NOTICE OF PROPOSED SETTLEMENT OF DERIVATIVE LITIGATION

NOTICE OF PROPOSED SETTLEMENT OF DERIVATIVE LITIGATION TO: ALL HOLDERS OF PEGASUS WIRELESS CORPORATION COMMON STOCK AS OF MARCH 8, 2012 ( PEGASUS SHAREHOLDERS ). IF YOU ARE A PEGASUS SHAREHOLDER, PLEASE READ THIS NOTICE CAREFULLY AND COMPLETELY; IT CONTAINS IMPORTANT INFORMATION ABOUT YOUR LEGAL RIGHTS Chen v. Knabb, et. al, Alameda County Superior Court Case No. RG07310978 1. What is the Purpose of This Notice? This court-ordered Notice is to advise you: of a proposed agreement to settle a shareholder derivative lawsuit involving Pegasus Wireless Corporation ( Pegasus ) by a Pegasus shareholder who has alleged that certain individuals breached their duties to Pegasus while serving on its board of directors (the Derivative Litigation ); that the Honorable Steven A. Brick of the Alameda County Superior Court will conduct a hearing on June 6, 2012 at 3:00 p.m. ( Settlement Hearing ) to consider the fairness, reasonableness, and adequacy of the proposed settlement agreement (the Settlement Agreement ), including the payment of Plaintiff s counsel s attorney fees and costs and an incentive award to Plaintiff (see section 4, below); of the steps you must take to preserve your right to object to or to comment on any aspect of the Settlement Agreement and to be heard at the Settlement Hearing (see sections 8-9, below); and That the DEADLINE TO OBJECT TO OR COMMENT ON THE SETTLEMENT IS MAY 15, 2012. 1 This Notice contains a summary of the Settlement Agreement and is intended to be read in conjunction with the full text of the Settlement Agreement, along with other case information and case documents, including plaintiff s motion for preliminary approval of this settlement, and plaintiff s motion for final approval of this settlement once it is filed. 2. What is a Shareholder Derivative Action? A shareholder derivative action is a lawsuit that is brought by one or more individuals on behalf of a corporation in which they own stock. The claims in a derivative action are not brought on behalf of the individual plaintiff(s); rather, the claims are brought by the plaintiff-shareholder in a representative capacity to remedy wrongs that have been done to the corporation, which the corporation has not pursued on its own. Because the claims in a derivative action are based on harm suffered by the corporation, any remedy that is obtained as a result of a trial or a settlement of a derivative action inures to the benefit of the corporation, not to individual shareholders. 1 Please see the Settlement Agreement at pages 5-9 for a list of defined terms and their meaning. (A copy of the Settlement Agreement is available at www.fazmiclaw.com/pegasus-settlement. For other ways to obtain a copy of the Settlement Agreement and other documents related to the Derivative Litigation, please see section 9 of this Notice, below.) Unless otherwise noted herein, the definitions set forth in the Settlement Agreement shall apply to those words as they appear in this Notice. PWL_NOT_120315

Accordingly, because this Derivative Litigation was brought to vindicate the rights of Pegasus itself, and does not pertain to the separate and distinct rights that individual Pegasus shareholders possess, the remedies provided by the Settlement Agreement inure to the benefit of Pegasus rather than to individual Pegasus shareholders. No shareholder will be compensated directly as a result of the Settlement Agreement, thus there is no claims procedure that applies to shareholders. Similarly, because this Derivative Litigation does not seek to vindicate the rights of individual Pegasus shareholders, no claims that may be possessed by individual shareholders have been decided or released as a result of the Settlement Agreement. If you believe you may have individual claims, you should consult a lawyer. 3. What This Derivative Litigation is About; Description of Litigation Activity. Plaintiff, a Pegasus shareholder, filed this Derivative Litigation on February 14, 2007, on behalf of Pegasus. In the Second Amended Complaint (which is the operative pleading) the named Defendants are Jasper Knabb, Stephen Durland, William Horn, Michael Eaton, Nicholas Peraticos, and Edward Celano. Horn (who is deceased) and Eaton (who resides in England) were subsequently dismissed. In the complaint, Plaintiff alleges that in September 2006, the Defendants (each of whom was a member of the Pegasus board of directors) wrongfully approved Pegasus s repurchase of hundreds of thousands of shares of Pegasus stock from its then Chief Executive Officer, Jasper Knabb, at a price that was approximately eight times what the stock was actually worth at the time of the repurchase from Knabb. Plaintiff alleges that Knabb had purchased 1,250,000 shares of Pegasus stock at $8 a share in June 2006, but after the price of that stock had fallen to roughly $1 a share three months later, the Pegasus board approved a decision to repurchase at least 870,375 of those shares at the original sale price of $8 per share. Plaintiff also alleges that Pegasus was under no obligation to pay the inflated price for the stock, and that by paying approximately $6 million more than the stock was worth, the repurchase transaction caused Pegasus s capital to become impaired. In the Second Amended Complaint, Plaintiff alleges that by engaging in the conduct described above, Defendants are liable for (1) breaching their fiduciary duties to Pegasus; (2) corporate waste; (3) gross mismanagement; (4) unjust enrichment; (5) unlawful distribution of corporate assets; (6) tortious bad faith breach of contract and the covenant of good faith and fair dealing; and (7) aiding and abetting, and conspiracy to aid and abet, breaches of fiduciary duty and tortuous, bad faith breaches of contract and of the covenant of good faith and fair dealing. While this case was pending, Pegasus ceased operating, lost its corporate charter, and had the registration of its registered securities revoked by the Securities and Exchange Commission ( SEC ). Bankruptcy proceedings were initiated by the company, but were ultimately dismissed by the bankruptcy court, which found that the bankruptcy proceedings had been brought in bad faith. In December 2010, default judgments were entered against Knabb and Durland (both of whom ignored service of process and did not appear in this action), but the hearings that were necessary to finalize those default judgments were postponed by the Court until the claims against the remaining defendants were resolved. In the interim, the SEC instituted a civil action against Knabb, Durland, Pegasus, and other individuals who allegedly assisted Knabb and Durland, and the Department of Justice instituted criminal proceedings against Knabb and Durland. As a result of its lawsuit, the SEC obtained judgments against Knabb and Durland and the SEC is seeking approximately $41 million from Knabb and $3 million from Durland. As a result of the criminal action, Durland is currently serving a prison sentence and Knabb is expected to be sentenced to prison. 2

This case was resolved by a settlement after five years of litigation that involved, among other things, thorough investigation, formal and informal discovery, extensive law-and-motion practice, and the retention of investigators to help locate and serve some of the Defendants. Among other things, Plaintiff propounded multiple interrogatories and document requests to Individual Defendants Celano and Peraticos and have reviewed and analyzed the documents and other information these defendants have produced. Plaintiff s counsel have also served subpoenas on a number of third-party witnesses, some of whom produced documents and other information in response to those subpoenas, which counsel have reviewed and analyzed. Additionally, Plaintiff s counsel filed Freedom of Information Act ( FOIA ) requests to obtain documents pertaining to the lawsuits that the SEC and the Justice Department filed (described above). The FOIA request and follow up subpoena to the SEC ultimately resulted in the production of a large volume of documents that the SEC obtained while prosecuting its lawsuits, which Plaintiff s counsel reviewed and analyzed. Among other things, Plaintiff s counsel used the information they obtained in discovery to prepare for taking the depositions of the two Individual Defendants and third parties, which were cancelled after the parties reached this settlement. In addition to the investigation and discovery described above, the parties also engaged in extensive motion practice, which included a motion to dismiss (denied), a motion for judgment on the pleadings (granted with leave to amend), a demurrer (sustained with leave to amend), a subsequent demurrer (overruled), and motions for summary judgment on behalf of defendants Celano and Peraticos (pending, but not ruled upon). After the case was scheduled to proceed to trial, and while the Individual Defendants motions for summary judgment were pending, the parties decided to attempt to resolve the litigation with the assistance of an experienced mediator. On July 12, 2011, the parties conducted a full day of mediation proceedings before Jed Melnick of the Judicial Arbitration and Mediation Service ( JAMS ). The parties also participated in numerous subsequent settlement discussions, with and without the mediator, in furtherance of a possible resolution of this action. Among other things, the parties exchanged detailed information relating to the facts, issues and defenses pertinent to the Derivative Litigation; discussed the scope of discovery and other proceedings that would be required to litigate this action through dispositive motions and potentially trial; and analyzed the prospects of a finding of liability and scope of potential damages. These settlement negotiations were conducted in good faith at arms -length by counsel experienced in litigation of this type. As a result of these settlement discussions, the parties have agreed to settle the Derivative Litigation jointly on the terms and subject to the conditions that are set forth below and are memorialized in the formal Settlement Agreement that will be the subject of the Settlement Hearing on June 6, 2012 at 3:00 p.m. A detailed description of the parties litigation activities is contained in the Declaration of Dina E. Micheletti in Support of Motion for Preliminary Approval, a copy of which can be downloaded at www.fazmiclaw.com/pegasus-settlement/. 4. What Benefits are Provided by the Settlement Agreement? Pursuant to the Settlement Agreement, which the Court must approve before it becomes effective, Defendants insurer has agreed to pay a total of $1,450,000 ( Settlement Fund ), which shall be used to compensate Pegasus and to pay the attorneys fees and expenses that Plaintiff s counsel incurred in connection with the prosecution of the Derivative Litigation since it was filed in February 2007, and any incentive award that the Court may award to Plaintiff, in amounts to be approved by the Court, as set forth more fully in the Settlement Agreement. Plaintiff s counsel intend to petition the court for an award of $500,000 in attorney s fees and for reimbursement of litigation costs incurred in the amount of $17,900, to be paid out of the Settlement Fund. The attorney fee award represents substantially less than the amount Plaintiff s counsel have incurred to prosecute this litigation and will continue to incur as they continue to work on this case during and after the approval process without receiving any additional compensation. Plaintiff s counsel also intend to ask the Court to award Plaintiff Chen an incentive award of $2,500 for his efforts in stepping forward to represent Pegasus and assisting with the prosecution of the Derivative Litigation since it was filed. 3

Plaintiff s counsel have not received any compensation to date, nor have they been reimbursed for their outof-pocket expenses. The fee award would partially compensate Plaintiff s counsel for the benefits obtained as a result of their prosecution of the Derivative Litigation and the risks they undertook to represent the Plaintiff on a fully-contingent basis since this action was filed in February 2007. In addition to the $1,450,000 they have agreed to deposit into the Settlement Fund, the Defendants insurer has also agreed to pay up to an additional $50,000 in notice and settlement administration costs, including the costs associated with the appointment of a neutral receiver for the specific and limited purpose of receiving the Net Settlement Funds, and to make reasonable efforts to identify potential claimants, evaluate their respective claims and the applicable law, and make recommendations to the Court regarding a plan to distribute the Net Settlement Funds, as set forth in the Settlement Agreement. To the extent that notice and settlement administration costs exceed $50,000, the remaining costs will be paid from the Settlement Fund. In exchange for these payments by the Individual Defendants insurer, Pegasus s claims against all Defendants, including Knabb, Durland and others those who did not contribute to the Settlement Fund, will be released and the action dismissed. This is a summary of benefits. More information can be found in the Settlement Agreement. 5. What Claims Will Be Released as a Result of the Settlement Agreement? Released Claims means all claims (including Unknown Claims ), demands, rights, liabilities and causes of action of every nature and description whatsoever, known or unknown, whether or not concealed or hidden, asserted or that might have been asserted in this or any other court by any derivative plaintiff, on behalf of Pegasus, or by Pegasus, against the Defendants or any Related Persons (as defined in the Settlement Agreement), arising out of or based upon or related to the facts, transactions, events, occurrences, acts, disclosures, statements, omissions or failures to act alleged in the Derivative Litigation. Released Claims does not include any non-derivative claims any Person may have against any of the Released Persons, which are expressly preserved. This is a summary of the release. A full copy of the Release in this case and further details regarding the Settlement are set forth in the Settlement Agreement. 6. What are Some of the Reasons the Parties Entered Into the Settlement Agreement? The Individual Defendants have denied and continue to deny all charges of wrongdoing or liability against them arising out of the conduct, statements, acts or omissions alleged or that could have been alleged, in the Derivative Litigation. The Individual Defendants have denied and continue to deny that any of their conduct as Pegasus directors was wrongful or unlawful, or that Plaintiff or Pegasus has any right of recovery whatsoever. To the contrary, the Individual Defendants have asserted that at all relevant times, they acted in good faith and in a manner they reasonably believed to be in the best interests of Pegasus and its shareholders. Nonetheless, the Individual Defendants recognize litigation involves inherent risks, that further defense of the Derivative Litigation could be protracted, disruptive, time-consuming and very expensive, and that the outcome cannot be predicted with any degree of certainty through trial and, potentially, appeals. As a result, the Individual Defendants have determined that it is appropriate and desirable that the Derivative Litigation and all claims that have been or could have been asserted against them in the Derivative Litigation, or in any other federal or state litigation, be fully and finally settled in the manner and upon the terms and conditions set forth in this Stipulation. 4

Plaintiff believes that the claims asserted in this action have substantial merit, as evidenced by the fact that, inter alia, the Individual Defendants sought to dispose of them by mounting challenges based on each of their defenses and, ultimately, none of Plaintiff s was dismissed. And although the Individual Defendants mounted yet another challenge by way of a motion for summary judgment after the case was scheduled to proceed to trial, the parties agreed to a settlement before that motion was heard. Nonetheless, Plaintiff has also accounted for the inherent risks of litigation, such as those presented by the unusually broad protections afforded to directors pursuant to Nev. Rev. St. 78.138, and the fact that the joint-and-several liability that arises from the claim for unlawful distribution of corporate assets is based on statutes (Nev. Rev. St. 78.288(2) and 78.300) that have yet to be construed or applied in any reported decision by a Nevada court or any other court. Thus, even if Plaintiff were able to prevail on his claims, the total recovery against the Individual Defendants could be limited to their share of the total potential liability (i.e., the price Pegasus paid in excess of the then-current market value of the shares that Pegasus repurchased from Defendant Knabb). And although Plaintiff has caused defaults to be entered against Defendants Knabb and Durland, the SEC has also obtained entry of default against these Defendants and is seeking approximately $41,000,000 from Mr. Knabb (which he claims to be unable to pay) and approximately $3,000,000 from Mr. Durland (who claims, in court proceedings, to be unable to afford counsel), and both Messrs. Knabb and Durland were expected to begin serving lengthy prison sentences in the very near future in any event. The fact that the proposed settlement guarantees that Pegasus will recover $1.45 million and that Defendants insurer will bear up to $50,000 in notice and settlement-administration costs represents a substantial recovery that will promote the best interests of Pegasus. Accordingly, Plaintiff, his counsel, and the mediator have determined that it is desirable to settle the Derivative Litigation on the terms set forth in the Stipulation, and that the terms of the Settlement are in the best interests of Pegasus, on whose behalf Plaintiff has prosecuted this litigation for the past five years. PLEASE NOTE: The Court has not determined the merits of Plaintiff s claims or Defendants defenses. Plaintiff s decision to resolve the Derivative Litigation does not imply any lack of faith in the validity or strength of the claims alleged in the operative Complaint. Defendants deny all wrongdoing and this Notice does not, and is not intended to, imply that there have been or would be any findings of a violation of law by any Defendant or that recovery could be had in any amount if the litigation were not settled. 7. What is the Date and Time of Settlement Hearing? The Settlement Hearing will take place on June 6, 2012, at 3:00 p.m., before the Honorable Steven A. Brick, Department 17, Alameda County Superior Court Administration Building, 1221 Oak Street, Oakland, CA 94612. The purpose of the Settlement Hearing is to determine: (1) whether the terms of the Settlement should be approved as fair, reasonable, and adequate; (2) whether the case should be dismissed on the merits and with prejudice; (3) the amounts of Plaintiff s counsels attorneys fees and costs; (4) the amount of incentive award to be awarded to Plaintiff, and (4) such other matters as may be necessary or proper in the circumstances. 8. How Do I Object to or Comment on the Settlement Agreement? If you are a current Pegasus shareholder you have the right to object to or comment on the terms of the Settlement Agreement if you choose to do so. In order to object or comment on the Settlement Agreement, you must file and serve your written objections or comments no later than May 15, 2012. Your written comments or objections must (1) include a reference at the beginning of the document to Chen v. Knabb, et. al., Case No. RG 07310978; (2) list your name, address and telephone number; (3) be signed by you; (4) explain your objection or comment and include copies of any documents, exhibits, affidavits, or other evidence, if any, that support your objection/comment; (5) contain sufficient evidence to establish that 5

you are a current Pegasus shareholder; and (6) indicate whether you or your lawyer intend to appear at the hearing, and, if so, identify any witnesses the shareholder seeks to call at the Settlement Hearing and provide a statement regarding the subject of their proposed testimony. Written objections/comments must be filed with the Clerk of the Court and copies must be sent to the lawyers listed below no later than May 15, 2012: NOTE: If you do not present your objections/comments in writing in compliance with these procedures, your views will not be considered, you will not be permitted to be heard and you shall be deemed to have waived the right to object (including any right of appeal), unless the Court orders otherwise. All dates listed herein are subject to change. Any changes will be posted on www.pegasussettlement.com and www.fazmiclaw.com/pegasus-settlement/. Please check back periodically for updates. Clerk of the Court: Alameda County Superior Court 1225 Fallon Street Oakland, California 94612 Plaintiff s Counsel: Jeffrey L. Fazio Dina E. Micheletti Fazio Micheletti LLP 2410 Camino Ramon, Ste 315 San Ramon, CA, 94583 www.fazmiclaw.com (925) 543-2555 Defendants Counsel: Susan S. Muck Felix S. Lee Fenwick & West LLP 555 California Street, 12th Floor San Francisco, CA 94104 www.fenwick.com (415) 875-2300 9. More Information. This notice only summarizes the lawsuit and Settlement Agreement. For more details, you should review the Settlement Agreement and the release set forth in the Settlement Agreement, available online at www.pegasussettlement.com, along with other case documents. A copy of the Settlement Agreement is also available at www.fazmiclaw.com/pegasus-settlement/. You can also obtain a copy of the Settlement Agreement and other case documents by downloading documents via the Domain Web website maintained by the Alameda County Superior Court at http://apps.alameda.courts.ca.gov/domainweb/html/index.html (Enter Case Number RG07310978) or by contacting Plaintiff s counsel at the number/address/email listed above. PLEASE DO NOT CONTACT THE COURT WITH QUESTIONS ABOUT THE SETTLEMENT 6