35.0)%
            
            (35.0)%State
      taxes, net of federal effect
            —
            
            —Foreign
      tax rate differential
            —
            
            0.6Increase
      in valuation allowance
            33.4
            
            33.8Other
            1.5
            
            (1.2)Effective
      tax rate
            (0.1)%
            
            (1.8)%




As of
July 3, 2009, PacketVideo and its U.S. subsidiaries will no longer be part of
the NextWave Wireless Inc. and Subsidiaries U.S. consolidated income tax return
because 35% of PacketVideo’s common stock interest was sold to a third party.
The amount of current and deferred income tax expense is computed on a separate
entity basis for each member of the group based on applying accounting
principles for deferred tax expense (benefit).


84




As of
January 2, 2010, we had approximately $211.3 million of deferred tax assets
associated with federal net operating losses that will begin to expire in 2018.
As of January 2, 2010, we had approximately $32.3 million and $3.8 million of
deferred tax assets from state and foreign net operating loss carryforwards,
respectively, that will begin to expire in 2010. We believe that it is not more
likely than not that the benefit from certain net operating loss carryforwards
will be realized. Therefore, we have provided a full valuation allowance on our
deferred tax assets relating to these federal, state, and foreign net operating
loss carryforwards.




U.S.
income and foreign withholding taxes have not been recognized on the excess of
the amount for financial reporting over the tax basis of investments in foreign
subsidiaries that are essentially permanent in duration. This amount becomes
taxable upon a repatriation of assets from the subsidiary or a sale or
liquidation of the subsidiary. The amount of such temporary differences totaled
$2.6 million at January 2, 2010. Determination of the amount of any unrecognized
deferred income tax liability on this temporary difference is not
practicable.




We have
not recorded any unrecognized tax benefits or related accrued interest or
penalties as of January 2, 2010 or December 27, 2008 in accordance with
accounting standards for uncertainty in income taxes.  Therefore, the
tabular reconciliation of unrecognized tax benefits as well as other required
disclosures is not applicable.  Our policy for recording interest and
penalties on any unrecognized tax benefits in the event such unrecognized
benefits arise in future reporting periods will be to record any interest and
penalty amounts in income tax expense.




We are
subject to taxation in the U.S. and various states and foreign jurisdictions. As
of December 31, 2009, our tax years for 2005, 2006, 2007, 2008 and 2009 are
subject to examination by the tax authorities.  With few exceptions,
as of December 31, 2009, we are no longer subject to U.S. federal, state, local
or foreign examinations by tax authorities for years before 2005.




11.
            Commitments
      and Contingencies




Services
and Other Agreements




We have
entered into various services and related agreements that contain provisions for
certain minimum commitments. Amounts paid by continuing operations under these
contracts, which expire on various dates through 2012, totaled $8.2 million and
$5.6 million during the fiscal years ended January 2, 2010 and December 27,
2008, respectively.




At
January 2, 2010, estimated future minimum payments due under the terms of these
agreements are as follows:


(in
      thousands)
            
            Continuing
      OperationsFiscal
      Years:2010
            
            $
            3,7462011
            
            
            1,2972012
            
            
            1,0192015
      and Thereafter
            
            
            8,280Total
            
            $
            14,342




Operating
Leases




We lease
office and research facilities, cell sites and certain office equipment under
non-cancelable operating leases expiring on various dates through 2016. We
recognize rent expense on a straight-line basis over the respective lease terms.
As a result, any differences between recognized rent expense and required
upfront rental payments upon execution that reduce future rental payments is
recorded as unapplied prepaid rent and any difference between rent expense and
rent payments that are reduced by cash or rent abatements is recognized as
deferred rent. At January 2, 2010, unapplied prepaid rent of continuing
operations totaled $0.1 million and is included in prepaid expenses and other
current assets in the accompanying consolidated balance sheet and deferred rent
of continuing operations totaled $0.2 million, of which $0.1 million is included
in other current liabilities and $0.1 million is included in long-term
liabilities in the accompanying consolidated balance sheet.




Certain
commitments have renewal options extending through the year 2015. Rent expense
under operating leases of or guaranteed by continuing operations was $3.6
million and $8.3 million during the years ended January 2, 2010 and December 27,
2008, respectively.




Future
minimum lease payments under non-cancelable operating leases at January 2, 2010
are as follows:


(in
      thousands)
            
            Continuing
      Operations
            
            
            Discontinued
      Operations
            
            
            TotalFiscal
      Years:2010
            
            $
            1,490
            
            
            $
            84
            
            
            $
            1,5742011
            
            
            1,252
            
            
            
            84
            
            
            
            1,3362012
            
            
            1,007
            
            
            
            68
            
            
            
            1,0752013
            
            
            913
            
            
            
            68
            
            
            
            9812014
            
            
            274
            
            
            
            68
            
            
            
            342Thereafter
            
            
            464
            
            
            
            19
            
            
            
            483$
            5,400
            
            
            $
            391
            
            
            $
            5,791









85




Legal
Proceedings




On
September 16, 2008, a putative class action lawsuit, captioned Sandra Lifschitz,
On Behalf of Herself and All Others Similarly Situated, Plaintiff, v. NextWave
Wireless Inc. et al., Defendants”, was filed in the U.S. District Court for the
Southern District of California against us and certain of our officers. The suit
alleges that the defendants made false and misleading statements and/or
omissions in violation of Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934 and Rule 10b-5 promulgated thereunder. The suit seeks unspecified
damages, interest, costs, attorneys’ fees, and injunctive, equitable or other
relief on behalf of a purported class of purchasers of our common stock during
the period from March 30, 2007 to August 7, 2008. A second putative class action
lawsuit captioned Benjamin et al. v. NextWave Wireless Inc. et al.” was filed on
October 21, 2008 alleging the same claims on behalf of purchasers of our common
stock during an extended class period, from November 27, 2006 through August 7,
2008. On February 24, 2009, the Court issued an Order consolidating the two
cases and appointing a lead plaintiff pursuant to the Private Securities
Litigation Reform Act. On May 15, 2009, the lead plaintiff filed an Amended
Complaint, and on June 29, 2009, we filed a Motion to Dismiss that Amended
Complaint. On March 5, 2010, the Court granted our Motion to Dismiss without
prejudice and permitted the lead plaintiff 21 days from the date of the Order to
file an Amended Complaint.  On March 26, 2010, the lead plaintiff
filed a Second Amended Consolidated Complaint. NextWave intends to file a Motion
to Dismiss in response, but at this time there can be no assurance as to the
ultimate outcome of this litigation.




We were
notified on July 11, 2008 that the former stockholders of GO Networks filed a
demand for arbitration in connection with the February 2008 milestone. In the
demand, the stockholder representative claimed that we owed compensation to the
former stockholders of GO Networks on the basis of GO Networks purportedly
having partially achieved the February 2008 milestone under the acquisition
agreement. The stockholder representative sought damages of $10.4 million.
Further, on December 5, 2008, the stockholder representative amended his demand
and added claims pertaining to the August 2008 milestone. In the claims, the
stockholder representative asserted, among other claims, that we acted in bad
faith in a manner that prevented the achievement of the milestone, and he sought
damages of $12.8 million in connection with these additional claims. We disputed
that the February 2008 milestone has been met and denied any wrongdoing with
respect to the August 2008 milestone. In September 2009, the parties executed a
settlement agreement, aggregating $2.7 million, of which $2.2 million was paid
through the issuance of 2.5 million shares of our common stock and $0.5 million
in cash, and requested that the arbitration panel dismiss the matter with
prejudice.  On October 5, 2009, the American Arbitration Association
closed its file on the matter.




We are
also currently involved in other legal proceedings in the ordinary course of our
business operations. We estimate the range of liability related to pending
litigation where the amount and range of loss can be estimated. We record our
best estimate of a loss when the loss is considered probable. Where a liability
is probable and there is a range of estimated loss with no best estimate in the
range, we record the minimum estimated liability related to the claim. As
additional information becomes available, we assess the potential liability
related to our pending litigation and revise our estimates. As of January 2,
2010, other than the matters described above, we have not recorded any
significant accruals for contingent liabilities associated with our legal
proceedings based on our belief that a liability, while possible, is not
probable. Further, any possible range of loss cannot be estimated at this time.
Revisions to our estimate of the potential liability could materially impact
future results of operations.




Guarantees
and Indemnifications




We
provide indemnifications of varying scope and size to certain customers against
claims of intellectual property infringement made by third parties arising from
the use of our products. We have also entered into indemnification agreements
with our officers and directors. Although the maximum potential amount of future
payments we could be required to make under these indemnifications is unlimited,
to date we have not incurred material costs to defend lawsuits or settle claims
related to these indemnification provisions. Additionally, we have insurance
policies that, in most cases, would limit our exposure and enable us to recover
a portion of any amounts paid. Therefore, we believe the estimated fair value of
these agreements is minimal and likelihood of incurring an obligation is remote.
Accordingly, we have not accrued any liabilities in connection with these
indemnification obligations as of January 2, 2010.




Other




On
October 7, 2008, we received a Staff Deficiency Letter from NASDAQ notifying us
that we were not in compliance with NASDAQ’s Marketplace Rule 5450(a)(1), or the
Rule, because the closing bid price for our common stock had, for the preceding
30 consecutive business days, closed below the minimum $1.00 per share
requirement for continued listing. In accordance with NASDAQ Marketplace Rule
5810(c)(3)(A), we were provided a period of 180 calendar days to regain
compliance. On October 16, 2008, NASDAQ announced that they had suspended the
enforcement of the Rule until January 19, 2009, and as a result, the period
during which we had to regain compliance was extended to July 10, 2009. On
July 15, 2009, NASDAQ announced that they had determined to continue the
temporary suspension of the Rule until July 31, 2009, and as a result, the
period during which we had to regain compliance was extended to January 21,
2010. On January 22, 2010, we received a Staff Determination letter from the
Listing Qualifications Department of NASDAQ indicating that our common stock
would be subject to delisting from The NASDAQ Global Market because of
non-compliance with the Rule, unless we requested a hearing before a NASDAQ
Listing Qualifications Panel (the “Panel”) by the close of business on January
29, 2010.  We requested a hearing on the matter and such hearing
occurred on February 25, 2010.  On March 26, 2010, the Panel granted
our request for continued listing, subject to the conditions that on or before
May 1,


86




2010, we
must inform the Panel that we have filed a proxy statement for our annual
meeting of stockholders including a vote on a reverse stock split in a ratio
sufficient to meet the $1.00 per share requirement for continued listing and on
or before July 21, 2010, we must have evidenced a closing bid price of $1.00 or
more for a minimum of ten prior consecutive trading days.  If we are
unable to meet these exception requirements, the Panel will issue a final
determination to delist and suspend trading of our common stock.




12.
            Series
      A Senior Convertible Preferred Stock and Stockholders’ Equity
      (Deficit)




At
January 2, 2010, we had the following common shares reserved for future issuance
upon the exercise or issuance of the respective equity instruments:


(in
      thousands)Third
      Lien Notes
            47,430Stock
      options:Granted
      and outstanding
            21,161Available
      for future grants
            10,349Warrants
            12,50091,440




The
effect of the change in ownership interest between NextWave and the
noncontrolling interest in subsidiary is as follows:


Years
      Ended(in
      thousands)
            
            January
      2,
                2010
            
            
            December
      27,
                2008Net
      loss attributed to NextWave
            
            $
            (290,181
            )
            
            $
            (429,257
            )Transfers
      from the noncontrolling interest:Increase
      in NextWave’s additional paid-in capital for sale of 35% ownership
      interest in PacketVideo
            
            
            30,954
            
            
            
            —Change
      from net loss attributed to NextWave and transfers from the noncontrolling
      interest
            
            $
            (259,227
            )
            
            $
            (429,257
            )





During
the fourth quarter of 2009, we issued 3.7 million shares of our common stock to
the former shareholders of IPWireless, as a result of the achievement of certain
revenue milestones in 2007 as specified in the acquisition agreement aggregating
$1.6 million, of which $1.2 million was expensed during 2008 and 2007 as
share-based compensation expense and $0.4 million was expensed during the year
ended January 2, 2010 in other non-operating expense for settlement
costs.  Also during the fourth quarter of 2009, as a result of an
arbitration settlement with the former shareholders of GO Networks aggregating
$2.7 million, we issued 2.5 million shares of our common stock, valued at $2.2
million which was expensed as general and administrative expense during the year
ended January 2, 2010 and $0.5 million in cash which was expensed during 2008
and 2007 as share-based compensation expense.




In 2007,
we issued and sold 355,000 shares of our Series A Preferred Stock at a price of
$1,000 per share. The Series A Preferred Stock was issued in a private placement
transaction exempt from the registration requirements of the Securities Act of
1933. On October 9, 2008, we issued our Third Lien Notes in an aggregate
principal amount of $478.3 million in exchange for all of the outstanding shares
of our Series A Preferred Stock.




Costs
incurred to issue our Series A Preferred Stock were deferred and recorded as a
reduction to the reported balance of the preferred stock in the consolidated
balance sheet. The costs were being accreted using the effective interest method
through the mandatory redemption date of the Series A Preferred Stock. The
resulting increases from the accretion of the issue costs and accrued dividends
on the preferred stock are charged against additional paid-in capital and
increase the loss attributed to NextWave common stockholders in the calculation
of net loss per share attributed to NextWave common shares. Upon the exchange of
the Series A Preferred Stock for our Third Lien Notes in October 2008, the
remaining unaccreted costs were charged against additional paid-in
capital.




Holders
of the Series A Preferred Stock were entitled to receive quarterly dividends on
the liquidation preference at a rate of 7.5% per annum. We accrued for $22.8
million in undeclared dividends during fiscal year 2008 through the date of the
exchange.




Our
obligations to pay contingent cash dividends and cash premiums upon redemption
or liquidation of the Series A Preferred Stock constituted embedded derivatives
and were recorded as long-term liabilities in the consolidated balance sheet,
reducing the carrying value of the Series A Preferred Stock. We performed a
final valuation of the Series A Preferred Stock embedded derivatives as of the
exchange date. At October 9, 2008 the estimated fair values of the embedded
derivatives totaled $1.7 million. The change in the estimated fair value of the
embedded derivatives of $0.7 million during fiscal year 2008 through the date of
the exchange was recorded as a charge to other income (expense) in the
accompanying consolidated statements of operations.




Upon
exchange, the aggregate liquidation preference of the Series A Preferred Stock
was $398.6 million and unaccreted issue costs were $3.6 million, for a net
carrying value of $395.0 million. The difference between the fair value of the
Third Lien Notes at issuance, the net carrying value of the Series A Preferred
Stock at exchange and the fair value of the Series A Preferred Stock embedded
derivatives at exchange of $104.3 million has been recorded as an increase to
additional paid-in capital and is reported in the accompanying consolidated
statement of operations during the year ended December 27, 2008 as a reduction
in the net loss applicable to common shares.


87









13.
            Equity
      Compensation Plans




NextWave
Wireless Inc. Equity Compensation Plans




During
the year ended January 2, 2010, we had five share-based compensation plans that
provide for awards to acquire shares of our common stock. At January 2, 2010, we
may issue up to an aggregate of 31.5 million shares of common stock under our
equity compensation plans, of which 21.2 million shares are reserved for
issuance upon exercise of granted and outstanding options and 10.3 million
shares are available for future grants.




In May
2007, concurrent with our acquisition of IPWireless, Inc., we established the
IPWireless, Inc. Employee Stock Bonus Plan whereby participants may receive up
to an aggregate of $7.0 million in shares of our common stock, valued at the
time of issuance, payable upon the achievement of certain revenue milestones in
2007 through 2009 and the continued employment of the participant. In March
2008, we issued 320,698 net shares of our common stock in payment of the bonus.
In connection with our December 2008 sale of a controlling interest in
IPWireless (Note 5), the employees of IPWireless waived any continuing rights
under the plan and, accordingly, no further bonuses are due and
payable.




The
following table summarizes stock option activity during the year ended January
2, 2010:




Number
      of Shares
                (in
      thousands)
            
            
            Weighted
      Average Exercise Price per Share
            
            
            Weighted
      Average Remaining Contractual Term (in years)
            
            
            Aggregate
      Intrinsic Value (in thousands)Outstanding
      at December 27, 2008
            
            
            15,899
            
            
            $
            6.68Granted
            
            
            15,419
            
            
            $
            0.40Exercised
            
            
            (1,238
            )
            
            $
            0.35Canceled
            
            
            (8,927
            )
            
            $
            6.63Outstanding
      at January 2, 2010
            
            
            21,153
            
            
            $
            2.49
            
            
            
            8.0
            
            
            $
            933Exercisable
      at January 2, 2010
            
            
            13,257
            (1)
            
            $
            3.13
            
            
            
            7.1
            
            
            $
            713





(1)
            Options
      issued under the NextWave Wireless Inc. 2005 Stock Incentive Plan are
      exercisable prior to the vesting
date.




The
following table summarizes the unvested stock option activity during the year
ended January 2,
2010:




Number
      of Shares
                (in
      thousands)
            
            
            Weighted
      Average Grant Date Fair Value per ShareUnvested
      at December 27, 2008
            
            
            5,704
            
            
            $
            2.67
            (1)Granted
            
            
            15,419
            
            
            $
            0.34Vested
            
            
            (10,397
            )
            
            $
            0.60
            (1)Canceled
            
            
            (2,821
            )
            
            $
            2.75
            (1)Unvested
      at January 2, 2010
            
            
            7,905
            
            
            $
            0.81
            (1)





(1)
            The
      weighted average grant date fair value per share includes options granted
      prior to January 1, 2006 which have no grant date fair value assigned as
      we adopted new share-based accounting provisions using the prospective
      transition method, whereby we continue to account for unvested equity
      awards to employees outstanding at December 31, 2005 using prior
      accounting provisions which did not result in compensation cost for
      options with an option prices equal to the fair market value of the
      underlying stock, and apply the new share-based accounting provisions to
      all awards granted or modified after that
date.




We
received cash from the exercise of stock options under these plans of $0.4
million and $1.7 million, with no related tax benefits, during the years ended
January 2, 2010 and December 27, 2008 respectively. The intrinsic value of
options exercised during the years ended January 2, 2010 and December 27, 2008,
totaled $0.6 million and $0.4 million, respectively.




We
utilized the Black-Scholes valuation model for estimating the grant or
conversation date fair value of stock awards to employees with the following
assumptions:




Years
      EndedJanuary
      2,
                2010
            
            
            December
      27,
                2008Risk-free
      interest rate
            
            
            2.13%-3.00
            %
            
            
            1.98%-3.47
            %Expected
      term (in years)
            
            
            5.3-6.0
            
            
            
            3.5-10Weighted
      average expected stock price volatility
            
            
            119
            %
            
            
            53
            %Expected
      dividend yield
            
            
            0
            %
            
            
            0
            %Weighted
      average grant-date fair value of options granted
            
            $
            0.34
            
            
            $
            2.80




The
risk-free interest rates are based on the implied yield available on U.S.
Treasury constant maturities in effect at the time of the grant with remaining
terms equivalent to the respective expected terms of the options. We determine
the expected award life based on our historical experience and the expected
award lives applied by certain of our peer companies to determine the expected
life of each grant. We determine expected volatility based primarily on our
historical stock price volatility. The dividend yield of zero is based on the
fact that we have never paid cash dividends and have no present intention to pay
cash dividends on our common stock.


88




We
assumed annualized forfeiture rates of 10% for our options granted during the
years ended January 2, 2010 and December 27, 2008 based on a combined review of
the forfeiture rates applied by peer companies and our historical pre-vesting
forfeiture and employee turnover data. Under the true-up accounting provisions
for share-based payments we will record additional expense if the actual
forfeiture rate is lower than estimated, and will record a recovery of prior
expense if the actual forfeiture rate is higher than estimated.




PacketVideo
Corporation 2009 Equity Incentive Plan




In
August 2009, the board of directors of our PacketVideo subsidiary approved the
PacketVideo Corporation 2009 Equity Incentive Plan which provides for the
issuance of up to 8.2 million shares of PacketVideo common stock for awards that
may be issued under the plan.  The Plan provides for the issuance of
stock options, restricted stock awards and stock appreciation rights to
employees, directors and consultants of PacketVideo.  The options
generally vest over four years and have a maximum contractual term of ten
years.  At January 2, 2010, PacketVideo may issue up to 8.2 million
shares of common stock of PacketVideo, of which 6.4 million are granted and
outstanding options and 1.8 million are available for future
grants.




The
following table summarizes stock option activity under the PacketVideo equity
compensation plan during the year ended January 2, 2010:




Number
      of Shares
                (in
      thousands)
            
            
            Weighted
      Average Exercise Price per Share
            
            
            Weighted
      Average Remaining Contractual Term
                (in
      years)Outstanding
      at December 27, 2008
            
            
            —
            
            
            $
            —
            
            
            
            —Granted
            
            
            6,433
            
            
            $
            2.78
            
            
            
            —Exercised
            
            
            —
            
            
            $
            —
            
            
            
            —Canceled
            
            
            (15
            )
            
            $
            2.78
            
            
            
            —Outstanding
      at January 2, 2010
            
            
            6,418
            
            
            $
            2.78
            
            
            
            6.7Exercisable
      at January 2, 2010
            
            
            —
            
            
            $
            —
            
            
            
            —




The
following table summarizes the unvested stock option activity during the year
ended January 2,
2010:




Number
      of Shares
                (in
      thousands)
            
            
            Weighted
      Average Grant Date Fair Value per ShareUnvested
      at December 27, 2008
            
            
            —
            
            
            $
            —Granted
            
            
            6,433
            
            
            $
            1.49Canceled
            
            
            (15
            )
            
            $
            1.49Unvested
      at January 2, 2010
            
            
            6,418
            
            
            $
            1.49




During
the year ended January 2, 2010, we utilized the Black-Scholes option-pricing
model for estimating the grant-date fair value of the PacketVideo employee stock
awards using a risk-free interest rate of 2.45%, an expected life of 4.6 years,
a stock price volatility of 64% and an expected dividend yield of 0%, resulting
in a weighted average grant-date fair value of $1.49 per share.




The
risk-free interest rates are based on the implied yield available on U.S.
Treasury constant maturities in effect at the time of the grant with remaining
terms equivalent to the respective expected lives of the awards. Because
PacketVideo has a limited history of stock option exercises, we determine the
expected award life of each grant based primarily on the “simplified method”
described in accounting guidance for share-based payments, and the expected
award lives applied by certain of PacketVideo’s peer companies. We determined
expected volatility based primarily on an average of PacketVideo’s peer
companies’ expected stock price volatilities as PacketVideo common stock is not
traded on a public stock exchange. PacketVideo has never paid cash dividends and
has no present intention to pay cash dividends on PacketVideo common stock and
therefore we have assumed a dividend yield of zero.




Share-Based
Compensation Expense




The
following table summarizes our employee share-based compensation expense for all
plans above included in each operating expense line item in our consolidated
statements of operations:




Years
      Ended(in
      thousands)
            
            January
      2,
                2010
            
            
            December
      27,
                2008Cost
      of revenues
            
            $
            915
            
            
            $
            444Engineering,
      research and development
            
            
            1,203
            
            
            
            515Sales
      and marketing
            
            
            273
            
            
            
            215General
      and administrative
            
            
            3,006
            
            
            
            2,470Total
      continuing operations
            
            
            5,397
            
            
            
            3,644Discontinued
      operations
            
            
            505
            
            
            
            8,281Total
      share-based compensation
            
            $
            5,902
            
            
            $
            11,925







89




Total
compensation cost of options granted to employees since January 1, 2006, but not
yet vested as of January 2, 2010, was $14.8 million, which is expected to be
recognized over a weighted average period of 3 years.




Non-Employee
Share-Based Compensation




We issue
stock options, warrants and restricted stock to certain strategic advisors. The
following table summarizes the non-employee stock options and warrants activity
during the year ended January 2, 2010 which are excluded from the tables
above:




Number
      of Shares
                (in
      thousands)
            
            
            Weighted
      Average Exercise Price per Share
            
            
            Weighted
      Average Remaining Contractual Term (in Years)
            
            
            Aggregate
      Intrinsic Value (in Thousands)Outstanding
      at December 27, 2008
            
            
            860
            
            
            $
            6.91
            
            
            
            —
            
            
            $
            —Exercised
            
            
            (500
            )
            
            $
            6.00
            
            
            
            —
            
            
            $
            —Canceled
            
            
            (352
            )
            
            $
            8.24
            
            
            
            —
            
            
            $
            —Outstanding
      at January 2, 2010
            
            
            8
            
            
            $
            5.02
            
            
            
            8.2
            
            
            $
            —Exercisable
      at January 2, 2010
            
            
            4
            
            
            $
            5.02
            
            
            
            8.2
            
            
            $
            —




The
following table summarizes the unvested non-employee stock options and warrants
activity during the year ended January 2, 2010:




(in
      thousands)
            Number
      of SharesUnvested
      at December 27, 2008
            90Vested
            (76)Canceled
            (10)Unvested
      at January 2, 2010
            4




The fair
value assigned to the vested increments of these awards was estimated at the
date of vesting and, for the unvested increments, at the respective reporting
date, using the Black-Scholes option-pricing model with the following
assumptions:




Years
      EndedJanuary
      2,
                2010
            
            
            December
      27,
                2008Risk-free
      interest rate
            
            
            1.59%-3.32
            %
            
            
            1.35%-4.21
            %Expected
      term (in years)
            
            
            7.2-9.2
            
            
            
            7.6-9.9Weighted
      average expected stock price volatility
            
            
            113
            %
            
            
            53
            %Expected
      dividend yield
            
            
            0
            %
            
            
            0
            %Weighted
      average grant-date fair value of options granted
            
            $
            0.16
            
            
            $
            1.59




The fair
value of the unvested increments will be remeasured at the end of each reporting
period until vested, when the final fair value of the vesting increment is
determined.




Share-based
compensation expense from non-employee stock options, warrants and restricted
shares totaled $12,000 and $1.0 million during the years ended January 2, 2010
and December 27, 2008, respectively.




Under an
advisory services agreement, an advisor earned warrant exercise credits totaling
$3.0 million. The warrant exercise credits may be used only as credits against
the exercise price of the warrants. We recognized stock compensation expense
related to the warrant exercise credits of $0.7 million during the year ended
December 27, 2008.  In October 2009, these credits were used to
exercise all of the warrants for 0.5 million shares of common
stock.




14.
            Supplemental
      Cash Flow Information




Supplemental
disclosure of cash flow information, including discontinued operations, is as
follows:




Years
      Ended(in
      thousands)
            
            January
      2,
                2010
            
            
            December
      27,
                2008Cash
      paid for interest
            
            $
            14,999
            
            
            $
            45,771Cash
      paid for income taxes
            
            
            183
            
            
            
            270Noncash
      investing and financing activities:Fair
      value of warrants issued in connection with Second Lien
    Notes
            
            
            5,179
            
            
            
            —Common
      shares issued for arbitration settlement
            
            
            2,200
            
            
            
            —Common
      shares issued for achievement of IPWireless 2007 revenue
      milestones
            
            
            1,615
            
            
            
            —Third
      Lien Notes issued in exchange for Series A Preferred Stock
            
            
            —
            
            
            
            394,985Equity
      interests issued for business acquisitions
            
            
            —
            
            
            
            36,499Fair
      value of warrants issued in connection with the issuance of Third Lien
      Notes
            
            
            —
            
            
            
            12,423Wireless
      spectrum licenses acquired with debt and lease obligations
            
            
            —
            
            
            
            8,636





90







15.
            Segment
      and Geographic Information




As
described in Note 1, as a result of the implementation of our global
restructuring initiative in 2008, we have divested our Inquam business, our
Networks and our Semiconductor segments, and are continuing to divest our WiMAX
Telecom and South American businesses, either through sale, dissolution or
closure. Accordingly, we have reported the results of operations for our entire
Networks and Semiconductor segments and our WiMAX Telecom, Inquam and South
American businesses, which were included in our Strategic Initiatives segment,
as discontinued operations for all periods presented. Our two continuing
reportable segments are as follows:




·
            Multimedia-
      device-embedded multimedia software, media content management platforms,
      and content delivery services delivered through our PacketVideo
      subsidiary.




·
            Strategic
      Initiatives manages our portfolio of licensed wireless spectrum
      assets.




We
evaluate the performance of our segments based on revenues and loss from
operations excluding depreciation and amortization. Operating expenses include
research and development, and selling, general and administrative expenses that
are specific to the particular segment and an allocation of certain corporate
overhead expenses. Certain income and charges are not allocated to segments in
our internal management reports because they are not considered in evaluating
the segments’ operating performance. Unallocated income and charges include
investment income on corporate investments and interest expense related to the
Senior Notes, Second Lien Notes and Third Lien Notes and the change in the fair
value of the embedded derivatives on the Series A Preferred Stock, Second Lien
Notes and Third Lien Notes, all of which were deemed not to be directly related
to the businesses of the segments. We have no intersegment
revenues.




Financial
information for our continuing reportable segments for the two years ended
January 2, 2010 is as follows:




(in
      thousands)
            
            Multimedia
            
            
            Strategic
      Initiatives
            
            
            Other
      or Unallocated
            
            
            Discontinued
      Operations
            
            
            ConsolidatedYear Ended January 2, 2010Revenues
      from external customers
            
            $
            50,693
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            50,693Revenues
      – related party
            
            
            9,537
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            9,537Loss
      from operations
            
            
            (3,815
            )
            
            
            (10,363
            )
            
            
            (33,703
            )
            
            
            —
            
            
            
            (47,881
            )Significant
      non-cash and non-recurring items included in loss from operations
      above:Depreciation
      and amortization expense
            
            
            5,687
            
            
            
            7,664
            
            
            
            525
            
            
            
            —
            
            
            
            13,876Share
      based compensation
            
            
            3,630
            
            
            
            —
            
            
            
            1,779
            
            
            
            505
            
            
            
            5,914Asset
      impairment charges
            
            
            —
            
            
            
            9,348
            
            
            
            202
            
            
            
            —
            
            
            
            9,550Restructuring
      charges
            
            
            53
            
            
            
            —
            
            
            
            3,788
            
            
            
            —
            
            
            
            3,841Total
      assets
            
            
            72,384
            
            
            
            457,193
            
            
            
            48,759
            
            
            
            24,454
            
            
            
            602,790Intangible
      assets and goodwill included in total assets
            
            
            53,503
            
            
            
            457,090
            
            
            
            70
            
            
            
            14,934
            
            
            
            525,597Year Ended December 27,
2008Revenues
      from external customers
            
            $
            63,009
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            63,009Income
      (loss) from operations
            
            
            (3,412
            )
            
            
            61,478
            
            
            
            (60,620
            )
            
            
            —
            
            
            
            (2,554
            )Significant
      non-cash and non-recurring items included in loss from operations
      above:Depreciation
      and amortization expense
            
            
            6,179
            
            
            
            7,416
            
            
            
            4,018
            
            
            
            —
            
            
            
            17,613Share
      based compensation
            
            
            2,000
            
            
            
            —
            
            
            
            3,069
            
            
            
            —
            
            
            
            5,069Asset
      impairment charges
            
            
            —
            
            
            
            —
            
            
            
            6,837
            
            
            
            —
            
            
            
            6,837Restructuring
      charges
            
            
            204
            
            
            
            —
            
            
            
            7,378
            
            
            
            —
            
            
            
            7,582Total
      assets
            
            
            73,383
            
            
            
            493,316
            
            
            
            102,930
            
            
            
            87,881
            
            
            
            757,510Intangible
      assets and goodwill included in total assets
            
            
            57,505
            
            
            
            492,354
            
            
            
            81
            
            
            
            64,992
            
            
            
            614,932




Geographic
Information




Revenues
by geographic area for our continuing operations are as follows:




Years
      Ended(in
      thousands)
            
            January
      2,
                2010
            
            
            December
      27,
                2008Revenues
      from customers located in:United
      States
            
            $
            31,225
            
            
            $
            26,610Asia
      Pacific
            
            
            21,194
            
            
            
            20,644Europe
            
            
            6,005
            
            
            
            14,422Rest
      of the world
            
            
            1,806
            
            
            
            1,333Total
      revenues
            
            $
            60,230
            
            
            $
            63,009









91




Long-lived
assets for our continuing operations, which consist of property and equipment,
noncurrent deposits and prepaid assets, and an investment in an unconsolidated
business, by country are as follows:




(in
      thousands)
            
            January
      2,
                2010
            
            
            December
      27,
                2008United
      States
            
            $
            4,187
            
            
            $
            9,120Asia-Pacific
            
            
            157
            
            
            
            1,002Europe
            
            
            241
            
            
            
            409Rest
      of the world
            
            
            133
            
            
            
            146Total
      long-lived assets
            
            $
            4,718
            
            
            $
            10,677




Concentration
of Risks




A
significant portion of our revenues are concentrated with a limited number of
customers within the wireless telecommunications market. For the year ended
January 2, 2010, revenues from three customers in our Multimedia segment
accounted for 37%, 23% and 10%, respectively, of our revenues from continuing
operations. For the year ended December 27, 2008, revenues from three customers
in our Multimedia segment accounted for 38%, 17% and 14%, respectively, of our
revenues from continuing operations.




Aggregated
accounts receivable from three customers accounted for 47%, 12% and 12% of our
total gross accounts receivable held by continuing operations at January 2, 2010
and two customers accounted for 38% and 27% of our total gross accounts
receivable held by continuing operations at December 27, 2008. No other single
customer accounted for 10% or more of revenues from continuing operations during
the two fiscal years ended January 2, 2010 or gross accounts receivable held by
continuing operations at January 2, 2010 or December 27, 2008.




We
maintain our cash and cash equivalents in accounts which, at times, exceed
federally insured deposit limits. We have not experienced any losses in these
accounts and believe we are not exposed to any significant credit risk on these
accounts.




In
addition to our U.S. operations, we conduct business through international
subsidiaries, primarily located in Europe and Asia. As a result, our financial
position, results of operations and cash flows can be affected by fluctuations
in foreign currency exchange rates, particularly fluctuations in the Euro, Swiss
Franc and Japanese Yen exchange rates. Additionally, a portion of our sales to
customers located in foreign countries, specifically certain sales by our
PacketVideo subsidiary, are denominated in Euros, which subjects us to foreign
currency risks related to those transactions.




16.
            Related
      Party Transactions




Debt-Related
Transactions




In
connection with the March 16, 2010 Amendment and Waiver, we entered into the
Commitment Letter with Avenue Capital Management II, L.P., acting on behalf of
its managed investment funds signatory thereto, and Solus Core Opportunities
Master Fund Ltd and its affiliates and co-investors (“Solus”), to provide up to
$25.0 million in additional financing through the purchase of the Senior
Incremental Notes.  Avenue Capital Management II, L.P., is an
affiliate of Avenue Capital. Robert Symington, a portfolio manager with Avenue
Capital, is a member of our Board of Directors. As of January 2, 2010, Avenue
Capital and its affiliates beneficially owned shares representing approximately
36.1% of our issued and outstanding common stock, approximately $82.3 million,
or 51.1% of the aggregate principal amount of our Senior Notes, approximately
$93.9 million, or 78.1% of the aggregate principal amount of our Second Lien
Notes and approximately $134.7 million, or 28.2% of the aggregate principal
amount of our Third Lien Notes. As of January 2, 2010, Solus beneficially owned
shares representing approximately 9.9% of our issued and outstanding common
stock, approximately $27.3 million, or 16.9% of the aggregate principal amount
of our Senior Lien Notes, approximately $27.3 million, or 21.9% of the aggregate
principal amount of our Second Lien Notes and approximately $55.2 million, or
11.5% of the aggregate principal amount of our Third Lien Notes. The terms of
the Commitment Letter provide that we will be entitled to borrow up to $25.0
million in one or more borrowings after March 16, 2010 but prior to July 31,
2010, upon 10 business days notice.  As with the other Senior Notes,
amounts outstanding under the Senior Incremental Notes will bear interest at a
rate of 15% per annum, payable in kind unless we elect to pay cash, and will be
secured by a first lien on the same assets securing the our Senior Notes, on a
pari passu basis.   No commitment fee or structuring fee is
payable in connection with the Commitment Letter.




As
consideration for the Amendment and Waiver, we paid an amendment fee to each of
Avenue Capital, Solus, Douglas F. Manchester, a member of our Board of Directors
and Navation, Inc. (“Navation”), an entity owned by Allen Salmasi, our Chairman,
through the issuance of additional Notes under the applicable Note Agreements in
an amount equal to 2.5% of the outstanding principal and accrued and unpaid
interest on such holder’s existing Notes as of March 16, 2010.  The
Fee Notes were paid on March 16, 2010 by the issuance of Senior Notes, Second
Lien Notes and Third Lien Notes to Avenue Capital, Solus, Mr. Manchester and
Navation, and will accrue interest and become payable in accordance with the
terms of the respective Note Agreements.  Avenue Capital received $2.3
million in Senior Notes, $2.8 million in Second Lien Notes and
$3.8


92




million
in Third Lien Notes.  Solus received $0.7 million in Senior Notes,
$0.8 million in Second Lien Notes and $1.5 million in Third Lien
Notes.  Mr. Manchester and Navation each received $1.9 million in
Third Lien Notes.  The transactions contemplated by the Amendment and
Waiver and the Commitment Letter were approved and recommended to our Board of
Directors by an independent committee consisting of members of the Board of
Directors who do not have any direct or indirect economic interest in the
Notes.




In July
2009, we issued additional Second Lien Notes due 2010 in the aggregate principal
amount of $15.0 million, on the same financial and other terms applicable to our
existing Second Lien Notes. The Incremental Purchaser was Avenue AIV US, L.P.,
an affiliate of Avenue Capital. In connection with the issuance of the
Incremental Notes in July 2009, we issued warrants to purchase 7.5 million
shares of our common stock at an exercise price of $0.01 per share to the
purchaser of the Incremental Notes. The grant-date fair value of the warrants,
which totaled $3.5 million, was recorded to additional paid-in capital and
reduced the carrying value of the Second Lien Notes, and is recognized as
additional interest expense over the remaining term of the Second Lien Notes.
During the year ended January 2, 2010 Avenue AIV US, L.P. exercised all of these
warrants to purchase 7.4 million shares of common stock for 0.1 million net
common shares withheld.




Under the
terms of the purchase agreements for our Senior Notes and Second Lien Notes, we
were required to enter into binding agreements to effect asset sales generating
net proceeds of at least $350 million no later than March 31, 2009 and
consummate such sales no later than six months following execution of such
agreements, unless closing is delayed solely due to receipt of pending
regulatory approvals (the “Asset Sale Condition”). We did not meet the Asset
Sale Condition. As a result, pursuant to the terms of the note purchase
agreements, the interest rate on the Senior Notes increased by 200 basis points
effective March 31, 2009 and, on April 8, 2009, we issued additional warrants to
purchase an aggregate of 10.0 million shares of our common stock at an exercise
price of $0.01 per share to the purchasers of the Second Lien Notes. Of the
warrants issued, 7.5 million were issued to Avenue AIV US, L.P. The grant-date
fair value of the warrants, which totaled $1.7 million, was recorded to
additional paid-in capital and reduced the carrying value of the Second Lien
Notes, and is recognized as additional interest expense over the remaining term
of the Second Lien Notes. During the year ended January 2, 2010 Avenue AIV US,
L.P. exercised all of these warrants to purchase 7.4 million shares of common
stock for 0.1 million net common shares withheld.




In April
2009, we issued additional warrants to purchase an aggregate of 7.5 million
shares of our common stock at an exercise price of $0.01 per share to Avenue AIV
US, L.P, as a result of the Asset Sale Condition under the terms of the purchase
agreements for our Senior Notes and Second Lien Notes.  During the
year ended January 2, 2010 Avenue AIV US, L.P exercised all of these warrants to
purchase 7.4 million shares of common stock for 0.1 million net common shares
withheld.




Of the
Second Lien Notes issued in October 2008, Second Lien Notes in the aggregate
principal amount of $78.9 million were purchased by Avenue AIV US, L.P. The
issuance of the Second Lien Notes and related transactions were approved by an
independent committee of our Board of Directors. Additionally, in connection
with the Second Lien Notes issuance, we issued warrants to purchase of 30.0
million shares of our common stock and paid $5.6 million in fees to Avenue AIV
US, L.P. During the year ended January 2, 2010 Avenue AIV US, L.P. exercised all
of these warrants to purchase 29.4 million shares of common stock for 0.6
million net common shares withheld.




Of our
Series A Preferred Stock issued and sold in March 2007, 14%, 14% and 28% of the
shares were sold respectively, to Navation, Manchester Financial Group and
affiliates of Avenue Capital. These parties also participated on a pro rata
basis in the exchange of our Series A Preferred Stock for the Third Lien Notes
in November 2008, which was approved by an independent committee of our Board of
Directors.




Divestiture
Transactions




In
November 2009, we sold the majority of the assets and liabilities of our Inquam
Broadband GmbH subsidiary (“IBG”) to Inquam Holding GmbH (“IHG”), a new limited
liability company formed by the former managing director of IBG, for a nominal
amount and recognized a $21.4 million net loss from business
divestitures.  In connection with the sale in November 2009, we
entered into various ancillary transitional agreements with IHG, none of which
are material to us.  Upon closing of the sale, we have no remaining
obligations to provide financing to support the ongoing operations of
IHG.  Also, in connection with the sale, we entered into an earn out
agreement with IHG that provides for payment to us upon the occurrence of
specified liquidity event, which includes the sale, lease or contribution of
assets to certain third parties, distribution of profits or sale of equity in
IHG.  We will continue to receive earn out payments until exhaustion
of all specified liquidity events.




On July
2, 2009, we sold a 35% noncontrolling interest in our PacketVideo subsidiary to
NTT DOCOMO, Inc. ("DOCOMO"), a customer of PacketVideo, for $45.5 million.
PacketVideo sells a version of its multimedia player to DOCOMO for installation
into DOCOMO handset models. The net proceeds from this transaction were used in
July 2009 to redeem a portion of the Senior Notes at a redemption price of 105%
of the principal amount thereof plus accrued interest.




Under the
terms of the Stock Purchase Agreement, DOCOMO was granted certain rights in the
event of future transfers of PacketVideo stock or assets, preemptive rights in
the event of certain issuances of PacketVideo stock, and a call option
exercisable under certain conditions to purchase the remaining shares of
PacketVideo at the then current fair value. In addition, DOCOMO will have
certain governance and consent rights applicable to the operations of
PacketVideo. In order to facilitate the DOCOMO


93




investment,
NextWave’s noteholders provided certain waivers, including a release of
PacketVideo’s guaranty of NextWave indebtedness.




From the
date of sale of the noncontrolling interest in July 2009 through January 2,
2010, PacketVideo recognized $9.5 million and $0.5 million in related party
revenues and cost of revenues, respectively, from DOCOMO in the consolidated
statements of operations.




As
described in Note 5, we sold a controlling interest in our IPWireless subsidiary
in December 2008 and sold the remaining noncontrolling interest in November 2009
to IPW Holdings and an affiliate of IPW Holdings. IPW Holdings was formed by the
senior management team of IPWireless, including Dr. William Jones, PhD. Dr.
Jones resigned from his positions as a member of our board of directors and the
chief executive officer of our NextWave Networks Products division concurrent
with the closing of the sale. The terms of the sale were approved by an
independent committee of our board of directors, which was advised by financial
advisors in connection with the structure of the transaction and the fairness of
the consideration. We received cash payments totaling $1.0 million and $1.1
million during the years ended January 2, 2010 and December 27, 2008,
respectively, in connection with these transactions.




17.
            Quarterly
      Financial Data (unaudited)




The
following table summarizes our operating results by quarter for the two fiscal
years ended January 2, 2010:




(in
      thousands, except per share data)
            
            First
                Quarter
            
            
            Second
                Quarter
            
            
            Third
                Quarter
            
            
            Fourth
                Quarter
            
            
            TotalYear Ended January 2, 2010(1)(2):Revenues
            
            $
            16,911
            
            
            $
            12,034
            
            
            $
            8,003
            
            
            $
            13,745
            
            
            $
            50,693Revenues
      – related party
            
            
            —
            
            
            
            —
            
            
            
            3,842
            
            
            
            5,695
            
            
            
            9,537Cost
      of revenues
            
            
            6,208
            
            
            
            5,511
            
            
            
            4,420
            
            
            
            5,596
            
            
            
            21,735Cost
      of revenues – related party
            
            
            —
            
            
            
            —
            
            
            
            111
            
            
            
            357
            
            
            
            468Net
      loss from continuing operations(3)
            
            
            (60,647
            )
            
            
            (53,070
            )
            
            
            (60,151
            )
            
            
            (46,306
            )
            
            
            (220,174
            )Net
      loss from discontinued operations, net of gains (losses) on divestiture of
      discontinued operations and tax(4)
            
            
            (21,532
            )
            
            
            (2,417
            )
            
            
            (41,518
            )
            
            
            (4,644
            )
            
            
            (70,111
            )Net
      loss
            
            
            (82,179
            )
            
            
            (55,487
            )
            
            
            (101,669
            )
            
            
            (50,950
            )
            
            
            (290,285
            )Net
      loss attributed to NextWave common shares
            
            
            (82,179
            )
            
            
            (55,487
            )
            
            
            (100,640
            )
            
            
            (51,875
            )
            
            
            (290,181
            )Net
      loss per share attributed to NextWave common shares – basic and
      dilutedContinuing
      operations
            
            $
            (0.42
            )
            
            $
            (0.34
            )
            
            $
            (0.36
            )
            
            $
            (0.28
            )
            
            $
            (1.40
            )Discontinued
      operations
            
            $
            (0.15
            )
            
            $
            (0.02
            )
            
            $
            (0.26
            )
            
            $
            (0.03
            )
            
            $
            (0.44
            )Net
      loss
            
            $
            (0.57
            )
            
            $
            (0.36
            )
            
            $
            (0.62
            )
            
            $
            (0.31
            )
            
            $
            (1.84
            )Year Ended December 27, 2008(1)(2):Revenues
            
            $
            14,550
            
            
            $
            16,563
            
            
            $
            16,876
            
            
            $
            15,020
            
            
            $
            63,009Cost
      of revenues
            
            
            4,629
            
            
            
            5,125
            
            
            
            4,855
            
            
            
            4,210
            
            
            
            18,819Net
      loss from continuing operations
            
            
            (35,096
            )
            
            
            (33,484
            )
            
            
            (14,030
            )
            
            
            (16,771
            )
            
            
            (99,381
            )Net
      income (loss) from discontinued operations, net of gains (losses) on
      divestiture of discontinued operations and tax(5)
            
            
            (59,922
            )
            
            
            (50,972
            )
            
            
            (219,270
            )
            
            
            288
            
            
            
            (329,876
            )Net
      loss
            
            
            (95,018
            )
            
            
            (84,456
            )
            
            
            (233,300
            )
            
            
            (16,483
            )
            
            
            (429,257
            )Net
      income (loss) attributed to NextWave common shares(6)
            
            
            (102,215
            )
            
            
            (91,789
            )
            
            
            (240,772
            )
            
            
            86,869
            
            
            
            (347,907
            )Basic
      earnings (loss) per share attributed to NextWave common
    sharesContinuing
      operations, including preferred stock dividends and costs and exchange of
      preferred stock
            
            $
            (0.45
            )
            
            $
            (0.39
            )
            
            $
            (0.21
            )
            
            $
            0.64
            
            
            $
            (0.17
            )Discontinued
      operations
            
            $
            (0.64
            )
            
            $
            (0.50
            )
            
            $
            (2.13
            )
            
            $
            0.00
            
            
            $
            (2.99
            )Net
      income (loss)
            
            $
            (1.09
            )
            
            $
            (0.89
            )
            
            $
            (2.34
            )
            
            $
            0.64
            
            
            $
            (3.16
            )Diluted
      earnings (loss) per share attributed to NextWave common shares(7)Continuing
      operations, including preferred stock dividends and costs and exchange of
      preferred stock
            
            $
            (0.45
            )
            
            $
            (0.39
            )
            
            $
            (0.21
            )
            
            $
            0.59
            
            
            $
            (0.17
            )Discontinued
      operations
            
            $
            (0.64
            )
            
            $
            (0.50
            )
            
            $
            (2.13
            )
            
            $
            0.00
            
            
            $
            (2.99
            )Net
      income (loss)
            
            $
            (1.09
            )
            
            $
            (0.89
            )
            
            $
            (2.34
            )
            
            $
            0.59
            
            
            $
            (3.16
            )







(1)
            We
      operate on a 52-53 week fiscal year ending on the Saturday nearest to
      December 31 of the current calendar year or the following calendar year.
      Fiscal year 2009 is a 53-week year ending January 2, 2010.  Each
      of the first three quarters in 2009 include 13 weeks and the fourth
      quarter in fiscal year 2009 includes 14 weeks.  Fiscal year 2008
      is a 52-week year ending on December 27, 2008 and each of the four
      quarters in 2008 includes 13 weeks.




(2)
            The
      results of operations of our Networks segment, which includes our GO
      Networks, IPWireless and Cygnus subsidiaries, and our Global Services and
      NextWave Network Product Support strategic business units, our
      Semiconductor segment and our WiMAX Telecom, Inquam and South American
      businesses have been reported as discontinued operations for all periods
      presented.




(3)
            Net
      loss from continuing operations, net of tax, for the first quarter of 2009
      includes asset impairment charges totaling $9.5
  million.


94




(4)
            Net
      loss from discontinued operations, net of tax, for the first, second,
      third and fourth quarters of 2009 includes asset impairment charges
      totaling $9.9 million, $1.5 million, $42.8 million and $3.5 million,
      respectively. Net loss from discontinued operations, net of tax, for the
      fourth quarter of 2009 includes a loss on divestiture of certain of our
      European businesses of $25.8
million.




(5)
            Net
      loss from discontinued operations, net of tax, for the third quarter of
      2008 includes asset impairment charges totaling $167.7 million. Net income
      from discontinued operations, net of tax, for the fourth quarter of 2008
      includes a gain on divestiture of certain of our network infrastructure
      businesses, including IPWireless, of $31.2
  million.




(6)
            Net
      income applicable to common shares for the fourth quarter of 2008 includes
      the effect of the exchange of our Series A Preferred Stock for the Third
      Lien Notes of $104.3 million.




(7)
            Diluted
      earnings per share for the fourth quarter of 2008 includes potential
      common shares from contingently issuable restricted stock of 1.3 million
      and assumes the conversion of Third Lien Notes during the period
      subsequent to the exchange of Series A Preferred Stock which adds 37.6
      million potential common shares, reduces net income by $104.3 million for
      the effect of the exchange of Series A Preferred Stock for Third Lien
      Notes and reduces interest expense by $17.7 million. Diluted earnings per
      share excludes the effect of the potential exercise of stock options and
      warrants to purchase 20.4 million shares and 4.7 million potential shares
      from the assumed conversion of the Series A Preferred Stock during the
      period prior to the exchange for Third Lien Notes because the effects
      would be antidilutive.




18.
            Subsequent
      Events




In
connection with DOCOMO’s purchase of a 35% interest in our PacketVideo
subsidiary in July 2009, DOCOMO was granted certain rights in the event of
future transfers of PacketVideo stock or assets, preemptive rights in the event
of certain issuances of PacketVideo stock, and a call option exercisable under
certain conditions to purchase the remaining shares of PacketVideo at an
appraised value.  DOCOMO has expressed its intent to exercise its call
option and the parties are currently in discussions concerning the valuation for
our remaining PacketVideo shares.  DOCOMO will have an opportunity to
determine whether it wishes to proceed with its exercise of the call option
following the determination of a valuation for our shares.




On
January 22, 2010, we received a Staff Determination letter from the Listing
Qualifications Department of NASDAQ indicating that our common stock would be
subject to delisting from The NASDAQ Global Market because of non-compliance
with the Rule, unless we requested a hearing before a NASDAQ Listing
Qualifications Panel (the “Panel”) by the close of business on January 29,
2010.   We requested a hearing on the matter and such hearing
occurred on February 25, 2010. On March 26, 2010, the Panel granted our
request for continued listing, subject to the conditions that on or before May
1, 2010, we must inform the Panel that we have filed a proxy statement for our
annual meeting of stockholders including a vote on a reverse stock split in a
ratio sufficient to meet the $1.00 per share requirement for continued listing
and on or before July 21, 2010, we must have evidenced a closing bid price of
$1.00 or more for a minimum of ten prior consecutive trading days.  If
we are unable to meet these exception requirements, the Panel will issue a final
determination to delist and suspend trading of our common stock.




On March
16, 2010, we entered into an Amendment and Limited Waiver to the agreements
governing our Senior Notes, Second Lien Notes and Third Lien
Notes.  Pursuant to the Amendment and Waiver, the maturity date of our
Senior Notes was extended from July 17, 2010 to July 17, 2011, with an
additional extension to October 17, 2011 if certain conditions are met,
including the pendency of asset sales that would yield net proceeds sufficient
to repay all then-outstanding Senior Notes.  In addition, the maturity
date of our Second Lien Notes was extended from December 31, 2010 to November
30, 2011.  As a result of the Amendment and Waiver, the interest
payable on our Senior Notes and Second Lien Notes was increased to a rate of 15%
per annum and the interest payable on our Third Lien Notes was increased to a
rate of 12% per annum initially, increasing 1% per annum on each of December 31,
2010, March 30, 2011, June 30, 2011 and September 30, 2011 to a maximum of
16%.  As consideration for the Amendment and Waiver, we paid an
amendment fee to each Holder through the issuance of additional Notes under the
applicable Note Agreements in an amount equal to 2.5% of the outstanding
principal and accrued and unpaid interest on such Holder’s existing Notes as of
March 16, 2010. The Fee Notes were paid on March 16, 2010 by the issuance of
$4.3 million in Senior Notes, $3.6 million in Second Lien Notes and $13.3
million in Third Lien Notes and will accrue interest and become payable in
accordance with the terms of the respective Note Agreements.




In
connection with the March 16, 2010 Amendment and Waiver, we entered into the
Commitment Letter with Avenue Capital Management II, L.P., acting on behalf of
its managed investment funds signatory thereto, and Solus and its affiliates and
co-investors, to provide up to $25.0 million in additional financing through the
purchase of the Senior Incremental Notes.  Avenue Capital Management
II, L.P., is an affiliate of Avenue Capital. Robert Symington, a portfolio
manager with Avenue Capital, is a member of our Board of Directors. As of
January 2, 2010, Avenue Capital and its affiliates held shares representing
approximately 36.1% of our issued and outstanding common stock, approximately
$82.3 million, or 51.1% of the aggregate principal amount of our Senior Notes,
approximately $93.9 million, or 78.1% of the aggregate principal amount of our
Second Lien Notes and approximately $134.7 million, or 28.2% of the aggregate
principal amount of our Third Lien Notes.  As of January 2, 2010,
Solus beneficially owned shares representing approximately 9.9% of our issued
and outstanding common stock, approximately $27.3 million, or 16.9% of the
aggregate principal amount of our Senior Lien Notes, approximately $27.3
million, or 21.9% of the aggregate principal amount of our Second Lien Notes and
approximately $55.2 million, or 11.5% of the aggregate principal amount of our
Third Lien Notes. The terms of the Commitment Letter provide that we will be
entitled to borrow up to $25.0 million in one or more borrowings after March 16,
2010 but prior to July 31, 2010, upon 10 business days notice and subject to the
execution of definitive documentation substantially in


95




the form of the
definitive agreements governing our existing indebtedness. Such agreements will
require us to make customary representations and warranties as a condition to
each borrowing. As with the other Senior Notes, amounts outstanding under the
Senior Incremental Notes will bear interest at a rate of 15% per annum, payable
in kind unless we elect to pay cash, and will be secured by a first lien on the
same assets securing the our Senior Notes, on a pari passu
basis.   No commitment fee or structuring fee is payable in
connection with the Commitment Letter.





























96




Item
9. Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosures




None.




Item
9A (T). Controls and
Procedures




Disclosure
Controls and Procedures




Our Chief
Executive Officer and our Chief Financial Officer, after evaluating our
disclosure controls and procedures (as defined in the rules and regulations of
the Securities and Exchange Commission under the Securities Exchange Act of 1934
(the “Exchange Act”)), as of the end of the period covered by this Annual
Report, have concluded that our disclosure controls and procedures are effective
to ensure that information we are required to disclose in reports that we file
or submit under the Exchange Act is accumulated and communicated to our
management, including our principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required disclosure, and that
such information is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and
forms.




Management’s
Annual Report on Internal Control over Financial Reporting




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting.  Internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles.  Because of its inherent limitations, internal control
over financial reporting may not prevent or detect
misstatements.  Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies and procedures may deteriorate.




Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an assessment of the
effectiveness of our internal control over financial reporting based on certain
criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission.  Based on this evaluation, management concluded that our
internal control over financial reporting was effective in providing reasonable
assurance regarding the reliability of financial reporting and preparation of
the financial statements for external purposes in accordance with U.S. generally
accepted accounting principles as of January 2, 2010.




This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial
reporting.  This management report was not subject to attestation by
our registered public accounting firm pursuant to the rules of the SEC
applicable to “smaller reporting companies” that permit us to provide only
management's report in this Annual Report.




Changes in Internal Control over
Financial Reporting




As more
fully described in Item 9A of our Annual Report on Form 10-K for the fiscal year
ended December 27, 2008, we reported that our management identified a control
deficiency that represented a material weakness in our internal control over
financial reporting as of December 27, 2008. During the first quarter of 2009,
we implemented remediation actions required to successfully remediate the
identified material weakness, which included supplementing our existing
accounting personnel with additional resources with expertise in technical
accounting matters.




There was
no change in our internal control over financial reporting that occurred during
the quarter ended January 2, 2010, that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.




Item 9B.Other
Information




None.




PART
III




Item 10. Directors, Executive Officers
and Corporate Governance.




Directors




The
following table sets forth certain information regarding our directors as of
January 2, 2010:




Name
      and present position,
              if
      any, with the Company
            Age,
      period served as a director, other business experienceJames
      C. Brailean, Ph.D
              Class
      I Director
            Dr.
      Brailean, 48, has served as a director since May 2007. In April 2009, Dr.
      Brailean was appointed as our Chief Executive Officer, Chief Operating
      Officer and President. Dr. Brailean was co-founder of our subsidiary
      PacketVideo Corporation.  Under Dr. Brailean's leadership,
      PacketVideo has become a leading independent supplier of embedded
      multimedia solutions for mobile phones and other devices in the
      world.








97





A
      scientist who led the development of the MPEG-4 standards for transmission
      of video and audio over wireless networks, Dr. Brailean holds 16 key U.S.
      patents that enable advanced multimedia communications. Dr. Brailean
      received his doctorate in electrical engineering from Northwestern
      University. He holds a Master's of Science degree in Electrical
      Engineering from the University of Southern California and a Bachelor's of
      Science degree in Electrical Engineering from the University of
      Michigan.  Dr. Brailean serves on the Board of Directors of
      DivX, Inc., a NASDAQ-listed digital media company.
              
              Dr.
      Brailean has extensive experience in the wireless multimedia business
      space as the founder of PacketVideo. This position has given Dr. Brailean
      specific and in-depth knowledge of our primary operating business, which
      employs the substantial majority of our employees.  Furthermore,
      his expertise in both science and engineering related to wireless
      transmission provide him with a skill-set and knowledge with respect to
      potential applications for our wireless spectrum holdings.William
      H. Webster
              Class
      I Director
            Judge
      Webster, 86, has served as a director since our inception.  From
      1991 through 2008, Judge Webster served as a senior partner in Milbank,
      Tweed, Hadley & McCloy LLP's Washington office.  Judge
      Webster is now a retired partner and continues to specialize in
      arbitration, mediation and internal investigation. Prior to joining
      Milbank, Judge Webster began a long and illustrious career in public
      service. Judge Webster was U.S. Attorney for the Eastern District of
      Missouri, then a member of the Missouri Board of Law Examiners. In 1970,
      he was appointed a judge of the U.S. District Court for the Eastern
      District of Missouri, and then elevated to the U.S. Court of Appeals for
      the Eighth Circuit. Judge Webster resigned the judgeship to head the
      Federal Bureau of Investigation for nine years. In 1987, he was sworn in
      as Director of the Central Intelligence Agency. He led the CIA until his
      retirement from public office in 1991. Judge Webster has received numerous
      awards for public service and law enforcement and holds honorary degrees
      from several colleges and universities. Judge Webster currently serves as
      Chairman of the Homeland Security Advisory Council.
              
              Judge
      Webster has served as a member of our Board of Directors since inception
      and the Board of Directors of our predecessor, NextWave Telecom Inc.,
      since its formation in 1996.  Judge Webster’s service with us
      and our predecessor provides valuable continuity to our Board of
      Directors.  In addition, Judge Webster’s experience as an
      attorney and as a judge provides a diversity of viewpoint and background
      to our Board.  Judge Webster dedicates substantial time to Board
      matters, serving as a member of our Audit Committee, Compensation
      Committee, and Nominating and Corporate Governance Committee, of which he
      also serves as the chairman.Jack
      Rosen
              Class
      II Director
            Mr.
      Rosen, 63, has served as a director since our inception.  Mr.
      Rosen is chief executive of several commercial and residential real estate
      firms and the current Chairman of the American Jewish Congress. In
      addition, Mr. Rosen oversees a wide array of healthcare, cosmetic and
      telecommunications business ventures throughout the U.S., Europe and Asia.
      Active in international government and political affairs, Mr. Rosen has
      participated in numerous commissions and councils for former President
      Bush and Clinton. Mr. Rosen is currently a member of the Council on
      Foreign Relations.
              
              Mr.
      Rosen has experience in managing other companies in the telecommunications
      industry both in the United States and internationally. His leadership
      experience within a wide variety of industries and companies provides him
      with a unique level of expertise for us and our businesses. Mr. Rosen
      dedicates substantial time to Board matters, serving as a member of our
      Compensation Committee and Nominating and Corporate Governance
      Committee.Carl
      E. Vogel
              Class
      II Director
            Mr.
      Vogel, 52, is currently a member of the Board of Directors and a Senior
      Advisor to Dish Network Corporation, a publicly traded company in the
      multi-channel video business serving in excess of 14 million customers
      throughout the United States. He is also a partner at SCP Worldwide, a
      sports, media and entertainment company that owns and operates a variety
      of companies including the National Hockey League’s St. Louis Blues and
      Major League Soccer’s Real Salt Lake. Mr. Vogel served as President of
      Dish Network from September 2006 to February of 2008 and served as Vice
      Chairman from June 2005 until March 2009. From 2001 until 2005, Mr. Vogel
      served as the President and CEO of Charter Communications Inc., a
      publicly-traded company providing cable television and broadband services
      to approximately six million customers. Between 1997 and 2001, Mr. Vogel
      held various senior executive positions in companies affiliated with
      Liberty Media Corporation. Mr. Vogel is also currently serving on the
      Board of Directors and Audit Committees of Shaw Communications, Inc., a
      publicly traded diversified communications company providing broadband
      cable and direct-to-home satellite services in Canada, Universal
      Electronics Inc., a publicly traded company providing wireless control
      technology for the connected home and Ascent Media Corporation, a holding
      public company which provides creative
and





98





technical
      services to the media and entertainment industries.
              
              Mr.
      Vogel was nominated by Avenue Capital pursuant to the director designation
      agreement entered into by the Company and Avenue Capital in connection
      with the Second Lien Notes financing in October
      2008.  Affiliates of Avenue Capital hold substantial interests
      in the Company’s common stock and secured notes and Robert Symington, a
      Senior Portfolio Manager at Avenue Capital, is a member of the
      Board.  Mr. Vogel is not affiliated with Avenue Capital and will
      not receive any compensation from Avenue Capital in connection with his
      service on the Board.
              
              Mr.
      Vogel brings to the Board of Directors a great deal of executive level
      leadership experience in the communications industry as a result of his
      high level executive roles at Dish Network Corporation, Charter
      Communications Inc., and Liberty Media
      Corporation.  Furthermore, Mr. Vogel has extensive experience in
      reviewing financial statements as a result of his background as a
      certified public accountant and his role as a chief executive and senior
      finance executive of public companies.  Mr. Vogel is qualified
      as an “audit committee financial expert,” applying the listing standards
      of NASDAQ and in accordance with applicable rules of the SEC as of the
      date of this Annual Report, and serves as the Chairman of our Audit
      Committee.Allen
      Salmasi
              Class
      III Director
            Mr.
      Salmasi, 55, is currently Chairman of the Board of
      Directors.  Mr. Salmasi served as our Chief Executive Officer
      and President from the inception of our Company in 2005 through April
      2009, when he assumed a Chairman role with a special mandate for
      maximizing the value of our wireless spectrum
      assets.  Previously, Mr. Salmasi served as Chairman and CEO of
      NextWave Telecom, Inc. (“NextWave Telecom”) which he founded in 1995 and
      subsequently sold to Verizon Wireless in 2005. Prior to NextWave Telecom,
      Mr. Salmasi was a member of the Board of Directors, President of the
      Wireless Telecommunications Division, and Chief Strategic Officer of
      QUALCOMM Inc. He joined QUALCOMM in 1988 as a result of the merger of
      QUALCOMM and Omninet Corporation, which Mr. Salmasi founded in 1984. Mr.
      Salmasi initiated and led the development of CDMA technologies, standards
      and the associated businesses at QUALCOMM until 1995. At Omninet, he
      conceived and led the development of the first OmniTRACS system, which
      provides two-way messaging and position reporting services to mobile
      users.
              
              Mr.
      Salmasi has extensive experience managing and developing wireless
      technology companies as a result of his executive roles at Omninet
      Corporation and QUALCOMM Inc.  He has been a leader in the
      development of wireless technology and has over 25 years of experience in
      the telecommunications industry. Mr. Salmasi has a depth of knowledge
      relating to our business as a result of his role as the Chairman and CEO
      of NextWave Telecom and, prior to May 5, 2009, Chairman, Chief Executive
      Officer and President of our Company.  Mr. Salmasi also holds a
      substantial personal investment in our common stock and in our Third Lien
      Notes.Douglas
      F. Manchester
              Class
      III Director
            Mr.
      Manchester, 68, has served as a director of the Company since its
      inception. He is also chairman of Manchester Financial Group, LP. Mr.
      Manchester is one of San Diego’s leading private developers. His
      development projects include hotels, high-rise office buildings,
      residential properties, industrial parks and championship golf courses and
      resorts.
              
              Mr.
      Manchester brings to the board a great deal of familiarity and experience
      with our Company and our business as a result of having served as a
      director since our inception.  Mr. Manchester also has extensive
      experience in the financing, purchasing and sale of assets as a result of
      his role as chairman of Manchester Financial Corp.  Mr.
      Manchester dedicates substantial time to Board matters, serving as a
      member of our Audit Committee and Nominating and Corporate Governance
      Committee.  Mr. Manchester also holds a substantial interest in
      our Third Lien Notes.Robert
      T. Symington
              Class
      III Director
            Mr.
      Symington, 46, has served as a director of the Company since its
      inception. Mr. Symington joined Avenue Capital Group in 2005 and is the
      Senior Portfolio Manager for Avenue’s U. S. Funds.  Mr. Symington,
      through his prior management positions at M.D. Sass Investor Services and
      Resurgence Asset Management, was an early investor in NextWave
      Telecom.
              
              Mr.
      Symington brings to the board a great deal of familiarity and experience
      with our Company and our business as a result of having served as a
      director since our inception.  Mr. Symington has a wide range of
      knowledge of our business and our growth and development as a result of
      his prior management positions at M.D. Sass Investor Services and
      Resurgence Asset Management, which were early investors in NextWave
      Telecom. Mr. Symington is a Senior Portfolio Manager at Avenue Capital. As
      of January 2, 2010, Avenue Capital and its affiliates held shares
      representing approximately 36.1% of our issued and outstanding common
      stock, approximately $82.3 million, or 51.1% of the aggregate principal
      amount of our Senior Notes, approximately $93.9 million, or 78.1% of the
      aggregate principal amount of our Second Lien Notes and approximately
      $134.7 million, or 28.2% of the aggregate principal amount of our Third
      Lien Notes.  Mr. Symington dedicates substantial time to Board
      matters, serving as a member of our Compensation Committee, of which he
      also serves as chairman.









99




Committees
of the Board




Audit
Committee




Our Audit
Committee assists the Board of Directors in fulfilling its responsibility
relating to (a) the integrity of our financial statements, (b) our compliance
with legal and regulatory requirements, (c) application of our codes of conduct
and ethics as established by the Board of Directors, (d) our independent
registered public accounting firm’s qualifications, engagement, compensation and
performance, their conduct of the annual audit of our financial statements, and
their engagement to provide any other services, (e) performance of our system of
internal controls, (f) preparation of the Audit Committee report, as required
pursuant to SEC rules and (g) maintenance and oversight of procedures for
addressing complaints about accounting matters. In discharging its duties, the
Audit Committee has the sole authority to select (subject to stockholder
ratification, which ratification is not binding on the Audit Committee),
compensate, evaluate and replace the independent accountants, review and approve
the scope of the annual audit, review and pre-approve the engagement of our
independent accountants to perform audit and non-audit services, meet
independently with our independent accountants and senior management, review the
integrity of our financial reporting process and review our financial statements
and disclosures and certain SEC filings.




The Board
of Directors has determined that all three members of the Audit Committee, Mr.
Douglas F. Manchester, Mr. Carl Vogel and Judge William H. Webster are
independent, and that Mr. Vogel is qualified as an “audit committee financial
expert,” applying the listing standards of NASDAQ and in accordance with
applicable rules of the SEC as of the date of this Annual Report.  Mr.
Vogel serves as chairman of the Audit Committee.




The Audit
Committee met 9 times in 2009.  The Audit Committee regularly holds
meetings at which it meets with our independent registered public accounting
firm and without management present.




Compensation
Committee




Our
Compensation Committee (a) administers our executive compensation program, (b)
determines and approves targeted total compensation, as well as each individual
compensation component for  our executive officers, (c) determines and
recommends to the Board of Directors equity-based plans and (d) reviews and
approves any employee retirement plans, other benefit plans or any amendments
thereto.




The
members of our Compensation Committee are Mr. Rosen, Judge Webster and Mr.
Symington, who serves as the chairman of the Compensation
Committee.  The Board of Directors has determined that all three
members of the Compensation Committee are independent pursuant to the listing
standards of NASDAQ.




Our Board
of Directors has delegated to the Compensation Committee sole decision-making
authority with respect to all compensation decisions for our executive officers,
including determinations of annual incentive award payments and grants of equity
awards.  The Compensation Committee approves these payments and awards
after considering our corporate performance and the individual performance of
our executives (and considers the recommendations of our Chief Executive Officer
in this regard). The Compensation Committee is also responsible for evaluating
the performance of our Chief Executive Officer, in light of our corporate
performance and his individual performance.




The
Compensation Committee’s decisions are made with input from our Chief Executive
Officer (except with respect to his own compensation) and, where appropriate,
other senior executives.  The Compensation Committee also considers
information provided by and the input of our Human Resources department, which
evaluates publicly available compensation information along with other sources
of data.  The Committee also considers our overall executive
compensation policies and goals in making its decisions.  To assist in
performing its duties, the Compensation Committee has the authority to engage
external compensation consultants and other advisors.  In 2009, the
Compensation Committee did not retain any consultants or advisors to assist it
in formulating or making executive compensation decisions.




The
Compensation Committee met 2 times in 2009.




Nominating
and Corporate Governance Committee




Our
Nominating and Corporate Governance Committee (a) identifies and recommends to
the Board of Directors individuals qualified to serve as directors of our
company and on committees of the Board of Directors, (b) reviews corporate
governance, (c) reviews and recommends changes to the size of the Board of
Directors, (d) reviews the manner in which conflicts of interest are addressed
and (e) recommends to the Board of Directors any changes in director
compensation.




The
members of our Nominating and Corporate Governance Committee are Mr. Manchester,
Mr. Rosen and Judge Webster, who serves as its chairman.  As
indicated, the Board of Directors has determined that all three members of the
Nominating and Corporate Governance Committee are independent pursuant to the
listing standards of NASDAQ.


100




The
Nominating and Corporate Governance Committee met 1 time in 2009.




Executive
Officers




The
following persons currently serve as our executive officers in the capacities
indicated below.  Our executive officers are responsible for the
management of our operations, subject to the oversight of the Board of
Directors. The following table sets forth certain information regarding our
executive officers as of January 2, 2010:




Chairman
            Allen
      SalmasiChief
      Executive Officer, Chief Operating Officer and President
            Dr.
      James BraileanExecutive
      Vice President, Chief Legal Counsel and Secretary
            Frank
      A. CassouExecutive
      Vice President, Chief Financial Officer
            Francis
      J. Harding




Biographical
information for our executive officers is presented below.  See
“Directors” for the biographical information for Mr. Salmasi and Dr.
Brailean.




Name
            PositionFrank
      A. Cassou
            Frank
      A. Cassou, 52, is Executive Vice President, Corporate Development and
      Chief Legal Counsel and Secretary of the Company.  Mr. Cassou
      held similar positions at NextWave Telecom Inc., which he joined in
      1996.  Prior to joining the Company, Mr. Cassou was a partner at
      the law firm of Cooley Godward LLP, where he practiced corporate law
      representing telecommunications and technology companies.  He
      was outside corporate counsel to QUALCOMM Inc. from June 1991 through
      February 1996, representing the company in its public financing and
      acquisition transactions, licensing agreements and the formation of
      strategic partnerships.Francis
      J. Harding
            Francis
      J. Harding, 65, has served as Chief Financial Officer of the Company
      since May 2009 and as Chief Accounting Officer from August 2005 to
      May 2009.  Mr. Harding has served 20 years in senior financial
      management roles for international wireless carriers and wireless
      technology development companies.  Prior to joining the Company,
      Mr. Harding served as Vice President, Network Finance and Vice President,
      Finance for Leap Wireless International.  He previously served ten
      years at QUALCOMM, Inc., where he held senior positions, including Vice
      President, Corporate Controller, Vice President Finance, CDMA and Vice
      President Finance, International.  Formerly, Mr. Harding served
      as Executive Vice President and CFO of Monitor Technologies, Inc., in
      addition to senior financial roles at LORAL Corporation.  Mr. Harding
      earned a bachelor degree in mathematics from the University of
      Massachusetts and an MBA from Alliant International
      University.




Code
of Ethics




We have
adopted a Code of Business Conduct and Ethics (the "Code”), that applies to all
of our directors, officers and employees, including our principal executive
officer and principal financial officer.  Copies of our Code are
available without charge upon requests directed to Investor Relations, 10350
Science Center Drive, Suite 210, San Diego, California  92121, and
from our website at www.nextwave.com. Any amendments to, or waivers under, our
Code which are required to be disclosed by the rules promulgated by the SEC will
be disclosed on our website at www.nextwave.com.




Section
16(a) Beneficial Ownership Reporting Compliance




Section
16(a) of the Securities Exchange Act of 1934 requires our executive officers and
directors, and persons who beneficially own more than 10% of a registered class
of our equity securities, to file reports of ownership and changes in ownership
with the SEC.  Based solely upon a review of the copies of such forms
furnished to us and written representations from our executive officers,
directors and greater than 10% beneficial stockholders, we believe that during
the year ended January 2, 2010, all persons subject to the reporting
requirements of Section 16(a) filed the required reports on a timely
basis.


101




Item 11.
Executive Compensation.




2009
Summary Compensation Table




The
following table sets forth information with respect to the compensation of our
Named Executive Officers for services in all capacities to us and our
subsidiaries:




Name
                and
      Principal Position
            Year
            
            Salary
                ($)
            
            
            Bonus
                ($)
            
            
            Option
      Awards
                ($)(1)
            
            
            All
      Other Compensation
                ($)(2)
            
            
            Total
                ($)Allen
      Salmasi
              Chairman
      of the Board of Directors (3)
            2009
            
            $
            425,250
            
            
            $
            0
            
            
            $
            143,086
            
            
            $
            20,413
            
            
            $
            588,7492008
            
            $
            777,000
            
            
            $
            0
            
            
            $
            0
            
            
            $
            17,123
            
            
            $
            794,123James
      C. Brailean
              Chief
      Executive Officer, Chief Operating Officer and President
    (4)
            2009
            
            $
            405,000
            
            
            $
            0
            
            
            $
            2,326,100
            
            
            $
            13,671
            
            
            $
            2,744,7712008
            
            $
            363,575
            
            
            $
            0
            
            
            $
            0
            
            
            $
            12,125
            
            
            $
            375,700Frank
      A. Cassou
              EVP,
      Chief Legal Counsel & Secretary
            2009
            
            $
            520,020
            
            
            $
            0
            
            
            $
            272,370
            
            
            $
            20,298
            
            
            $
            812,6882008
            
            $
            491,940
            
            
            $
            0
            
            
            $
            0
            
            
            $
            17,123
            
            
            $
            509,063Francis
      J. Harding
              EVP,
      Chief Financial Officer (5)
            2009
            
            $
            328,168
            
            
            $
            30,000
            
            
            $
            273,869
            
            
            $
            13,610
            
            
            $
            645,647






1.
            The
      amounts reported in this column represent the aggregate grant date fair
      value of the options to purchase shares of Company common stock (the
      “Company Options”) granted to the Named Executive Officers and the
      aggregate grant date fair value of the option to purchase shares of common
      stock of PacketVideo (the “PacketVideo Option”) granted to Dr. Brailean
      during fiscal 2009.  Pursuant to SEC rules, the amounts reported
      exclude the impact of estimated forfeitures related to service-based
      vesting conditions.  The assumptions made in calculating the
      grant date fair value amounts for the Company Options and the PacketVideo
      Option granted in fiscal 2009 are incorporated herein by reference to the
      discussion of those assumptions in footnote 13 to the Company’s financial
      statements as contained in this Annual Report.  Note that the
      amounts reported in this column reflect the Company’s accounting cost for
      these options, and do not correspond to the actual economic value that
      will be received by the Named Executive Officers from the
      options.  Company Options with an exercise price of $0.33 per
      share awarded to the Company’s executive officers on May 19, 2009 (the
      “May Option Grant Date”) were as follows: Dr. Brailean, 366,666 shares, of
      which 343,749 were exercisable and 22,917 were unexercisable as of the May
      Option Grant Date; Mr. Harding, 187,500 shares, of which 172,163 were
      exercisable and 15,337 were unexercisable as of the May Option Grant Date;
      Mr. Cassou, 387,783 shares, all of which were exercisable as of the May
      Option Grant Date; and Mr. Salmasi, 528,082 shares, all of which were
      exercisable as of the May Option Grant Date.  The unexercisable
      portion of the option awarded to Dr. Brailean vested in equal installments
      over 2 months. The unexercisable portion of the option awarded to Mr.
      Harding will vest in equal installments over 24 months.  Such
      Company Options will expire on May 18, 2019, if not previously exercised
      or forfeited. Company Options with an exercise price of $0.42 per share
      were awarded on August 4, 2009 to Mr. Harding, 600,000 shares, and Mr.
      Cassou, 450,000 shares, all of which will vest in 48 monthly
      installments.  Such Company Options will expire on August 3,
      2019, if not previously exercised or terminated.  On September
      1, 2009, Dr. Brailean was awarded an option to purchase 1,500,000 shares
      of PacketVideo common stock with an exercise price of $2.78 per share, of
      which one-fourth will vest on the first anniversary of the grant
      date.  The remainder of the option will vest in 36 monthly
      installments thereafter.  The PacketVideo Option will expire on
      August 31, 2019, if not previously exercised or
  terminated.




2.
            The
      amounts reported in this column for fiscal 2009 and 2008, respectively,
      comprise health, disability, and life insurance premiums paid for each of
      the Named Executive Officers.




3.
            On
      May 4, 2009, Mr. Salmasi assumed the role of Chairman with a special
      mandate relating to the maximization of the value of the Company’s
      wireless spectrum assets.  In connection with the March 2010
      Amendment to our secured notes, Mr. Salmasi’s compensation has
      subsequently been reduced to a level commensurate to that of our
      independent directors.




4.
            On
      May 4, 2009, Dr. Brailean assumed the role of Chief Executive Officer,
      Chief Operating Officer and
President.




5.
            On
      May 4, 2009, Mr. Harding assumed the role of Chief Financial
      Officer.




102







Narrative
to Summary Compensation Table and Grants of Plan-Based Awards Table




In fiscal
2009, the primary components of our executive compensation program
were:




§
            base
      salary




§
            annual
      incentives




§
            equity
      compensation




§
            other
      benefits




Base
Salary




We use
base salary to fairly and competitively compensate our executives, including the
Named Executive Officers, for the jobs we ask them to perform.  We
view base salary as the most stable component of our executive compensation
program, as this amount is not at risk.  We believe that the base
salaries of our executives should be targeted at or above the median of base
salaries for executives in similar positions with similar responsibilities at
comparable companies, consistent with our compensation
philosophy.  Because of our emphasis on performance-based compensation
for executives, base salary adjustments are generally made only when we believe
there is a significant deviation from the market or an increase in
responsibility. The Compensation Committee reviews the base salary levels of our
executives each year to determine whether an adjustment is warranted or
necessary.




In May
2009, Mr. Salmasi assumed the role of Chairman of the Board of Directors with a
special mandate relating to the maximization of the value of the Company’s
wireless spectrum assets, and his base salary was accordingly
reduced.  Also in May 2009, Dr. Brailean assumed the role of Chief
Executive Officer, Chief Operating Officer and President of the Company and his
base salary was increased in recognition of his increased
responsibilities.  Mr. Harding assumed the role of Chief Financial
Officer of the Company in May 2009 and his base salary was increased in
recognition of his increased responsibilities in this role and as a result of
the Company’s global restructuring and divestiture initiatives.




Annual
Incentives




The
Compensation Committee has the authority to make discretionary annual incentive
awards to our executives, including the Named Executive Officers, after the end
of the fiscal year, once the financial results for the year are
available.  While we do not have a formal bonus plan for making these
awards, typically we follow the same general process for making the awards each
year.  Using the target annual incentive award opportunities and the
Company’s financial and operational performance for the completed fiscal year,
our CEO establishes a proposed total bonus pool amount and tentative award
allocations among our employees, including our executives (except with respect
to his own award). The proposed total bonus pool amount and the tentative award
allocations are subject to the approval of the Compensation Committee. These
awards are intended to reward our employees and executives for achieving
strategic and operational objectives during the year. Our CEO also evaluates the
performance of each of our executives in order to formulate award
recommendations for the Compensation Committee.




Due to
our global restructuring initiatives and our overall need to reduce operating
costs, the decision was made not to pay annual incentive awards for fiscal 2008
performance.  Mr. Harding received an annual incentive award in 2009
for retention pruposes given his expanded role with the
Company. The form
of payment for our annual incentive awards is subject to the discretion of the
Compensation Committee. In the past, the Compensation Committee has elected to
pay out the annual incentive awards in fully-vested shares of the Company’s
common stock and cash.




Equity
Compensation




We use
equity compensation to promote an ownership culture that encourages long-term
decision-making and building shareholder value.  Through our equity
compensation plan, we provide designated employees, including our executives,
with equity incentives that help align their interests with those of our
shareholders.  Our practice has been to grant equity awards to new
hires in an amount appropriate to their job level and
responsibilities.  Additional equity awards have been granted in
connection with promotions (to make the total long term equity incentive held by
such individual commensurate with other individuals in their new pay grade) and
in lieu of annual cash incentive awards.




We
believe that the opportunity to acquire equity creates and maintains an
environment that motivates our employees to stay with the organization and
provides a key incentive to them to promote our long-term success and build
shareholder value.  By providing employees a direct stake in our
economic success, equity compensation assures a closer identification of their
interests with those of the Company and our shareholders, stimulate their
efforts on our behalf, and strengthen their desire to remain with
us.




On May
19, 2009, the Compensation Committee met to consider equity incentive
compensation for officers and employees of the Company.  The
Compensation Committee considered the Company’s substantial completion of its
global restructuring efforts, the desire to provide officers and employees a
continued equity incentive to best align their interests with Company
stockholders, and the extent to which the Company’s existing options were
substantially underwater (with a weighted average exercise price of $6.42, as
compared to the closing price of a share of Company common stock on NASDAQ of
$0.33 on May 19).  After considering these factors, and various
alternatives, the Compensation Committee approved the grant of new options to
purchase an aggregate of


103




6,378,516
shares of the Company’s common stock at an exercise price of $0.33 per share
(the “New Stock Options”) pursuant to the NextWave Wireless Inc. 2005 Stock
Incentive Plan.  Each officer and employee received a New Stock Option
to purchase a number of shares equal to the aggregate number of shares currently
subject to options held by such employee, with commensurate vesting
terms.  The New Stock Options will expire on May 18, 2019, if not
previously exercised or forfeited.




Other
Benefits




Historically,
we have not provided retirement benefits to our executives, including the Named
Executive Officers.  However, we offer all of our U.S. employees,
including the Named Executive Officers, the opportunity to participate in our
tax-qualified defined contribution plan, a Section 401(k) savings
plan.  This plan serves as the primary vehicle for our employees to
accumulate retirement benefits.  Currently, we do not match any
employee contributions (including contributions of the Named Executive Officers)
made to the Section 401(k) plan.  We believe that the total amount of
retirement benefits made available to our executives, including the Named
Executive Officers, under this plan, when added to our equity awards, is
consistent with the level of total compensation that we seek to provide to our
executives.




We
provide medical, disability and life insurance benefits to our executives,
including the Named Executive Officers, on the same terms and conditions as are
generally available to all of our salaried employees.




Outstanding
Equity Awards at Fiscal Year End




2009
Outstanding Equity Awards at Fiscal Year-End Table




The
following table sets forth information as to the equity awards  held
by each of the Named Executive Officers as of the end of fiscal
2009:




Name
            
            Number
      of Securities Underlying Unexercised Options (#) Exercisable
      (1)
            
            
            Number
      of Securities Underlying Unexercised Options (#)
Unexercisable
                (2)
            
            
            Option
      Exercise Price
                ($)
            
            Option
      Expiration DateAllen
      SalmasiApril
      13, 2005
            
            
            416,666
            
            
            
            0
            
            
            $
            6.00
            
            4/12/15April
      27, 2006
              May
      19, 2009
            
            
            111,416
              528,082
            
            
            
            0
              0
            
            
            $
            6.00
              0.33
            
            4/26/16
              5/18/19Frank
      A. CassouApril
      13, 2005
            
            
            333,333
            
            
            
            0
            
            
            $
            6.00
            
            4/12/15April
      27, 2006
              May
      19, 2009
              August
      4, 2009
            
            
            54,450
              387,783
              450,000
            
            
            
            0
              0
              412,500
            
            
            $
              $
              $
            6.00
              0.33
              0.42
            
            4/26/16
              5/18/19
              8/3/19James
      C. BraileanJuly
      20, 2005
              May
      19, 2009
              September
      1, 2009(3)
            
            
            366,666
              366,666
              0
            
            
            
            0
              0
              1,500,000
            
            
            $
              $
              $
            6.00
              0.33
              2.78
            
            7/19/12
              5/18/19
              8/31/19Francis
      J. HardingAugust
      1, 2005
              April
      27, 2006
            
            
            83,333
              84,722
            
            
            
            00
            
            
            $
              $
            6.00
              6.00
            
            7/31/15
              4/26/16May
      24, 2007
              May
      19, 2009
              August
      4, 2009
            
            
            19,445
              187,500
              600,000
            
            
            
            6,887
              0
              550,000
            
            
            $
              $
              $
            9.00
              0.33
              0.42
            
            5/23/17
              5/18/19
              8/3/19




(1)
            The
      Company Options granted on April 13, 2005 were immediately exercisable in
      full as of the option grant date, subject to an unvested share repurchase
      right (at the option exercise price) in favor of the Company in the event
      that the Named Executive Officer terminated employment with the Company
      for any reason prior to the fourth anniversary of the date of
      grant.  This repurchase right expired in 48 equal monthly
      installments over a four year period commencing on the date of grant,
      beginning on May 13, 2005.  As of January 2, 2010, Messrs.
      Salmasi and Mr. Cassou had no shares that were subject to this repurchase
      right. The Company Options granted on April 27, 2006 were granted in lieu
      of a cash incentive award for performance in fiscal 2005 and were vested
      in full as of the option grant
date.




(2)
            The
      Company Options granted on July 20, 2005 become exercisable in 48
      equal monthly installments over a four year period commencing on the date
      of grant, beginning on August 20, 2005.  The Company Options
      granted on May 19, 2009 were immediately exercisable in full as of the
      option grant date, with the exception of 25,667 options granted to Dr.
      Brailean and 15,000 options granted to
Mr.




104




Harding.  The
unexercisable portion of the Company Option awarded to Dr. Brailean vested in
equal monthly installments over two months commencing on the date of grant,
beginning on June 19, 2009. The unexercisable portion of the Company Option
awarded to Mr. Harding will vest in equal monothly installments over 24 months
commencing on the date of grant, beginning on June 19, 2009.  The
Company Options granted on August 4, 2009 become exercisable in 48 equal
monthly installments over a four year period commencing on the date of grant,
beginning on September 4, 2009.




(3)
            One-fourth
      of the PacketVideo Option granted on September 1, 2009 is exercisable
      commencing one year after the date of grant, beginning on September 1,
      2010. The remaining shares become exercisable in 36 monthly
      installments thereafter.






Director
Compensation




2009
Director Compensation Table




The following table sets forth, for the
fiscal year ended January 2, 2010, the total compensation of the non-employee
members of the Company’s Board of Directors:











Name(1)
            
            Fees
      Earned or Paid in Cash
                ($)(2)
            
            
            Option
      Awards
                ($)(3)
            
            
            Total
                ($)Douglas
      F. Manchester
            
            $
            76,750
            
            
            $
            152,962
            
            
            $
            229,712Jack
      Rosen
            
            $
            74,750
            
            
            $
            143,785
            
            
            $
            218,535Robert
      T. Symington
            
            $
            81,500
            
            
            $
            146,385
            
            
            $
            227,885Carl
      E. Vogel
            
            $
            10,417
            
            
            $
            1,289,868
            
            
            $
            1,300,285William
      H. Webster
            
            $
            81,500
            
            
            $
            156,892
            
            
            $
            238,392




(1)
            As
      employees of the Company, Mr. Salmasi and Dr. Brailean received no
      compensation for serving as members of the Company’s Board of
      Directors.




(2)
            The
      Company’s standard fee arrangements for non-employee directors are as
      follows: a $2,000 cash fee for each Board meeting attended in person, a
      $1,000 cash fee for each telephonic Board meeting attended, and a $750
      cash fee for each Board committee meeting attended. In January 2009 the
      Board of Directors also approved a $40,000 annual retainer for each
      non-employee director.  Also in January of 2009, the
      non-employee directors (other than Mr. Vogel) also received an annual
      stock option grant of 350,000 shares of the Company’s common stock for
      service on the Board of Directors, with 200,000 shares subject to
      immediate vesting and 150,000 shares subject to vesting over one year in
      equal monthly increments.  In addition, each non-employee
      director (except for Mr. Vogel) received an annual stock option grant of
      8,500 shares of the Company’s common stock for service on each Board
      committee in respect of their fiscal 2008 service.  The Board
      granted to Mr. Vogel an option to purchase an aggregate of 2.5 million
      shares of the Company’s common stock pursuant to the Company’s 2005 Stock
      Incentive Plan subject to vesting in 24 equal monthly
      installments.




(3)
            The
      amounts reported in the Option Awards column represent the aggregate grant
      date fair value of the Company Options granted to the non-employee
      directors during fiscal 2009.  Pursuant to SEC rules, the
      amounts reported exclude the impact of estimated forfeitures related to
      service-based vesting conditions.  The assumptions made in
      calculating the grant date fair value amounts for the Company Options
      granted in fiscal 2009 and in prior years are incorporated herein by
      reference to the discussion of those assumptions in footnote 13 to the
      Company’s financial statements as contained in this Annual Report. Note
      that the amounts reported in this column reflect the Company’s accounting
      cost for these Company Options, and do not correspond to the actual
      economic value that will be received by the non-employee directors from
      the Company Options.




The
aggregate number of shares subject to stock options outstanding as of January 2,
2010 for each of the non-employee directors was as follows:




Name
            
            Number
      of Shares
                Underlying
      Outstanding
                OptionsDouglas
      F. Manchester (a)
            
            751,652Jack
      Rosen (b)
            
            693,165Robert
      T. Symington (c)
            
            709,498Carl
      E. Vogel (d)
            
            2,500,000William
      H. Webster (e)
            
            744,832




(a)
            Includes
      an option to purchase 12,743 shares of the Company’s common stock with an
      exercise price of $1.96 per share, granted on September 15, 2004; an
      option to purchase 50,000 shares of the Company’s common stock with an
      exercise price of $6.00 per share, granted on April 13, 2005; an option to
      purchase 8,333 shares of the Company’s common stock with an exercise price
      of $6.00 per share, granted on April 27, 2006; an option to purchase
      52,000 shares of the Company’s common stock with an exercise price of
      $11.80 per share granted on February 26, 2007; an option to
      purchase




105




65,000
shares of the Company’s common stock with an exercise price of $4.79 per share
granted on March 28, 2008; an option to purchase 375,500 shares of the Company’s
common stock with an exercise price of $0.31 per share granted on January 12,
2009; and an option to purchase 188,076 shares of the Company’s common stock
with an exercise price of $0.38 per share granted on June 11, 2009.




(b)
            Includes
      an option to purchase 33,333 shares of the Company’s common stock with an
      exercise price of $6.00 per share, granted on April 13, 2005; an option to
      purchase 8,333 shares of the Company’s common stock with an exercise price
      of $6.00 per share, granted on April 27, 2006; an options to purchase
      43,500 shares of the Company’s common stock with an exercise price of
      $11.80 per share granted on February 26, 2007; an option to purchase 8,500
      shares of the Company’s common stock with an exercise price of $9.00 per
      share granted on May 24, 2007;  an option to purchase 65,000
      shares of the Company’s common stock with an exercise price of $4.79 per
      share granted on March 28, 2008; an option to purchase 375,500 shares of
      the Company’s common stock with an exercise price of $0.31 per share
      granted on January 12, 2009; and an option to purchase 158,999 shares of
      the Company’s common stock with an exercise price of $0.38 per share
      granted on June 11, 2009.




(c)
            Includes
      an option to purchase 33,333 shares of the Company’s common stock with an
      exercise price of $6.00 per share, granted on April 13, 2005; an option to
      purchase 16,666 shares of the Company’s common stock with an exercise
      price of $6.00 per share, granted on April 27, 2006; an option to purchase
      52,000 shares of the Company’s common stock with an exercise price of
      $11.80 per share granted on February 26, 2007; an option to purchase
      65,000 shares of the Company’s common stock with an exercise price of
      $4.79 per share granted on March 28, 2008; an option to purchase 375,500
      shares of the Company’s common stock with an exercise price of $0.31 per
      share granted on January 12, 2009; and an option to purchase 166,999
      shares of the Company’s common stock with an exercise price of $0.38 per
      share granted on June 11, 2009.




(d)
            Includes
      an option to purchase 2.5 million shares of the Company’s common stock
      with an exercise price of $0.59 per share, granted on November 11,
      2009.




(e)
            Includes
      an option to purchase 50,000 shares of the Company’s common stock with an
      exercise price of $6.00 per share, granted on April 13, 2005; an option to
      purchase 8,333 shares of the Company’s common stock with an exercise price
      of $6.00 per share, granted on April 27, 2005; an option to purchase
      60,500 shares of the Company’s common stock with an exercise price of
      $11.80 per share granted on February 26, 2007; an option to purchase
      75,000 shares of the Company’s common stock with an exercise price of
      $4.79 per share granted on March 28, 2008; an option to purchase 384,000
      shares of the Company’s common stock with an exercise price of $0.31 per
      share granted on January 12, 2009; and an option to purchase 166,999
      shares of the Company’s common stock with an exercise price of $0.38 per
      share granted on June 11, 2009.




Perquisites
and other personal benefits provided to each of the non-employee directors in
fiscal 2009 were, in the aggregate, less than $10,000 per director.




Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.




Set forth
below is certain information as of March 17, 2010, with respect to the
beneficial ownership determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934, as amended, of our common stock by (a) each
person who, to our knowledge, is the beneficial owner of more than 5% of our
outstanding common stock and our outstanding preferred stock, (b) each director
and nominee for director, (c) each of the executive officers named in the
Summary Compensation Table and (d) all of our executive officers and directors
as a group.  Unless otherwise stated, the business address of each
person listed is c/o NextWave Wireless Inc., 10350 Science Center Drive, Suite
210, San Diego, California 92121.




Securities
      Beneficially OwnedName
      and Address
              of
      Beneficial Owner
            Shares
      Beneficially Owned
            Percentage
      of Shares OutstandingPrincipal
      Security Holders:Navation
      Inc. (1)
            21,897,960
            13.4
            %Avenue
      Capital Group (2)
            62,254,490
            36.1
            %Sola
      Ltd. (3)
            16,726,663
            9.9
            %Officers,
      Directors and Nominees:James
      C. Brailean (4)
            740,413
            *





106





Frank
      A. Cassou (5)
            3,298,441
            2.1
            %Francis
      J. Harding (6)
            494,329
            *Douglas
      F. Manchester (7)
            7,883,972
            4.8
            %Jack
      Rosen (8)
            865,623
            *Allen
      Salmasi (9)
            31,394,401
            19.0
            %Robert
      T. Symington (10)
            727,472
            *Carl
      E. Vogel (11)
            729,167
            *William
      H. Webster (12)
            850,040
            1%All
      directors and officers as a group
            46,992,920
            26.5
            %


* Less than 1%




The
shares beneficially owned and ownership percentages reflected in the table above
are based on the inclusion in the calculations for each individual or entity of
(i) options held by such individual or entity that are exercisable within a
period of 60 days from the record date, (ii) convertible Third Lien Notes held
by such individual or entity that are convertible within a period of 60 days
from the record dateand (iii) warrants held
by such individual or entity that are exercisable within a period of 60 days
from the record date, as applicable.




(1)
            The
      address for Navation, Inc. is c/o Mr. Alain Tripod, 15, rue
      Général-Dufour, Case Postale 5556, CH - 1211 Genéve 11, Switzerland.
      Includes 6,804,086 shares issuable upon conversion of Third Lien
      Notes.




(2)
            Based
      on the Schedule 13D filed by Avenue Capital Group and its affiliates on
      November 19, 2008, as amended on December 18, 2009.  The address
      for Avenue Capital Group is 535 Madison Avenue, New York, NY
      10022.  Robert T. Symington, a member of the NextWave Board of
      Directors, is a portfolio manager of an Avenue Capital Group
      affiliate.  Includes 13,608,170 shares issuable upon conversion
      of Third Lien Notes and 706,790 shares underlying options held by Mr.
      Symington that are exercisable within 60 days.  Marc Lasry is
      the managing member of Avenue Capital Management II GenPar, LLC, the
      general partner of Avenue Capital II and exercises voting and investment
      power over the securities beneficially owned by Avenue Capital II and by
      the funds thereof.




(3)
            Based
      on the Schedule 13G filed by Solus Alternative Asset Management LP, Solus
      GP LLC and Christopher Pucillo on February 16, 2010.  The
      address for Sola Ltd is 430 Park Avenue, 9th
      floor, New York, NY 10022.  Includes 6,250,000 shares held as
      common stock with the remainder being held as notes and warrants which
      were convertible into 10,476,663 shares of common stock.  Mr.
      Pucillo is the managing member of Solus GP LLC, the general partner of
      Solus Alternative Asset Management LP and exercises voting and investment
      power over the securities beneficially owned by Solus Alternative Asset
      Management LP.The
      Third Lien Notes and warrants held by Sola Ltd. and its affiliates provide
      that in no event will any holder of such securities be entitled to receive
      common stock upon exercise or conversion to the extent (but only to the
      extent) that such receipt would cause Sola Ltd. and its affiliates to
      become, directly or indirectly, a beneficial owner of more than 9.9% of
      the shares of our common stock outstanding at such
  time.




(4)
            Includes
      733,332 shares underlying options that are exercisable within 60
      days.




(5)
            Includes
      858,899 shares underlying options that are exercisable within 60
      days.




(6)
            Includes
      494,329 shares underlying options that are exercisable within 60
      days.




(7)
            Represents
      shares held by Douglas F. Manchester directly and indirectly through each
      of Manchester Financial Group, LP and Manchester Grand Resorts, LP.
      Includes 12,743 shares underlying options to purchase our common stock,
      arising from the conversion of options to purchase CYGNUS common stock
      that were converted into NextWave options in November 2006, 6,804,086
      shares issuable upon conversion of Third Lien Notes and 748,944 shares
      underlying options that are exercisable within 60
  days.




(8)
            Includes
      690,457 shares underlying options that are exercisable within 60
      days.




(9)
            Allen
      Salmasi is Chief Executive Officer of Navation, Inc. Mr. Salmasi may be
      deemed to beneficially own the shares of common stock held or record by
      Navation, Inc. Represents shares held by Allen Salmasi directly and
      indirectly through Navation, Inc. Includes 6,804,086 shares issuable upon
      conversion of Third Lien Notes and 528,082 shares underlying options that
      are exercisable within 60 days.




(10)
            Includes
      706,790 shares underlying options that are exercisable within 60
      days.




(11)
            Includes
      729,167 shares underlying options that are exercisable within 60
      days




(12)
            Includes
      741,707 shares underlying options that are exercisable within 60
      days.




Securities
Authorized for Issuance under Equity Compensation Plans




We
granted options exercisable to purchase 15,419,632 shares of common stock
through 400 stock option awards under all of our compensation plans during the
fiscal year ended January 2, 2010.




107




Information
about our equity compensation plans at January 2, 2010 is as
follows:






Equity
Compensation Plan Information




Plan
      Category
            
            Number
      of Securities to be issued upon exercise of outstanding options, warrants
      and rights
            
            
            Weighted
      Average exercise price of outstanding options, warrants and
      rights
            
            
            Number
      of securities remaining available for future issuance under equity
      compensation plansEquity
      compensation plans approved by security holders (1)
            
            
            17,844,966
            
            
            $
            1.95
            
            
            
            518,537Equity
      compensation plans not approved by security holders (2)
            
            
            3,397,256
            
            
            $
            6.14
            
            
            
            9,770,000Total
            
            
            21,242,222
            
            
            $
            2.62
            
            
            
            10,288,537




(1)       In
June 2006, NextWave Wireless LLC unit holders approved 20 million Units
(approximately 3,333,333 shares of our common stock) issuable upon the exercise
of options to be granted pursuant to the NextWave Wireless LLC 2005 Units Plan
(the “2005 Units Plan”).  The remaining Units issuable pursuant to the
2005 Units Plan were approved by the Bankruptcy Court in April 2005 in
connection with the plan of reorganization of NextWave Telecom, Inc. and its
subsidiaries, including NextWave Wireless LLC.  On November 13, 2006,
NextWave Wireless LLC merged with and into NextWave Wireless Inc, and the 2005
Units Plan was assumed by NextWave Wireless Inc., becoming the 2005 Stock
Incentive Plan.  In May of 2007, NextWave Wireless Inc. shareholders
approved an amendment to the 2005 Stock Incentive Plan to increase the number of
shares of common stock available for issuance from 12,500,000 to
27,500,000.  Thus, 15,333,333 shares of our common stock issued or
available for issuance pursuant to grants under the 2005 Stock Incentive Plan
have been approved by stockholders.




(2)       The
remaining 9,166,666 shares of common stock issuable pursuant to the grant of
options under the 2005 Stock Incentive Plan were approved in April 2005 by the
Bankruptcy Court in connection with the plan of reorganization as described
above.  The 2005 Stock Incentive Plan provides for the issuance of
nonqualified stock options, or restricted, performance-based, bonus, phantom or
other stock-based awards to directors, employees and consultants of NextWave.
Thus, 9,166,666 shares of our common stock issued or available for issuance
pursuant to grants under the 2005 Stock Incentive Plan have not been approved by
shareholders.




In
July 2005, NextWave acquired PacketVideo Corporation, which became our
wholly-owned subsidiary following the closing of the acquisition.  In
August 2005, the Board of Directors of PacketVideo Corporation adopted the
PacketVideo Corporation 2005 Equity Incentive Plan (the “PacketVideo Plan”), pursuant to which employees
of PacketVideo Corporation  were authorized to receive up to 1,375,000
shares of our common stock upon the exercise of stock options and similar rights
(after giving effect to the conversion described below).  The
PacketVideo Plan was subsequently amended on two occasions to increase the
aggregate number of authorized shares to a total of 1,833,333 shares of our
common stock. Pursuant to the terms of the PacketVideo Plan, on January 3, 2007,
when we listed our common stock on the Nasdaq Global Market, each outstanding
option, exercised or not, under the PacketVideo Plan was automatically converted
from an option or other award to purchase PacketVideo common stock into an
option or other award to purchase shares of NextWave common
stock.  The PacketVideo Plan was not approved by our
stockholders.




Under the
NASDAQ Marketplace Rules, listed issuers are permitted to grant compensatory
equity to new employees for the purpose of inducing such persons to enter into
an employment relationship with the issuer without stockholder
approval.  The 2007 New Employee Stock Incentive Plan described below
was adopted by NextWave without stockholder approval pursuant to the inducement
exemption.




In
February 2007, NextWave adopted the 2007 New Employee Stock Incentive Plan to
offer shares of NextWave common stock for equity awards to our new hires and the
new hires of our subsidiaries, including new employees who have joined us in
connection with acquisitions.  The 2007 New Employee Stock Incentive
Plan is administered by the Compensation Committee of the Board of Directors of
NextWave, and provides for the grant of up to 2,500,000 shares of NextWave
common stock to our new hires as compensatory equity aimed at inducing such
persons to enter into an employment relationship with us.  This plan
was then amended to provide up to 5,000,000 shares of NextWave common stock to
our new hires.




As of
January 2, 2010, options to acquire a total of 112,982 shares of common stock
are issued and outstanding under the 2007 New Employee Stock Incentive Plan,
leaving 4,887,018 options available for future grant under the plan






Item 13.
Certain Relationships and Related Transactions, and Director
Independence.




Transaction
with Related Persons


108




In
connection with the March 16, 2010 Amendment and Waiver, we entered into the
Commitment Letter with Avenue Capital Management II, L.P., acting on behalf of
its managed investment funds signatory thereto, and Solus Core Opportunities
Master Fund Ltd (“Solus”) and its affiliates and co-investors, to provide up to
$25.0 million in additional financing through the purchase of the Senior
Incremental Notes.  Avenue Capital Management II, L.P., is an
affiliate of Avenue Capital. Robert Symington, a portfolio manager with Avenue
Capital, is a member of our Board of Directors. As of January 2, 2010, Avenue
Capital and its affiliates held shares representing approximately 36.1% of our
issued and outstanding common stock, approximately $82.3 million, or 51.1% of
the aggregate principal amount of our Senior Notes, approximately $93.9 million,
or 78.1% of the aggregate principal amount of our Second Lien Notes and
approximately $134.7 million, or 28.2% of the aggregate principal amount of our
Third Lien Notes. As of
January 2, 2010, Solus beneficially owned shares representing approximately 9.9%
of our issued and outstanding common stock, approximately $27.3 million, or
16.9% of the aggregate principal amount of our Senior Lien Notes, approximately
$26.3 million, or 21.9% of the aggregate principal amount of our Second Lien
Notes and approximately $55.2 million, or 11.5% of the aggregate principal
amount of our Third Lien Notes. The terms
of the Commitment Letter provide that we will be entitled to borrow up to $25.0
million in one or more borrowings after March 16, 2010 but prior to July 31,
2010, upon 10 business days notice.  As with the other Senior Notes,
amounts outstanding under the Senior Incremental Notes will bear interest at a
rate of 15% per annum, payable in kind unless we elect to pay cash, and will be
secured by a first lien on the same assets securing the our Senior Notes, on a
pari passu basis.   No commitment fee or structuring fee is
payable in connection with the Commitment Letter.




As
consideration for the Amendment and Waiver, we paid an amendment fee to each of
Avenue Capital, Solus, Douglas F. Manchester, a member of our Board of Directors
and Navation, Inc. (“Navation”), an entity owned by Allen Salmasi, our Chairman,
through the issuance of additional Notes under the applicable Note Agreements in
an amount equal to 2.5% of the outstanding principal and accrued and unpaid
interest on such holder’s existing Notes as of March 16, 2010.  The
Fee Notes were paid on March 16, 2010 by the issuance of Senior Notes, Second
Lien Notes and Third Lien Notes to Avenue Capital, Solus, Mr. Manchester and
Navation, and will accrue interest and become payable in accordance with the
terms of the respective Note Agreements.  Avenue Capital received $2.3
million in Senior Notes, $2.8 million in Second Lien Notes and $3.8 million in
Third Lien Notes.  Solus received $0.7 million in Senior Notes, $0.8
million in Second Lien Notes and $1.5 million in Third Lien
Notes.  Mr. Manchester and Navation each received $1.9 million in
Third Lien Notes.  The transactions contemplated by the Amendment and
Waiver and the Commitment Letter were approved and recommended to our Board of
Directors by an independent committee consisting of members of the Board of
Directors who do not have any direct or indirect economic interest in the
Notes.




In July
2009, we issued additional Second Lien Notes due 2010 in the aggregate principal
amount of $15.0 million, on the same financial and other terms applicable to our
existing Second Lien Notes. The Incremental Purchaser was Avenue AIV US, L.P.,
an affiliate of Avenue Capital. In connection with the issuance of the
Incremental Notes in July 2009, we issued warrants to purchase 7.5 million
shares of our common stock at an exercise price of $0.01 per share to the
purchaser of the Incremental Notes. The grant-date fair value of the warrants,
which totaled $3.5 million, was recorded to additional paid-in capital and
reduced the carrying value of the Second Lien Notes, and is recognized as
additional interest expense over the remaining term of the Second Lien Notes.
During the year ended January 2, 2010 Avenue AIV US, L.P. exercised all of these
warrants to purchase 7.4 million shares of common stock for 0.1 million net
common shares withheld.




Under the
terms of the purchase agreements for our Senior Notes and Second Lien Notes, we
were required to enter into binding agreements to effect asset sales generating
net proceeds of at least $350 million no later than March 31, 2009 and
consummate such sales no later than six months following execution of such
agreements, unless closing is delayed solely due to receipt of pending
regulatory approvals (the “Asset Sale Condition”). We did not meet the Asset
Sale Condition. As a result, pursuant to the terms of the note purchase
agreements, the interest rate on the Senior Notes increased by 200 basis points
effective March 31, 2009 and, on April 8, 2009, we issued additional warrants to
purchase an aggregate of 10.0 million shares of our common stock at an exercise
price of $0.01 per share to the purchasers of the Second Lien Notes. Of the
warrants issued, 7.5 million were issued to Avenue AIV US, L.P. The grant-date
fair value of the warrants, which totaled $1.7 million, was recorded to
additional paid-in capital and reduced the carrying value of the Second Lien
Notes, and is recognized as additional interest expense over the remaining term
of the Second Lien Notes. During the year ended January 2, 2010 Avenue AIV US,
L.P. exercised all of these warrants to purchase 7.4 million shares of common
stock for 0.1 million net common shares withheld.




Of the
Second Lien Notes issued in October 2008, Second Lien Notes in the aggregate
principal amount of $78.9 million were purchased by Avenue AIV US, L.P. The
issuance of the Second Lien Notes and related transactions were approved by an
independent committee of our Board of Directors. Additionally, in connection
with the Second Lien Notes issuance, we issued warrants to purchase of 30.0
million shares of our common stock and paid $5.6 million in fees to Avenue AIV
US, L.P. During the year ended January 2, 2010 Avenue AIV US, L.P. exercised all
of these warrants to purchase 29.4 million shares of common stock for 0.6
million net common shares withheld.


109




Of our
Series A Preferred Stock issued and sold in March 2007, 14%, 14% and 28% of the
shares were sold respectively, to Navation, Manchester Financial Group and
affiliates of Avenue Capital. These parties also participated on a pro rata
basis in the exchange of our Series A Preferred Stock for the Third Lien Notes
in November 2008, which was approved by an independent committee of our Board of
Directors.




Item 14.
Principal Accounting Fees and Services.






The
following table sets forth the aggregate fees (in thousands) for services
related to fiscal years 2009 and 2008 provided by Ernst & Young LLP, our
principal accountants.




Fiscal
      2009
            
            
            Fiscal
      2008Audit
      Fees (1)
            $
            1,588
            
            
            $
            1,728Audit-Related
      Fees (2)
            $
            77
            
            
            $
            116Tax
      Fees (3)
            $
            0
            
            
            $
            0All
      Other Fees (4)
            $
            0
            
            
            $
            0







(1)
            Audit
      Fees represent fees billed for professional services rendered for the
      audit of our annual consolidated financial statements, including reviews
      of our quarterly financial statements, as well as audit services provided
      in connection with other regulatory filings in connection with our fiscal
      2009 and 2008 filings of registration statements on Form 10-K, Form 10-Q,
      Form S-1, and Form 8-K.




(2)
            Audit-Related
      Fees represent fees billed for assurance services related to the audit of
      our financial statements.




(3)
            Tax
      Fees represent fees for professional services related to tax reporting,
      compliance and transaction services
assistance.




(4)
            All
      Other Fees represent fees for services provided to us not otherwise
      included in the categories above.




The Audit
Committee of the Board of Directors has adopted a formal policy concerning the
approval of audit and non-audit services to be provided by our principal
accountant, Ernst & Young LLP. The policy requires that all services Ernst
& Young LLP may provide to us, including audit services and permitted
audit-related and non-audit services, be pre-approved by the Audit Committee.
The Audit Committee pre-approved all audit and non-audit services provided by
Ernst & Young LLP during fiscal 2009 and fiscal 2008.




110




PART IV




Item 15.Exhibits and Financial
Statement Schedule.




(a)
Financial Statements and Supplementary Data, Financial Statement Schedules and
Exhibits.




None.




(b)
Exhibits







Number
            
            Description2.1
            
            Third
      Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code of
      NextWave Personal Communications Inc., NextWave Power Partners Inc.,
      NextWave Partners Inc., NextWave Wireless Inc. and NextWave Telecom Inc.,
      dated January 21, 2005 (incorporated by reference to Exhibit 2.1 to the
      Registration Statement on Form 10 of NextWave Wireless LLC filed May 1,
      2006 (the “Form 10”))2.2
            
            Agreement
      and Plan of Merger, dated as of April 6, 2007, by and among NextWave
      Wireless Inc., IPW, LLC, IPWireless, Inc. and J. Taylor Crandall, as
      stockholder representative (incorporated by reference to Exhibit 2.1 to
      the Current Report on Form 8-K filed April 12, 2007)2.3
            
            Agreement
      and Plan of Merger, dated as of December 31, 2006, by and among NextWave
      Wireless Inc., Go Acquisition Corp., GO Networks, Inc. and Nechemia J.
      Peres, as Stockholder Representative (incorporated by reference to Exhibit
      2.1 to the Current Report on Form 8-K of NextWave Wireless Inc. filed
      January 3, 2007)2.4
            
            Agreement
      and Plan of Merger, dated November 7, 2006, by and among NextWave Wireless
      Inc., NextWave Wireless LLC and NextWave Merger LLC (incorporated by
      reference to Exhibit 2.1 to the Current Report on Form 8-K of NextWave
      Wireless Inc. filed November 7, 2006)3.1
            
            Amended
      and Restated Certificate of Incorporation of NextWave Wireless Inc., as
      restated on November 6, 2006 (incorporated by reference to Exhibit 3.1 to
      the Registration Statement on Form S-4/A of NextWave Wireless Inc. filed
      November 7, 2006)3.2
            
            Amended
      and Restated By-Laws of NextWave Wireless Inc., adopted on October 30,
      2007 (incorporated by reference to Exhibit 3.2 to the Current Report on
      Form 8-K of NextWave Wireless Inc. filed November 2,
  2007)4.1
            
            Specimen
      common stock certificate (incorporated by reference to Exhibit 4.1 to the
      Company’s Registration Statement on Form S-4/A filed November 7,
      2006)4.2
            
            Form
      of Station 4, LLC Warrant (incorporated by reference to Exhibit 4.2 to the
      Form 10)4.3
            
            Certificate
      of Elimination of Series A Senior Convertible Preferred Stock of NextWave
      Wireless Inc. (incorporated by reference to Exhibit 4.8 to the Quarterly
      Report on Form 10-Q filed November 6, 2008)4.4
            
            Senior
      Note Purchase Agreement, dated as of July 17, 2006, among NextWave
      Wireless LLC, as issuer, NextWave Broadband Inc., NW Spectrum Co., AWS
      Wireless Inc., and PacketVideo Corporation, as subsidiary guarantors, the
      note purchasers party thereto and The Bank of New York, as collateral
      agent (incorporated by reference to Exhibit 4.1 to the Current Report on
      Form 8-K/A of NextWave Wireless LLC filed September 8,
    2006)4.5
            
            Second
      Lien Subordinated Note Purchase Agreement, dated October 9, 2008, among
      NextWave Wireless Inc., NextWave Wireless LLC, as issuer, NextWave
      Broadband Inc., NW Spectrum Co., AWS Wireless Inc., WCS Wireless License
      Subsidiary, LLC, IP Wireless, Inc., and Packetvideo Corporation, as
      guarantors, Avenue AIV US, L.P. and Sola Ltd, as the note purchasers, and
      The Bank of New York Mellon, as collateral agent (incorporated by
      reference to Exhibit 4.1 to the Quarterly Report on Form 10-Q filed
      November 6, 2008)4.6
            
            Third
      Lien Subordinated Exchange Note Exchange Agreement, dated October 9, 2008,
      among NextWave Wireless Inc., NextWave Wireless LLC., as issuer, NextWave
      Broadband Inc., NW Spectrum Co., AWS Wireless Inc., WCS Wireless License
      Subsidiary, LLC, IP Wireless, Inc., and Packetvideo Corporation, as
      guarantors, the note purchasers party thereto, and The Bank of New York
      Mellon, as collateral agent (incorporated by reference to Exhibit 4.2 to
      the Quarterly Report on Form 10-Q filed November 6,
  2008)4.7
            
            Warrant
      Agreement, dated October 9, 2008, between NextWave Wireless Inc. and Sola
      Ltd. (incorporated by reference to Exhibit 4.4 to the Quarterly Report on
      Form 10-Q filed November 6, 2008)4.8
            
            Registration
      Rights Agreement, dated October 9, 2008, between NextWave Wireless Inc.,
      Avenue AIV US, L.P. and Sola Ltd. (incorporated by reference to Exhibit
      4.5 to the Quarterly Report on Form 10-Q filed November 6,
      2008)4.9
            
            First
      Amendment to the Senior Note Purchase Agreement, dated March 12, 2008, by
      and among NextWave Wireless Inc., NextWave Wireless LLC and the holders
      named therein and the guarantors named therein, relating to the Company’s
      7% Senior Secured Noted due 2010 (incorporated by reference to the
      Quarterly Report on Form 10-Q filed November 6, 2008)4.10
            
            Second
      Amendment to the Senior Note Purchase Agreement, dated as of September 26,
      2008, among NextWave Wireless Inc., NextWave Wireless LLC, NextWave
      Broadband Inc., NW Spectrum Co., AWS Wireless Inc., WCS Wireless License
      Subsidiary, LLC, and IP Wireless, Inc., as subsidiary guarantors, and the
      note holders party thereto (incorporated by reference to Exhibit 4.6 to
      the Quarterly Report on Form 10-Q filed November 6,
  2008)4.11
            
            Amendment
      and Limited Waiver dated April 1, 2009 among NextWave Wireless Inc.,
      NextWave Wireless LLC, NextWave Broadband Inc., NW Spectrum Co., AWS
      Wireless Inc., and WCS Wireless License Subsidiary, LLC, as subsidiary
      guarantors, and the note holders party thereto (incorporated by reference
      to Exhibit 4.13 to the Annual Report on Form 10-K filed April 2,
      2009)4.12
            
            Amendment
      and Limited Waiver dated June 22, 2009 among NextWave Wireless Inc.,
      NextWave Wireless LLC, NextWave Broadband Inc., NW Spectrum Co., AWS
      Wireless Inc., and WCS Wireless License Subsidiary, LLC, as subsidiary
      guarantors, and the note holders party thereto (1)4.13
            
            Amendment
      and Limited Waiver dated March 16, 2010 among among NextWave Wireless
      Inc., NextWave Wireless LLC, NextWave Broadband Inc., NW Spectrum Co., AWS
      Wireless Inc., and WCS Wireless License Subsidiary, LLC, as subsidiary
      guarantors, and the note holders party thereto
  (1)





111





Number
            
            Description4.14
            
            Designated
      Director Agreement, dated October 9, 2008, between NextWave Wireless Inc.
      and Avenue Capital Management II, L.P. (incorporated by reference to
      Exhibit 4.7 to the Quarterly Report on Form 10-Q filed November 6,
      2008)4.15
            
            Warrant
      Agreement, dated April 8, 2009, between NextWave Wireless Inc. and Sola
      Ltd. (incorporated by reference to Exhibit 4.14 to the Current Report on
      Form 8-K filed April 14, 2009)4.16
            
            Second
      Lien Incremental Indebtedness Agreement, dated July 2, 2009, between
      NextWave Wireless Inc., NextWave LLC, NextWave Broadband Inc., NW Spectrum
      Co., AWS Wireless Inc. and WCS Wireless License Subsidiary, LLC and Avenue
      AIV US, L.P. (incorporated by reference to Exhibit 4.1 to the Quarterly
      Report on Form 10-Q filed August 6, 2009)4.17
            
            Acknowledgment
      to Registration Rights Agreement, dated July 2, 2009, by NextWave Wireless
      Inc. (incorporated by reference to Exhibit 4.3 to the Quarterly Report on
      Form 10-Q of NextWave Wireless Inc. filed August 6,
  2009)10.1
            
            Second
      Lien Parent Guaranty, dated October 9, 2008, by and among NextWave
      Wireless Inc., The Bank of New York Mellon, as collateral agent and the
      note purchasers party thereto (incorporated by reference to Exhibit 10.1
      to the Quarterly Report on Form 10-Q filed November 6,
    2008)10.2
            
            Second
      Lien Guaranty, dated October 9, 2008 by and among NextWave Broadband Inc.,
      NW Spectrum Co., AWS Wireless Inc., WCS Wireless License Subsidiary, LLC,
      IP Wireless, Inc., and Packetvideo Corporation, as grantors, The Bank of
      New York Mellon, as collateral agent, and the note purchasers party
      thereto (incorporated by reference to Exhibit 10.2 to the Quarterly Report
      on Form 10-Q filed November 6, 2008)10.3
            
            Second
      Lien Pledge and Security Agreement, dated October 9, 2008, by and among
      NextWave Wireless Inc., NextWave Wireless LLC, NextWave Broadband Inc., NW
      Spectrum Co., AWS Wireless Inc., WCS Wireless License Subsidiary, LLC, and
      IP Wireless, Inc., as subsidiary guarantors, and The Bank of New York
      Mellon, as collateral agent (incorporated by reference to Exhibit 10.3 to
      the Quarterly Report on Form 10-Q filed November 6,
  2008)10.4
            
            Second
      Lien Collateral Agency Agreement, dated October 9, 2008, by and among The
      Bank of New York and the purchasers a party thereto (incorporated by
      reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q filed
      November 6, 2008)10.5
            
            Intercreditor
      Agreement, dated October 9, 2008, by and among NextWave Wireless Inc., as
      Issuer and Guarantor, NextWave Wireless LLC, as issuer and Guarantor,
      NextWave Broadband Inc., NW Spectrum Co., AWS Wireless Inc., WCS Wireless
      License Subsidiary, LLC, and IP Wireless, Inc. and Packetvideo
      Corporation, as subsidiary guarantors, the Bank of New York, as collateral
      agent, and the note purchasers party thereto (incorporated by reference to
      Exhibit 10.5 to the Quarterly Report on Form 10-Q filed November 6,
      2008)10.6
            
            Third
      Lien Guaranty, dated October 9, 2008 by and among NextWave Broadband Inc.,
      NW Spectrum Co., AWS Wireless Inc., WCS Wireless License Subsidiary, LLC,
      IP Wireless, Inc., and Packetvideo Corporation, as grantors, The Bank of
      New York Mellon, as collateral agent, and the note purchasers party
      thereto (incorporated by reference to Exhibit 10.6 to the Quarterly Report
      on Form 10-Q filed November 6, 2008)10.7
            
            Third
      Lien Pledge and Security Agreement, dated October 9, 2008, by and among
      NextWave Wireless Inc., NextWave Wireless LLC, NextWave Broadband Inc., NW
      Spectrum Co., AWS Wireless Inc., WCS Wireless License Subsidiary, LLC, and
      IP Wireless, Inc., as subsidiary guarantors, and The Bank of New York
      Mellon, as collateral agent (incorporated by reference to Exhibit 10.7 to
      the Quarterly Report on Form 10-Q filed November 6,
  2008)10.8
            
            Third
      Lien Collateral Agency Agreement, dated October 9, 2008, by and among The
      Bank of New York and the purchasers a party thereto (incorporated by
      reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q filed
      November 6, 2008)10.9
            
            Senior
      Secured Notes Commitment Letter, dated  March 16, 2010, by and
      among NextWave Wireless LLC, NextWave Wireless Inc., Avenue Capital
      Management II, L.P., acting on behalf of its managed investment funds
      signatory thereto, and Sola Ltd. (1)10.10
            
            Spectrum
      Acquisition Agreement between AWS Wireless Inc. and T-Mobile License LLC,
      dated July 17, 2008 (incorporated by reference to Exhibit 10.1 to the
      Current Report on Form 8-K filed July 23, 2008)10.11
            
            Securities
      Purchase Agreement, dated March 28, 2007, by and among NextWave Wireless
      Inc. and the Purchasers listed on Schedule I (the “Purchasers”) thereto
      (incorporated by reference to Exhibit 10.19 to the Annual Report on Form
      10-K of NextWave Wireless Inc. filed March 30, 2007)10.12
            
            Registration
      Rights Agreement, dated March 28, 2007, among NextWave Wireless Inc. and
      the Purchasers (incorporated by reference to Exhibit 10.20 to the Annual
      Report on Form 10-K of NextWave Wireless Inc. filed March 30,
      2007)10.13
            
            Guaranty,
      dated as of July 17, 2006, by and among NextWave Broadband, Inc., NW
      Spectrum Co., AWS Wireless Inc., PacketVideo Corporation and The Bank of
      New York, as Collateral Agent (incorporated by reference to Exhibit 10.1
      to the Current Report on Form 8-K of NextWave Wireless, Inc. filed on July
      21, 2006)10.14
            
            Parent
      Guaranty, dated as of July 17, 2006, between NextWave Wireless Inc. and
      The Bank of New York, as Collateral Agent (incorporated by reference to
      Exhibit 10.2 to the Current Report on Form 8-K of NextWave Wireless, Inc.
      filed on July 21, 2006)10.15
            
            Pledge
      and Security Agreement, dated as of July 17, 2006, by and among NextWave
      Wireless LLC, the undersigned direct and indirect subsidiaries of NextWave
      Wireless LLC, each additional Grantor that may become a party thereto and
      The Bank of New York, as Collateral Agent (incorporated by reference to
      Exhibit 10.3 to the Current Report on Form 8-K of NextWave Wireless, Inc.
      filed on July 21, 2006)10.16
            
            Registration
      Rights Agreement, dated as of July 17, 2006, among NextWave Wireless Inc.
      and the Purchasers listed on Schedule I thereto (incorporated by reference
      to Exhibit 4.3 to the Current Report on Form 8-K of NextWave Wireless,
      Inc. filed on July 21, 2006)





112





Number
            
            Description10.17
            
            Acquisition
      Agreement by and among NextWave Telecom Inc., Cellco Partnership D/B/A
      Verizon Wireless and VZW Corp., dated as of November 4, 2004 (incorporated
      by reference to Exhibit 10.4 to the Form 10)10.18
            
            NextWave
      Wireless Inc. 2005 Stock Incentive Plan (incorporated by reference to
      Exhibit 99.1 to the Company’s Post-Effective Amendment No. 1 on Form S-8
      filed January 19, 2007)*10.19
            
            NextWave
      Wireless Inc. 2005 Stock Incentive Plan Award Agreement (incorporated by
      reference to Exhibit 99.3 to the Company’s Registration Statement on Form
      S-8 filed December 7, 2006)*10.20
            
            NextWave
      Wireless Inc. 2007 New Employee Stock Incentive Plan (incorporated by
      reference to Exhibit 10.17 to the Annual Report on Form 10-K of NextWave
      Wireless Inc. filed March 30, 2007)*10.21
            
            First
      Amendment to the NextWave Wireless Inc. 2007 New Employee Stock Incentive
      Plan (incorporated by reference to Exhibit 99.1 to the Registration
      Statement on Form S-8 of NextWave Wireless Inc. filed July 13,
      2007)*10.22
            
            PacketVideo
      Corporation 2005 Equity Incentive Plan (incorporated by reference to
      Exhibit 10.2 to the Company’s Registration Statement on Form 10 filed on
      May 1, 2006)*10.23
            
            CYGNUS
      Communications, Inc. 2004 Stock Option Plan (incorporated by reference to
      Exhibit 10.3 to the Form 10)*10.24
            
            Letter
      Agreement, dated May 6, 2009, between Francis J. Harding and NextWave
      Wireless Inc. regarding Employment Benefits (incorporated by reference to
      Exhibit 10.36 to the Quarterly Report on Form 10-Q of NextWave Wireless
      Inc. filed May 7, 2009)*10.25
            
            Stock
      Purchase Agreement, dated July 2, 2009, by and among PacketVideo
      Corporation, NextWave Wireless Inc., NextWave Broadband Inc. and NTT
      DOCOMO, Inc. (incorporated by reference to Exhibit 10.1 to the Quarterly
      Report on Form 10-Q of NextWave Wireless Inc. filed August 6,
      2009)10.26
            
            Stockholders’
      Agreement, dated as of July 2, 2009 by and among PacketVideo Corporation,
      NextWave Wireless Inc., NextWave Broadband Inc. and NTT DOCOMO, Inc.
      (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form
      10-Q of NextWave Wireless Inc. filed August 6, 2009)10.27
            
            Amended
      and Restated Certificate of Incorporation of PacketVideo Corporation
      (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form
      10-Q of NextWave Wireless Inc. filed August 6, 2009)14.1
            
            NextWave
      Wireless Inc. Code of Business Conduct and Ethics (available on the
      Company’s website at http://www.nextwave.com)21.1
            
            Subsidiaries
      of the Registrant(1)23.1
            
            Consent
      of Ernst & Young LLP, Independent Registered Public Accounting
      Firm(1)31.1
            
            Rule
      13a-14(a)/15d-14(a) Certification of James Brailean, Chief Executive
      Officer(1)31.2
            
            Rule
      13a-14(a)/15d-14(a) Certification of Francis J. Harding, Chief Financial
      Officer(1)32.1
            
            Section
      1350 Certification of James Brailean, Chief Executive
      Officer(1)32.2
            
            Section
      1350 Certification of Francis J. Harding, Chief Financial
      Officer(1)


________________________


*           These
exhibits relate to management contracts or compensatory plans or
arrangements.




(1)           Filed
herewith.





113




SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized on April 1, 2010.




NEXTWAVE
      WIRELESS INC.By:
            /s/
      Francis J. HardingFrancis
      J. HardingChief
      Financial Officer




Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities indicated on the dates indicated.




Signature
            
            Title
            
            DateChief
      Executive Officer and President/s/
      James Brailean
            
            (Principal
      Executive Officer)
            
            April
      1, 2010James
      BraileanExecutive
      Vice President – Chief Financial Officer/s/
      Francis J. Harding
            
            (Principal
      Financial Officer)
            
            April
      1, 2010Francis
      J. Harding/s/
      Allen Salmasi
            
            Chairman
      of the Board of Directors
            
            April
      1, 2010Allen
      SalmasiDirectorDouglas
      Manchester/s/
      Jack Rosen
            
            Director
            
            April
      1, 2010Jack
      Rosen/s/
      Robert T. Symington
            
            Director
            
            April
      1, 2010Robert
      T. Symington/s/
      Carl E. Vogel
            
            Director
            
            April
      1, 2010Carl
      E. Vogel/s/
      William H. Webster
            
            Director
            
            April
      1, 2010William
      H. Webster































































114


INDEX TO
EXHIBITS








Number
            
            Description2.1
            
            Third
      Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code of
      NextWave Personal Communications Inc., NextWave Power Partners Inc.,
      NextWave Partners Inc., NextWave Wireless Inc. and NextWave Telecom Inc.,
      dated January 21, 2005 (incorporated by reference to Exhibit 2.1 to the
      Registration Statement on Form 10 of NextWave Wireless LLC filed May 1,
      2006 (the “Form 10”))2.2
            
            Agreement
      and Plan of Merger, dated as of April 6, 2007, by and among NextWave
      Wireless Inc., IPW, LLC, IPWireless, Inc. and J. Taylor Crandall, as
      stockholder representative (incorporated by reference to Exhibit 2.1 to
      the Current Report on Form 8-K filed April 12, 2007)2.3
            
            Agreement
      and Plan of Merger, dated as of December 31, 2006, by and among NextWave
      Wireless Inc., Go Acquisition Corp., GO Networks, Inc. and Nechemia J.
      Peres, as Stockholder Representative (incorporated by reference to Exhibit
      2.1 to the Current Report on Form 8-K of NextWave Wireless Inc. filed
      January 3, 2007)2.4
            
            Agreement
      and Plan of Merger, dated November 7, 2006, by and among NextWave Wireless
      Inc., NextWave Wireless LLC and NextWave Merger LLC (incorporated by
      reference to Exhibit 2.1 to the Current Report on Form 8-K of NextWave
      Wireless Inc. filed November 7, 2006)3.1
            
            Amended
      and Restated Certificate of Incorporation of NextWave Wireless Inc., as
      restated on November 6, 2006 (incorporated by reference to Exhibit 3.1 to
      the Registration Statement on Form S-4/A of NextWave Wireless Inc. filed
      November 7, 2006)3.2
            
            Amended
      and Restated By-Laws of NextWave Wireless Inc., adopted on October 30,
      2007 (incorporated by reference to Exhibit 3.2 to the Current Report on
      Form 8-K of NextWave Wireless Inc. filed November 2,
  2007)4.1
            
            Specimen
      common stock certificate (incorporated by reference to Exhibit 4.1 to the
      Company’s Registration Statement on Form S-4/A filed November 7,
      2006)4.2
            
            Form
      of Station 4, LLC Warrant (incorporated by reference to Exhibit 4.2 to the
      Form 10)4.3
            
            Certificate
      of Elimination of Series A Senior Convertible Preferred Stock of NextWave
      Wireless Inc. (incorporated by reference to Exhibit 4.8 to the Quarterly
      Report on Form 10-Q filed November 6, 2008)4.4
            
            Senior
      Note Purchase Agreement, dated as of July 17, 2006, among NextWave
      Wireless LLC, as issuer, NextWave Broadband Inc., NW Spectrum Co., AWS
      Wireless Inc., and PacketVideo Corporation, as subsidiary guarantors, the
      note purchasers party thereto and The Bank of New York, as collateral
      agent (incorporated by reference to Exhibit 4.1 to the Current Report on
      Form 8-K/A of NextWave Wireless LLC filed September 8,
    2006)4.5
            
            Second
      Lien Subordinated Note Purchase Agreement, dated October 9, 2008, among
      NextWave Wireless Inc., NextWave Wireless LLC, as issuer, NextWave
      Broadband Inc., NW Spectrum Co., AWS Wireless Inc., WCS Wireless License
      Subsidiary, LLC, IP Wireless, Inc., and Packetvideo Corporation, as
      guarantors, Avenue AIV US, L.P. and Sola Ltd, as the note purchasers, and
      The Bank of New York Mellon, as collateral agent (incorporated by
      reference to Exhibit 4.1 to the Quarterly Report on Form 10-Q filed
      November 6, 2008)4.6
            
            Third
      Lien Subordinated Exchange Note Exchange Agreement, dated October 9, 2008,
      among NextWave Wireless Inc., NextWave Wireless LLC., as issuer, NextWave
      Broadband Inc., NW Spectrum Co., AWS Wireless Inc., WCS Wireless License
      Subsidiary, LLC, IP Wireless, Inc., and Packetvideo Corporation, as
      guarantors, the note purchasers party thereto, and The Bank of New York
      Mellon, as collateral agent (incorporated by reference to Exhibit 4.2 to
      the Quarterly Report on Form 10-Q filed November 6,
  2008)4.7
            
            Warrant
      Agreement, dated October 9, 2008, between NextWave Wireless Inc. and Sola
      Ltd. (incorporated by reference to Exhibit 4.4 to the Quarterly Report on
      Form 10-Q filed November 6, 2008)4.8
            
            Registration
      Rights Agreement, dated October 9, 2008, between NextWave Wireless Inc.,
      Avenue AIV US, L.P. and Sola Ltd. (incorporated by reference to Exhibit
      4.5 to the Quarterly Report on Form 10-Q filed November 6,
      2008)4.9
            
            First
      Amendment to the Senior Note Purchase Agreement, dated March 12, 2008, by
      and among NextWave Wireless Inc., NextWave Wireless LLC and the holders
      named therein and the guarantors named therein, relating to the Company’s
      7% Senior Secured Noted due 2010 (incorporated by reference to the
      Quarterly Report on Form 10-Q filed November 6, 2008)4.10
            
            Second
      Amendment to the Senior Note Purchase Agreement, dated as of September 26,
      2008, among NextWave Wireless Inc., NextWave Wireless LLC, NextWave
      Broadband Inc., NW Spectrum Co., AWS Wireless Inc., WCS Wireless License
      Subsidiary, LLC, and IP Wireless, Inc., as subsidiary guarantors, and the
      note holders party thereto (incorporated by reference to Exhibit 4.6 to
      the Quarterly Report on Form 10-Q filed November 6,
  2008)4.11
            
            Amendment
      and Limited Waiver dated April 1, 2009 among NextWave Wireless Inc.,
      NextWave Wireless LLC, NextWave Broadband Inc., NW Spectrum Co., AWS
      Wireless Inc., and WCS Wireless License Subsidiary, LLC, as subsidiary
      guarantors, and the note holders party thereto (incorporated by reference
      to Exhibit 4.13 to the Annual Report on Form 10-K filed April 2,
      2009)4.12
            
            Amendment
      and Limited Waiver dated June 22, 2009 among NextWave Wireless Inc.,
      NextWave Wireless LLC, NextWave Broadband Inc., NW Spectrum Co., AWS
      Wireless Inc., and WCS Wireless License Subsidiary, LLC, as subsidiary
      guarantors, and the note holders party thereto (1)4.13
            
            Amendment
      and Limited Waiver dated March 16, 2010 among among NextWave Wireless
      Inc., NextWave Wireless LLC, NextWave Broadband Inc., NW Spectrum Co., AWS
      Wireless Inc., and WCS Wireless License Subsidiary, LLC, as subsidiary
      guarantors, and the note holders party thereto (1)4.14
            
            Designated
      Director Agreement, dated October 9, 2008, between NextWave Wireless Inc.
      and Avenue Capital Management II, L.P. (incorporated by reference to
      Exhibit 4.7 to the Quarterly Report on Form 10-Q filed November 6,
      2008)4.15
            
            Warrant
      Agreement, dated April 8, 2009, between NextWave Wireless Inc. and Sola
      Ltd. (incorporated by reference to Exhibit 4.14 to the Current Report on
      Form 8-K filed April 14, 2009)    115
    Name
            
            Description4.16
            
            Second
      Lien Incremental Indebtedness Agreement, dated July 2, 2009, between
      NextWave Wireless Inc., NextWave LLC, NextWave Broadband Inc., NW Spectrum
      Co., AWS Wireless Inc. and WCS Wireless License Subsidiary, LLC and Avenue
      AIV US, L.P. (incorporated by reference to Exhibit 4.1 to the Quarterly
      Report on Form 10-Q filed August 6, 2009)4.17
            
            Acknowledgment
      to Registration Rights Agreement, dated July 2, 2009, by NextWave Wireless
      Inc. (incorporated by reference to Exhibit 4.3 to the Quarterly Report on
      Form 10-Q of NextWave Wireless Inc. filed August 6,
  2009)10.1
            
            Second
      Lien Parent Guaranty, dated October 9, 2008, by and among NextWave
      Wireless Inc., The Bank of New York Mellon, as collateral agent and the
      note purchasers party thereto (incorporated by reference to Exhibit 10.1
      to the Quarterly Report on Form 10-Q filed November 6,
    2008)10.2
            
            Second
      Lien Guaranty, dated October 9, 2008 by and among NextWave Broadband Inc.,
      NW Spectrum Co., AWS Wireless Inc., WCS Wireless License Subsidiary, LLC,
      IP Wireless, Inc., and Packetvideo Corporation, as grantors, The Bank of
      New York Mellon, as collateral agent, and the note purchasers party
      thereto (incorporated by reference to Exhibit 10.2 to the Quarterly Report
      on Form 10-Q filed November 6, 2008)10.3
            
            Second
      Lien Pledge and Security Agreement, dated October 9, 2008, by and among
      NextWave Wireless Inc., NextWave Wireless LLC, NextWave Broadband Inc., NW
      Spectrum Co., AWS Wireless Inc., WCS Wireless License Subsidiary, LLC, and
      IP Wireless, Inc., as subsidiary guarantors, and The Bank of New York
      Mellon, as collateral agent (incorporated by reference to Exhibit 10.3 to
      the Quarterly Report on Form 10-Q filed November 6,
  2008)10.4
            
            Second
      Lien Collateral Agency Agreement, dated October 9, 2008, by and among The
      Bank of New York and the purchasers a party thereto (incorporated by
      reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q filed
      November 6, 2008)10.5
            
            Intercreditor
      Agreement, dated October 9, 2008, by and among NextWave Wireless Inc., as
      Issuer and Guarantor, NextWave Wireless LLC, as issuer and Guarantor,
      NextWave Broadband Inc., NW Spectrum Co., AWS Wireless Inc., WCS Wireless
      License Subsidiary, LLC, and IP Wireless, Inc. and Packetvideo
      Corporation, as subsidiary guarantors, the Bank of New York, as collateral
      agent, and the note purchasers party thereto (incorporated by reference to
      Exhibit 10.5 to the Quarterly Report on Form 10-Q filed November 6,
      2008)10.6
            
            Third
      Lien Guaranty, dated October 9, 2008 by and among NextWave Broadband Inc.,
      NW Spectrum Co., AWS Wireless Inc., WCS Wireless License Subsidiary, LLC,
      IP Wireless, Inc., and Packetvideo Corporation, as grantors, The Bank of
      New York Mellon, as collateral agent, and the note purchasers party
      thereto (incorporated by reference to Exhibit 10.6 to the Quarterly Report
      on Form 10-Q filed November 6, 2008)10.7
            
            Third
      Lien Pledge and Security Agreement, dated October 9, 2008, by and among
      NextWave Wireless Inc., NextWave Wireless LLC, NextWave Broadband Inc., NW
      Spectrum Co., AWS Wireless Inc., WCS Wireless License Subsidiary, LLC, and
      IP Wireless, Inc., as subsidiary guarantors, and The Bank of New York
      Mellon, as collateral agent (incorporated by reference to Exhibit 10.7 to
      the Quarterly Report on Form 10-Q filed November 6,
  2008)10.8
            
            Third
      Lien Collateral Agency Agreement, dated October 9, 2008, by and among The
      Bank of New York and the purchasers a party thereto (incorporated by
      reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q filed
      November 6, 2008)10.9
            
            Senior
      Secured Notes Commitment Letter, dated  March 16, 2010, by and
      among NextWave Wireless LLC, NextWave Wireless Inc., Avenue Capital
      Management II, L.P., acting on behalf of its managed investment funds
      signatory thereto, and Sola Ltd (1)10.10
            
            Spectrum
      Acquisition Agreement between AWS Wireless Inc. and T-Mobile License LLC,
      dated July 17, 2008 (incorporated by reference to Exhibit 10.1 to the
      Current Report on Form 8-K filed July 23, 2008)10.11
            
            Securities
      Purchase Agreement, dated March 28, 2007, by and among NextWave Wireless
      Inc. and the Purchasers listed on Schedule I (the “Purchasers”) thereto
      (incorporated by reference to Exhibit 10.19 to the Annual Report on Form
      10-K of NextWave Wireless Inc. filed March 30, 2007)10.12
            
            Registration
      Rights Agreement, dated March 28, 2007, among NextWave Wireless Inc. and
      the Purchasers (incorporated by reference to Exhibit 10.20 to the Annual
      Report on Form 10-K of NextWave Wireless Inc. filed March 30,
      2007)10.13
            
            Guaranty,
      dated as of July 17, 2006, by and among NextWave Broadband, Inc., NW
      Spectrum Co., AWS Wireless Inc., PacketVideo Corporation and The Bank of
      New York, as Collateral Agent (incorporated by reference to Exhibit 10.1
      to the Current Report on Form 8-K of NextWave Wireless, Inc. filed on July
      21, 2006)10.14
            
            Parent
      Guaranty, dated as of July 17, 2006, between NextWave Wireless Inc. and
      The Bank of New York, as Collateral Agent (incorporated by reference to
      Exhibit 10.2 to the Current Report on Form 8-K of NextWave Wireless, Inc.
      filed on July 21, 2006)10.15
            
            Pledge
      and Security Agreement, dated as of July 17, 2006, by and among NextWave
      Wireless LLC, the undersigned direct and indirect subsidiaries of NextWave
      Wireless LLC, each additional Grantor that may become a party thereto and
      The Bank of New York, as Collateral Agent (incorporated by reference to
      Exhibit 10.3 to the Current Report on Form 8-K of NextWave Wireless, Inc.
      filed on July 21, 2006)10.16
            
            Registration
      Rights Agreement, dated as of July 17, 2006, among NextWave Wireless Inc.
      and the Purchasers listed on Schedule I thereto (incorporated by reference
      to Exhibit 4.3 to the Current Report on Form 8-K of NextWave Wireless,
      Inc. filed on July 21, 2006)10.17
            
            Acquisition
      Agreement by and among NextWave Telecom Inc., Cellco Partnership D/B/A
      Verizon Wireless and VZW Corp., dated as of November 4, 2004 (incorporated
      by reference to Exhibit 10.4 to the Form 10)10.18
            
            NextWave
      Wireless Inc. 2005 Stock Incentive Plan (incorporated by reference to
      Exhibit 99.1 to the Company’s Post-Effective Amendment No. 1 on Form S-8
      filed January 19, 2007)*10.19
            
            NextWave
      Wireless Inc. 2005 Stock Incentive Plan Award Agreement (incorporated by
      reference to Exhibit 99.3 to the Company’s Registration Statement on Form
      S-8 filed December 7, 2006)*    116
    Number10.20
            
            NextWave
      Wireless Inc. 2007 New Employee Stock Incentive Plan (incorporated by
      reference to Exhibit 10.17 to the Annual Report on Form 10-K of NextWave
      Wireless Inc. filed March 30, 2007)*10.21
            
            First
      Amendment to the NextWave Wireless Inc. 2007 New Employee Stock Incentive
      Plan (incorporated by reference to Exhibit 99.1 to the Registration
      Statement on Form S-8 of NextWave Wireless Inc. filed July 13,
      2007)*10.22
            
            PacketVideo
      Corporation 2005 Equity Incentive Plan (incorporated by reference to
      Exhibit 10.2 to the Company’s Registration Statement on Form 10 filed on
      May 1, 2006)*10.23
            
            CYGNUS
      Communications, Inc. 2004 Stock Option Plan (incorporated by reference to
      Exhibit 10.3 to the Form 10)*10.24
            
            Letter
      Agreement, dated May 6, 2009, between Francis J. Harding and NextWave
      Wireless Inc. regarding Employment Benefits (incorporated by reference to
      Exhibit 10.36 to the Quarterly Report on Form 10-Q of NextWave Wireless
      Inc. filed May 7, 2009)*10.25
            
            Stock
      Purchase Agreement, dated July 2, 2009, by and among PacketVideo
      Corporation, NextWave Wireless Inc., NextWave Broadband Inc. and NTT
      DOCOMO, Inc. (incorporated by reference to Exhibit 10.1 to the Quarterly
      Report on Form 10-Q of NextWave Wireless Inc. filed August 6,
      2009)10.26
            
            Stockholders’
      Agreement, dated as of July 2, 2009 by and among PacketVideo Corporation,
      NextWave Wireless Inc., NextWave Broadband Inc. and NTT DOCOMO, Inc.
      (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form
      10-Q of NextWave Wireless Inc. filed August 6, 2009)10.27
            
            Amended
      and Restated Certificate of Incorporation of PacketVideo Corporation
      (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form
      10-Q of NextWave Wireless Inc. filed August 6, 2009)14.1
            
            NextWave
      Wireless Inc. Code of Business Conduct and Ethics (available on the
      Company’s website at http://www.nextwave.com)21.1
            
            Subsidiaries
      of the Registrant(1)23.1
            
            Consent
      of Ernst & Young LLP, Independent Registered Public Accounting
      Firm(1)31.1
            
            Rule
      13a-14(a)/15d-14(a) Certification of James Brailean, Chief Executive
      Officer(1)31.2
            
            Rule
      13a-14(a)/15d-14(a) Certification of Francis J. Harding, Chief Financial
      Officer(1)32.1
            
            Section
      1350 Certification of James Brailean, Chief Executive
      Officer(1)32.2
            
            Section
      1350 Certification of Francis J. Harding, Chief Financial
      Officer(1)





________________________


*           These
exhibits relate to management contracts or compensatory plans or
arrangements.




(1)           Filed
herewith.











117