Next Level Rejects Motorola’s Unsolicited Tender Offer

Telco TV equipment vendor Next Level Communications Inc. today urged its stockholders to reject Motorola Inc.'s unsolicited tender offer to acquire all outstanding shares of Next Level stock it doesn’t already hold. Next Level also revealed that it has filed suit again Motorola for what it sees as an unfair offer. The news was announced at NextLevel’s upbeat review of its four quarter and year-end 2002 financial results.

Next Level called Motorola’s offer to pay $1.04 each for the outstanding Next Level shares “inadequate” and said that “the process Motorola is using to squeeze out the minority stockholders is unfair.”

The Next Level board's decision was based upon the unanimous recommendation of its Independent Committee, which was formed January 16, 2003, and is composed of Walter S. Clay, Alex Good, Craig Kornblau and Paul Latchford, all of whom are independent, non-management directors unaffiliated with Motorola. The Independent Committee constitutes a majority of the entire Next Level Board of Directors. Assisting the Independent Committee with its review was Latham & Watkins and Richards, Layton & Finger as legal counsel, Morgan Stanley as financial advisor and MacKenzie Partners, Inc. as stockholder relations advisor.

"Over the past two years, Motorola has taken steps to try to ensure that it is our sole source of financing. Now Motorola is attempting to take advantage of Next Level at a time when its stock price is depressed and we are unable to fully communicate the strength of our business to our stockholders because of non-disclosure agreements with our customers," said the Independent Committee in its ruling. "We believe Motorola is attempting to coerce Next Level minority stockholders into accepting an inadequate offer which significantly undervalues the long-term potential of Next Level. We do not support an inadequate offer and a process that is unfair to our minority stockholders.

"We believe that Motorola has made its unsolicited offer directly to Next Level stockholders to attempt to avoid negotiating with Next Level's Independent Directors, who have fiduciary duties to protect the interests of our minority stockholders," continued the Independent Committee. "For Motorola to complete its offer, a majority of the outstanding shares it does not own must be tendered. By not tendering, Next Level minority stockholders can prevent the unsolicited offer from going forward and send a strong signal that they want Motorola to talk with the Independent Committee about a variety of options that recognize Next Level's true long-term value."

The Next Level Board believes that Motorola's unsolicited tender offer significantly undervalues Next Level's long-term prospects. In particular, the Next Level Board believes that Next Level's continuing progress with the RBOCs and other major North American telecommunications service providers could result in significantly increased revenue and operating performance. Next Level's achievement of its financial projections throughout the past year also gives the Next Level board increased confidence in Next Level's abilities to achieve its future financial projections, according to the company.

Motorola's unsolicited tender offer represented only a 14 percent premium to the $0.91 closing price for the shares on January 10, 2003, and represented a 14 percent discount to the average closing price of $1.22 for the shares for the 12 months preceding January 10, 2003, notwithstanding the substantial improvement in the financial condition and prospects of Next Level over that time period, according to Next Level. Since the commencement of Motorola's unsolicited tender offer, shares of Next Level common stock have consistently traded higher than the $1.04 Motorola offer. The closing price per share on Nasdaq on February 3, 2003 was $1.25.

As for Next Level’s financial performance, the company’s revenues for the fourth quarter of 2002 grew 15 percent from the prior quarter from $12.3 million to $14.2 million, and Next Level's December 31, 2002, backlog increased to $7.9 million from $2.8 million at September 30, 2002.

Cash flow from operations improved from negative $127.8 million in 2001 to negative $34.1 million in 2002 and negative $5.1 million in the fourth quarter of 2002. During 2002, Next Level reduced annual operating expenses by more than $40 million from the prior year and aggressively managed working capital as demonstrated by significant inventory reductions and collection improvements over the last year.

As of December 2002, Next Level's cash balance was $33.4 million, and its notes payable and gross long-term liabilities had been reduced by $58.6 million over the last year to $97.8 million as of December 31, 2002.

Next Level has exceeded or come within the range of its publicly disclosed revenue projections for each of the last four quarters. The company expects first quarter 2003 revenue to increase approximately 20 to 30 percent over fourth quarter 2002 revenue.

"Next Level is exiting the fourth quarter with strong operational and financial momentum," says J. Michael Norris, chairman and CEO. "We believe we are turning the corner in the development of our business, especially in the commercialization of our state-of-the-art full service platform. With a major metropolitan area deployment of cable-competitive digital TV and high-speed Internet services under way in Winnipeg, Canada, strong traction at other major accounts and the accelerating movement to our digital TV platform by independent operating companies across the country, 2003 looks to be a strong year for Next Level."

Next Level’s revenues for the fiscal year ended December 31, 2002, were $57.4 million, compared with $93.2 million in 2001. Net loss for the fiscal year 2002, was $78.6 million, or $1.18 per share after the effect of preferred dividends and accretion of $23.4 million, compared to a net loss of $208.6 million, or $2.45 per share, in 2001.

Next Level also announced that today Next Level, Next Level Partners, LLC, the owner of more than 1.8 million Next Level shares, and Spencer Segura and Jacqueline Segura, the owners of approximately 600,000 Next Level shares, filed suit against Motorola in the Court of Chancery of the State of Delaware, in and for New Castle County.

Plaintiffs allege among other things that:

Motorola violated the non-disclosure agreement between Next Level and Motorola by using confidential information from Next Level to plan, launch and carry out the Motorola Offer;

Motorola breached its fiduciary duty as a controlling stockholder of Next Level by using inside information to plan, launch and carry out the Motorola Offer;

the Motorola Offer is substantively coercive because the Minority Stockholders are not, and cannot be informed of, material information that would affect Next Level's market value and the economic decision whether to tender;

the Motorola Offer is structurally coercive because Motorola has not explicitly committed to purchasing shares not tendered in a second step short form merger;

the Motorola Offer is coercive because Motorola, having ensured that Next Level has no outside financial support, has threatened that it will no longer support Next Level as an independent company;

the Motorola Offer is subject to entire fairness review and fails that test because the offer is not made at a fair price and Motorola did not follow a fair process;

Motorola's refusal to consent to the Independent Committee adopting a stockholder rights plan was a breach of fiduciary duty;

Motorola breached its fiduciary duty of disclosure by materially misstating and omitting certain facts in the Schedule TO;

certain provisions in preferred stock held by Motorola which allegedly prevent Next Level from adopting a stockholder rights plan (the "Blocking Preferred") conflict with Section 141(a) of the Delaware General Corporation Law and are thus invalid;

and the shares held by Next Level's officers should be included in determining whether the Motorola Offer meets the Minimum Tender Condition.

Plaintiffs have asked the Court of Chancery to preliminarily and permanently enjoin the Motorola Offer, to rescind the Motorola Offer and any related transactions to the extent they are completed, to compel Motorola to correct its defective disclosures, to require Motorola to pay a "fair price" to the Next Level stockholders if it proceeds with the Motorola Offer, to require Motorola to pay substantial damages to Next Level, to invalidate the Blocking Preferred and to declare that the shares held by Next Level's officers be included in determining whether the Motorola Offer meets the Minimum Tender Condition.

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