Term Sheet for Senior Secured Convertible Notes Purchase by SCP Private Equity Partners II, LP and TECORE, Inc. from AirNet Communications Corporation

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Summary

AirNet Communications Corporation has agreed to issue $16 million in Senior Secured Convertible Notes, with $8 million each to SCP Private Equity Partners II, LP and TECORE, Inc. The notes accrue 12% interest, are secured by all company assets, and can convert to common stock at a set price, with anti-dilution protections. TECORE will also receive shares and warrants tied to equipment purchases and sales performance. The agreement restricts AirNet from certain actions without investor consent and sets a four-year maturity for the notes.

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EX-10.23 7 dex1023.txt TERM SHEET Exhibit 10.23 TERMS SHEET Dated: January 24, 2003 - -------------------------------------------------------------------------------- Issuer: AirNet Communications Corporation, a Delaware corporation (the "Company") - -------------------------------------------------------------------------------- Investors: SCP Private Equity Partners II, LP ("SCP II") TECORE, Inc. ("Tecore") - -------------------------------------------------------------------------------- Proposed Investment: $16,000,000 principal amount of Senior Secured Convertible Notes (the "Notes"), with $8,000,000 principal amount to be purchased by each of SCP II and Tecore - -------------------------------------------------------------------------------- Purchase Price of Notes: Par (i.e., $16,000,000) - -------------------------------------------------------------------------------- Payment of Purchase Price $8,000,000 at Closing of Notes: $1,000,000 on or prior to 6/30/03 $2,000,000 on or prior to 9/30/03 $1,000,000 on or prior to 12/31/03 $1,000,000 on or prior to 3/31/04 $1,000,000 on or prior to 6/30/04 $1,000,000 on or prior to 12/31/04 $1,000,000 on or prior to 6/30/05 - -------------------------------------------------------------------------------- Terms of Notes: Interest: Interest shall accrue on -------- the outstanding principal amount of each Note at the rate of 12% per annum. (Either Investor may cause the interest payable to both Investors to be payable in Common Stock (valued at market value) if necessary to comply with NASDAQ National Market requirements.) Term: The principal and all ---- accrued interest shall be due and payable under each Note four years from the Closing Date ("Maturity Date"). Collateral: The Notes shall be ---------- secured by a first perfected security interest in all of the assets of the Company, including, without limitation, all intellectual property of the Company. Conversion: All or any portion of ---------- the principal and interest under the Notes (the "Conversion Amount") may be converted at any time at the election of the holders of a majority of the outstanding Notes ("Majority Holders"), into a number of shares of Common Stock at a conversion price per share equal to the Conversion Amount divided by the Applicable Conversion Price, as here- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- inafter defined. At the closing, the Applicable Conversion Price will be equal to the Purchase Price, as hereinafter defined. The Applicable Conversion Price will be subject to future adjustment upon certain dilutive issuances of equity (see "Antidilution Protection" below).The Purchase Price shall equal $0.11558 (the "Purchase Price"). In addition, the Notes will automatically convert into Common Stock upon: (i) the closing of a secondary public offering of Common Stock at a public offering price per share (prior to underwriter commissions and expenses) that is not less than three times the Applicable Conversion Price in an offering where the gross proceeds to the Company would be not less than $70,000,000 (a "Qualified Public Offering"); or (ii) the sale of the Company at a minimum price per share in cash or stock, of at least three times the Applicable Conversion Price (a "Qualified Sale"); provided, however, that in the event of a sale of the Company to a privately-held company or to a public company in which disposition of stock would be significantly restricted (by low trading volume or other restrictions), automatic conversion shall occur only in the event of a cash sale. Antidilution Protection: If the ----------------------- Company at any time issues Common Stock or equity securities convertible or exercisable into Common Stock at a price per share that is less than the Applicable Conversion Price in effect immediately preceding such issuance, the Applicable Conversion Price will be immediately reduced to that price per share at which such securities were issued. The Applicable Conversion Price shall be similarly reduced for successive issuances of equity securities at prices per share that are less than the Applicable Conversion Price in effect immediately preceding such issuances. Notwithstanding the foregoing, no adjustment shall be made to the Applicable Conversion Price with respect to: (i) the issuance of capital stock upon the conversion of any of the Company's convertible securities outstanding as of the Closing; or (ii) the issuance of employee options for up to 22,240,000 shares of Common Stock (and shares of Common Stock upon the exercise thereof), subject to adjustment to up to 29,948,866 shares in the event and to the extent that the Sales Generation Warrants granted to Tecore shall become vested. (The Company's management bonus program and acquisition bonus program shall be cancelled.) Covenants; The Company shall be --------- party to covenants, both affirmative and negative, customary with issuances of debt. Without limitation thereon, the Company shall not be permitted to incur additional indebtedness, grant or permit liens or encumbrances upon its assets, issue guarantees, pay dividends, increase salaries or - -------------------------------------------------------------------------------- -2- - -------------------------------------------------------------------------------- add additional employees, merge or consolidate or sell all or substantially all of its assets, enter into any transaction which results in, or suffer, a change in control, or issue additional securities or options or warrants therefore without the prior written consent of the Majority Holders; provided that the Company shall be permitted to incur purchase money indebtedness secured by purchase money liens on the assets purchased in an aggregate amount up to $50,000. Voting: The holders of the Notes ------ will have the right to that number of votes equal to the number of shares of Common Stock issuable upon conversion of the Notes; provided that solely for purposes of determining such number of votes, the Applicable Conversion Price shall be deemed to be the closing bid price of the Company's Common Stock on the date that the definitive purchase agreement is signed. - -------------------------------------------------------------------------------- Capitalization: Upon conversion of the Notes obtained by virtue of this investment, the resulting share ownership of Common Stock is shown in Appendix A. - -------------------------------------------------------------------------------- Issuance of Common Stock and Common Stock: From and after the ------------ Warrants to Tecore: date of this Terms Sheet and at or prior to the Closing, Tecore or an affiliate of Tecore shall execute firm purchase orders for Company equipment, services or licenses accepted by the Company in the amount of $5,000,000 (the "Initial Purchase Orders") and shall be issued at the Closing 14,133,059 shares of Common Stock for a purchase price of $0.001 per share. Warrants: At the Closing, Tecore -------- shall be issued, for a purchase price of $.001 per warrant, warrants (the "Sales Generation Warrants") to purchase 69,347,700 shares of Common Stock, at an exercise price per share equal to the Purchase Price (i.e., $0.11558 per share). The Sales Generation Warrants shall be exercisable within two years after the Closing, and shall vest based on sales generated by Tecore or an affiliate of Tecore (other than the Company) as a customer of the Company before December 31, 2004, in accordance with the following formula: (a) for each $1,000,000 of gross margin generated by Tecore sales during calendar year 2003 (calculated in accordance with GAAP and including the Initial Purchase Orders), one-tenth of the Sales Generation Warrants shall vest, and (b) for each $2,000,000 of gross margin generated by Tecore sales during calendar year 2004 (calculated in accordance with GAAP), one-tenth of the Sales Generation Warrants shall vest. For this purpose "Tecore sales" shall include direct purchases by Tecore and sales to companies identified by Tecore. Tecore shall have the option to substitute royalties on technology licenses entered into by - -------------------------------------------------------------------------------- -3- - -------------------------------------------------------------------------------- the Company for gross margin. To the extent more than 300,000 of the Company's stock options currently issued and outstanding under its Stock Option Plan are exercised in the future, the Company will increase the amount of performance based warrants available to Tecore as necessary to give Tecore an opportunity to acquire such number of shares of the Company's capital stock as shall constitute 51% of such captital stock on a fully diluted basis, calculated as of the Closing Date as contemplated on Appendix A. - -------------------------------------------------------------------------------- Board of Directors: Following the Closing, the Board of Directors of the Company will consist of a total of ten directors, three of whom shall be designated by SCP II, three of whom shall be designated by Tecore, three of whom shall be independent directors, satisfactory to SCP II and Tecore, who shall be elected by the shareholders of the Company, and one of whom shall be the Company's CEO. Upon Tecore's ownership (by virtue of its ownership of (a) the Notes/and or the Common Stock underlying the Notes after conversion of the Notes into Common Stock, and (b) its ownership of Common Stock underlying the Sales Generation Warrants upon exercise of the Sales Generation Warrants) on a fully diluted basis, of in excess of 50% of the Common Stock, the Board of Directors of the Company will consist of a total of eleven directors, one of whom shall be designated by SCP II, six of whom shall be designated by Tecore, three of whom shall be independent directors, satisfactory to SCP II and Tecore, who shall be elected by the shareholders of the Company, and one of whom shall be the Company's CEO. The director elected by SCP II shall be entitled to be a member of all significant committees of the Board of Directors, including without limitation the Executive Committee, the Audit Committee, the Compensation Committee, and the Nominating Committee. Prior to Closing the Board of Directors of the Company (directly or through a committee) shall have designated the slate of directors to stand for election at the next meeting of stockholders, and such slate shall be acceptable to both of the Investors. - -------------------------------------------------------------------------------- Registration Rights: The Company shall file a shelf registration statement with respect to any shares of Common Stock into which the Notes may convert. Such registration statement will be filed not later than 30 days following the Closing. The Company shall use its best efforts to cause the effectiveness of such registration statement as soon as practicable (and in no event later than 120 days after the Closing) and shall maintain the effectiveness of the registration statement for a period ending two years following the Closing. - -------------------------------------------------------------------------------- -4- - -------------------------------------------------------------------------------- Purchase Agreement: The definitive purchase agreement will be drafted by counsel to the Investors and will contain representations, warranties, covenants (including information and inspection rights) and indemnification provisions customary in such transactions and satisfactory to the Investors. - -------------------------------------------------------------------------------- Covenants: The Board of Directors of the Company and the Investors shall consider in good faith and commence due diligence with respect to the advisability of merging Tecore and the Company (with the Company as the surviving corporation). The Board of Directors of the Company and the Investors shall consider alternative structures to the proposed financing which would enhance the preservation of the Company's net operating loss carryforward. The Company shall defer the payment of bonuses until such time as shall be approved by the Investors. - -------------------------------------------------------------------------------- Conditions to Closing: In addition to customary closing conditions, the Company shall satisfy the following conditions: 1. The Company shall have obtained shareholder approval of the transaction, if required by the applicable rules of NASDAQ, and shall have otherwise complied with all applicable NASDAQ requirements. 2. The holders of the Company's Series B Preferred Stock shall have converted their Series B Preferred Stock into Common Stock. 3. The Company shall have made reasonably satisfactory progress in the development of the following products: (1) Adaptive Array; (2) Wildfire II; and (3) AirSite 5b. - -------------------------------------------------------------------------------- Expenses: The Company will, promptly after any request therefore, reimburse the Investors for all reasonable legal fees and expenses related to the transaction incurred after December 1, 2002, and up to $25,000 per Investor for financial consulting fees related to the transaction. At the Investors' option, such expenses may be deducted from the amount to be paid to the Company at the Closing. - -------------------------------------------------------------------------------- Closing Date: Closing of the purchase and sale of the Notes must occur on or be- - -------------------------------------------------------------------------------- -5- - -------------------------------------------------------------------------------- fore March 24, 2003, unless extended by the Investors. - -------------------------------------------------------------------------------- The parties hereby confirm that the Terms Sheet correctly sets forth the terms and conditions of a proposed financing in the Company. The Terms Sheet is not legally binding and is subject to negotiation and execution and delivery of a definitive purchase agreement and related documents. AIRNET COMMUNICATIONS CORPORATION By: /s/ Glen A. Ehley (SEAL) ------------------ TECORE, INC. By: /s/ Jay Salkini (SEAL) ----------------- SCP PRIVATE EQUITY PARTNERS II, L.P. By: SCP PRIVATE EQUITY II GENERAL PARTNER, L.P., its General Partner By: SCP PRIVATE EQUITY II, LLC By: /s/ James W. Brown ---------------------- Name: James W. Brown Title: a Manager -6- 1/27/03 11:40 AM Proposed Transaction - Worksheet for Appendix A Assumptions Ttl Current Shares o/s (m) 33.71 See below*. Outstanding options largely excluded from the cap table. Pre-Money Valuation (m) $ 5.0 See below. Does not include $1.5m paid to Series B investors. Series B Cash Premium $ 0.50 Paid in cash to each holder except to SCP - paid in stock, all from the post-money value Series B Stock Premium 100.0% Additional Shares Implied 9.55 Implied Share Price $0.11558 Re-allocation to mgmt 10.0% Management will be re-upped to 10% ownership upon vesting of Tecore Performance warrants New Financing Cap Table Summary
- ------------------------------------------------------------------------------------------------------------- New Money With Premniums Paid With Tecore Perf. Warrants Shares % ownership Shares % ownership - ------------------------------------------------------------------------------------------------------------- SCP (New) $ 8.00 69.22 31.1% 69.216127 23.1% SCP Premium (for $500k) 4.33 1.9% 4.326008 1.4% Tecore $ 8.00 69.22 31.1% 69.216127 23.1% Tecore Premium (for orders on closing) 14.13 6.4% 14.133122 4.7% Tecore Performance Warrants 69.391299 23.2% ------------------------------------------------------------------- Total $ 16.0 156.89 70.5% 226.282683 75.6% - ------------------------------------------------------------------------------------------------------------- Current Shareholders 43.26 19.5% 43.259457 14.4% New Management Shares 22.24 10.0% 29.949127 10.0% - ------------------------------------------------------------------------------------------------------------- Total Capitalization 222.39 100.0% 299.491267 100.0% - -------------------------------------------------------------------------------------------------------------
Tecore's Performance Warrants may be increased if more than 300,000 of the current options o/s are exercised. Cap Table
- ------------------------------------------------------------------------------------------------- Stockholders Current o/s Pre Money Post Money at Closing Post Money with Tecore Shares Ownership (With Premiums Paid) Performance Warrants Options & % of CSEs Issued - ------------------------------------------------------------------------------------------------ New Financing (as - ----------------- Converted) - --------- Tecore 83,349,249 37.5% 152,740,548 51.0% SCP II 73,542,135 33.1% 73,542,135 24.6% ----------- ---- ----------- ----- Total Series C 156,891,384 70.5% 226,282,683 75.6% Series B Preferred Stock - ------------------------ SCP II 3,184,713 9.4% 6,369,427 2.9% 6,369,427 2.1% Mellon Ventures 3,184,713 9.4% 6,369,427 2.9% 6,369,427 2.1% Tandem PCS 3,184,713 9.4% 6,369,427 2.9% 6,369,427 2.1% ----------- ---- ----------- --- ----------- ---- Total Series B 9,554,140 28.3% 19,108,281 8.6% 19,108,281 6.4% Comon Stock - ----------- SCP II - SCP I 3,437,687 10.2% 3,437,687 1.5% 3,437,687 1.1% CIP Capital 169,799 0.5% 169,799 0.1% 169,799 0.1% Mellon Ventures 478,315 1.4% 478,315 0.2% 478,315 0.2% Tandem PCS 2,145,465 6.4% 2,145,465 1.0% 2,145,465 0.7% VFC Capital (Harris) 3,401,828 10.1% 3,401,828 1.5% 3,401,828 1.1% Others 14,218,083 42.2% 14,218,083 6.4% 14,218,083 4.7% Options* 300,000 0.9% 300,000 0.1% 300,000 0.1% New Management Shares 22,238,982 10.0% 29,949,127 10.0% - --------------------------------------------------------------------------------------------- Totals 33,705,317 100% 222,389,824 100.0% 299,491,268 100.0% - --------------------------------------------------------------------------------------------- Total Mellon & Tandem 8,993,207 26.7% 15,362,634 6.9% 15,362,634 5.1% Total SCP I & II 6,622,400 19.6% 83,349,249 37.5% 83,349,249 27.8% - ---------------------------------------------------------------------------------------------
* All options o/s have strike above $0.42. 300,000 options included as an approximate stock equivalent of those options. It is assumed that all warrants with anti-dilution rights will waive such rights.