<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 1997
REGISTRATION NO. 333-26649
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
MCCAW INTERNATIONAL, LTD.
(Exact name of registrant as specified in its charter)
WASHINGTON
(State or other jurisdiction of
incorporation or organization)
4812
(Primary Standard Industrial
Classification Code Number)
91-167-1412
(I.R.S. Employer
Identification No.)
------------------
1191 SECOND AVENUE
SUITE 1600
SEATTLE, WASHINGTON 98101
(TELEPHONE: 206-749-8000)
(Address, including zip code,
and telephone number, including
area code, of registrant's
principal executive offices)
------------------
HENG-PIN KIANG, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
MCCAW INTERNATIONAL, LTD.
1191 SECOND AVENUE, SUITE 1600
SEATTLE, WASHINGTON 98101
(TELEPHONE: 206-749-8000)
(Name, address, including zip code,
and telephone number, including
area code, of agent for service)
------------------
Copies of Communications to:
DENNIS J. FRIEDMAN, ESQ.
CHADBOURNE & PARKE LLP
30 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10112
(TELEPHONE: 212-408-5100)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH Section 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID Section 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 7, 1997
PROSPECTUS
MCCAW INTERNATIONAL, LTD. LOGO
OFFER TO EXCHANGE
13% Senior Discount Notes due
April 15, 2007 for any and all outstanding
13% Senior Discount Notes due April 15, 2007
------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON SEPTEMBER 5,
1997 UNLESS EXTENDED.
McCAW INTERNATIONAL, LTD., a Washington corporation (the "Company"), is
hereby offering (the "Exchange Offer"), upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal (the "Letter of Transmittal"), to exchange its 13% Senior Discount
Notes due April 15, 2007 (the "Exchange Notes"), which have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to
a registration statement of which this Prospectus is a part (together with all
amendments and exhibits thereto, the "Registration Statement"), for an equal
principal amount at maturity of its outstanding 13% Senior Discount Notes due
April 15, 2007 (the "Private Notes"), of which approximately $951.5 million
aggregate principal amount at maturity was issued on March 6, 1997 and is
outstanding on the date hereof.
The Private Notes were sold by the Company in an offering by the Company
(the "Initial Offering") of 951,463 Units (the "Units") exempt from the
registration requirements of the Securities Act, which was consummated on March
6, 1997 (the "Closing Date"). Each Unit issued in the Initial Offering consisted
of one Private Note and one warrant (collectively, the "Warrants") to purchase
.10616 shares of common stock, without par value, of the Company. The Private
Notes and Warrants will be separately tradeable upon the effectiveness of this
Registration Statement. The Private Notes and Warrants are sometimes
collectively referred to herein as the "Private Securities."
The form and terms of the Exchange Notes are identical in all material
respects to those of the Private Notes, except for certain transfer restrictions
and registration rights relating to the Private Notes and except for certain
interest provisions related to such registration rights. The Exchange Notes will
evidence the same indebtedness as the Private Notes (which they replace) and
will be entitled to the benefits of an Indenture dated as of March 6, 1997,
governing the Private Notes and the Exchange Notes (the "Indenture"). The
Exchange Notes will mature on April 15, 2007. No cash interest will be payable
on the Exchange Notes prior to October 15, 2002. Interest on the Exchange Notes
will accrue from April 15, 2002 and will be payable in cash on each April 15 and
October 15, commencing October 15, 2002. The Exchange Notes and payments due in
respect thereof are solely the obligation of the Company and will not be
guaranteed by the Operating Companies (as defined herein). The Private Notes and
the Exchange Notes are sometimes collectively referred to herein as the "Notes."
See "The Exchange Offer" and "Description of the Notes."
The Exchange Notes may be redeemed, at the option of the Company, in whole
or in part, at any time on or after April 15, 2002, at the redemption prices set
forth herein, plus accrued and unpaid interest, if any, to the date of
redemption. In addition, prior to April 15, 2000, the Company may redeem up to
35% of the aggregate principal amount at maturity of the Notes with the proceeds
of one or more sales of Capital Stock (other than Redeemable Stock) (each as
defined herein) at the redemption price set forth herein; provided, however,
that after any such redemption at least $618.5 million aggregate principal
amount at maturity of the Notes remains outstanding. [continued on next page]
------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 18 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND AN INVESTMENT IN THE
EXCHANGE NOTES.
------------------
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 3
[continued from front cover]
The Exchange Notes will be senior unsecured indebtedness of the Company,
will rank pari passu in right of payment with all unsubordinated unsecured
indebtedness of the Company and will be senior in right of payment to all
subordinated indebtedness of the Company. After giving pro forma effect to the
Transactions (as defined herein) and the Initial Offering, as of December 31,
1996, the Company would have had no indebtedness outstanding other than the
Exchange Notes. All existing and future liabilities (including trade payables)
of the Company's Restricted Group Members (as defined herein) will be
effectively senior to the Exchange Notes. As of December 31, 1996, after giving
effect to the Transactions, the Company's Restricted Group Members would have
had approximately $79.7 million of liabilities, including $25.0 million of
indebtedness.
The Company will accept for exchange any and all validly tendered Private
Notes not withdrawn prior to 5:00 p.m., New York City time, on September 5,
1997, unless the Exchange Offer is extended by the Company in its sole
discretion (the "Expiration Date"). Tenders of Private Notes may be withdrawn at
any time prior to the Expiration Date. Private Notes may be tendered only in
integral multiples of $1,000 at maturity. The Exchange Offer is subject to
certain customary conditions. See "The Exchange Offer."
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of the Company under the Registration Rights Agreement, dated as of
March 3, 1997 (the "Registration Rights Agreement"), between the Company and the
Placement Agents (as defined herein). The Company believes that the Exchange
Notes issued pursuant to the Exchange Offer in exchange for the Private Notes
may be offered for resale, resold and otherwise transferred by a holder thereof
(other than (i) a broker-dealer who purchased such Private Notes directly from
the Company to resell pursuant to Rule 144A or any other available exemption
under the Securities Act or (ii) a person that is an affiliate of the Company
within the meaning of Rule 405 under the Securities Act), without compliance
with the registration and prospectus delivery requirements of the Securities
Act; provided, that the holder is acquiring Exchange Notes in the ordinary
course of its business and is not participating, does not intend to participate,
and has no arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes. Holders of Private Notes wishing to accept
the Exchange Offer must represent to the Company that such conditions have been
met. Each broker-dealer that receives Exchange Notes for its own account in
exchange for Private Notes, where such Private Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes, which contains a plan of distribution with respect to such
resale transactions. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with any resale of the Exchange Notes received
for Private Notes where such Private Notes were acquired by a broker-dealer as a
result of market-making or other trading activities (other than Private Notes
acquired directly from the Company). The Company has agreed that, for a period
of 180 days after the Expiration Date, it will make this Prospectus available to
any broker-dealer for use in connection with any such resales. See "Plan of
Distribution." The Company believes that none of the registered holders of the
Private Notes is an affiliate (as such term is defined in Rule 405 under the
Securities Act) of the Company.
The Private Securities have been designated eligible for trading in the
Private Initial Offerings, Resales and Trading through Automated Linkages
("PORTAL") Market of the National Association of Securities Dealers, Inc. (the
"NASD"). The Company does not intend to apply for listing of the Exchange Notes
on any securities exchange or to seek approval through any automated quotation
system nor do the Placement Agents intend to make a market in the Exchange
Notes. There can be no assurance regarding the future development of a market
for the Exchange Notes, or the ability of holders of the Exchange Notes to sell
their Exchange Notes or the price at which such holders may be able to sell
their Exchange Notes. If such a market were to develop, the Exchange Notes could
trade at prices that may be higher or lower than the initial public offering
price depending on many factors, including prevailing interest rates, the
Company's operating results and the market for similar securities. See "Risk
Factors -- Lack of Public Market."
Holders of Private Notes whose Private Notes are not tendered and accepted
in the Exchange Offer will continue to hold such Private Notes and will be
entitled to all the rights and preferences and will be subject to the
limitations applicable thereto under the Indenture. Following consummation of
the Exchange Offer, the holders of Private Notes will continue to be subject to
the existing restrictions upon transfer thereof and the Company will have no
further obligation to such holders to provide for the registration under the
Securities Act of the Private Notes held by them.
The Company will not receive any proceeds from, and has agreed to bear all
registration expenses of, the Exchange Offer. No underwriter is being used in
connection with the Exchange Offer. See "The Exchange Offer -- Resale of the
Exchange Notes."
THIS PROSPECTUS IS DATED AUGUST , 1997
<PAGE> 4
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS OR ANY ACCOMPANYING PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, OR ANY UNDERWRITER, AGENT OR DEALER. NEITHER THE DELIVERY OF
THIS PROSPECTUS OR ANY SUCH PROSPECTUS SUPPLEMENT NOR ANY RESALE MADE THEREUNDER
SHALL, UNDER ANY CIRCUMSTANCE, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF. THIS
PROSPECTUS AND ANY SUCH RELATED PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION IN SUCH JURISDICTION.
------------------------------
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
THE SECURITIES LAWS. ALL STATEMENTS REGARDING THE COMPANY'S AND THE OPERATING
COMPANIES' (AS DEFINED HEREIN) EXPECTED FINANCIAL POSITION, BUSINESS AND
FINANCING PLANS ARE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY AND THE
OPERATING COMPANIES BELIEVE THAT THE EXPECTATIONS REFLECTED IN SUCH
FORWARD-LOOKING STATEMENTS ARE REASONABLE, THEY CAN GIVE NO ASSURANCE THAT SUCH
EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM SUCH EXPECTATIONS ("CAUTIONARY
STATEMENTS") ARE DISCLOSED IN THIS PROSPECTUS, INCLUDING, WITHOUT LIMITATION,
THE INFORMATION UNDER "RISK FACTORS," "MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS." ALL SUCH FORWARD-
LOOKING STATEMENTS ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY
STATEMENTS.
------------------------------
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES
WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY
REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A
FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS
TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN
EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT
THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS
OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT
IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER
OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
------------------------------
Unless otherwise indicated, industry and demographic data used throughout
this Prospectus have been obtained from the following industry publications and
have not been independently verified by the Company or the Placement Agents:
MTA-EMCI World Cellular Markets: 1996; MTA-EMCI Latin American Cellular Markets:
1996; MTA-EMCI Asia Pacific Cellular Markets: 1995; Pyramid Research Telecom
Markets in South America (1996); Pyramid Research Cellular and PCS Markets in
Latin America and the Caribbean (1996); Pyramid Research Telecom Markets in
Southeast Asia (1996); Pyramid Research Cellular and PCS Markets in Latin
America and the Caribbean (1996); Pyramid Research Cellular and PCS Markets in
Asia and the Pacific (1996); International Mobile Telecommunications Association
(IMTA) The Global Digest for Commercial Trunked Radio Systems (SMR, PAMR, TRS)
(1996); and CIT Research Mobile Communications in Asia and the Pacific: 1995.
The population data are estimates. Average monthly SMR revenue per
subscriber is estimated by the Company based on industry data from the
above-referenced sources and other factors considered relevant by the Company.
Population data does not represent the current number of the Company's
subscribers and is not necessarily indicative of potential subscribers of the
Company in the future.
"PowerFone," "iDEN" and "FLEX," "Infopage," "MiKE" and "Tricom" are
trademarks of Nextel Communications, Inc., Motorola, Inc., Infocom
Communications Network, Inc. and Clearnet Communications Inc. and Corporacion
Mobilcom S.A. de C.V., respectively.
2
<PAGE> 5
AVAILABLE INFORMATION
This Prospectus constitutes a part of an exchange offer Registration
Statement on Form S-4 filed by the Company with the Securities and Exchange
Commission (the "Commission") under the Securities Act with respect to the
Exchange Notes. This Prospectus does not contain all the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. Reference is made to such
Registration Statement and to the exhibits relating thereto for further
information with respect to the Company and the Exchange Notes. Any statement
contained herein concerning the provisions of certain documents are not
necessarily complete, and in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement for a more
complete description of the matter involved. Each such statement is qualified in
its entirety by such reference.
As a result of the filing of the Registration Statement with the
Commission, the Company will become subject to the informational requirements of
the Securities and Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith will be required to file with or furnish to the Commission
certain reports and other information. The Registration Statement, the exhibits
and schedules thereto, reports and other information filed with or furnished to
the Commission by the Company may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices at 7 World Trade Center, 13th Floor, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material may be obtained by mail from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. Additionally, the Commission maintains a Web
site on the Internet (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that submit
electronic filings to the Commission, including the Company.
Pursuant to the Indenture, the Company has agreed, whether or not required
by the rules and regulations of the Commission, to file with the Commission and
to furnish to the Trustee (as defined herein) and to registered holders of the
Notes, without cost to the Trustee or such registered holders, reports and other
information as it would be required to file with the Commission if the Company
were subject to the reporting requirements of the Exchange Act. The financial
statements contained in such reports will be audited and reported upon by
certified public accountants.
3
<PAGE> 6
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements, including the notes
thereto, appearing elsewhere in this Prospectus. Unless the context otherwise
requires, the terms "Company" and "McCaw International" refer to McCaw
International, Ltd. and the Operating Companies (as defined below). The Company
is an indirect wholly owned subsidiary of Nextel Communications, Inc.
("Nextel"). Except as otherwise indicated, all dollar amounts are expressed in
U.S. dollars and references to "dollars" and "$" are to U.S. dollars. All
consolidated historical financial statements, other than the pro forma financial
information, contained in this Prospectus are prepared in accordance with U.S.
generally accepted accounting principles ("U.S. GAAP") and are presented in U.S.
dollars. In addition, the Company's historical financial statements give effect
to the 100,000 to 1 stock split effective on February 26, 1997.
Unless otherwise indicated, the information contained in this Prospectus
gives effect to the following transactions: (i) the acquisition of an 81% equity
interest in McCaw International (Brazil), Ltd. ("McCaw Brazil"), a Virginia
corporation, formerly known as Wireless Ventures of Brazil, Inc. ("WVB"), on
January 30, 1997; (ii) the contribution by Nextel Investment Company ("NIC"), a
wholly owned subsidiary of Nextel, to the Company of an approximately 38% equity
interest in Corporacion Mobilcom S.A. de C.V., a Mexican company ("Mobilcom") on
February 28, 1997 and the subsequent increase in the Company's interest in
Mobilcom from 38% to 48.1%; and (iii) the contribution by NIC to the Company of
a 3.7% equity interest in Clearnet Communications Inc., a Canadian company
("Clearnet") on February 28, 1997. In addition, the information contained herein
gives effect to the joint venture (the "Argentina Transaction") between Wireless
Ventures of Argentina, L.L.C., a Delaware limited liability company ("WVA"), and
the Company, which was consummated on May 6, 1997. Under U.S. GAAP in effect on
the date hereof, the Company's interest in the joint venture, named McCaw
International (Argentina), Ltd. ("McCaw Argentina") will be accounted for under
the equity method. See "Summary -- Recent Events."
THE COMPANY
McCaw International is a leading international wireless communications
services company based on the number of people and the number of specialized
mobile radio ("SMR") channels in its licensed service areas. The Company
provides wireless communications services in the four largest cities in Latin
America and two of the largest cities in Asia. The Company's markets cover
approximately 230 million people ("POPs"), approximately 120 million of which
are in Latin America. McCaw International is the largest SMR service provider in
Brazil and Mexico, and holds the largest SMR channel position in Argentina.
McCaw International's strategy is focused on leveraging its leading analog
dispatch or SMR channel positions in its principal markets and using Nextel's
experience and supplier relationships to upgrade its services from analog
dispatch to digital enhanced specialized mobile radio ("ESMR") services. The
upgrade to digital networks will allow the Company to increase capacity
significantly and to offer additional services and features such as enhanced
dispatch (group calling and instant conferencing), high-quality telephone
interconnect and text messaging.
McCaw International believes that wireless communications opportunities in
emerging markets, particularly in Latin America and Asia, are very attractive
compared to the market in the United States due to the poor telecommunications
infrastructure, low teledensity, favorable competitive environments and greater
expected economic growth rates in those markets. The Company believes that the
low cost of its wireless spectrum relative to cellular and personal
communications services ("PCS"), as well as the large and growing demand for
wireless communications services in its markets, provides it with a significant
opportunity to expand its subscriber base in an efficient and cost-effective
manner.
The Company owns interests in and actively participates in the management
of wireless communications services companies in Brazil, Argentina, Mexico and
the Philippines. In addition, the Company currently has a contractual right
through its Chinese joint venture to receive 25.2% of the profits generated by a
Global System for Mobile communications ("GSM") network in Shanghai, China (the
"Shanghai GSM System") and has a 3.7% interest in Clearnet, a Canadian wireless
communications services company. The foregoing
4
<PAGE> 7
companies and right are referred to in this Prospectus as the "Operating
Companies." The Operating Companies have networks in some of the largest cities
in their respective countries, including Sao Paulo, Mexico City, Buenos Aires
and Rio de Janeiro, which are the four largest cities in Latin America, and
Shanghai and Manila, which are two of the largest cities in Asia. The subscriber
base of the Operating Companies has grown 59% from approximately 111,000
subscribers at December 31, 1995 to approximately 177,000 subscribers at
December 31, 1996.
The Company believes it has established the leading position in terms of
the number of SMR channels in its principal markets. The Company's asset base
includes (i) 5,190 SMR channels in the 800 MHz band (which is adjacent to and
functionally equivalent to cellular frequencies) and the related licenses to
provide wireless communications services over such channels and (ii) deployed
networks in the markets where it operates. The Company's licenses and assets at
January 31, 1997 were acquired for approximately $365 million as of January 31,
1997, or approximately $3.72 per POP, which is significantly less than the
prices paid for cellular and PCS licenses in comparable markets around the
world.
McCaw International currently markets its wireless communications services
primarily to business customers with mobile work forces, such as service
companies, security firms, contractors and delivery services. Companies with
mobile work forces represent growing sectors of the economies in the Company's
markets. These types of businesses often have the need to provide their
personnel with the ability to communicate directly with one another, either on a
one-to-one or a one-to-many basis. By upgrading its operations to provide ESMR
services, the Company will increase capacity significantly and be in a position
to target a broader customer base. The Company currently plans to launch ESMR
commercial service in the Philippines by the end of 1997, in Brazil during the
first quarter of 1998 and in Argentina and Mexico later in 1998. McCaw
International differentiates itself from its competitors by (i) providing
superior quality telecommunications services, (ii) focusing on customer service
and (iii) targeting primarily business customers.
The following table provides a brief overview of each of the Company's
wireless communications systems.
<TABLE>
<CAPTION>
MCCAW INVESTED
INTERNATIONAL PROPORTIONATE SUBSCRIBERS CAPITAL AS
OWNERSHIP POPULATION EXISTING SYSTEM AS OF OF
MARKET AS OF 6/30/97 POPULATION AS OF 6/30/97 TYPE 12/31/96 1/31/97(1)
- ------------------- ------------- ---------- ------------- ---------------- ----------- ----------
(MILLIONS) (MILLIONS) (MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Brazil............. 81.0% 59.9 48.5 SMR 16,000 $186.3
Argentina.......... 50.0%(2) 17.6 8.8 Paging/SMR 4,000 20.7
Mexico............. 48.1% 42.5 20.5 SMR 24,000 103.8
Philippines........ 30.0% 67.0 20.1 Paging/ESMR(3) 46,000 20.0
China (Shanghai)... 25.2%(4) 14.0 3.5 GSM 28,000 20.5
Canada............. 3.7%(5) 29.5 1.1 SMR/ESMR/PCS(6) 59,000 13.2(7)
----- ----- ----------- ----------
Total.......... 230.5 102.5 177,000 $364.5
======== =========== ========= ========
<CAPTION>
START DATE
OF
COMMERCIAL
MARKET SERVICES
- ------------------- ----------------
<S> <C>
Brazil............. October 1994
Argentina.......... April 1996/
February 1997
Mexico............. September 1993
Philippines........ February 1995
China (Shanghai)... June 1995
Canada............. April 1994/
October 1996
Total..........
</TABLE>
- ---------------
(1) Invested capital consists of the total amounts invested in the Operating
Companies by McCaw International or Nextel. Amounts include amounts paid for
licenses and capital contributions made to the Operating Companies and in
the case of China also includes a loan made to fund the Shanghai GSM System.
(2) After giving effect to the Argentina Transaction. Under U.S. GAAP in effect
on the date hereof, McCaw Argentina will be accounted for under the equity
method. Prior to the Argentina Transaction, the Company owned 100% of McCaw
Argentina.
(3) The Company currently expects to launch commercial ESMR services in the
Philippines by the end of 1997.
(4) Represents the Company's share of profits from the Shanghai GSM System which
is accounted for under the cost method.
(5) Nextel also owns an approximately 15.3% equity interest in Clearnet which is
accounted for at fair market value.
(6) Clearnet currently expects to launch commercial PCS services in Canada's
largest urban centers in mid-1997.
(7) Reflects the market value of Nextel's initial investment in Clearnet on
October 20, 1994, the date the investment was made. On April 30, 1997, the
Company's Clearnet common stock had a market value of approximately $11.8
million.
5
<PAGE> 8
McCaw International has a senior management team comprised of experienced
executives, most of whom have had substantial experience in the
telecommunications industry and many of whom have been involved in the
development of other telecommunications businesses both in the United States and
in emerging markets. In addition, senior management teams at the Operating
Companies are comprised of both nationals of the countries in which the
Operating Companies are located, most of whom have experience in the
telecommunications industry, as well as U.S. nationals, most of whom have
experience in emerging markets.
McCaw International is an indirect wholly owned subsidiary of Nextel, which
is the largest provider of SMR and ESMR services in the United States with
revenues of approximately $333 million for the year ended December 31, 1996. As
of December 31, 1996, Nextel provided service to approximately 300,000 ESMR
subscriber units. As of February 1, 1997, Nextel had invested approximately $365
million in the Company. A company controlled by Craig O. McCaw, the founder of
McCaw Cellular Communications, Inc. (now AT&T Wireless Services, Inc.), and his
family (collectively, the "McCaw Investor") and Motorola, Inc. ("Motorola") are
significant investors in Nextel.
THE MARKETS
The Company has and will continue to target emerging markets characterized
by large unsatisfied demand for telecommunications services, strong long-term
economic growth prospects, highly-concentrated population centers and favorable
competitive environments.
Large, Unsatisfied Demand for Telecommunications Services. The emerging
markets in which the Company operates are characterized by large, unsatisfied
demand for telecommunications services, resulting in long wait lists for phone
lines that range from nine months in Mexico to approximately 3.5 years in Brazil
and as long as nearly nine years in the Philippines. In these markets, wireless
communications are often a substitute for landline telephone service. The
following comparative market estimates illustrate the differences between
telecommunications services in the emerging markets in which the Company
operates and the United States:
- Average of 6.9 access lines per 100 people, compared to 59.4.
- Cellular penetration rate of .7% and SMR penetration rate of .03%,
compared to 12.8% and 7.0%, respectively.
- Average annual estimated growth rates of cellular subscribers from 1996
through 2001 of 37% in Latin America and 34% in the Asia Pacific region,
compared to 17%.
- Average monthly revenue per cellular subscriber and per SMR user of
approximately $90 and $45, respectively, compared to approximately $51
and $16, respectively.
Strong Economic Growth Prospects. The Company operates primarily in
emerging markets that it believes offer more favorable long-term economic growth
prospects than developed markets such as the United States. The average real GDP
growth for 1996 in the countries in which McCaw International operates is
projected to be between 5% and 6%, compared to approximately 2% in the United
States.
Highly-Concentrated Population Centers. The Company focuses its operations
in major population centers of emerging markets, including Sao Paulo, Rio de
Janeiro, Buenos Aires, Mexico City, Manila and Shanghai. These cities are
characterized by extremely high population densities and a relatively high
concentration of the country's wealth. In addition, vehicle traffic congestion,
low landline penetration and unreliability of the telecommunications
infrastructure encourage the use of wireless communications services in these
cities.
Favorable Competitive Environments. Although there is large unsatisfied
demand for telecommunications services in the emerging markets in which the
Company operates, there are fewer licensed wireless communications service
providers in most of its markets compared to the United States.
6
<PAGE> 9
STRATEGY
The Company's strategy is to grow by upgrading and expanding its existing
networks to incorporate digital wireless communications services, which will
enable the Company to increase its subscriber base and revenues, and to pursue
new investment opportunities in markets which satisfy the characteristics
described above. The key elements of the Company's strategy are:
Capitalize on Leading Position. In most of its markets, the Company has a
larger SMR channel position than any other SMR service provider, which allows it
to compete effectively with other wireless communications service providers. Its
large channel positions also reduce the capital expenditures required to upgrade
to digital networks and create operating synergies.
Expand by Providing Digital Enhanced Services. The Company intends to
upgrade its analog SMR networks to digital ESMR networks using Motorola's
integrated digital enhanced network ("iDEN") technology. The upgrade to digital
networks will allow the Company to increase capacity significantly and also
offer additional services and features, which the Company believes will lead to
increases in its subscriber base and average monthly revenue per subscriber.
Develop Cost-Efficient Networks. The Company's strategy of investing in SMR
channels has enabled it to acquire spectrum in its markets at a much lower cost
than cellular and PCS providers have paid in comparable markets around the
world. As a result, the Company believes it has an important competitive
advantage relative to cellular and PCS providers.
Leverage Nextel and Motorola Relationships. Nextel is the largest SMR and
ESMR provider in the United States. The Company intends to access Nextel's
technology, operations, supplier relationships, network development and
marketing expertise in upgrading its SMR networks to ESMR in its existing
markets and to leverage its relationship with Nextel in entering new markets. In
addition, the Company believes that it will benefit from Nextel's relationship
with Motorola, which is expected to supply the Company with iDEN equipment and
services. The Company will have access to financing for iDEN equipment on
substantially similar terms as Nextel under a vendor financing commitment among
Nextel, the Company and Motorola. By utilizing Nextel's expertise and
relationships with suppliers, in particular with Motorola, the Company believes
that it will be able to deploy networks that are competitive with cellular and
PCS networks.
Partner with Strong Local Groups. McCaw International seeks financially
strong local groups to invest as equity holders at the operating level. The
Company's local partners often own or have access to an existing strategic asset
base (such as real estate for cell sites or distribution outlets) that the
Operating Companies can use to reduce capital expenditures, operating costs and
network deployment time. Local partners also frequently play an active role in
securing licenses, obtaining necessary regulatory approvals and managing
governmental relations for the Operating Companies.
Maintain Active Management Role. The Company seeks to acquire controlling
ownership and management positions in its principal markets to the extent local
law does not restrict foreign ownership or management. Where the Company holds
less than a majority interest in an Operating Company, it manages its investment
through contractual arrangements that, other than in China and Canada, ensure
board representation and enable it to veto certain corporate actions. The
Company actively participates in the management of the Operating Companies,
other than in China and in Canada, by (i) selecting the key members of the local
management team, (ii) developing the system's technology and infrastructure,
(iii) developing business plans and marketing plans together with local
management, and (iv) maintaining close working relationships with local
partners.
Pursue New Investments in Attractive Markets. The Company is continuing to
pursue new investment opportunities in geographic areas that offer attractive
market fundamentals. At present, the Company plans to focus on emerging markets
in Asia and Latin America. The Company believes that such markets offer
favorable long-term economic growth prospects and that geographic concentration
may provide significant business synergies.
7
<PAGE> 10
SIGNIFICANT OPERATING LOSSES AND CAPITAL REQUIREMENTS
For the year ended December 31, 1996, on a pro forma basis after giving
effect to the Transactions (as hereinafter defined) and the Initial Offering,
the Company had negative cash flow from operating activities of $6.0 million,
negative EBITDA of $25.8 million and net losses of $115.9 million. During the
next several years, the Company expects to continue to incur significant and
increasing operating and net losses, negative EBITDA and negative cash flow from
operations due to the expansion of its operations and continued build-out and
upgrade of its wireless communications systems. Expansion and upgrade of the
Company's existing wireless communications systems, development of the Company's
new systems and the continued funding of operating losses will require
substantial additional cash. See "Risk Factors -- Short Operating History;
Historical and Future Net Operating Losses; Negative EBITDA" and "-- Significant
Capital Requirements for Operations."
RECENT EVENTS
Initial Offering. On March 6, 1997, the Company completed the sale of its
Private Notes and Warrants for aggregate net proceeds to the Company of
approximately $482 million. Through April 30, 1997, approximately $36.1 million
of the $482 million in net proceeds to the Company from the Initial Offering of
Private Securities have been used to fund capital expenditures, operating losses
and to make additional investments in the Operating Companies. The remaining net
proceeds are expected to be used for working capital and general corporate
purposes, to fund Partner Contingencies (as defined herein) and to fund
potential acquisitions and investments in existing and new markets.
Brazil. On January 30, 1997, Nextel acquired an 81% equity interest in
McCaw Brazil for a purchase price of $186.3 million, which was paid with shares
of Nextel Class A Common Stock ("Nextel Class A Common Stock"), and
simultaneously contributed its interest in McCaw Brazil to the Company. McCaw
Brazil is currently the largest SMR operator in Brazil both in terms of the
number of channels and the number of subscribers in its licensed service areas.
The Company is currently in discussions with several large Brazilian corporate
groups regarding the possible sale of up to a 15% equity interest in a holding
company (the "Brazil Holding Company") to be formed by McCaw Brazil (the "Brazil
Equity Sale"). The proceeds from any such sale will be applied to the build-out
of McCaw Brazil's ESMR network. There can be no assurance that the Company will
be able to consummate any such transaction.
On April 26, 1997 and in the beginning of June 1997, news reports appeared
in Brazilian newspapers and international wire services that an anonymous source
had forwarded to the Brazilian Ministry of Communications (the "Ministry of
Communications") a copy of the Company's offering memorandum prepared in
connection with the Initial Offering and a letter alleging that the Company was
operating in Brazil without authorization from the Ministry of Communications.
Based upon these allegations, the Ministry of Communications sent the Company a
letter requesting its comments to the allegations and the Company sent the
Ministry of Communications a letter responding to such allegations. Further,
certain members of the Brazilian Congress introduced legislation that would
eliminate the guaranteed right of SMR providers to interconnect to the public
telecommunications network. Such legislation was enacted on July 16, 1997.
Additionally, on May 15, 1997 and June 25, 1997, the Ministry of Communications
issued proposed regulations for public comment that, if approved as drafted,
would impose limitations on the Company's ability to (i) obtain direct telephone
numbers for all of its subscriber units in Brazil and (ii) interconnect with the
public telecommunications network. Although the Company believes that the
current regulatory framework permits the operation of its existing business in
Brazil, the proposed regulations, if enacted as drafted, may limit the Company's
current and future operations in Brazil. Furthermore, there can be no assurance
that the Brazilian Congress or the Ministry of Communications will not modify
the existing regulatory framework, or that the Ministry of Communications will
not initiate administrative proceedings to impede the Company from providing the
existing SMR services or launch ESMR services.
Argentina. The Company consummated the Argentina Transaction on May 6,
1997. As a result of the Argentina Transaction, the Company doubled its spectrum
position in Argentina, became the largest SMR
8
<PAGE> 11
channel holder in Argentina and became the holder of a nationwide paging
business that currently has approximately 4,000 subscribers. The Company
currently owns a 50% interest in McCaw Argentina.
Indonesia. The Company has entered into an agreement in principle with one
of the twenty largest companies in Indonesia (the "Indonesian Partner") to form
a joint venture to pursue construction and operation of a nationwide SMR system
(the "Indonesian Joint Venture"). Indonesia has a population of approximately
197 million persons. The Company expects to finalize a definitive agreement by
the end of the third quarter of 1997. The Company is also in discussions with
the Indonesian Partner to bid for regional PCS licenses in Indonesia in the near
term. No assurance can be given that the Company will be able to consummate the
Indonesian Joint Venture or any other transaction with the Indonesian Partner.
Mexico. On February 26, 1997, Mobilcom shareholders approved a $27 million
capital call (the "Mobilcom Capital Call"). Nextel funded the Company's pro rata
share of the Mobilcom Capital Call (approximately $10 million) with a cash
contribution. Additionally, because not all of the Mobilcom shareholders funded
their pro rata share of the Mobilcom Capital Call, the Company had the
opportunity to purchase additional shares of Mobilcom by funding the
unsubscribed portion of the Mobilcom Capital Call (approximately $10 million).
The Company thereby increased its equity interest in Mobilcom from approximately
38% to approximately 46.3%. The Company funded its purchase of the unsubscribed
shares from the net proceeds of the Initial Offering. The funds from the
Mobilcom Capital Call were used by Mobilcom to satisfy certain overdue
obligations (approximately $11 million), to purchase the remaining 51% of
Nacional de Telecomunicaciones S.A. de C.V. ("Natel") that Mobilcom did not own
and to fund operations. The Natel acquisition was consummated on April 16, 1997.
On June 30, 1997, the Company purchased shares representing approximately
1.8% of Mobilcom's issued and outstanding capital from a then-current
shareholder of Mobilcom for approximately $3.2 million. As a result of such
transaction, the Company's equity interest in Mobilcom increased to 48.1%.
On July 11, 1997, the Company offered to purchase, subject to the execution
of definitive documents, all of the shares of Mobilcom held by certain
shareholders of Mobilcom for an aggregate purchase price of approximately $54
million (the "Mobilcom Share Purchase Offer"). If all such shareholders accept
the Mobilcom Share Purchase Offer and if the Company enters into definitive
agreements with each such shareholder and consummates the transactions
contemplated by such offer, the Company's equity interest in Mobilcom will
increase from approximately 48.1% to approximately 76.5%. The Mobilcom Share
Purchase Offer expires on August 11, 1997. As of July 31, 1997, shareholders
representing approximately 1.5% of the outstanding shares of Mobilcom had
accepted the Mobilcom Share Purchase Offer. The Company expects to consummate
the Mobilcom Share Purchase Offer with the shareholders who have accepted such
offer by the end of the third quarter of 1997 and intends to fund its purchase
of the Mobilcom shares from the net proceeds of the Initial Offering. The
acquisition of Mobilcom shares held by those parties that have accepted the
Mobilcom Share Purchase Offer is not expected to have a significant effect on
the Company's financial position or results of operations. There can be no
assurance that the Company will consummate the Mobilcom Share Purchase Offer.
Canada. On June 26, 1997, Nextel announced that it completed its
solicitation process whereby Nextel received the consent of the holders of its
public notes to certain amendments to the indentures governing such notes. The
Nextel noteholders agreed, among other things, to permit Nextel to transfer its
equity interest in Clearnet to McCaw International. If Nextel effects such
transfer, McCaw International will hold an aggregate of 8,373,845 shares of
Clearnet, representing approximately 19% of the outstanding common stock of
Clearnet, which represents a 1.7% voting interest. As of June 30, 1997, based on
the closing price of Clearnet stock on the Nasdaq Stock Market, Nextel's equity
interest in Clearnet had a market value of approximately $82 million. Although
Nextel is permitted to transfer its interest in Clearnet to the Company, there
can be no assurance that Nextel will effect such transfer or, should such
transfer occur, that the market value of Nextel's equity interest in Clearnet on
the date of any such transfer will not be less than the market value of such
equity interest as of June 30, 1997.
Stock Option Plan. On June 23, 1997, the board of the directors of the
Company adopted, subject to the approval of Nextel, the Company's sole
shareholder, the McCaw International, Ltd. 1997 Stock Option Plan
9
<PAGE> 12
(the "1997 Stock Option Plan") and approved a plan to terminate the McCaw
International, Ltd. Stock Appreciation Rights Plan (the "SAR Plan"). Each holder
of stock appreciation rights ("SARs") granted previously under the SAR Plan has
been given the option to exchange his or her SARs for stock options to be
granted under the 1997 Stock Option Plan. The Company has agreed to grant
additional stock options to certain SAR holders who exchange their SARs for
stock options as an inducement to such SAR holders. As of July 25, 1997, SAR
holders representing approximately 80% of the outstanding SARs, including all of
the members of the Company's senior management team, had agreed to exchange
their SARs for options granted under the 1997 Stock Option Plan. With respect to
SAR holders who elect not to exchange their SARs for stock options, the Company
will continue to be obligated by the terms and conditions of the SAR agreements
previously entered into with such holders. See "Management -- Benefit Plans."
PRINCIPAL EXECUTIVE OFFICES
The Company's principal executive offices are located at 1191 Second
Avenue, Suite 1600, Seattle, Washington 98101, and the telephone number at that
location is (206) 749-8000.
10
<PAGE> 13
THE EXCHANGE OFFER
The Exchange Offer
The Exchange Offer......... The Company is hereby offering to exchange Exchange
Notes for an equal principal amount at maturity of
Private Notes that are properly tendered and
accepted. The Company will issue Exchange Notes on
or as promptly as practicable after the Expiration
Date. As of the date hereof, there is approximately
$951.5 million aggregate principal amount at
maturity of Private Notes outstanding. See "The
Exchange Offer."
Based on interpretations by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that the
Exchange Notes issued pursuant to the Exchange
Offer in exchange for Private Notes may be offered
for resale, resold and otherwise transferred by a
holder thereof without compliance with the
registration and prospectus delivery provisions of
the Securities Act, provided that the holder is
acquiring Exchange Notes in the ordinary course of
its business, is not participating, does not intend
to participate and has no arrangement or
understanding with any person to participate in the
distribution of the Exchange Notes and is not an
"affiliate" of the Company within the meaning of
Rule 405 under the Securities Act. Each
broker-dealer who holds Private Notes acquired for
its own account as a result of market-making or
other trading activities and who receives Exchange
Notes pursuant to the Exchange Offer for its own
account in exchange therefor must acknowledge that
it will deliver a prospectus in connection with any
resale of such Exchange Notes.
This Prospectus, as it may be amended or
supplemented from time to time, may be used by a
broker-dealer in connection with resales of
Exchange Notes received in exchange for Private
Notes acquired by such broker-dealer as a result of
market-making activities or other trading
activities. The Letter of Transmittal that
accompanies this Prospectus states that by so
acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. Any holder of Private Notes who
tenders in the Exchange Offer with the intention to
participate in a distribution of the Exchange Notes
could not rely on the above-referenced position of
the staff of the Commission and, in the absence of
an exemption under the Securities Act, would have
to comply with the registration and prospectus
delivery requirements therein in connection with
any resale transaction. Failure to comply with such
requirements in such instance could result in such
holder incurring liability under the Securities Act
for which the holder is not indemnified by the
Company. See "The Exchange Offer -- Resale of the
Exchange Notes."
Registration Rights........ The Private Notes were sold by the Company on March
6, 1997 to Morgan Stanley & Co., Inc., Chase
Securities, Inc., Lehman Brothers, Inc. and NatWest
Capital Markets Limited (together, the "Placement
Agents") pursuant to a Placement Agreement, dated
as of March 3, 1997 (the "Placement Agreement"),
between the Company and the Placement Agents.
Pursuant to the Placement Agreement, the Company
entered into the Registration Rights Agreement with
the Placement Agents, which agreement grants the
holders of Private Notes certain exchange and
registration rights. The Exchange Offer is intended
to
11
<PAGE> 14
satisfy, as to all Notes, such rights, which will
terminate upon the consummation of the Exchange
Offer. The holders of the Exchange Notes will not
be entitled to any exchange or registration rights
with respect to the Exchange Notes. Holders of
Private Notes who do not participate in the
Exchange Offer may thereafter hold a less liquid
security. See "The Exchange Offer -- Termination of
Certain Rights." The Company will not receive any
proceeds from and has agreed to bear the expenses
of the Exchange Offer.
Expiration Date............ The Exchange Offer will expire at 5:00 p.m., New
York City time, on September 5, 1997, unless the
Exchange Offer is extended by the Company in its
sole discretion, in which case the term "Expiration
Date" shall mean the latest date and time to which
the Exchange Offer is extended. See "The Exchange
Offer -- Expiration Date; Extensions; Amendments."
Procedures for Tendering
Private Notes............ Each holder of Private Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with such Private Notes and any other required
documentation to The Bank of New York, as Exchange
Agent (the "Exchange Agent"), at the address set
forth herein. By executing the Letter of
Transmittal, the holder will represent to and agree
with the Company that, among other things, (i) the
Exchange Notes to be acquired by such holder of
Private Notes in connection with the Exchange Offer
are being acquired by such holder in the ordinary
course of its business, (ii) such holder is not
participating, does not intend to participate and
has no arrangement or understanding with any person
to participate in a distribution of the Exchange
Notes, and (iii) such holder is not an "affiliate,"
as defined in Rule 405 under the Securities Act, of
the Company. If the holder is a broker-dealer that
will receive Exchange Notes for its own account in
exchange for Private Notes that were acquired as a
result of market-making or other trading
activities, such holder will be required to
acknowledge in the Letter of Transmittal that such
holder will deliver a prospectus in connection with
any resale of such Exchange Notes; however, by so
acknowledging and by delivering a prospectus, such
holder will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities
Act. See "The Exchange Offer -- Procedures for
Tendering."
Special Procedures for
Beneficial Owners........ Any beneficial owner whose Private Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender such Private Notes in the
Exchange Offer should contact such registered
holder promptly and instruct such registered holder
to tender on such beneficial owner's behalf. If
such beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to
completing and executing the Letter of Transmittal
and delivering such owner's Private Notes, either
make appropriate arrangements to register ownership
of the Private Notes in such owner's name or obtain
a properly completed bond power from the registered
holder. The transfer of registered ownership may
take considerable time and may not be able
12
<PAGE> 15
to be completed prior to the Expiration Date. See
"The Exchange Offer -- Procedures for Tendering."
Guaranteed Delivery
Procedures............... Holders of Private Notes who wish to tender their
Private Notes and whose Private Notes are not
immediately available or who cannot deliver their
Private Notes, the Letter of Transmittal or any
other documentation required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date must tender their Private Notes
according to the guaranteed delivery procedures set
forth under "The Exchange Offer -- Guaranteed
Delivery Procedures."
Acceptance of the Private
Notes and Delivery of
the Exchange Notes....... Subject to the satisfaction or waiver of the
conditions to the Exchange Offer, the Company will
accept for exchange any and all Private Notes that
are properly tendered in the Exchange Offer prior
to the Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be delivered on
the earliest practicable date following the
Expiration Date. See "The Exchange Offer -- Terms
of the Exchange Offer."
Withdrawal Rights.......... Tenders of Private Notes may be withdrawn at any
time prior to the Expiration Date. See "The
Exchange Offer -- Withdrawal of Tenders."
Certain Tax
Considerations............. For a discussion of certain tax considerations
relating to the Exchange Notes, see "Certain U.S.
Federal Income Tax Considerations."
Exchange Agent............. The Bank of New York is serving as the Exchange
Agent in connection with the Exchange Offer. The
Bank of New York also serves as trustee (the
"Trustee") under the Indenture.
Separability............... The Notes and the Warrants will be separately
tradable upon the commencement of the Exchange
Offer.
The Notes
The Exchange Offer applies to the approximately $951.5 million aggregate
principal amount at maturity of the Private Notes. The form and terms of the
Exchange Notes are identical in all material respects to the form and terms of
the Private Notes except that the Exchange Notes will not bear legends
restricting the transfer thereof and holders of the Exchange Notes will not be
entitled to any of the registration rights of holders of the Private Notes under
the Registration Rights Agreement, which rights will terminate upon consummation
of the Exchange Offer. The Exchange Notes will evidence the same indebtedness as
the Private Notes (which they replace) and will be issued under, and be entitled
to the benefits of, the Indenture. For further information and for definitions
of certain capitalized terms, see "Description of the Notes."
Issuer..................... McCaw International, Ltd.
Notes...................... Approximately $951.5 million aggregate principal
amount at maturity of 13% Senior Discount Notes due
April 15, 2007.
Maturity Date.............. April 15, 2007.
Yield and Interest......... The Private Notes were sold at a substantial
discount from their principal amount at maturity,
and there will not be any payment of interest on
the Notes prior to October 15, 2002. See "Certain
U.S. Federal Income Tax Considerations." The Notes
will fully accrete to face value on April 15, 2002.
From and after April 15, 2002, the Notes will bear
interest, which
13
<PAGE> 16
will be payable in cash, at a rate of 13% per annum
on each April 15 and October 15, commencing October
15, 2002.
Optional Redemption........ The Notes will be redeemable, at the option of the
Company, in whole or in part, at any time on or
after April 15, 2002, at 106.5% of their principal
amount at maturity, plus accrued and unpaid
interest, declining ratably to 100% of their
principal amount at maturity, plus accrued and
unpaid interest, on or after April 15, 2004. In
addition, at any time prior to April 15, 2000, the
Company may redeem up to 35% of the aggregate
principal amount at maturity of the Notes with the
proceeds of one or more sales of Capital Stock
(other than Redeemable Stock) (each as defined
under "Description of the Notes") at 113% of their
Accreted Value on the redemption date; provided,
however, that after any such redemption at least
$618.5 million aggregate principal amount at
maturity of the Notes remains outstanding. See
"Description of the Notes -- Optional Redemption."
Ranking.................... The Notes will be senior unsecured indebtedness of
the Company, will rank pari passu in right of
payment with all unsubordinated unsecured
indebtedness of the Company and will be senior in
right of payment to all subordinated indebtedness
of the Company. After giving pro forma effect to
the Transactions and the Initial Offering as of
December 31, 1996, the Company would have had no
indebtedness outstanding other than the Notes. All
existing and future liabilities (including trade
payables) of the Company's Restricted Group Members
(as defined under "Description of the Notes") will
be effectively senior to the Notes. As of December
31, 1996 after giving effect to the Transactions,
the Company's Restricted Group Members would have
had $79.7 million of liabilities, including $25.0
million of indebtedness. See "Risk
Factors -- Substantial Indebtedness; Ability to
Service Debt; Refinancing Risks" and "-- Holding
Company Structure; Effective Subordination; Secured
Indebtedness."
Change of Control.......... Upon a Change of Control (as defined under
"Description of the Notes -- Certain Definitions"),
the Company will be required to make an offer to
purchase the Notes at a purchase price equal to
101% of their Accreted Value on the date of
purchase, plus accrued interest. There can be no
assurance that the Company will have sufficient
funds available at the time of any Change of
Control to make any required debt repayment
(including repurchases of the Notes). See
"Description of the Notes -- Repurchase of Notes
Upon a Change of Control."
Certain Covenants.......... The Indenture contains certain covenants for the
benefit of the holders of the Notes (the "Holders")
which, among other things, restrict the ability of
the Company and each Restricted Group Member to
incur additional indebtedness, create liens, engage
in sale-leaseback transactions, pay dividends or
make distributions in respect of their capital
stock, make investments or certain other restricted
payments, sell assets, issue or sell stock of
Restricted Group Members, enter into transactions
with stockholders or affiliates or effect a
consolidation or merger. These limitations will,
however, be subject to important qualifications and
exceptions. See "Description of the
Notes -- Covenants."
14
<PAGE> 17
Book-Entry, Delivery
and Form................. It is expected that delivery of the Exchange Notes
will be made in book-entry or certificated form.
The Company expects that Exchange Notes exchanged
for Private Notes currently represented by Global
Notes (as defined under "Description of Exchange
Notes") deposited with, or on behalf of The
Depository Trust Company (the "Depository" or
"DTC") and registered in the name of Cede & Co.,
its nominee, will be represented by Global Notes
and deposited upon issuance with the Depository and
registered in its name or the name of its nominee.
Beneficial interests in Global Note(s) representing
the Notes will be shown on, and transfers thereof
will be effected through, records maintained by the
Depository and its participants.
For additional information regarding the Notes, see "Description of the
Notes" and "Certain U.S. Federal Income Tax Considerations."
NO CASH PROCEEDS TO THE COMPANY
This Exchange Offer is intended to satisfy certain obligations of the
Company under the Registration Rights Agreement. The Company will not receive
any proceeds from the issuance of the Exchange Notes offered hereby and has
agreed to pay the expenses of the Exchange Offer. In consideration for issuing
the Exchange Notes as contemplated in this Prospectus, the Company will receive,
in exchange, the Private Notes representing an equal aggregate principal amount
at maturity. The form and terms of the Exchange Notes are identical in all
material respects to the form and terms of the Private Notes, except as
otherwise described herein under "The Exchange Offer Terms of the Exchange
Offer." The Private Notes surrendered in exchange for Exchange Notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the
Exchange Notes will not result in any increase in the outstanding indebtedness
of the Company.
RISK FACTORS
See "Risk Factors," immediately following this Summary, for a discussion of
certain factors to be considered in evaluating the Company, its business and an
investment in the Notes.
15
<PAGE> 18
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth summary consolidated financial and operating
data of the Company for the year ended December 31, 1996, the three months ended
March 31, 1996, and as of and for the three months ended March 31, 1997. The
summary consolidated financial data of the Company for the year ended December
31, 1996, with the exception of data presented under Other Financial Data, were
derived from the consolidated financial statements of the Company and the notes
thereto, which have been audited by Deloitte & Touche LLP, independent auditors,
whose report has been included herein. The summary consolidated historical
financial data of the Company for the three months ended March 31, 1996, and as
of and for the three months ended March 31, 1997 and the pro forma data are
unaudited and are derived from the Company's unaudited consolidated financial
statements. The pro forma consolidated statements of operations give effect to
the Transactions (as defined herein) and the Offering as if they occurred on
January 1, 1996, and the pro forma consolidated balance sheet data give effect
to the Argentina Transaction, the capital contribution that increased the
Company's interest in Mobilcom from 38% to 46.3% and the subsequent acquisition
of an approximately 1.8% interest in Mobilcom for $3.2 million as if they
occurred on March 31, 1997. The pro forma data are not necessarily indicative of
the results that would have been achieved by the Company, nor are they
indicative of the Company's future results.
The summary consolidated financial and operating data should be read in
conjunction with "Selected Consolidated Historical Financial Data," "Pro Forma
Consolidated Financial Statements," including the notes thereto, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements of the Company, WVB and Mobilcom including
the notes thereto, and the other financial and operating information appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, 1996 MARCH 31, 1996 MARCH 31, 1997
----------------------------- ------------------ ----------------------------
ACTUAL PRO FORMA(1) ACTUAL ACTUAL PRO FORMA(1)
------------ ------------- ------------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues.............................. $ -- $ 14,212,379 $ -- $ 1,460,388 $ 2,542,777
Costs and expenses related to
revenues............................ -- 9,589,401 -- 956,585 1,526,242
Selling, general and administrative... 9,317,784 19,613,972 821,027 3,852,548 4,019,052
Depreciation and amortization......... 168,401 16,213,796 7,860 2,580,572 3,755,970
------------ ------------- ------------------ ------------ ------------
Operating loss........................ (9,486,185) (31,204,790) (828,887) (5,929,317) (6,758,487)
Interest income (expense), net........ 3,977,557 (74,631,505) 1,144,927 (2,793,354) (17,892,842)
Loss from equity method investments... (5,991,304) (14,285,822) (1,269,300) (1,866,894) (3,180,114)
Other, net............................ 378,580 509,172 (4,987) (157,616) (107,200)
Minority interest..................... -- 2,919,168 -- 437,594 546,607
------------ ------------- ------------------ ------------ ------------
Loss before income tax benefit
(provision)......................... (11,121,352) (116,693,777) (958,247) (10,309,587) (27,392,036)
Income tax benefit (provision)........ (1,354,862) 777,373 (389,275) 499,304 838,560
------------ ------------- ------------------ ------------ ------------
Net loss.............................. (12,476,214) (115,916,404) (1,347,522) (9,810,283) (26,553,476)
=========== ============ ================ =========== ===========
Net loss per share.................... $ (1.25) $ (11.59) $ (0.13) $ (0.98) $ (2.66)
=========== ============ ================ =========== ===========
Weighted average shares outstanding... 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000
=========== ============ ================ =========== ===========
CONSOLIDATED STATEMENT OF CASH FLOWS
DATA:
Cash flows from operating
activities.......................... $ (2,983,257) $ (5,950,838) $ (226,340) $ (471,182) $ (1,119,923)
Cash flows from investing
activities.......................... (72,285,642) (74,170,991) (4,701,413) (37,751,486) (37,901,477)
Cash flows from financing
activities.......................... 42,995,751 48,176,050 5,086,025 465,188,376 465,795,078
Ratio of earnings to fixed
charges(4)..........................
OTHER FINANCIAL DATA:
EBITDA(3)............................. $(14,930,508) $ (25,848,476) $ (2,095,314) $ (4,935,661) $ (5,743,224)
</TABLE>
(footnotes on next page)
16
<PAGE> 19
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
----------------------------
ACTUAL PRO FORMA(5)
------------ ------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................................. $479,994,983 $466,159,077
Investment in unconsolidated subsidiaries................................. 124,025,593 156,847,213
Total assets.............................................................. 942,591,012 938,018,377
Long-term debt(2)......................................................... 489,909,208 489,909,208
Minority interest......................................................... 5,251,125 5,251,125
Stockholder's equity(2)................................................... 358,091,489 358,091,489
</TABLE>
- ---------------
(1) The pro forma data give effect to the following transactions (collectively,
the "Transactions") in each case as if they had occurred on January 1, 1996:
(i) Nextel's acquisition of an 81.0% interest in WVB for $186.3 million in
market value of Nextel Class A Common Stock and the simultaneous
contribution of such interest to the Company; (ii) the Company's acquisition
of an approximately 38% interest in Mobilcom for $76.9 million, the capital
contribution that increased the Company's interest in Mobilcom from 38% to
46.3% and the subsequent acquisition of an approximately 1.8% interest in
Mobilcom for $3.2 million, which are accounted for using the equity method;
(iii) the Company's acquisition of a 30.0% interest in Infocom
Communications Network, Inc. ("Infocom"), accounted for using the equity
method; (iv) The Argentina Transaction; and (v) the pre-merger transfer to
Nextel of NIC's assets and liabilities not associated with the Company's
investments in Mobilcom and Clearnet. The pro forma data also give effect to
the Initial Offering as if it had occurred on January 1, 1996. See "The
Company."
(2) Under U.S. GAAP, approximately $14.8 million of the proceeds of the Initial
Offering has been allocated to the Warrants and $485.2 million of the
proceeds has been allocated to the Notes.
(3) "EBITDA" consists of loss before interest expense, income tax benefit
(provision) and depreciation and amortization. EBITDA is provided because it
is a measure commonly used in the telecommunications industry. It is
presented to enhance an understanding of the Company's operating results and
is not intended to represent cash flow or results of operations for the
periods presented. EBITDA is not a measurement under U.S. GAAP and may not
be similar to EBITDA measures of other companies. See the Company's
consolidated financial statements and the notes thereto appearing elsewhere
in this Prospectus.
(4) For the purpose of computing the ratio of earnings to fixed charges,
earnings consist of loss before income taxes, plus fixed charges, less
income (loss) from equity method investments. Fixed charges consist of
interest on all indebtedness, amortization of debt expense, and that portion
of rental expense which the Company believes to be representative of
interest. The deficiency for purposes of calculating the ratio of earnings
to fixed charges for the year ended December 31, 1996 for actual and pro
forma was $11,121,352 and $116,693,777, respectively, for the three months
ended March 31, 1996 was $958,247 and for the three months ended March 31,
1997 for actual and pro forma was $10,309,587 and $27,392,036, respectively.
(5) Gives pro forma effect to the Argentina Transaction, the capital
contribution that increased the Company's interest in Mobilcom from 38% to
46.3% and the subsequent acquisition of an approximately 1.8% interest in
Mobilcom for $3.2 million as if they occurred on March 31, 1997.
17
<PAGE> 20
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be carefully considered in evaluating the Company
and its business before deciding whether or not to tender Private Notes in
exchange for Exchange Notes pursuant to the Exchange Offer. A number of the
matters and subject areas discussed in this Prospectus are not historical or
current facts but rather address potential future circumstances and
developments. The discussion of such matters and subject areas is qualified by
the inherent risks and uncertainties surrounding future expectations generally,
and also may materially differ from the Company's actual future experience
involving any one or more of such matters and subject areas. The Company has
attempted to identify certain of the factors that it currently believes may
cause actual future experience and results to differ from the Company's current
expectations regarding the relevant matter or subject area. The operation and
results of the Company's wireless communications operations also may be subject
to the effect of other risks and uncertainties in addition to the relevant
qualifying factors identified elsewhere herein, including, but not limited to,
general economic conditions in the countries and markets in which the Operating
Companies offer their wireless communications services, the availability of
adequate quantities of system infrastructure and subscriber equipment and
components to meet the Company's service deployment and marketing plans and
customer demand, the successful deployment of the technologies chosen by the
Operating Companies, the ability to achieve market penetration and average
subscriber revenue levels sufficient to provide financial viability to the
Operating Companies, access to sufficient debt or equity capital to meet the
Company's operating and financing needs, the quality and price of similar or
comparable wireless communications services offered or to be offered by the
Company's competitors, future legislative or regulatory actions relating to
wireless communications services in the countries in which the Operating
Companies are offering their services and other risks and uncertainties
described throughout this Prospectus.
SHORT OPERATING HISTORY; HISTORICAL AND FUTURE NET OPERATING LOSSES;
NEGATIVE EBITDA. Each of the Operating Companies has a short operating history.
Additionally, the Company plans to acquire or commence additional operations in
markets in which it currently does not operate and any such additional
operations will likely have either a limited or no operating history. The
Company's prospects must therefore be considered in light of the risks,
expenses, uncertainties and obstacles inherent in establishing a new business in
an evolving industry. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." For the year ended December 31, 1996, on a
pro forma basis after giving effect to the Transactions and the Initial
Offering, the Company had negative cash flow from operating activities of $6.0
million, negative EBITDA of $25.8 million and net losses of $115.9 million. In
particular, Mobilcom has incurred significant operating and net losses. The
Company has recently taken steps that are intended to improve the operating
performance of Mobilcom and expects to take additional steps in the future,
although no assurance can be given that such efforts will be successful. In some
of the Operating Companies, the Company has experienced relatively high rates of
churn and bad debt expenses. However, the Company has taken a number of steps to
reduce these levels including tightening the credit screening process,
instituting the requirement of longer term contracts and formulating more
aggressive collection processes. During the next several years, the Company
expects to continue to incur significant and increasing operating and net
losses, negative EBITDA and negative cash flow from operations due to the
expansion of its operations and continued build-out and upgrade of its wireless
communications systems. There can be no assurance that the Company will achieve
or sustain profitability or positive cash flow from operations in the future. If
the Company cannot achieve operating profitability or positive cash flow from
operations, it may not be able to meet its debt service or working capital
requirements (including its obligations with respect to the Notes).
SUBSTANTIAL INDEBTEDNESS; ABILITY TO SERVICE DEBT; REFINANCING RISKS. At
December 31, 1996, on a pro forma basis after giving effect to the Transactions
and the Initial Offering, the Company would have had no indebtedness outstanding
other than the Notes. The accretion of original issue discount on the Notes will
cause an increase in liabilities from the Closing Date of approximately $466.3
million by April 15, 2002. Additionally, on the same pro forma basis, for the
year ended December 31, 1996, the Company's deficiency of earnings before fixed
charges to cover fixed charges would have been $116.7 million and EBITDA would
have been negative $25.8 million. The Indenture limits, but does not prohibit,
the incurrence of additional indebtedness by the Company and certain of its
affiliates and subsidiaries. The Company anticipates that it
18
<PAGE> 21
and the Operating Companies will incur substantial additional indebtedness in
the future. Indebtedness incurred by the Operating Companies includes and is
expected to continue to include financing provided by Motorola to fund the
purchase of equipment from Motorola (the "Motorola Financing") as well as other
vendor financing. The Indenture does not limit the amount of vendor financing
indebtedness that may be incurred. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Indenture restricts, among other things, the Company's, and certain of
its subsidiaries' and affiliates', ability to incur indebtedness, create liens,
pay dividends or make certain other restricted payments, sell assets, enter into
certain transactions with affiliates or merge or consolidate with any other
person. In addition, the Motorola Financing includes and any other vendor
financing (including additional Motorola Financing) is expected to include
restrictive covenants, including prohibitions on the Operating Companies'
ability to pay dividends. It is expected that all of an Operating Company's
assets and capital stock will be pledged to secure such Operating Company's
obligations under the Motorola Financing. Because the Motorola Financing may
mature after the time that cash interest payments on the Notes are required, as
long as any Motorola Financing at an Operating Company remains outstanding, such
Operating Company will be unable to pay dividends to the Company as a source of
cash to make interest payments on the Notes and the Company would therefore need
to obtain funds from other sources.
The level of the Company's indebtedness could have important consequences
to Holders, including the following: (i) the debt service requirements of any
additional indebtedness could make it more difficult for the Company to make
payments of interest on the Notes; (ii) the ability of the Company to obtain any
necessary financing in the future for working capital expenditures, debt service
requirements or other purposes may be limited or at terms which are not
favorable to the Company; (iii) a substantial portion of the Company's cash flow
from operations, if any, must be dedicated to the payment of principal and
interest on its indebtedness and other obligations, and will not be available
for use in its business; (iv) the Company's level of indebtedness could limit
its flexibility in planning for, or reacting to, changes in its business; (v)
the Company is more highly leveraged than some of its competitors, which may
place it at a competitive disadvantage; and (vi) the Company's high degree of
indebtedness will make it more vulnerable in the event of a downturn in its
business.
The Company believes that cash flows from the planned expansion of its
existing operations will be sufficient to meet its debt service obligations;
however, there can be no assurance in this regard. The Company must
substantially increase its net cash flow in order to meet its debt service
obligations, including its obligation under the Notes. If the Company is unable
to generate sufficient cash flow or otherwise obtain funds necessary to make
required payments, or if it otherwise fails to comply with the various covenants
in its indebtedness, it would be in default under the terms thereof, which would
permit the holders of such indebtedness to accelerate the maturity of the
indebtedness and could cause defaults under other indebtedness of the Company.
Such defaults could result in a default on the Notes and could delay or preclude
payment of interest or principal thereon. The Company's ability to meet its
obligations will depend on its future performance, which will be subject to
prevailing economic conditions and to financial, business and other factors,
including factors beyond the Company's control.
The Motorola Financing matures and other financing (including additional
Motorola Financing) may mature prior to the maturity of the Notes. The Company
also expects that existing and future Motorola Financing and other financing may
need to be refinanced at their respective maturities and that the Notes also may
need to be refinanced when cash interest becomes payable. The Company's ability
to refinance its indebtedness will depend, among other factors, on its financial
condition at the time, the restrictions contained in the instruments governing
its other indebtedness and other factors beyond the Company's control, including
market conditions. There can be no assurance that the Company will be able to
refinance any existing or future Motorola Financing, any other financing or the
Notes. If the Motorola Financing or such other financing cannot be refinanced,
it may cause a default under the Notes and the Company may be unable to meet its
obligations under the Notes.
SIGNIFICANT CAPITAL REQUIREMENTS FOR OPERATIONS. Expansion and upgrade of
the Company's existing wireless communications systems, development of the
Company's new systems and the continued funding of
19
<PAGE> 22
operating losses will require substantial additional cash. The Company believes
that the net proceeds from the Initial Offering, together with borrowings
expected to be available under vendor financing, including the Motorola
Financing and the estimated proceeds from the Brazil Equity Sale, if
consummated, will be sufficient to fund the Company's current operations,
including the planned expansion of its existing operations, for approximately 36
to 48 months from the Closing Date; however, there can be no assurance in this
regard. Thereafter, the Company will need substantial additional cash. If the
Company's plans or assumptions change, if its assumptions prove to be
inaccurate, if it consummates investments or acquisitions in addition to those
currently contemplated, if it experiences unanticipated costs or competitive
pressures, if the Brazil Equity Sale is not consummated, or if the net proceeds
from the Initial Offering, together with the proceeds of any such borrowings
otherwise prove to be insufficient, the Company may be required to seek
additional capital sooner than currently anticipated. The Company may seek to
raise such additional capital from public or private equity or debt sources.
There can be no assurance that the Company will be able to raise such capital on
satisfactory terms, if at all. If the Company decides to raise additional funds
through the incurrence of debt, it may become subject to additional or more
restrictive financial covenants and its interest obligations will increase. In
the event that the Company is unable to obtain such additional capital or to
obtain it on acceptable terms, it may be required to reduce the scope of its
presently anticipated expansion, which could have a material adverse effect on
its ability to compete, and its ability to meet its obligations on the Notes.
The terms of any borrowings under the Motorola Financing are subject to
negotiation and execution of definitive agreements. The Company does not have a
revolving credit facility or any other credit facility providing funding for the
Company. Nextel is not obligated to provide any additional funds to the Company.
CONTINGENT CAPITAL REQUIREMENTS. The need for significant additional
capital may also be affected by arrangements the Company has with other
investors in the Operating Companies. In order to retain the contractual right
to designate a majority of the board of directors of Mobilcom, a member of the
Technology Committee of such board of directors and to block certain significant
actions of Mobilcom, the Company must have invested approximately $76.8 million
(the "Minimum Amount") in Mobilcom through certain qualified capital
transactions by March 1998. See "Business -- Operations and
Investments -- Corporate Governance -- Mexico." As of April 30, 1997, the
Company had invested approximately $63.7 million in such qualified capital
transactions. In addition, beginning on October 24, 1997, holders of
approximately 28.4% of the outstanding capital stock of Mobilcom have the right
for two years to put (the "Mobilcom Put") the entire amount of their holdings to
the Company at its appraised fair market value for cash. As discussed below,
however, the Company initiated the Mobilcom Share Purchase Offer, pursuant to
which the Company offered to purchase, subject to the execution of definite
documents, all of the shares of Mobilcom held by the holders of the Mobilcom
Put. The Mobilcom Put is exercisable if Mobilcom takes any of the following
corporate actions and the directors designated to Mobilcom's board of directors
by the holders of the Mobilcom Put voted against such action: (i) a material
amendment of the charter or bylaws; (ii) issuance of voting securities with
disproportionately larger voting rights or a class vote; (iii) certain issuance
of shares in excess of 15% of the outstanding shares during a 36-month period;
(iv) making any investment, loaning any amount, or selling assets in excess of
$20 million; (v) the adoption of, or material deviation from, any business plan,
operating budget or capital expenditure plan; and (vi) making capital
expenditures that would exceed 125% of the capital expenditure budget approved
by the shareholders (collectively, the "Mobilcom Put Events"). In addition, the
Mobilcom Put is exercisable in the event that the holders of the Mobilcom Put
are no longer entitled to designate in the aggregate at least two directors. The
Mobilcom Put is also automatically exercisable on October 24, 1999 whether or
not a Mobilcom Put Event occurs. Valuation of Mobilcom for purposes of the
Mobilcom Put will be based on an appraisal by an investment bank, with the
minimum appraisal for 100% of Mobilcom equal to $150 million. To the extent such
appraisal exceeds $250 million, 50% of such excess will be included in the
valuation. In connection with a capital call on June 7, 1996, Mobilcom
shareholders purchased additional shares of Mobilcom based on a $200 million
valuation of Mobilcom (which valued the Mobilcom Put at approximately $57
million). If the Company does not pay the Minimum Amount and to the extent the
Company does not otherwise acquire a majority of the outstanding capital stock
of Mobilcom, the Company will lose its right to designate a majority of the
board of directors of Mobilcom and a member of the Technology Committee and its
ability to block certain significant actions of Mobilcom. The Company has the
option to purchase, before March 3, 1998, up to an additional 29.5% of
Mobilcom's common
20
<PAGE> 23
stock. To the extent the Company owns a majority of the voting stock in Mobilcom
after giving effect to the exercise of the Mobilcom Put, the Company will not be
affected by the failure to have invested the Minimum Amount by March 1998
because its equity ownership will entitle it to elect a majority of the board of
directors of Mobilcom. As of June 30, 1997, the Company owned approximately
48.1% of the voting stock of Mobilcom. See "Business -- Operations and
Investments -- Corporate Governance -- Mexico."
On July 11, 1997, the Company initiated the Mobilcom Share Purchase Offer,
pursuant to which the Company offered to purchase, subject to the execution of
definitive documents, all of the shares of Mobilcom held by the holders of the
Mobilcom Put for an aggregate purchase price of approximately $54 million. If
all such shareholders accept the Mobilcom Share Purchase Offer and if the
Company enters into definitive agreements with each such shareholder and
consummates the transactions contemplated by such offer, the Company's equity
interest in Mobilcom will increase from approximately 48.1% to approximately
76.5% and the Mobilcom Put will be terminated. The Mobilcom Share Purchase Offer
expires on August 11, 1997. As of July 31, 1997, shareholders representing
approximately 1.5% of the outstanding shares of Mobilcom had accepted the
Mobilcom Share Purchase Offer. The Company expects to consummate the Mobilcom
Share Purchase Offer with the shareholders who have accepted such offer by the
end of the third quarter of 1997 and intends to fund its purchase of the
Mobilcom shares from the net proceeds of the Initial Offering. The acquisition
of Mobilcom shares held by those parties that have accepted the Mobilcom Share
Purchase Offer is not expected to have a significant effect on the Company's
financial position or results of operations. There can be no assurance that the
Company will consummate the Mobilcom Share Purchase Offer.
The other shareholder in McCaw Brazil has the right between October 31,
2001 and November 1, 2003, to require McCaw Brazil to redeem such shareholder's
19% interest in McCaw Brazil at fair market value as determined pursuant to an
appraisal procedure (the "McCaw Brazil Put"). The Minimum Amount and any amounts
required to satisfy the Company's obligations with respect to the Mobilcom Put
and the McCaw Brazil Put are collectively referred to as the "Partner
Contingencies."
The Company anticipates funding the Partner Contingencies with the net
proceeds of the Initial Offering, issuances of additional debt and equity
securities at the Company and Operating Company levels, future equity
investments in the Operating Companies by new local partners and capital
contributions from Nextel in the form of cash or Nextel common stock. Nextel has
no obligation to provide any such financing and there can be no assurance that
the Company will be able to fund the Partner Contingencies. The failure to fund
a Partner Contingency may have a material adverse effect on the Company.
HOLDING COMPANY STRUCTURE; EFFECTIVE SUBORDINATION; SECURED INDEBTEDNESS.
The Company intends to invest or loan substantially all of the net proceeds from
the Initial Offering in or to the Operating Companies. As of April 30, 1997, the
Company had invested approximately $36.1 million of the net proceeds from the
Initial Offering in the Operating Companies. The Company is a holding company
and therefore must rely on dividends and other payments from the Operating
Companies to generate the funds necessary to meet its obligations, including the
payment of principal and interest on the Notes. The Operating Companies are
legally distinct from the Company and have no obligation, contingent or
otherwise, to pay amounts due with respect to the Notes, or to make funds
available for such payments. The Operating Companies will not guarantee the
Notes. Additionally, the Operating Companies and subsidiaries through which the
Company holds its interests in certain of the Operating Companies are organized
in jurisdictions outside the United States. The ability of the Operating
Companies to make distributions to the Company will be subject to, among other
things, the availability of funds, contractual restrictions and applicable local
laws. Certain of the Operating Companies have entered into financing facilities
that prohibit or restrict the payment of dividends. It is expected that each
Operating Company that is party to the Motorola Financing will be prohibited
from paying dividends until such Motorola Financing is repaid, which may occur
after the time cash interest is required to be paid on the Notes. In addition,
the payment of dividends by each of the Operating Companies other than McCaw
Brazil requires the approval of certain of the other equity holders in such
companies.
Claims of creditors of the Operating Companies, including trade creditors,
will generally have priority as to the assets of such Operating Companies over
the claims of the Company and the holders of the Company's indebtedness.
Accordingly, the Notes will be effectively subordinated to the liabilities of
the Operating
21
<PAGE> 24
Companies. Any right of the Company to receive assets of any Operating Company
upon the liquidation or reorganization of such Operating Company (and the
consequent right of the Holders to participate in those assets) will be
effectively subordinated to the claims of such Operating Company's creditors,
except to the extent that the Company is itself recognized as a creditor, in
which case the claims of the Company would still be subordinate to any security
in the assets of such Operating Company (including the assets of such Operating
Company securing its Motorola Financing) and any indebtedness of such Operating
Company senior to that held by the Company. In addition, holders of secured
indebtedness of the Company would have a claim on the assets securing such
indebtedness that is prior to the Holders of the Notes and would have a claim
that is pari passu with the Holders of the Notes to the extent such security did
not satisfy such indebtedness. As of April 30, 1997, the Company has no
significant assets other than the stock of the Operating Companies and
approximately $445.9 of the net cash proceeds from the Initial Offering which
has been invested in short term investments. It is expected that the stock of
the Operating Companies owned by the Company will be pledged to secure the
Motorola Financing or other indebtedness and that substantially all of the net
cash proceeds from the Initial Offering will be invested in or loaned to the
Operating Companies. A substantial portion of the assets of the Operating
Companies consists of goodwill, licenses and other intangibles. As of December
31, 1996, after giving effect to the Transactions, the Company's Restricted
Group Members would have had approximately $79.7 million of liabilities,
including $25.0 million of indebtedness.
MINORITY INTERESTS; SHAREHOLDER CONSENT REQUIREMENTS. The Company intends
to invest or loan substantially all of the net proceeds from the Initial
Offering in or to the Operating Companies. As of April 30, 1997, the Company had
invested approximately $36.1 of the net proceeds from the Initial Offering in
the Operating Companies. The Company currently has, and anticipates that it will
make in the future, minority investments in international wireless
communications operations, partly because of limitations on foreign ownership in
telecommunications companies in some countries. The Company's ability to
withdraw funds from the Operating Companies other than from McCaw Brazil,
including through the payment of dividends, depends in all cases on receiving
the consent of certain other stockholders of those companies, over which the
Company has no control. In addition, although the Company owns a majority of
McCaw Brazil, the other shareholders have the ability to veto certain other
corporate actions. While the terms of the arrangements vary, the Company's
investments in the Operating Companies may be adversely affected in the event
that the Company's partners have economic or business interests or goals that
are inconsistent with those of the Company or take actions that are contrary to
the Company's policies or objectives. If certain Operating Companies that are
Restricted Group Members take actions that violate the covenants contained in
the Indenture, it may result in an event of default under the Indenture. See
"Description of the Notes." In addition, disagreements may arise between the
Company and any of its partners, which, in some cases, could lead to the Company
being required to purchase its partners' interest in the Operating Company.
The Company may owe a fiduciary duty to the holders of various minority
interests in its subsidiaries. Accordingly, the Company may not have the right
to exercise unfettered control over such subsidiaries and may be required to
deal with such subsidiaries on terms no less favorable to such subsidiaries than
could be obtained from unaffiliated third parties. In addition, dividends or
other distributions paid or made by such subsidiaries must be paid or made on a
pro rata basis to all stockholders.
GOVERNMENT REGULATION. The licensing, construction, ownership and operation
of wireless communications systems, and the grant, maintenance and renewal of
applicable licenses and radio frequency allocations, are regulated by
governmental entities in the markets in which the Company operates. In addition,
such matters and certain other aspects of wireless communications system
operations, including rates charged to customers and the resale of wireless
communications services, may be subject to public utility regulation in the
jurisdiction in which service is provided. Further, statutes and regulations in
certain of the markets in which the Company operates impose limitations on the
ownership of telecommunications companies by foreign entities. Changes in the
current regulatory environments in the countries in which the Company operates
or future judicial intervention, including with respect to interconnection
arrangements, requirements for increased capital investments, regulations
affecting prices the Company is able to charge for its services or foreign
ownership limitations, could have a material adverse effect on the Company. For
a more detailed
22
<PAGE> 25
description of the regulatory environment in each of the countries in which the
Operating Companies operate, see the "Regulatory and Legal Overview" discussion
for each Operating Company under "Business."
Wireless communications licenses and spectrum allocations are subject to
ongoing review and, in some cases, to modification or early termination for
failure to comply with applicable regulations. Most of the Company's wireless
communications licenses have fixed terms and are not automatically renewable. In
cases where license terms are fixed, there can be no assurance that license
renewal will be effected, or if effected that renewal will be on acceptable
economic terms.
Because of the uncertainty as to the interpretation of regulations in
certain jurisdictions, there can be no assurance the Company can provide planned
services in each jurisdiction and it may be possible that the Company may be
prohibited from providing services it intends to provide in the future in
certain jurisdictions, including ESMR services. See also "-- Possible Delay in
Offering ESMR Services in Brazil."
Before McCaw Brazil can launch commercial iDEN-based ESMR services in
Brazil, it will need to obtain the following approvals from the Ministry of
Communications: (i) project installation approval; and (ii) post-installation
operating approval. In addition, before McCaw Brazil can commence ESMR service,
"type certifications" must be obtained from the Ministry of Communications with
respect to the equipment to be deployed in Brazil. Motorola has received type
certification for most of its iDEN equipment, however, the Nortel switch and the
subscriber units that are used with iDEN networks have not yet been type
certified. The Company believes that it will receive these approvals on a timely
basis. No assurance can be given that the Ministry of Communications will grant
the approvals or that the Company's planned roll-out of ESMR will not be
delayed.
On April 26, 1997 and in the beginning of June 1997, news reports appeared
in the Brazilian newspapers and international wire services that an anonymous
source had forwarded to the Ministry of Communications a copy of the Company's
offering memorandum prepared in connection with the Initial Offering and a
letter alleging that the Company was operating in Brazil without authorization
from the Ministry of Communications. Based upon these allegations, the Ministry
of Communications sent the Company a letter requesting its comments to the
allegations and the Company sent the Ministry of Communications a letter
responding to such allegations. Further, certain members of the Brazilian
Congress introduced legislation that would eliminate the guaranteed right of SMR
providers to interconnect to the public telecommunications network. Such
legislation was enacted on July 16, 1997. Additionally, on May 15, 1997 and June
25, 1997, the Ministry of Communications issued proposed regulations for public
comment that, if approved as drafted, would impose limitations on the Company's
ability to (i) obtain direct telephone numbers for all of its subscriber units
in Brazil and (ii) interconnect with the public telecommunications network.
Although the Company believes that the current regulatory framework permits the
operation of its existing business in Brazil, the proposed regulations, if
enacted as drafted, may limit the Company's current and future operations in
Brazil. Furthermore, there can be no assurance that the Brazilian Congress or
the Ministry of Communications will not modify the existing regulatory
framework, or that the Ministry of Communications will not initiate
administrative proceedings, to impede the Company from providing the existing
SMR services or launch ESMR services.
Compliance with the terms of the Operating Companies' licenses and certain
regulatory requirements, such as installation deadlines and minimum loading
requirements, can be difficult. There can be no assurance that such requirements
will be met or that the Company will not lose any applicable wireless
communications licenses as a result of its failure to meet such requirements.
The Company currently is not in compliance with applicable installation
deadlines and minimum loading requirements with respect to certain channels
located in various parts of Brazil outside Sao Paulo. Failure to comply with
such requirements may subject the licenses relating to such channels to
forfeiture by the Ministry of Communications. Requests for extensions of the
relevant deadlines in most of the major cities have been filed with the Ministry
of Communications; however, no responses have been received. There can be no
assurance that the Ministry of Communications will not take action in response
to such failure to comply that would have an adverse effect on McCaw Brazil.
Additionally, in June 1997, the Ministry of Communications ordered the Company
to discontinue the operation of two cell sites in the state of Sao Paulo based
on the Ministry's assertion that such sites were
23
<PAGE> 26
operating outside of the geographical area covered by the Sao Paulo City
license. Although the Company believes that these cell sites are consistent with
the applicable license, there can be no assurance that the Ministry of
Communications will agree with the Company's interpretation of the area covered
by the applicable license. Additionally, because many of the regulatory
frameworks are relatively new and still developing in the countries in which the
Company operates and the enforcement of such regulations is often uncertain, it
is difficult to determine how regulators will interpret the rules or judge
compliance, and what degree of flexibility will be available.
In Brazil, the transfer of control of an SMR licensee is subject to the
prior approval of the Ministry of Communications. Because of these license
transfer restrictions, McCaw Brazil's interest in 1,180 of its 1,700 channels is
structured pursuant to a number of option agreements entered into with the
shareholders of the respective corporate licensees of such channels (the "Option
Agreements"). Pursuant to the Option Agreements, McCaw Brazil has acquired a
minority interest in each such licensee not exceeding 49% and holds the option
to acquire the balance of the ownership interest in each such licensee upon the
payment of an option exercise price. The closing of each such option would be
conditioned upon securing the approval of the Ministry of Communications for the
transfer of control of the relevant licensees. The aggregate amount of the
exercise price if all the options are exercised is not material. A licensee is
not eligible to request approval for change of control until system installation
has been completed and approved by the Ministry of Communications, and many of
the channels subject to the Option Agreements have not been installed. While the
Company believes it will receive Ministry of Communications approval when it has
met the installation requirements, no assurance can be given that such approval
will be obtained. To the extent the Company is not able to exercise its option
to acquire the balance of the ownership interest in a particular licensee, the
Company believes that AirLink Service e Comercio Ltda. ("Airlink"), an indirect
wholly owned subsidiary of McCaw Brazil, would be able to continue to maintain
its existing contractual right to manage the operations subject to the license
held by such licensee pursuant to a service agreement and receive fees under
such service agreement. However, the Company would not own such licensee and the
Company's rights with respect to such license could be limited. There can be no
assurance that the Ministry of Communications would not challenge the validity
of such service agreements. All of McCaw Brazil's channels in Sao Paulo are
indirectly owned entirely by it and are not held pursuant to the Option
Agreements.
The Company owns or has options to acquire licensees with multiple channels
in each of its service areas in Brazil, which have been acquired from private
parties rather than the Ministry of Communications. Under an administrative
ruling of the Ministry of Communications ("Administrative Ruling No. 478"), one
entity may not "receive" more than one SMR license in a given service area. Such
ruling also provides that an entity may not receive an SMR license if such
entity is a member of a commonly controlled or commonly managed group where
another member of such group already holds a license in the same service area.
The Company believes that Administrative Ruling No. 478 does not restrict an
entity from acquiring prior to July 13, 1994 more than one licensee in the same
service area from private parties and holding such licensee directly or
indirectly.
Administrative Ruling No. 478 also is unclear as to whether, in the event
of a transfer of multiple licensees, it would be permissible to consolidate such
licensees under the ownership of one entity. In any event, the Company believes
that any limitation on acquiring or holding multiple SMR licensees in the same
service area or consolidation of multiple licensees would not affect those
licensees who held SMR licensees prior to July 13, 1994, the effective date of
Administrative Ruling No. 478. All of McCaw Brazil's licenses in Sao Paulo were
issued prior to July 13, 1994. There can be no assurance that the Ministry of
Communications will approve transfers of majority control of licensees in the
same service area. Furthermore, Decree No. 2197, effective April 4, 1997,
provides that any transfer of control can only occur after the period of time
established in the rules to be issued by the Ministry of Communications. Any
failure to approve such a transfer could have a material adverse effect on the
Company.
In the Philippines, cellular mobile operators are required to install at
least 400,000 local exchange lines. The Company does not believe that Infocom is
subject to this requirement however no assurance can be given that this will be
the case. If this requirement were found to be applicable to Infocom, it would
require a significant capital investment.
24
<PAGE> 27
Each of the jurisdictions in which the Operating Companies operate permit
wireless communications companies to interconnect to the landline telephone
service provider in each market. Although interconnection services are currently
being provided in Brazil and Argentina, the Operating Companies in those
countries have not entered into definitive interconnection agreements with the
landline telephone service providers. The Company is currently negotiating
interconnection agreements to increase interconnect capacity in connection with
the upgrade to ESMR services in Brazil, Argentina and the Philippines. There can
be no assurance that interconnection agreements will be entered into or if
entered into or, whether such agreements will be on terms favorable to such
Operating Companies. The failure to enter into interconnection agreements on
favorable terms could have a material adverse effect on the Company's results of
operations. In many of the countries in which the Company operates,
telecommunications services are subject to value-added taxes.
POSSIBLE DELAY IN OFFERING ESMR SERVICES IN BRAZIL. In June 1997 and July
1997, the Government of Brazil awarded Band B cellular licenses covering two of
the ten areas throughout Brazil, including the City of Sao Paulo, pursuant to
the rules governing the bidding process (the "Band B Rules"), which rules were
released by the Ministry of Communications on January 13, 1997. The Band B Rules
contain a provision which prohibits the initiation of operations by certain
other mobile telecommunications service providers in the areas covered by the
Band B licenses until December 31, 1999. It is unclear whether this provision of
the Band B Rules will prevent the Company from providing iDEN-based ESMR
services in Brazil before December 31, 1999. The Company does not believe that
the Band B Rules are applicable to its current SMR operations in Brazil. There
can be no assurance, however, that either the Ministry of Communications or
companies bidding for the Band B licenses will not attempt to prevent the
Company from offering ESMR services before December 31, 1999. In addition,
companies bidding for the Band B licenses may request that the December 31, 1999
date be extended or seek clarification as to the applicability of the Band B
Rules to iDEN-based ESMR services. Any significant delay in offering ESMR
services would have a material adverse effect on the Company's competitive
position in Brazil and on its business and results of operations.
TECHNOLOGY RISKS. In most of its markets, the Company plans to implement
ESMR networks using iDEN technology developed by Motorola. Prior to the second
quarter of 1996, Nextel, the principal user of iDEN technology, implemented its
ESMR networks using Motorola's "first generation" iDEN technology. Nextel
encountered certain system performance issues that resulted in a significant
postponement of its aggressive marketing efforts in the United States with
respect to its ESMR network utilizing iDEN technology, and particularly its
mobile telephone services. Nextel, together with Motorola, has pursued a
significant program directed toward the development and deployment of
modifications to the "first generation" iDEN technology platform designed
principally to produce improvements in audio quality for telephone interconnect
service. Although Nextel has deployed the modified iDEN technology successfully
in several of its markets to date, including Chicago, Detroit, Boston, Denver,
Atlanta, New York, Washington/Baltimore, Los Angeles, Northern California and
the Pacific Northwest, and has announced its intention to pursue an aggressive
roll-out of its ESMR networks in additional markets, its new systems have only
been in commercial use for a limited period and there can be no assurance that
the modified iDEN technology will satisfactorily continue to address the system
performance issues encountered in the deployment of the first generation
technology.
COMPETITION. The Company's success will depend on the Operating Companies'
ability to compete effectively with other communications services providers,
including landline telephone companies and other wireless communications
companies, in the markets in which the Operating Companies offer services. Many
of the Company's competitors are well-established companies with substantially
greater financial and marketing resources, larger customer bases, and better
name recognition than the Company, and in certain markets may be able to provide
coverage to a larger number of subscribers. Because of their financial
resources, these competitors may be able to reduce prices in order to gain
market share. In Brazil, some of the largest telecommunications companies in the
world have been granted licenses in the on-going auctions to provide cellular
service, which will result in significant competition when those services are
launched. In addition, the Argentine and Mexican governments have announced
their intention to auction a number of licenses to provide wireless
communications service, and, as a result, the Company expects competition in
these countries to increase. The Company expects that the prices it charges for
its products and services will
25
<PAGE> 28
decline over the next few years as competition intensifies in its markets.
Because iDEN technology is not compatible with cellular or PCS technology, the
Company's customers will not be able to roam on cellular or PCS systems. There
can be no assurance that the Company will be able to compete effectively in the
future. For a more detailed description of the competitive factors affecting
each Operating Company, see the "Competition" discussion for each Operating
Company under "Business -- Operations and Investments."
On February 20, 1997, the Ministry of Communications released new SMR rules
(the "New SMR Rules") (i) permitting the combination of adjacent channels in
certain frequencies in the 400 MHz, 800 MHz and 900 MHz band and (ii) requiring
the use of digital technology for SMR systems operating in channels 401 to 600
of the 806-821 MHz and 851-866 MHz bands. The New SMR Rules also provide that
channels which have already been assigned to licensees, including the Company,
will be the object of a study addressing the prospective regrouping of such
channels for application in systems using digital technology. Because the New
SMR Rules allow SMR operators to combine adjacent channels to create contiguous
blocks and may provide for a regrouping of SMR channels to create more
contiguous blocks in the future, SMR operators may have additional technology
choices available to them. Although the Company does not believe that the New
SMR Rules will materially affect its technology decisions or the attractiveness
of McCaw Brazil's product or service offerings, the New SMR Rules and technology
decisions by other SMR operators, including existing and future competitors, may
increase competition in Brazil. The proposed regulations issued on May 15, 1997
and June 25, 1997, if enacted by the Ministry of Communications as drafted,
would impose limitations on the Company's ability to (i) obtain direct telephone
numbers for all of its subscriber units in Brazil and (ii) interconnect with the
public telecommunications network, and therefore, may limit the Company's
ability to compete effectively with other wireless communications service
providers in Brazil, including the operators of the Band B cellular licenses.
In addition, many existing telecommunications enterprises in the markets in
which the Company operates have successfully attracted significant investments
from multinational communications companies. These multinational communications
companies, which have invested in local landline, wireless communications and
paging entities, have substantially greater financial resources than the Company
and are attempting to accelerate the modernization of the telecommunications
sector in the regions in which they operate by bringing their operating and
financial resources to bear.
The Company continuously reviews opportunities to acquire additional
licenses in new markets, primarily in emerging countries. In each new market,
the Company expects to face competition for such licenses from major
international telecommunications entities, as well as from local competitors.
RAPID TECHNOLOGICAL CHANGES. The telecommunications industry is subject to
rapid and significant changes in technology, which could lead to new products
and services that compete with those offered by the Company or lower the cost of
current competing products and services to the point where the Company's
products and services could become noncompetitive, thereby requiring the Company
to reduce the prices of its services. While the Company is not aware of any
proposed changes that will materially affect the attractiveness of its product
and service offerings, the effect of technological changes on the Company's
businesses cannot be predicted. In the future, the Company expects to experience
competition from new technologies such as PCS and possibly satellite technology,
as well as from advances with respect to existing technologies such as ESMR,
cellular, paging and mobile data transmission. There can be no assurance that
the Company will be able to adopt new technologies or to keep pace with ongoing
advances in existing technology.
RELIANCE ON LIMITED NUMBER OF EQUIPMENT SUPPLIERS. Motorola is expected to
provide most of the infrastructure and subscriber handset equipment to the
Company for its ESMR systems for the foreseeable future. It is expected that for
the first few years of the Company's ESMR operations, Motorola and competing
manufacturers who are licensed by Motorola (including Matsushita Communication
Industrial Co., Ltd., which has executed a definitive license agreement with
Motorola to employ Motorola's proprietary technology) will be the only
manufacturers of subscriber equipment that is compatible with the Company's ESMR
networks. In addition, the Company sources all of its switching equipment from
Nortel. Although the Company believes that it has or will be able to secure
contractual rights to procure sufficient equipment for its
26
<PAGE> 29
anticipated requirements, there can be no assurance that such equipment will
continue to be available to the Company. Compania de Radiocomunicaciones Moviles
S.A., operating under the name Movicom ("Movicom"), one of the two cellular
service providers in Argentina, has an agreement with Motorola pursuant to which
Motorola has agreed not to sell iDEN to any other operator in Argentina until
September 15, 1997. See "Business -- Operations and Investments -- Argentina."
EXPANSION; MANAGEMENT OF GROWTH. The Company has experienced rapid growth
through acquisitions and intends to continue to grow through further expansion
and upgrade of its existing operations, through acquisitions and joint ventures
and through the establishment of new operations. The Company continually seeks
additional opportunities in its existing and new markets. The Company's future
success and its ability to meet its debt service obligations depends on the
expansion of its operations and development of a large subscriber base on a
timely basis.
The Company's planned expansion projects will be subject to numerous risks,
any of which could require substantial changes to proposed plans or otherwise
alter the time frames or budgets currently contemplated. Such risks include (i)
securing the necessary channel grants and adhering to regulatory requirements
relating thereto; (ii) locating suitable sites for the Company's towers,
obtaining any required zoning variances or other governmental or local
regulatory approvals, and negotiating acceptable purchase, lease, joint venture
or other agreements; (iii) negotiating favorable interconnection agreements;
(iv) delays that may be caused by frequency cross-interference with other radio
spectrum users, such as television stations; and (v) risks typically associated
with any construction project, including possible shortages of equipment or
skilled labor, engineering or environmental problems, work stoppages, weather
interference and unanticipated cost increases. There can be no assurance that
the Company's currently planned expansion will be successful. Moreover, numerous
factors could cause the Company not to proceed with all or a portion of its
expansion plans or otherwise delay or alter its current expansion plans.
Once the Company's operations are in place in a particular market, the
Company's development of a significant subscriber base depends on the success of
its sales and marketing efforts and the receptiveness of the marketplace. In
most of its markets, the Company has limited experience in marketing its
wireless communications services and in tailoring its sales and marketing to
local conditions, and there can be no assurance that the Company's sales and
marketing teams will be able to successfully establish a large subscriber base
in its markets. In most of its markets, the Company will need to rely in part on
the efforts of independent dealers and distributors to market its services.
As a result of the Company's aggressive expansion plans, the Company faces
significant challenges in managing its expanded operations. The Company must
hire and train a number of key personnel to manage its growth, and its expansion
plans will place substantial burdens on the Company's current management
resources, information systems and financial controls. The Company intends to
adopt a decentralized management strategy in each country in which it operates.
While the Company believes this decentralized approach will result in efficient
and effective operations, the management, information, internal control,
reporting and accounting issues involved in any decentralized organization can
be significant. In addition, the Company expects to face significant challenges
in integrating newly acquired businesses with its existing operations. There can
be no assurance that the Company will be able to manage its growth effectively.
Failure to do so would have a material adverse effect on the Company's results
of operations.
CONTROL BY NEXTEL AND ITS SIGNIFICANT STOCKHOLDERS; CONFLICTS OF INTEREST;
DEPENDENCE ON NEXTEL. The Company is a wholly owned subsidiary of Nextel and
Nextel therefore has the power to elect all the directors of the Company. Of the
six directors that comprise the board of directors of the Company, four are also
directors and/or officers of Nextel. Nextel and directors and officers of Nextel
who are also directors of the Company are in positions that may result in
conflicts of interests with respect to transactions involving the Company. The
Company currently engages in and expects, in the future, to continue to engage
in transactions with Nextel and its affiliates. See "Certain Relationships and
Related Transactions."
Based on securities ownership information relating to Nextel as of May 31,
1997, and after giving effect to the conversion of the outstanding shares of
Nextel's preferred stock and the exercise in full of outstanding options and
warrants held by the McCaw Investor and Motorola, the McCaw Investor and
Motorola would
27
<PAGE> 30
beneficially own approximately 30.3% and approximately 16.4% of the Nextel Class
A Common Stock, respectively, outstanding as of such date. Pursuant to the
Securities Purchase Agreement dated as of April 4, 1995, as amended, among
Nextel, the McCaw Investor and Craig O. McCaw (the "McCaw Securities Purchase
Agreement"), the McCaw Investor has the right to designate not less than 25% of
the board of directors of Nextel (the "Nextel Board"). Additionally, the McCaw
Investor is effectively entitled to designate a majority of the members of the
Operations Committee (the "Operations Committee") of the Nextel Board and has
the authority to formulate key aspects of Nextel's business strategy. As a
result, the McCaw Investor is in a position to exert significant influence over
Nextel's, and thereby McCaw International's, affairs.
Certain decisions concerning the operations or financial structure of the
Company may present conflicts of interest between Nextel as the owner of the
Company's capital stock and the Holders of the Notes. Nextel may have an
interest in pursuing acquisitions, divestitures, financings or other
transactions which, in its judgment, could enhance the value of its equity, even
though such transactions might involve risk to the Holders of the Notes.
The Company and Nextel have entered into a right-of-first-opportunity
agreement (the "Non-Compete Agreement") effective as of the Closing Date of the
Initial Offering pursuant to which Nextel has agreed that neither Nextel nor any
Affiliate (as defined in the agreement) controlled by Nextel will in the future
participate in the ownership or operation of two-way terrestrial-based mobile
wireless communications systems ("Wireless Entities") anywhere other than in the
United States and Canada (for so long as Nextel owns an equity interest in
Clearnet) unless such opportunities ("Future Wireless Opportunity") have first
been presented to the Company. Such restriction will not apply to, among other
things, any commercial relationship with any Wireless Entity (including channel
or frequency sharing, roaming, purchase or sale of goods or services, licensing
of intellectual property or other intangible rights or similar business related
arrangement) that does not involve the directing or participating in the
management of such Wireless Entity. The Company has agreed that, without the
consent of Nextel, neither it, its Restricted Affiliates nor any of its
Unrestricted Affiliates (each as defined in the "Description of the Notes") will
participate in the ownership or management of any wireless communications
service business in the United States or Canada other than with respect to its
interest in Clearnet. Such restrictions terminate upon the earliest to occur of
(i) April 15, 2007 and (ii) the date on which a Change of Control occurs (as
defined in the "Description of the Notes").
If Nextel gives the Company notice (the "Initial Notice") of a Future
Wireless Opportunity, the Company will have 60 days to notify Nextel that it
intends to pursue such opportunity and how it intends to finance its
participation. The Company must have secured a financing commitment within 90
days of the date of the Initial Notice and the Future Wireless Opportunity must
be consummated within nine months of the date of the Initial Notice. In the
event the Company fails to respond to Nextel within the 60 and 90 day time-
frames or fails to consummate the transaction within the nine-month period,
Nextel will be free to pursue the Future Wireless Opportunity.
The Company has agreed not to amend the Non-Compete Agreement if such
amendment is material and adverse to the holders of the Notes or the Warrants
and to provide such holders with written notice 30 days prior to any amendment.
Each of the McCaw Investor and Motorola has and (subject to the terms of
applicable agreements between such parties and Nextel) may have an investment or
interest in entities that provide wireless communications services that could
potentially compete with Nextel and the Company. Under the McCaw Securities
Purchase Agreement, the McCaw Investor, Craig O. McCaw and their Controlled
Affiliates (as defined in the McCaw Securities Purchase Agreement) may not, for
a period of time, participate in other two-way terrestrial-based mobile wireless
communications systems in the region that includes any part of North America or
South America unless such opportunities have first been presented to and
rejected by Nextel. Such restrictions terminate on the later to occur of July
28, 2000 and one year after the termination of the Operations Committee.
28
<PAGE> 31
The Company also depends on Nextel to provide it with various services
including technology assistance, as well as certain administrative services.
Such services are provided on a cost-basis pursuant to an overhead services
agreement. See "Certain Relationships and Related Transactions."
In November 1996, Nextel, McCaw International and Motorola entered into a
binding memorandum of understanding regarding the Motorola Financing (the
"Motorola MOU"). Under the Motorola MOU, Motorola agreed to provide an aggregate
of $400 million in vendor financing to Nextel and McCaw International for the
worldwide purchase of iDEN equipment and services and ancillary products (such
as switches). In March 1997, Motorola and Nextel entered into a term sheet
increasing the maximum worldwide vendor financing available to Nextel and McCaw
International to $650 million, with a maximum non-U.S. amount outstanding of
$400 million, subject to certain per country limits as agreed in the Motorola
MOU. The Motorola MOU sets a limit of $125 million per country (other than the
United States and Canada) on the amount that may be borrowed under the Motorola
Financing. Nextel, McCaw International and Motorola agreed to an initial
commitment to McCaw Brazil, McCaw Argentina and Infocom under the Motorola
Financing of $125 million, $81 million and $15 million, respectively.
Commitments provided by Motorola to provide financing to any Operating Company
count 100% against Motorola's $650 million aggregate commitment. Currently,
Motorola has not committed any financing for Mexico. The Motorola MOU
contemplates that the loans under the Motorola Financing will bear interest at a
rate of 2% to 4% over prime rate, depending on the Operating Company placing the
order and the country in which such company is installing the iDEN equipment and
is likely to have a maturity of up to six years. Borrowings by an Operating
Company will be secured by all the assets and stock of such Operating Company
and it is expected that the Company will guarantee such borrowings on a pro rata
basis based on the equity interest of such Operating Company owned by the
Company (with the exception of Brazil where the Company will be required to
guarantee 100% of such borrowings).
Any amounts available to be borrowed by the Operating Companies under the
Motorola Financing will be reduced by any amounts borrowed by Nextel and its
subsidiaries other than the Company and the Operating Companies. Nextel has
committed to the Company that at least $95 million of the Motorola Financing
will be available to the Company. As of March 31, 1997, Nextel had borrowed $110
million pursuant to the Motorola Financing. Accordingly, there can be no
assurance that more than $95 million of the Motorola Financing will be available
to fund the Operating Companies' equipment purchases. In addition, to the extent
total amounts outstanding under the Motorola Financing to Nextel and its
subsidiaries, including the Company and the Operating Companies (other than
Clearnet), plus requests for additional financing under the Motorola Financing
by Nextel and its subsidiaries other than the Company and the Operating
Companies would exceed $400 million, McCaw International is required to repay or
cause to be repaid sufficient borrowings such that after giving effect to such
repayment, the total amount of loans outstanding from Motorola to Nextel and its
subsidiaries, including the Company and the Operating Companies (other than
Clearnet), will not exceed $400 million (any such repayment is referred to as a
"Forced Repayment"). Nextel has agreed with the Company not to cause a Forced
Repayment.
Nextel has provided a substantial amount of financing to the Company, but
it is under no obligation to do so in the future.
DEPENDENCE ON KEY PERSONNEL. The success of the Company and its growth
strategy depends in large part on the Company's ability to attract and retain
key management, marketing, finance and operating personnel, both at the Company
and the Operating Companies. In many of the countries in which the Company
operates, experienced management and other highly skilled personnel are in great
demand. There can be no assurance that the Company will continue to attract and
retain the qualified personnel necessary for its business. In addition, the loss
of the services of one or more members of its senior management team, in
particular Keith D. Grinstein, the Company's President and Chief Executive
Officer, could have a material adverse effect on the Company. The Company does
not maintain key person life insurance.
RISKS ASSOCIATED WITH EMERGING MARKETS; UNCERTAINTIES ASSOCIATED WITH A NEW
INDUSTRY. Most of the Company's markets are considered to be "emerging markets."
Although political, economic and social conditions differ in each country in
which the Company currently operates, developments in one country may
29
<PAGE> 32
affect the market value and liquidity of the Notes, Warrants and Warrant Shares
and the Company's access to international capital markets. The Company currently
does not have political risk insurance in the countries in which it conducts
business.
The success of the Company's operating strategies is subject to factors
that are beyond the Company's control and impossible to predict due, in part, to
the limited history of wireless communications services in the Company's
existing and targeted markets. Consequently, the size of these markets for
wireless communications services, the rates of penetration of these markets, the
sensitivity and ability of potential subscribers to pay subscription and other
fees, the extent and nature of the competitive environment and the immediate and
long-term viability of wireless communications services in these markets are
uncertain.
CURRENCY RISKS AND EXCHANGE CONTROLS. All of the Company's revenues will be
denominated in non-U.S. currencies, although a significant portion of its
capital and operating expenditures, including imported infrastructure equipment,
and the interest expense on the Notes and under the Motorola Financing, will be
denominated in U.S. dollars. Fluctuations in exchange rates relative to the U.S.
dollar may have a material adverse effect on the Company's earnings or assets.
To the extent the Operating Companies distribute dividends in local currencies
in the future, the amount of cash to be received by the Company will be affected
by fluctuations in exchange rates. In addition, certain of the countries in
which the Company has operations restrict the expatriation or conversion of
currency.
LOCAL ECONOMIES; POTENTIAL INFLATION. The Company's operations depend on
the economies of the markets in which it has interests. These markets are in
countries with economies in various stages of development or structural reform,
some of which are subject to rapid fluctuations in terms of consumer prices,
employment levels, gross domestic product and interest and foreign exchange
rates. The Company may be subject to such fluctuation in the local economies. To
the extent such fluctuations have an effect on the ability of customers to pay
for the Operating Companies' services, the growth of the Company's wireless
services could be impacted negatively. Many of the countries in which the
Company operates do not have established credit bureaus, thereby making it more
difficult for the Company to ascertain the creditworthiness of potential
customers. Accordingly, the Company may experience a higher level of bad debt
expense than otherwise would be the case. In particular, the Company's bad debt
expense as a percentage of revenues in Brazil and Mexico has been significantly
higher than in the Company's other markets.
Certain of the Operating Companies operate in countries in which the rate
of inflation is significantly higher than that of the United States. There can
be no assurance that any significant increase in the rate of inflation in such
countries could be offset, in whole or in part, by corresponding price increases
by the Operating Companies, even over the long term.
IMPORT DUTIES ON NETWORK EQUIPMENT AND HANDSETS. The Company's operations
are highly dependent upon the successful and cost-efficient importation of
infrastructure equipment and handsets from North America and, to a lesser
extent, Europe and Japan. In the countries in which the Company operates,
network equipment and handsets are subject to significant import duties and
other taxes that can be as high as 50%. Although the Company believes there is a
trend away from increased import duties, any significant increase in the future
could have a material adverse effect on the Company's results of operations.
INTERNATIONAL TAX RISKS. Distributions of earnings and other payments
(including interest) received from the Company's operating subsidiaries and
affiliates may be subject to withholding taxes imposed by the jurisdictions in
which such entities are formed or operating, which will reduce the amount of
after-tax cash the Company can receive from the Operating Companies. In general,
a U.S. corporation may claim a foreign tax credit against its federal income tax
expense for such foreign withholding taxes and for foreign income taxes paid
directly by foreign corporate entities in which the Company owns 10% or more of
the voting stock. The ability to claim such foreign tax credits and to utilize
net foreign losses is, however, subject to numerous limitations, and the Company
may incur incremental tax costs as a result of these limitations or because the
Company is not in a tax-paying position in the United States.
The Company may also be required to include in its income for U.S. federal
income tax purposes its proportionate share of certain earnings of those foreign
corporate subsidiaries that are classified as "controlled
30
<PAGE> 33
foreign corporations" without regard to whether distributions have been actually
received from such subsidiaries.
LEGAL ENFORCEMENT. A number of the agreements the Company enters into with
the Operating Companies are governed by the laws of, and are subject to dispute
resolution in the courts of, or through arbitration proceedings in, the country
or region in which the operation is located. The Company cannot accurately
predict whether such forum will provide it with an effective and efficient means
of resolving disputes that may arise in the future. Even if the Company is able
to obtain a satisfactory decision through arbitration or a court proceeding, it
could have difficulty enforcing any award or judgment on a timely basis. The
Company's ability to obtain or enforce relief in the United States is uncertain.
ORIGINAL ISSUE DISCOUNT CONSEQUENCES. The Private Notes were issued with
original issue discount for U.S. federal income tax purposes. The Exchange Notes
should be treated as a continuation of the Private Notes. Consequently, Holders
of the Exchange Notes generally will be required to include amounts in gross
income for U.S. federal income tax purposes in advance of receipt of the cash
payments to which the income is attributable. The Exchange Notes may be subject
to the high-yield discount obligation rules, which will defer and may, in part,
eliminate the Company's ability to deduct for U.S. federal income tax purposes
the original issue discount attributable to the Exchange Notes. Accordingly, the
Company's after-tax cash flow might be less than if the original issue discount
on the Exchange Notes was deductible when it accrued. See "Certain U.S. Federal
Income Tax Considerations" for a more detailed discussion of the U.S. federal
income tax consequences resulting from the Exchange Offer.
If a bankruptcy case is commenced by or against the Company under the U.S.
Bankruptcy Code after the issuance of the Notes, the claim of a Holder with
respect to the principal amount thereof may be limited to an amount equal to the
sum of (i) the initial offering price and (ii) that portion of the original
issue discount that is not deemed to constitute "unmatured interest" for
purposes of the U.S. Bankruptcy Code. Any original issue discount that was not
amortized as of any such bankruptcy filing would constitute "unmatured
interest."
FOREIGN CORRUPT PRACTICES ACT. As a domestic corporation and a wholly owned
subsidiary of Nextel, the Company is subject to the Foreign Corrupt Practices
Act (the "FCPA"), which generally prohibits U.S. companies and their
intermediaries from bribing foreign officials for the purpose of obtaining or
keeping business. Although the Company has taken precautions to comply with the
FCPA, there can be no assurance that such precautions will protect the Company
against liability under the FCPA, particularly as a result of actions which may
in the past have been taken or which may be taken in the future by agents and
other intermediaries for whom the Company may have exposure under the FCPA. In
particular, the Company may be held responsible for actions taken by its local
partners even though the Company has no ability to control them. Any
determination that the Company had violated the FCPA could have a material
adverse effect on the Company.
RADIO FREQUENCY EMISSION CONCERNS. Allegations have been made, but not
proven, that the use of portable mobile communications devices may pose health
risks due to radio frequency emissions from such devices. Studies performed by
wireless telephone equipment manufacturers have rebutted these allegations, and
a major industry trade association and certain governmental agencies have stated
publicly that the use of such phones poses no undue health risk. Certain
consumers have alleged that serious health risks have resulted from the use of
certain mobile communications devices. The actual or perceived health risks of
mobile communications devices could adversely affect mobile communications
services providers, including the Company, through reduced subscriber growth,
reduced network usage, the threat of product liability suits or limitations on
financing available to the mobile communications industry.
LACK OF PUBLIC MARKET. The NASD has designated the Private Notes as
securities eligible for trading in the PORTAL market of the NASD. However, the
Exchange Notes are new securities for which there is currently no active trading
market. The Company does not intend to list the Exchange Notes on any national
securities exchange or to seek the admission thereof to trading in the Nasdaq
National Market System and there can be no assurance as to the development of
any market or liquidity of any market that may develop for the Exchange Notes.
If a market for the Exchange Notes does develop, the price of such Exchange
Notes may fluctuate and liquidity may be limited. If a market for the Exchange
Notes does not develop, purchasers may
31
<PAGE> 34
be unable to resell such Exchange Notes for an extended period of time, if at
all. Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the Exchange Notes. There can be no assurance that, if a market for
the Exchange Notes were to develop, such market would not be subject to similar
disruptions.
FAILURE TO EXCHANGE PRIVATE NOTES. The Exchange Notes will be issued in
exchange for Private Notes only after timely receipt by the Exchange Agent of
such Private Notes, a properly completed and duly executed Letter of Transmittal
and all other required documentation. Therefore, holders of Private Notes
desiring to tender such Private Notes in exchange for Exchange Notes should
allow sufficient time to ensure timely delivery. Neither the Exchange Agent nor
the Company are under any duty to give notification of defects or irregularities
with respect to tenders of Private Notes for exchange. Private Notes that are
not tendered or are tendered but not accepted will, following consummation of
the Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof. In addition, any holder of Private Notes who tenders in the
Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes will be required to comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. Each broker-dealer who holds Private Notes acquired for its own
account as a result of market making or other trading activities and who
receives Exchange Notes for its own account in exchange for such Private Notes
pursuant to the Exchange Offer, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. To the extent
that Private Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Private Notes could be
adversely affected due to the limited amount, or "float," of the Private Notes
that are expected to remain outstanding following the Exchange Offer. Generally,
a lower "float" of a security could result in less demand to purchase such
security and could, therefore, result in lower prices for such security. For the
same reason, to the extent that a large amount of Private Notes are not tendered
or are tendered and not accepted in the Exchange Offer, the trading market for
the Exchange Notes could be adversely affected. See "Plan of Distribution" and
"The Exchange Offer."
32
<PAGE> 35
THE COMPANY
McCaw International was founded in February 1995 by Craig O. McCaw to
invest in and manage international wireless communications operations. In August
1995, a wholly owned subsidiary of Nextel purchased all the outstanding shares
of the Company from Craig O. McCaw, who was at the time and remains, a
significant shareholder of Nextel.
The chart below sets forth the summary of the corporate ownership structure
of the Company and the Operating Companies as of June 30, 1997.
[GRAPH]
- ---------------
(1) After giving effect to the Argentina Transaction. Under U.S. GAAP in effect
on the date hereof, McCaw Argentina will be accounted for under the equity
method. Prior to the consummation of the Argentina Transaction, the Company
owned 100% of McCaw Argentina S.A., an Argentine corporation ("McCaw
Argentina S.A."), which became a subsidiary of McCaw Argentina upon
consummation of the Argentina Transaction.
(2) Represents the right to receive 25.2% of the profits generated by the
Shanghai GSM System.
Brazil. On January 30, 1997, Nextel acquired an 81% equity interest in
McCaw Brazil for a purchase price of $186.3 million, which was paid with Nextel
Class A Common Stock, and simultaneously contributed its equity interest in
McCaw Brazil to the Company. McCaw Brazil commenced commercial operations in
October 1994 and grew quickly through a series of acquisitions of Brazilian SMR
license-holding companies. McCaw Brazil is currently the largest SMR operator in
Brazil both in terms of the number of channels and the number of subscribers in
its licensed service areas. McCaw Brazil owns or has options to purchase
licenses for 1,700 SMR channels in Brazil, including 195 in Sao Paulo
(representing 9.75 MHz) and 160 in Rio de Janeiro (representing 8.0 MHz). These
licenses cover more than 59 million POPs, including the 10 largest cities in
Brazil. McCaw Brazil currently offers SMR services in 27 cities, including Sao
Paulo, Rio de Janeiro, Belo Horizonte, Brasilia, Porto Alegre and Curitiba.
Telcom Ventures, LLC ("Telcom Ventures") and certain other entities
(together the "Telcom Group") own the remaining 19% equity interest in McCaw
Brazil. Telcom Ventures is the indirect majority shareholder of LCC
International, Inc., a leading wireless engineering consulting services firm,
and is owned by the family of Dr. Rajendra Singh and affiliates of the Carlyle
Group, a United States based principal investment firm.
The Company is currently in discussions with several large Brazilian
corporate groups regarding the possible sale of up to a 15% equity interest in
the Brazil Holding Company. The proceeds from the Brazil
33
<PAGE> 36
Equity Sale will be applied to the build-out of McCaw Brazil's ESMR network.
There can be no assurance that the Company will be able to consummate any such
transaction.
Argentina. In 1995, McCaw Argentina S.A. (formerly known as Com Control
Comunicacion Controlada, S.A.) purchased and obtained a license to operate 100
SMR channels in each of Buenos Aires, Cordoba, Rosario and Mendoza, the four
largest cities in Argentina. McCaw Argentina S.A. commenced commercial SMR
operations in February 1997. Following the Argentina Transaction, McCaw
Argentina became the largest SMR channel holder in Argentina, with twice as many
SMR channels as the second largest SMR operator. McCaw Argentina has 180 SMR
channels (9 MHz) in Buenos Aires, 200 SMR channels (10 MHz) in each of the three
other major cities and 20 additional SMR channels in each of Mar del Plata and
Tucuman. The Company's licenses cover over 17.6 million POPs. As part of the
Argentina Transaction, McCaw Argentina became the holder of a paging business
under a nationwide paging license. The Company and WVA each own 50% of McCaw
Argentina.
Mexico. Mobilcom was formed in 1993 by an affiliate of Grupo Comunicaciones
San Luis S.A. de C.V. ("Grupo San Luis") to pursue SMR opportunities in Mexico
and began commercial operations in September 1993. In March 1995, Nextel made
its first investment in Mobilcom by purchasing a 16.5% equity interest. During
the last two years, through a series of transactions, Nextel increased its
ownership interest in Mobilcom, as well as its involvement in the management of
Mobilcom and currently has the right to nominate a majority of the board of
directors of Mobilcom. The Company must invest substantial additional amounts in
Mobilcom to maintain such right. The Company currently owns a 48.1% equity
interest in Mobilcom. See "Risk Factors -- Contingent Capital Requirements."
Mobilcom is the leading SMR provider in Mexico and offers, through its
subsidiaries and management agreements, SMR services throughout Mexico,
including in its three largest cities, and along a number of important highways.
The cities in which Mobilcom holds SMR licenses include Mexico City (with a
total of 204 channels representing approximately 10 MHz), Guadalajara (with a
total of 60 channels representing approximately 3 MHz) and Monterrey (with a
total of 25 channels representing approximately 1.25 MHz). The Company's
licenses cover over 42 million POPs.
The Company's strategic partners in Mobilcom include Grupo San Luis, which
currently owns 21% of Mobilcom, Wireless Ventures of Mexico, Inc. ("WVM"), a
wholly owned subsidiary of Telcom Ventures, which owns approximately 11.6% and
Associated SMR, Inc. ("Associated SMR"), an international operator of wireless
communications systems, which owns approximately 11.3%. The Company has options
to acquire up to an additional 29.5% of Mobilcom, which expire on March 3, 1998.
Philippines. In June 1996, McCaw International acquired a 30% equity
interest in Infocom. Infocom owns nationwide licenses (with a total of 100
channels representing approximately 5 MHz), covering more than 67 million POPs,
to provide SMR, ESMR and paging services. Infocom began commercial service of
its paging network in February 1995 under the brand name "Infopage" and plans to
launch commercial iDEN-based ESMR services by the end of 1997.
The Company's partners in Infocom include the Gotesco Group, a leading
diversified conglomerate engaged in retail, real estate, banking, manufacturing
and trading in the Philippines headed by Jose C. Go, which owns a 20% interest
in Infocom. Affiliates of American International Group Inc. (collectively "AIG")
recently purchased a 10% interest in Infocom from an existing Infocom
shareholder at a significantly higher implied valuation than that paid by the
Company for its interest in Infocom. Other shareholders include a 32% holder and
an 8% holder.
Shanghai. The Company has a contractual right to receive 25.2% of the
profits generated by the Shanghai GSM System operated by China United
Telecommunications, Ltd. ("Unicom") through its Shanghai branch ("Shanghai
Unicom"). The Company's interest in the Shanghai GSM System is held through its
60% equity interest in a Chinese joint venture, Shanghai McCaw
Telecommunications Co. Ltd. ("Shanghai McCaw"). Shanghai McCaw participates in
the Shanghai GSM System through a profit-sharing arrangement (the "Unicom
Agreement") between Unicom and Shanghai Science & Technology Investment Corp.
Ltd. ("SSTIC"), the Company's 40% partner in Shanghai McCaw. SSTIC is also a
shareholder of Unicom. The
34
<PAGE> 37
Shanghai GSM System covers the greater Shanghai area, which is comprised of more
than 14 million POPs. The Company's interest in the Shanghai GSM System has been
structured as a profit-sharing arrangement because current Chinese laws prohibit
a foreign party from direct participation in the ownership and operation of
telecommunications systems. The Company made its investment in Shanghai McCaw in
1995. In addition to its equity investment, the Company loaned Shanghai McCaw a
portion of the funds necessary to fund the Shanghai GSM System. At December 31,
1996, the outstanding balance of this loan was $10.5 million. On March 29, 1997,
the arrangements under the Unicom Agreement were modified pursuant to the China
Unicom Shanghai GSM Phase III Cooperation Agreement (the "Phase III Agreement")
between Unicom and Shanghai McCaw. The Phase III Agreement requires Shanghai
McCaw to provide 60% of the funds required to expand the Shanghai GSM System.
The profit sharing arrangements under the Unicom Agreement were retained for a
period until the date the 50,001st subscriber is activated and are, thereafter,
subject to change as provided in the Phase III Agreement. See
"Business -- Operations and Investments -- Corporate Governance -- China."
Unicom was established in 1994 by the Ministry of Electronics Industry, the
Ministry of Railways, the Ministry of Power and 13 other shareholders including
SSTIC. SSTIC is an investment holding company established by the Municipal
Government of Shanghai, six major Shanghai banks as well as two major
diversified Shanghai conglomerates for the purpose of developing the Shanghai
high-technology industry.
Canada. The Company owns 1,596,067 shares of common stock of Clearnet, a
Nasdaq-listed company, representing approximately 3.7% of the outstanding common
stock of Clearnet. On June 30, 1997 the Company's Clearnet common stock had a
market value of approximately $19 million. Clearnet is the largest SMR operator
in Canada as measured by the number of current subscribers, the number of 800
MHz channels and the number of POPs it covers. Additionally, Clearnet holds one
of the two national 30 MHz licenses to provide PCS in Canada. Clearnet currently
offers SMR services in more than 40 cities throughout Canada and ESMR services
in Ontario and Quebec. Clearnet plans to launch its PCS network in Canada's
largest urban centers in 1997. The Company has one representative on Clearnet's
board of directors.
Nextel made its initial investment in Clearnet in October 1994. The shares
of Clearnet contributed to the Company by NIC were the maximum number of shares
Nextel was permitted to transfer at that time under certain agreements relating
to its indebtedness. Nextel continues to hold approximately 15.6% of Clearnet
and also has one representative on the board of directors of Clearnet.
On June 26, 1997, Nextel announced that it received the consent of the
holders of its public notes regarding certain amendments to the indentures
governing such notes. The Nextel noteholders agreed, among other things, to
permit Nextel to transfer its equity interest in Clearnet to McCaw
International. If Nextel effects such transfer, McCaw International will hold an
aggregate of 8,373,845 shares of Clearnet, representing approximately 19% of the
outstanding common stock of Clearnet, which represents a 1.7% voting interest.
As of June 30, 1997, based on the closing price of Clearnet stock on the Nasdaq
Stock Market, Nextel's equity interest in Clearnet had a market value of
approximately $82 million. Although Nextel is permitted to transfer its interest
in Clearnet to the Company, there can be no assurance that Nextel will effect
such transfer or, should such transfer occur, that the market value of Nextel's
equity interest in Clearnet on the date of any such transfer will not be less
than the market value of such equity interest as of June 30, 1997.
Nextel Investment Company. On February 28, 1997, NIC was merged with an
indirect wholly owned subsidiary of the Company, with NIC as the surviving
corporation. Prior to the consummation of the merger, NIC held approximately 38%
of Mobilcom, 3.7% of Clearnet, a note receivable related to Mobilcom and cash
and short-term investments at December 31, 1996 of $52.9 million. Prior to
consummation of the merger, the cash and short-term investments were distributed
to Nextel.
The Company's principal executive and administrative offices are located at
1191 Second Avenue, Suite 1600, Seattle, Washington 98101 and its telephone
number at that location is (206) 749-8000.
35
<PAGE> 38
NO CASH PROCEEDS TO THE COMPANY
This Exchange Offer is intended to satisfy certain obligations of the
Company under the Registration Rights Agreement. The Company will not receive
any proceeds from the issuance of the Exchange Notes offered hereby and has
agreed to pay the expenses of the Exchange Offer. In consideration for issuing
the Exchange Notes as contemplated in this Prospectus, the Company will receive,
in exchange, Private Notes representing an equal aggregate principal amount at
maturity. The form and terms of the Exchange Notes are identical in all material
respects to the form and terms of the Private Notes, except as otherwise
described herein under "The Exchange Offer -- Terms of the Exchange Offer." The
Private Notes surrendered in the exchange for Exchange Notes will be retired and
canceled and cannot be reissued. Accordingly, issuance of the Exchange Notes
will not result in any increase in the outstanding debt of the Company.
36
<PAGE> 39
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1997 on a (i) historical basis and (ii) pro forma basis to give effect
to the Argentina Transaction and the capital contribution that increased the
Company's interest in Mobilcom from 38% to 46.3% and the subsequent acquisition
of approximately 1.8% of Mobilcom. This table should be read in conjunction with
the Company's consolidated financial statements and the notes thereto, and the
pro forma consolidated financial statements appearing elsewhere in this
Prospectus. See "Pro Forma Consolidated Financial Statements" and the notes
thereto, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------------
ACTUAL(1) PRO FORMA
------------ ------------
(UNAUDITED)
<S> <C> <C>
Long-term debt:
Notes, net of original issue discount of $461,653,792........ $489,909,208 $489,909,208
------------ ------------
Total long-term debt................................. 489,909,208 489,909,208
Stockholder's equity:
Common stock, without par value; 20,000,000 shares
authorized, 10,000,000 shares issued and outstanding
actual and 10,000,000 shares issued and outstanding pro
forma..................................................... 395,427,766 395,427,766
Accumulated deficit.......................................... (38,551,777) (38,551,777)
Unrealized gain on investments classified as
available-for-sale, net of tax............................ 1,215,500 1,215,500
------------ ------------
Total stockholder's equity........................... 358,091,489 358,091,489
------------ ------------
Total capitalization................................. $848,000,697 $848,000,697
=========== ===========
</TABLE>
- ---------------
(1) Under U.S. GAAP, approximately $14.8 million of the proceeds of the Initial
Offering has been allocated to the Warrants and approximately $485.2 million
of the proceeds has been allocated to the Notes.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Private Notes were sold by the Company on the Closing Date to the
Placement Agents pursuant to the Placement Agreement. The Placement Agents
subsequently sold the Private Notes to (i) "qualified institutional buyers"
("QIBs"), as defined in Rule 144A under the Securities Act ("Rule 144A"), in
reliance on Rule 144A, (ii) other investors in offshore transactions in reliance
on Regulation S under the Securities Act and (iii) a limited number of
institutional "accredited investors", as defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act. As a condition to the sale of the Private Notes,
the Company and the Placement Agents entered into the Registration Rights
Agreement on March 3, 1997. Pursuant to the Registration Rights Agreement, the
Company agreed that (i) it would use its bests efforts to cause to be filed with
the Commission within 60 days after the Closing Date an exchange offer
registration statement under the Securities Act with respect to the Exchange
Notes, (ii) to cause such Registration Statement to remain effective under the
Securities Act until the closing of the Exchange Offer and (iii) it would use
its best efforts to have the Exchange Offer consummated not later than 60 days
after the effective date of the Registration Statement. The Company agreed to
issue and exchange Exchange Notes for all Private Notes validly tendered and not
withdrawn before the Expiration Date of the Exchange Offer. A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The Registration Statement is
intended to satisfy the Company's obligations under the Registration Rights
Agreement.
37
<PAGE> 40
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Private
Notes validly tendered and not withdrawn prior to the Expiration Date.
The Company will issue Exchange Notes in exchange for an equal aggregate
principal amount at maturity of outstanding Private Notes validly tendered
pursuant to the Exchange Offer and not withdrawn prior to the Expiration Date.
Private Notes may be tendered only in integral multiples of $1,000 principal
amount at maturity.
The form and terms of the Exchange Notes are the same as the form and terms
of the Private Notes except that (i) the Exchange Notes will be registered under
the Securities Act and, therefore, the Exchange Notes will not bear legends
restricting the transfer thereof and (ii) holders of the Exchange Notes will not
be entitled to any of the registration rights of holders of Private Notes under
the Registration Rights Agreement, which rights will terminate upon the
consummation of the Exchange Offer. The Exchange Notes will evidence the same
indebtedness as the Private Notes (which they replace) and will be issued under,
and be entitled to the benefits of, the Indenture, which also authorized the
issuance of the Private Notes, such that both series of Notes will be treated as
a single class of debt securities under the Indenture.
As of the date of this Prospectus, approximately $951.5 million in
aggregate principal amount at maturity of the Private Notes was outstanding.
Only a registered holder of the Private Notes (or such holder's legal
representative or attorney-in-fact), as reflected on the records of the Trustee
under the Indenture may participate in the Exchange Offer. There will be no
fixed record date for determining registered holders of the Private Notes
entitled to participate in the Exchange Offer.
Holders of the Private Notes do not have any appraisal or dissenters'
rights under the Washington Business Corporation Act Law or the Indenture in
connection with the Exchange Offer. The Company intends to conduct the Exchange
Offer in accordance with the provisions of the Registration Rights Agreement and
the applicable requirements of the Securities Act and the rules and regulations
of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Private Notes
when, and if, the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Private Notes for the purposes of receiving the Exchange Notes from the
Company.
Holders who tender Private Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Private
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
September 5, 1997, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and mail to the registered
holders an announcement thereof, each prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Private Notes, (ii) to extend the Exchange Offer or (iii) if, in
the opinion of counsel for the Company, the consummation of the Exchange Offer
would violate any applicable law, rule or regulation or any applicable
interpretation of the staff of the Commission, to terminate or amend the
Exchange Offer by giving oral or written notice of such delay,
38
<PAGE> 41
extension, termination or amendment to the Exchange Agent. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof to the registered holders. If the
Exchange Offer is amended in a manner determined by the Company to constitute a
material change, the Company will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered holders, and
the Company will extend the Exchange Offer for a period of five to ten business
days, depending upon the significance of the amendment and the manner of
disclosure to the registered holders, if the Exchange Offer would otherwise
expire during such five to ten business day period.
Without limiting the manner in which the Company may choose to make a
public announcement of any delay, extension, amendment or termination of the
Exchange Offer, the Company shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will not bear interest prior to April 15, 2002. From and
after April 15, 2002, the Private Notes bear interest and the Exchange Notes
will bear interest, which will be payable in cash, at a rate of 13% per annum,
on each April 15 and October 15, commencing October 15, 2002 to holders of
record on the immediately preceding April 1 and October 1, respectively.
RESALE OF THE EXCHANGE NOTES
With respect to the Exchange Notes, based upon interpretations by the staff
of the Commission set forth in certain no-action letters issued to third
parties, the Company believes that a holder who exchanges Private Notes for
Exchange Notes in the ordinary course of business, who is not participating,
does not intend to participate, and has no arrangement with any person to
participate in a distribution of the Exchange Notes, and who is not an
"affiliate" of the Company within the meaning of Rule 405 of the Securities Act,
will be allowed to resell Exchange Notes to the public without further
registration under the Securities Act and without delivering to the purchasers
of the Exchange Notes a prospectus that satisfies the requirements of Section 10
of the Securities Act. However, if any holder acquires Exchange Notes in the
Exchange Offer for the purpose of distributing or participating in the
distribution of the Exchange Notes, such holder cannot rely on the position of
the staff of the Commission enumerated in certain no-action letters issued to
third parties and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction,
unless an exemption from registration is otherwise available. Each broker-dealer
that receives Exchange Notes for its own account in exchange for Private Notes
acquired by such broker-dealer as a result of market-making or other trading
activities must acknowledge that it will deliver a prospectus in connection with
any resale of Exchange Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of any Exchange Notes
received in exchange for Private Notes acquired by such broker-dealer as a
result of market-making or other trading activities. Pursuant to the
Registration Rights Agreement, the Company has agreed to make this Prospectus,
as it may be amended or supplemented from time to time, available to any such
broker-dealer that requests copies of such Prospectus in the Letter of
Transmittal for use in connection with any such resale for a period not to
exceed 180 days after the closing of the Exchange Offer. See "Plan of
Distribution."
PROCEDURES FOR TENDERING
Only a registered holder of Private Notes may tender such Private Notes in
the Exchange Offer. To tender in the Exchange Offer, a holder of Private Notes
must complete, sign and date the Letter of Transmittal, or a facsimile thereof,
have the signatures thereon guaranteed if required by the Letter of Transmittal,
and mail or otherwise deliver such Letter of Transmittal or such facsimile to
the Exchange Agent at the address set forth below under "-- Exchange Agent" for
receipt prior to the Expiration Date. In addition, either (i) certificates for
such Private Notes must be received by the Exchange Agent along with the Letter
of
39
<PAGE> 42
Transmittal, (ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Private Notes, if such procedure is available, into the
Exchange Agent's account at the Depository pursuant to the procedure for
book-entry transfer described below, must be received by the Exchange Agent
prior to the Expiration Date or (iii) the holder must comply with the guaranteed
delivery procedures described below.
The tender by a holder that is not withdrawn prior to the Expiration Date
will constitute an agreement among such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. DO NOT SEND THE LETTER OF TRANSMITTAL OR ANY PRIVATE
NOTES TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner(s) of the Private Notes whose Private Notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wish(es)(s) to tender should contact the registered holder
promptly and instruct such registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Private Notes, either make appropriate
arrangements to register ownership of the Private Notes in such owner's name or
obtain a properly completed bond power from the registered holder. The transfer
of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "-- Withdrawal of Tenders"), as the case may be, must be guaranteed
by an Eligible Institution (as defined below) unless the Private Notes tendered
pursuant thereto are tendered (i) by a registered holder who has not completed
the box titled "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be made by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution"
(within the meaning of Rule 17Ad-15 under the Exchange Act) that is a member of
one of the recognized signature guarantee programs identified in the Letter of
Transmittal (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Private Notes listed therein, such Private Notes must
be endorsed or accompanied by a properly completed bond power, signed by such
registered holder exactly as such registered holder's name appears on such
Private Notes.
If the Letter of Transmittal or any Private Notes are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
The Exchange Agent and the Depository have confirmed that any financial
institution that is a participant in the Depository's system may utilize the
Depository's Automated Tender Offer Program to tender Private Notes.
40
<PAGE> 43
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Private Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Private
Notes not properly tendered or any Private Notes the Company's acceptance of
which would, in the opinion of counsel for the Company, be unlawful. The Company
also reserves the right to waive any defects, irregularities or conditions of
tender as to particular Private Notes. The Company's interpretation of the terms
and conditions of the Exchange Offer (including the instructions in the Letter
of Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Private Notes must be
cured within such time as the Company shall determine. Although the Company
intends to notify holders of defects or irregularities with respect to tenders
of Private Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Private Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived.
While the Company has no present plan to acquire any Private Notes that are
not tendered in the Exchange Offer or to file a registration statement to permit
resales of any Private Notes that are not tendered pursuant to the Exchange
Offer, the Company reserves the right in its sole discretion to purchase or make
offers for any Private Notes that remain outstanding subsequent to the
Expiration Date and, to the extent permitted by applicable law, purchase Private
Notes in the open market, in privately negotiated transactions or otherwise. The
terms of any such purchases or offers could differ from the terms of the
Exchange Offer.
By tendering, each holder of Private Notes will represent to the Company
that, among other things, (i) the Exchange Notes to be acquired by such holder
of Private Notes in connection with the Exchange Offer are being acquired by
such holder in the ordinary course of business of such holder, (ii) such holder
has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iii) such holder acknowledges and agrees
that any person who is participating in the Exchange Offer for the purposes of
distributing the Exchange Notes must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction of the Exchange Notes acquired by such person and cannot rely
on the position of the staff of the Commission set forth in certain no-action
letters, (iv) such holder understands that a secondary resale transaction
described in clause (iii) above and any resales of Exchange Notes obtained by
such holder in exchange for Private Notes acquired by such holder directly from
the Company should be covered by an effective registration statement containing
the selling security holder information required by Item 507 or Item 508, as
applicable, of Regulation S-K of the Commission and (v) such holder is not an
"affiliate," as defined in Rule 405 under the Securities Act, of the Company. If
the holder is a broker-dealer that will receive Exchange Notes for such holder's
own account in exchange for Private Notes that were acquired as a result of
market-making activities or other trading activities, such holder will be
required to acknowledge in the Letter of Transmittal that such holder will
deliver a prospectus in connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a prospectus, such holder will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
RETURN OF PRIVATE NOTES
If any tendered Private Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Private Notes are
withdrawn, such unaccepted, withdrawn or non-exchanged Private Notes will be
returned without expense to the tendering holder thereof (or, in the case of
Private Notes tendered by book-entry transfer into the Exchange Agent's account
at the Depository pursuant to the book-entry transfer procedures described
below, such Private Notes will be credited to an account maintained with the
Depository) as promptly as practicable.
41
<PAGE> 44
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Private Notes with the Depository for purposes of the Exchange Offer
within two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depository's systems may make
book-entry delivery of Private Notes by causing the Depository to transfer such
Private Notes into the Exchange Agent's account at the Depository in accordance
with the Depository's procedures for transfer. However, although delivery of
Private Notes may be effected through book-entry transfer at the Depository, the
Letter of Transmittal or facsimile thereof, with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received by the Exchange Agent at the address set forth below under
"-- Exchange Agent" on or prior to the Expiration Date or pursuant to the
guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Private Notes and (i) whose Private Notes
are not immediately available or (ii) who cannot deliver their Private Notes,
the Letter of Transmittal or any other required documents to the Exchange Agent
prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Company
(by facsimile transmission, mail or hand delivery) setting forth the
name and address of the holder and the certificate number(s) of such
Private Notes, stating that the tender is being made thereby and
guaranteeing that, within three business days after the Expiration
Date, the Letter of Transmittal (or a facsimile thereof), together with
the certificate(s) representing the Private Notes in proper form for
transfer or a Book-Entry Confirmation, as the case may be, and any
other documents required by the Letter of Transmittal, will be
deposited by the Eligible Institution with the Exchange Agent; and
(c) Such properly executed Letter of Transmittal (or facsimile thereof) as
well as the certificate(s) representing all tendered Private Notes in
proper form for transfer and all other documents required by the Letter
of Transmittal are received by the Exchange Agent within three business
days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Private Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time prior to the Expiration Date. To withdraw a tender of
Private Notes in the Exchange Offer, a written or facsimile transmission notice
of withdrawal must be received by the Exchange Agent at its address set forth
herein prior to the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Private Notes to be
withdrawn, (ii) identify the Private Notes to be withdrawn (including the
certificate number or numbers) and (iii) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which such
Private Notes were tendered (including any required signature guarantees). All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company, in its sole discretion, whose
determination shall be final and binding on all parties. Any Private Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer, and no Exchange Notes will be issued with respect thereto unless
the Private Notes so withdrawn are validly retendered. Properly withdrawn
Private Notes may be retendered by following one of the procedures described
above under "The Exchange Offer -- Procedures for Tendering" at any time prior
to the Expiration Date.
42
<PAGE> 45
TERMINATION OF CERTAIN RIGHTS
All registration rights under the Registration Rights Agreement accorded to
holders of the Private Notes (and all rights to receive additional interest on
the Notes to the extent and in the circumstances specified therein) will
terminate upon consummation of the Exchange Offer except with respect to the
Company's duty to keep the Registration Statement effective until the closing of
the Exchange Offer and, for a period of 180 days after the closing of the
Exchange Offer, to provide copies of the latest version of the Prospectus to any
broker-dealer that requests copies of such Prospectus in the Letter of
Transmittal for use in connection with any resale by such broker-dealer of
Exchange Notes received for its own account pursuant to the Exchange Offer in
exchange for Private Notes acquired for its own account as a result of
market-making or other trading activities.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand:
The Bank of New York (For Eligible Institutions Only) The Bank of New York
101 Barclay Street (212) 815-6339 101 Barclay Street
Floor 7 East New York, New York 10286
New York, New York 10286 Confirm by Telephone: (212) Attention: Ground Level
Attention: Reorganization Section 815-4146 Corporate Trust
Vincent J. Hingoor Services Window
</TABLE>
By Overnight Delivery:
The Bank of New York
101 Barclay Street
Floor 7 East
New York, New York 10286
Attention: Reorganization Section
Vincent J. Hingoor
The Bank of New York also serves as Trustee under the Indenture.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, facsimile transmission, telephone or in person by
officers and regular employees of the Company and their affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable, out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$500,000. Such expenses include registration fees, fees and expenses of the
Exchange Agent and the Trustee, accounting and legal fees and printing costs,
among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Private Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of the Private Notes pursuant to
the Exchange Offer, then the amount of any such transfer taxes (whether imposed
on the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
43
<PAGE> 46
CONSEQUENCE OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Private
Notes are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
Private Notes that are not exchanged for the Exchange Notes pursuant to the
Exchange Offer will remain "restricted securities" within the meaning of Rule
144(a)(3)(iv) of the Securities Act. Accordingly, such Private Notes may not be
offered, sold, pledged or otherwise transferred except (i) to a person whom the
seller reasonably believes is a "qualified institutional buyer" within the
meaning of Rule 144A under the Securities Act purchasing for its own account or
for the account of a qualified institutional buyer in a transaction meeting the
requirements of Rule 144A, (ii) in an offshore transaction complying with Rule
903 or Rule 904 of Regulation S under the Securities Act, (iii) pursuant to an
exemption from registration under the Securities Act provided by Rule 144
thereunder (if available), (iv) pursuant to an effective registration statement
under the Securities Act or (v) to institutional accredited investors in a
transaction exempt from the registration requirements of the Securities Act,
and, in each case, in accordance with all other applicable securities laws and
the transfer restrictions set forth in the Indenture.
ACCOUNTING TREATMENT
For accounting purposes, the Company will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the remaining term of the Notes.
44
<PAGE> 47
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following table sets forth certain selected financial and operating data
on a consolidated historical basis for the Company as of December 31, 1994, 1995
and 1996 and March 31, 1997, and for the years ended December 31, 1994, 1995 and
1996 and the three months ended March 31, 1996 and 1997. The selected
consolidated historical financial data of the Company as of and for the years
ended December 31, 1994, 1995 and 1996, with the exception of data presented
under Other Financial Data, were derived from the consolidated financial
statements and the notes thereto of the Company, which have been audited by
Deloitte & Touche LLP, independent auditors, whose report has been included
herein. The selected consolidated historical financial data of the Company for
the three months ended March 31, 1996 and as of and for the three months ended
March 31, 1997 are derived from the unaudited consolidated financial statements
of the Company. In the opinion of management, the unaudited consolidated
financial statements include all adjustments, consisting of normal recurring
accruals, that are necessary for a fair presentation of the financial position
and results of operations for these periods.
On January 1, 1997 and March 3, 1997, respectively, McCaw International
(Services), Ltd. (formerly Special Purpose Company No. 1) and McCaw
International (CANMEX), Ltd. (formerly Nextel Investment Company), both wholly
owned subsidiaries of Nextel, were merged into the Company. As these mergers
represent transfers between companies under common control, they have been
accounted for similar to poolings of interests; accordingly, the historical
financial statements for the periods presented prior to the mergers are restated
as though the companies had been combined from inception.
The selected consolidated historical financial data should be read in
conjunction with "Pro Forma Consolidated Financial Statements" and the notes
thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Company's consolidated financial statements,
including the notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ ---------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues......................................... $ -- $ -- $ -- $ -- $ 1,460,388
Costs and expenses related to revenues........... -- -- -- -- 956,585
Selling, general and administrative.............. -- 276,962 9,317,784 821,027 3,852,548
Depreciation and amortization.................... 2,033 18,647 168,401 7,860 2,580,572
------------ ------------ ------------ ----------- ------------
Operating loss................................... (2,033) (295,609) (9,486,185) (828,887) (5,929,317)
Interest income (expense), net................... 2,687,882 6,232,502 3,977,557 1,144,927 (2,793,354)
Loss from equity method investments.............. -- (6,853,064) (5,991,304) (1,269,300) (1,866,894)
Other, net....................................... -- (15,002,062) 378,580 (4,987) (157,616)
Minority interest................................ -- 437,594
------------ ------------ ------------ ----------- ------------
Income (loss) before income tax benefit
(provision).................................... 2,685,849 (15,918,233) (11,121,352) (958,247) (10,309,587)
Income tax benefit (provision)................... (913,846) (2,119,050) (1,354,862) (389,275) 499,304
------------ ------------ ------------ ----------- ------------
Net income (loss)................................ $ 1,772,003 $(18,037,283) $(12,476,214) $(1,347,522) $ (9,810,283)
============ ============ ============ =========== ============
Net income (loss) per share...................... $ 0.18 $ (1.80) $ (1.25) $ (0.13) $ (0.98)
Weighted average shares outstanding.............. 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000
CONSOLIDATED STATEMENT OF CASH FLOWS DATA:
Cash flows from operating activities............. $ 2,687,882 $ (6,063,660) $ (2,983,257) $ (226,340) $ (471,182)
Cash flows from investing activities............. (45,996,038) (47,895,909) (72,285,642) (4,701,413) (37,751,486)
Cash flows from financing activities............. 168,850,077 1,592,751 42,995,751 5,086,025 465,188,376
Capital expenditures............................. -- 36,056 8,817,644 167,950 6,192,982
Ratio of earnings to fixed charges(2)............ -- -- -- -- --
OTHER FINANCIAL DATA:
EBITDA(1)........................................ -- (22,132,088) (14,930,508) (2,095,314) (4,935,661)
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------- AS OF MARCH 31,
1994 1995 1996 1997
------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................................... $125,541,921 $ 85,302,423 $ 53,029,275 $ 479,994,983
Investment in unconsolidated subsidiaries..................... -- 47,951,335 98,981,700 124,025,593
Total assets.................................................. 171,535,926 169,675,457 199,367,315 942,591,012
Long-term debt................................................ -- -- -- 489,909,208
Minority interest............................................. -- -- -- 5,251,125
Stockholder's equity.......................................... 1,772,003 11,939,690 39,202,634 358,091,489
</TABLE>
- ---------------
(1) EBITDA consists of loss before interest expense, income tax benefit and
depreciation and amortization. EBITDA is provided because it is a measure
commonly used in the telecommunications industry. It is presented to enhance
an understanding of the Company's operating results and is not intended to
represent cash flow or results of operations for the periods presented.
EBITDA is not a measurement under U.S. GAAP and may not be similar to EBITDA
measures of other companies. See the Company's consolidated financial
statements and the notes thereto appearing elsewhere in this Prospectus.
(2) For the purpose of computing the ratio of earnings to fixed charges,
earnings consist of loss before income taxes, plus fixed charges, less
income (loss) from equity method investments. Fixed charges consist of
interest on all indebtedness, amortization of debt expense, and that portion
of rental expense which the Company believes to be representative of
interest. The deficiency (excess) for purposes of calculating the ratio of
earnings to fixed charges for the years ended December 31, 1996, 1995 and
1994, and the three months ended March 31, 1997 and 1996 was $11,121,352,
$15,918,233, $(2,685,849), $10,309,587 and $958,247, respectively.
45
<PAGE> 48
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements present
the historical consolidated balance sheets and statements of operations after
giving effect to the Transactions and the Initial Offering. The unaudited pro
forma consolidated balance sheet as of March 31, 1997 gives effect to the
Argentina Transaction, the capital contribution that increased the Company's
interest in Mobilcom from 38% to 46.3% and the subsequent acquisition of an
approximately 1.8% interest in Mobilcom for $3.2 million as if they had occurred
at March 31, 1997. The unaudited pro forma consolidated statements of operations
for the year ended December 31, 1996 and for the three months ended March 31,
1997 give effect to the Transactions and the Initial Offering as if they had
occurred on January 1, 1996. The following pro forma consolidated financial
statements have been derived from, and should be read in conjunction with, the
consolidated historical financial statements of the Company, Mobilcom and WVB
including the notes thereto, and the other financial and operating information
appearing elsewhere in this Prospectus. The pro forma adjustments are described
in the notes to the pro forma consolidated financial statements and investors
are encouraged to read such information carefully. The pro forma consolidated
financial statements are not necessarily indicative of the operating results or
financial position that would have been achieved by the Company, nor are they
indicative of the Company's future operating results or financial position.
The Transactions which the pro forma consolidated financial statements give
effect to include: (i) Nextel's acquisition on January 30, 1997 of an 81.0%
interest in WVB for $186.3 million in market value of Nextel Class A Common
Stock and the simultaneous contribution of such interest to the Company; (ii)
the Company's acquisition of an approximately 38% interest in Mobilcom for $76.9
million, the capital contribution that increased the Company's ownership
interest in Mobilcom from 38% to 46.3% and the subsequent acquisition of an
approximately 1.8% interest in Mobilcom for $3.2 million, which are accounted
for using the equity method; (iii) the Company's acquisition of a 30.0% interest
in Infocom which is accounted for using the equity method; (iv) the Argentina
Transaction; and (v) the pre-merger transfer to Nextel of NIC's assets and
liabilities not associated with the Company's investments in Mobilcom and
Clearnet.
PRO FORMA CONSOLIDATED BALANCE SHEET(1)
AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
COMPANY
(HISTORICAL) ARGENTINA(2) ADJUSTMENTS(3) PRO FORMA
------------ ------------ -------------- ------------
<S> <C> <C> <C> <C>
Total current assets.......................................... $487,065,277 $ (1,466,084) $(13,296,914)(5)(6) $472,302,279
Investment in unconsolidated subsidiaries..................... 124,025,593 18,524,706 14,296,914(5)(6) 156,847,213
Intangible assets -- net...................................... 271,776,869 (10,239,613) 261,537,256
Property, plant and equipment -- net.......................... 22,538,503 (9,057,182) 13,481,321
Other noncurrent assets....................................... 37,184,770 (2,334,462) (1,000,000)(5) 33,850,308
------------ ------------ -------------- ------------
Total noncurrent assets....................................... 455,525,735 (3,106,551) 13,296,914 465,716,098
Total assets.................................................. $942,591,012 $ (4,572,635) $ $938,018,377
=========== =========== ============ ===========
Total current liabilities..................................... $ 20,570,350 $ (4,572,635) $ $ 15,997,715
------------ ------------ -------------- ------------
Deferred income taxes and other............................... 68,768,840 68,768,840
Long-term debt................................................ 489,909,208 489,909,208
------------ ------------ -------------- ------------
Total noncurrent liabilities.................................. 558,678,048 558,678,048
------------ ------------ -------------- ------------
Total liabilities............................................. 579,248,398 (4,572,635) 574,675,763
Minority interest............................................. 5,251,125 5,251,125
Total stockholder's equity.................................... 358,091,489 358,091,489
------------ ------------ -------------- ------------
Total liabilities and stockholder's equity.................... $942,591,012 $ (4,572,635) $ $938,018,377
=========== =========== ============ ===========
</TABLE>
46
<PAGE> 49
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS(1)
THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
COMPANY WVB INITIAL
(HISTORICAL) (HISTORICAL)(9) ARGENTINA(2) NIC OFFERING(4) ADJUSTMENTS(3)
------------ --------------- ------------ --------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Revenues............ $ 1,460,388 $ 1,136,959 $ (54,570) $ $ $
Costs and expenses
related to
revenues.......... 956,585 592,513 (22,856)
Selling, general and
administrative.... 3,852,548 736,427 (569,923)
Depreciation and
amortization...... 2,580,572 453,172 (176,442) 219,770(10)
678,898(11)
------------ --------------- ------------ --------- ------------ --------------
Operating loss...... (5,929,317) (645,153) 714,651 (898,668)
Interest expense,
net............... (2,793,354) (211,223) (183,176)(18) (14,705,089)(14)
Income (loss) from
equity method
investments....... (1,866,894) (810,468) (201,144)(13)
(301,608)(15)
Other, net.......... (157,616) 48,542 1,874
Minority interest... 437,594 109,013(8)
------------ --------------- ------------ --------- ------------ --------------
Loss before income
tax benefit....... (10,309,587) (807,834) (93,943) (183,176) (14,705,089) (1,292,407)
Income tax
benefit........... 499,304 115,220 224,036(17)
------------ --------------- ------------ --------- ------------ --------------
Net loss............ $ (9,810,283) $ (692,614) $ (93,943) $(183,176) $(14,705,089) $ (1,068,371)
=========== ============ ========== ========= =========== ============
Net loss per
share............. $ (0.98)
Weighted average
shares
outstanding....... 10,000,000
<CAPTION>
PRO FORMA
------------
<S> <C>
Revenues............ $ 2,542,777
Costs and expenses
related to
revenues.......... 1,526,242
Selling, general and
administrative.... 4,019,052
Depreciation and
amortization......
3,755,970
------------
Operating loss...... (6,758,487)
Interest expense,
net............... (17,892,842)
Income (loss) from
equity method
investments.......
(3,180,114)
Other, net.......... (107,200)
Minority interest... 546,607
------------
Loss before income
tax benefit....... (27,392,036)
Income tax
benefit........... 838,560
------------
Net loss............ $(26,553,476)
===========
Net loss per
share............. $ (2.66)
Weighted average
shares
outstanding....... 10,000,000
</TABLE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS(1)
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMPANY WVB INITIAL
(HISTORICAL) (HISTORICAL)(9) ARGENTINA(2) NIC OFFERING(4) ADJUSTMENTS(3)
------------ --------------- ------------ ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Revenues............ $ $ 14,212,379 $ $ $ $
Costs and expenses
related to
revenues.......... 9,589,401
Selling, general and
administrative.... 9,317,784 13,019,232 (2,723,044)
Depreciation and
amortization...... 168,401 5,277,024 (15,653) 2,637,246(10)
8,146,778(11)
------------ --------------- ------------ ----------- ------------ --------------
Operating loss...... (9,486,185) (13,673,278) 2,738,697 (10,784,024)
Interest expense,
net............... 3,977,557 (2,636,127) 70,109 (4,018,717)(18) (72,024,327)(14)
Income (loss) from
equity method
investments....... (5,991,304) (3,200,795) (337,885)(12)
(1,541,505)(13)
(3,298,223)(15)
83,890(16)
Other, net.......... 378,580 122,909 7,683
Minority interest... 2,919,168(8)
------------ --------------- ------------ ----------- ------------ --------------
Loss before income
tax benefit....... (11,121,352) (16,186,496) (384,306) (4,018,717) (72,024,327) (12,958,579)
Income tax benefit
(expense)......... (1,354,862) (556,202) 2,688,437(17)
------------ --------------- ------------ ----------- ------------ --------------
Net loss............ $(12,476,214) $ (16,742,698) $ (384,306) $(4,018,717) $(72,024,327) $(10,270,142)
=========== ============ ========== ========== =========== ============
Net loss per
share............. $ (1.25)
Weighted average
shares
outstanding....... 10,000,000
<CAPTION>
PRO FORMA
-------------
<S> <C>
Revenues............ $ 14,212,379
Costs and expenses
related to
revenues.......... 9,589,401
Selling, general and
administrative.... 19,613,972
Depreciation and
amortization......
16,213,796
-------------
Operating loss...... (31,204,790)
Interest expense,
net............... (74,631,505)
Income (loss) from
equity method
investments.......
(14,285,822)
Other, net.......... 509,172
Minority interest... 2,919,168
-------------
Loss before income
tax benefit....... (116,693,777)
Income tax benefit
(expense)......... 777,373
-------------
Net loss............ $(115,916,404)
============
Net loss per
share............. $ (11.59)
Weighted average
shares
outstanding....... 10,000,000
</TABLE>
(footnotes on next page)
47
<PAGE> 50
- ---------------
The following table summarizes the purchase price for each business
acquired, the percentage ownership acquired and the preliminary allocation of
the purchase price to the significant net assets acquired (in $ millions):
<TABLE>
<CAPTION>
MCCAW
INTERNATIONAL NET OPERATING
ENTITY ACQUIRED OWNERSHIP % PURCHASE PRICE ASSETS (LIABILITIES) LICENSES GOODWILL
- ----------------- ----------- -------------- -------------------- -------- --------
<S> <C> <C> <C> <C> <C>
WVB.............. 81.0% $187.2(a) $(76.5) $210.9 $ 52.8
</TABLE>
- ---------------
(a) Includes 11,964,000 shares of Nextel common stock valued at
$186.3 million.
(1) For purposes of conforming the presentation of the pro forma consolidated
financial statements, certain historical amounts have been summarized.
(2) Gives effect to the Argentina Transaction and the subsequent change in
accounting to the equity method.
(3) Adjustments to give effect to the Transactions as described.
(4) Adjustments to give effect to the Initial Offering.
(5) Reflects capital contribution that increased the Company's interest in
Mobilcom from 38% to 46.3%. Consists of a $10.1 million cash contribution
funded from current assets and a $1.0 million conversion of a note
receivable.
(6) Reflects the cash payment of $3.2 million to acquire 1.8% of Mobilcom,
thereby increasing the Company's ownership interest to 48.1%.
(7) Not used.
(8) Gives effect to the recognition of the 19% minority interest attributable
to the Company's consolidation of WVB.
(9) Represents historical results of WVB prior to the acquisition on January
30, 1997.
(10) Gives effect to the amortization of goodwill of $52.8 million recognized,
on a preliminary basis pending determination of the effects on the
Company's Brazilian deferred tax assets of planned changes in the Company's
legal structure, in the WVB acquisition over 20 years. Such changes are
dependent on obtaining approval from Brazilian regulatory agencies.
(11) Gives effect to the amortization of licenses of $210.9 million acquired, on
a preliminary basis pending determination of the effects on the Company's
Brazilian deferred tax assets of planned changes in the Company's legal
structure, in the WVB acquisition over 20 years. Such changes are dependent
on obtaining approval from Brazilian regulatory agencies.
(12) Gives effect to the amortization of excess purchase price over net assets
acquired of $16.2 million in the Infocom investment over 20 years.
(13) Gives effect to the amortization of excess purchase price over net assets
acquired of $109.1 million in the Mobilcom investments over 20 years.
(14) Interest expense has been adjusted for the year ended December 31, 1996 and
the three months ended March 31, 1997 to include approximately $72.0
million and $14.7 million, respectively, consisting of (i) interest on the
Notes and (ii) amortization of the offering costs and other related fees of
$16.8 million attributable to the Notes using an amortization period of ten
years. No adjustment has been made to include interest income earned on the
net proceeds from the Initial Offering pending their application in the
Company's capital expenditure program.
(15) Gives effect to the equity earnings associated with the Company's
approximately 48.1% investment in Mobilcom.
(16) Gives effect to the equity earnings associated with the Company's 30%
investment in Infocom.
(17) Gives effect to the tax benefit derived from the amortization of licenses
obtained in the WVB acquisition.
(18) Represents elimination of net interest income attributable to assets
transferred to Nextel prior to NIC's merger with the Company.
48
<PAGE> 51
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and the notes thereto and the
pro forma financial information appearing elsewhere in this Prospectus.
OVERVIEW
GENERAL
McCaw International is a leading wireless communications services company
based on the number of people and the number of SMR channels in its licensed
service areas. The Company provides wireless communications services in the four
largest cities in Latin America and two of the largest cities in Asia. The
Company's markets cover approximately 230 million POPs, approximately 120
million of which are in Latin America. McCaw International is the largest SMR
service provider in Brazil and Mexico, and holds the largest SMR channel
position in Argentina. McCaw International's strategy is focused on leveraging
its leading analog dispatch or SMR channel positions in its principal markets
and using Nextel's experience and supplier relationships to upgrade its services
from analog dispatch to ESMR services. The upgrade to digital networks will
allow the Company to increase capacity significantly and to offer additional
services and features such as enhanced dispatch (group calling and instant
conferencing), high-quality telephone interconnect and text messaging.
On January 1, 1997 and March 3, 1997, respectively, McCaw International
(Services), Ltd. (formerly Special Purpose Company No. 1 ("SPC#1")) and McCaw
International (CANMEX), Ltd. (formerly Nextel Investment Company ("NIC")), both
wholly owned subsidiaries of Nextel, were merged into the Company. As these
mergers represent transfers between companies under common control, they have
been accounted for in a manner similar to poolings of interests; accordingly,
the historical financial statements reflect the combined financial position and
results of operations of the Company, SPC#1 and NIC (collectively referred to as
the "Company") for all periods presented.
As of December 31, 1996, the Company owned 100% of McCaw Argentina, 30.1%
of Mobilcom, 3.7% of Clearnet, 30% of Infocom and the right to receive 25.2% of
the profits of the Shanghai GSM System. Accordingly, at December 31, 1996, the
Company's consolidated financial statements consolidate the accounts of the
Company and McCaw Argentina. The Company's 30.1% interest in Mobilcom and 30%
interest in Infocom are accounted for using the equity method. The Company's
3.7% investment in Clearnet is considered an investment in marketable securities
and is reflected at fair market value, and the Company's right to receive 25.2%
of the profits of the Shanghai GSM System is accounted for using the cost
method. Upon consummation of the Argentina Transaction on May 6, 1997, the
Company's ownership interest in McCaw Argentina was reduced to 50%. Under U.S.
GAAP in effect on the date thereof, McCaw Argentina will be accounted for under
the equity method.
On January 30, 1997, Nextel acquired 81% of WVB, a Brazilian SMR provider,
and concurrently contributed the interest to the Company. Accordingly, the
Company's pro forma financial statements consolidate and the Company's
historical financial statements for 1997 and thereafter will consolidate, McCaw
Brazil.
As of April 30, 1997, the Company owned approximately 46.3% of the
outstanding equity of Mobilcom. On June 30, 1997, the Company increased its
ownership interest in Mobilcom to 48.1%. Beginning on October 24, 1997 and for a
two-year period thereafter, pursuant to the Mobilcom Put, holders of
approximately 28.4% of the outstanding capital stock of Mobilcom have the right
to put such stock to the Company at its fair market value upon the occurrence of
certain events. Additionally, the Company initiated the Mobilcom Share Purchase
Offer, pursuant to which the Company offered to purchase, subject to the
execution of definite documents, all of the shares of Mobilcom held by the
holders of the Mobilcom Put. In addition, the Company has options to acquire up
to an additional 29.5% of Mobilcom, which expire on March 3, 1998 (collectively,
the "Mobilcom Options"). To the extent the Mobilcom Share Purchase Offer is
consummated or Mobilcom
49
<PAGE> 52
Put or the Mobilcom Options are exercised and the Company thereafter owns more
than 50% of the equity of Mobilcom, Mobilcom would be consolidated for
accounting purposes. There can be no assurance that either of the foregoing
transactions will occur. See "Risk Factors -- Contingent Capital Requirements."
REVENUES
The Company derives its revenues primarily from (i) activation fees, which
are the initial charges paid by a new subscriber for service, (ii) monthly fixed
access charges, which vary depending on the plan chosen by the subscriber, (iii)
airtime charges, which are billed based on usage, (iv) monthly rental charges,
which are derived from the leasing of wireless equipment, (v) the sale of
handsets to subscribers and (vi) in certain markets, various local taxes and
fees which are passed on to customers. The Company sets the pricing of the
different components of its services in accordance with its marketing plan in
each of the countries in which it operates, taking into account, among other
things, competitive factors. Usage revenues are accrued for during the month
incurred and billed at the end of the monthly billing cycle. Rental fee revenues
and monthly fixed access charges are billed in advance and recognized in the
period service was delivered. Equipment sales are recognized at the time of
sale.
In general, revenue per subscriber is higher in the Company's markets than
in the United States. In 1995 the average monthly SMR revenue per subscriber in
the United States was approximately $16 compared to $45 in the Company's Latin
American markets. In 1995 the average monthly cellular revenue per subscriber in
the United States was approximately $51 compared to $90 in the Company's markets
($90 represents the combined average monthly cellular bill for Argentina,
Brazil, China, Mexico and the Philippines). In part, this is due to the poor
quality of landline service and unsatisfied demand for telephony services
generally found in emerging markets. In many emerging markets, including most of
those in which the Company has operations, wireless service is often used as a
substitute for landline service, which increases the relative usage per
subscriber and the revenue per subscriber. As the Company upgrades its existing
networks to ESMR networks and begins to offer enhanced services and features, it
expects increased revenue per subscriber. Over time, the Company expects such
increases will be partially offset by a decline in rates resulting from
increased competition and lower average usage per subscriber.
By principally targeting business customers, the Company believes it
experiences lower customer turnover, acquisition costs per subscriber and bad
debt expense and a generally more stable customer base than if it targeted
customers in the general population. In addition, customers using the Company's
iDEN-based ESMR systems will be required to have ESMR handsets which will not be
compatible with a cellular system. The Company believes that the cost of
switching to a competing cellular service may also result in lower turnover.
In some of the Operating Companies, however, the Company has experienced
relatively high rates of churn and bad debt expenses. However, the Company has
taken a number of steps to reduce these levels including tightening the credit
screening process, instituting the requirement of longer term contracts and
formulating more aggressive collection processes.
The Company expects the revenues of the Operating Companies to increase
significantly over the next few years due to the following factors: (i) the
launch of commercial SMR service in Argentina in February 1997, (ii) the
continued expansion of the nationwide paging service acquired as part of the
Argentina Transaction and (iii) the planned launch of commercial ESMR services
in the Philippines by the end of 1997, in Brazil in the first quarter of 1998,
and in Argentina and Mexico later in 1998. In addition, as the Company upgrades
its existing networks to ESMR networks, it anticipates its revenues will
increase substantially due to the large increase in subscriber capacity that
results from ESMR and the expected increase in average revenue per subscriber
that results from the Company's ability to offer enhanced services and features.
The Company is subject to the laws and regulations governing
telecommunication services in effect in each of the countries in which it
operates. These laws and regulations cover, among other things, the number of
licenses that can be used in any one service area by affiliated companies, the
construction and loading requirements necessary to retain a license, the number
of telephone numbers that can be assigned to an
50
<PAGE> 53
individual licensee and the rights of a licensee to interconnect with a public
telecommunications network. Each of these factors can have a significant
influence on the Company's ability to generate revenues and are subject to
change by the governmental agency responsible for determining the laws and
regulations in the respective countries. The Company cannot predict what future
laws and regulations might be passed that could have a material effect on the
Company's results of operations. The Company assesses the impact of significant
changes in laws and regulations on a regular basis.
COSTS AND EXPENSES RELATED TO REVENUES
Costs and expenses related to revenues include both the cost of service and
the cost of sales. Cost of service represents the cost of maintaining networks,
interconnection charges, site lease costs, technical expenses and utilities. The
Company anticipates the cost of service will increase with the expansion of its
wireless networks. However, as a percentage of revenue, the Company anticipates
that cost of service will decrease over time as a result of economies of scale
in operations and efficiencies achieved through digital technology. Cost of
sales represents the cost of equipment sold or leased. As the Company expands,
its business will experience an overall increase in cost of sales offset in part
by a decrease in the cost of handsets and other wireless communications
equipment. Cost of sales as a percentage of revenue are expected to decrease
over time as a result of the expected decrease in the cost of handsets and other
wireless communications equipment.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
At the corporate level, selling, general and administrative expenses
consist primarily of compensation expenses and to a lesser extent include
expenses such as rent, professional fees and other general corporate expenses.
At the Operating Company level, selling, general and administrative expenses
consist primarily of customer acquisition costs, advertising and to a lesser
degree, salaries and office expenses. On a historical basis, substantially all
of selling, general and administrative expenses have been incurred at the
corporate level. As the consolidated Operating Companies expand their wireless
communications networks and add subscribers, the Company expects a larger
portion of selling, general and administrative expenses to be incurred at the
Operating Company level. The Company expects selling, general and administrative
expenses to increase over time as it continues to expand its operations. As a
percentage of revenues, however, the Company expects these expenses will
decrease as a result of anticipated revenue growth as the number of subscribers
increases.
The Company is billed directly on a monthly basis by landline telephone
companies for interconnect services and by various governments for taxes. The
Company bills its subscribers for these charges and is responsible for
collecting the charges from them. Many of the countries in which the Company
operates do not have established credit bureaus, thereby making it more
difficult for the Company to ascertain the creditworthiness of potential
customers. Accordingly, the Company experiences a relatively high level of bad
debt expense in most of its markets. In particular, the Company's bad debt
expense as a percentage of revenue and customer turnover in Brazil and Mexico
have been significantly higher than that in the Company's other markets.
DEPRECIATION AND AMORTIZATION
Historically, the Company's depreciation and amortization expense has been
primarily attributable to the depreciation of property, plant and equipment at
its corporate headquarters. As a result of the acquisition of WVB, the Company
expects depreciation and amortization to increase significantly. In particular,
licenses and goodwill totaling $263.7 million has been recognized in this
transaction and will be amortized over 20 years using the straight-line method.
INTEREST INCOME (EXPENSE), NET
Interest income represents income earned on notes receivable and cash and
cash equivalents. Interest income is expected to increase in future periods as
the approximately $482 million of Initial Offering proceeds
51
<PAGE> 54
are invested. Historically, interest expense has consisted of amounts payable on
notes payable to Nextel. Interest expense is expected to increase significantly
in future periods as a result of the Initial Offering.
LOSS FROM EQUITY METHOD INVESTMENTS
Loss from equity method investments represents the Company's proportionate
share of net income or loss from its investments in companies of which it owns
between 20% and 50%. As of December 31, 1996, loss from equity method
investments consisted of the Company's proportionate share of net income or loss
from its 30.1% interest in Mobilcom and 30% interest in Infocom. After the
Argentina Transaction, consummated on May 6, 1997, loss from equity method
investments will include the Company's 50% interest in McCaw Argentina. Loss
from equity method investments also includes amortization of the excess purchase
price over net assets acquired in its investments in entities accounted for
under the equity method.
OTHER, NET
Other, net is comprised of both other income and other expenses. Other
income consists of fees received by the Company for management services provided
to Shanghai McCaw and Infocom and salary and expense reimbursement for the
Company's employees who are working at Infocom. In 1995, other expenses included
a $15.0 million charge to operations representing an other than temporary
decline in its Mobilcom investment as a result of the decline in the Mexican
Peso.
MINORITY INTEREST
Minority interest represents the 19% interest in McCaw Brazil not owned by
the Company.
INCOME TAX BENEFIT (PROVISION)
The Company is subject to income taxes in the United States and in each of
the jurisdictions in which it operates. In the United States, the Company is
included in the consolidated tax return of Nextel; however, the tax accounts are
stated as if the Company filed a separate return.
In the periods prior to the Company's merger with NIC, the Company was
precluded from recognizing income tax benefits associated with its U.S. net
operating losses because it was not reasonably certain that the Company would
generate taxable income. Historically on a stand-alone basis, NIC generated
taxable income from the interest earned on its investments of cash and cash
equivalents. As accounting rules related to the pooling-of-interest method of
accounting preclude the offsetting of the Company's historical net operating
losses against NIC's historical taxable income, the Company has recognized only
the NIC income tax expense in the combined financial statements presented prior
to the merger date. Subsequent to the merger occurring in the first quarter of
1997, the Company is allowed to combine the tax attributes of the merged
companies. As the combined enterprise expects to continue recognizing U.S. net
operating losses in the foreseeable future, no U.S. income tax benefits are
expected to be realized until the Company generates taxable income.
Subsequent to the acquisition of WVB, the Company recognized income tax
benefit related to its operations in Brazil. Certain of the Brazilian
subsidiaries have taxable temporary differences allowing for the recognition of
the tax benefits derived from net operating losses. The Company expects that the
tax benefits from net operating losses in these Brazilian subsidiaries will
continue to be recognized in its financial statements throughout 1997.
HISTORICAL RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
The Company acquired WVB on January 30, 1997 and commenced commercial SMR
operations in Argentina in February 1997. Accordingly, there were no revenues or
costs and expenses related to revenues in the three months ended March 31, 1996.
For the first quarter of 1997, substantially all of the revenues and costs and
expenses related to revenues result from the two months of Brazilian SMR
operations included in the Company's consolidated financial statements.
52
<PAGE> 55
Selling, general and administrative expenses increased $3.0 million to $3.9
million for the three months ended March 31, 1997 from $0.8 million for the
three months ended March 31, 1996. Approximately $2.0 million of the increase is
attributable to the WVB operations which have been included in the Company's
consolidated results of operations commencing January 30, 1997. The remaining
increase can be attributed to a $0.5 million increase in Argentina start-up
costs and a $0.4 million increase in staffing and expenses associated with the
corporate oversight function.
Depreciation and amortization increased to $2.6 million for the three
months ended March 31, 1997 from $0.0 million for the three months ended March
31, 1996. Approximately $2.4 million of the increase is attributable to the
amortization of licenses and goodwill recognized in the acquisition of WVB. The
remaining increase is due to $0.2 million of amortization of licenses in
Argentina which commenced commercial operations in February, 1997.
Interest income increased $1.7 million to $2.8 million for the three months
ended March 31, 1997 from $1.1 million for the three months ended March 31,
1996. The increase was primarily attributable to income recognized on the
investment of the proceeds from the Initial Offering.
Interest expense of $5.6 million was recognized during the three months
ended March 31, 1997 of which $4.9 million represented accretion on the Initial
Offering and amortization of associated debt issue costs. Additionally, NIC
recognized $0.4 million of interest on a note payable to Nextel, and WVB
incurred approximately $0.3 million of interest on short term borrowings. No
interest expense was recognized during the three months ended March 31, 1996.
Loss from equity method investments increased $0.6 million to $1.9 million
for the three months ended March 31, 1997 from $1.3 million for the three months
ended March 31, 1996. The increase was primarily attributable to an increase in
amortization expense of $0.5 million of the excess purchase price over net
assets acquired in its Infocom and additional Mobilcom investments. The amount
of loss recognized in connection with the Company's investment in Mobilcom
increased $0.3 million to $0.8 million during the three months ended March 31,
1997 due to the increase in the Company's ownership percentage. Additionally,
during the three months ended March 31, 1997, the Company recognized $0.2
million in income from its 30% equity interest in Infocom that was acquired in
June, 1996.
Minority interest in the net loss of WVB totaled $0.4 million during the
three months ended March 31, 1997. The amount is attributable to the minority
shareholder's interest in WVB subsequent to the acquisition of an 81% interest
in WVB by the Company on January 30, 1997.
The Company recognized an income tax benefit of $0.5 million during the
three months ended March 31, 1997 compared to an income tax provision of $0.4
million during the three months ended March 31, 1996. The income tax benefit
recognized during the three months ended March 31, 1997 was primarily
attributable to net operating losses of Brazil allowed to be recognized due to
the existence of Brazilian taxable temporary differences. The income tax expense
recognized for the three months ended March 31, 1996 was primarily attributable
to the taxes associated with NIC's interest income.
YEAR ENDED DECEMBER 31, 1996 AND 1995
WVB was acquired in January, 1997 and commercial operations in Argentina
began in February, 1997. Accordingly, there were no revenues or costs and
expenses related to revenues for the years ended December 31, 1996 and 1995.
Selling, general and administrative expenses increased $9.0 million to $9.3
million for the year ended December 31, 1996 from $0.3 million for the year
ended December 31, 1995. The increase is attributable to $6.3 million of
additional expenses related to the increase in staffing and expenses associated
with the corporate oversight function, $1.3 million related to McCaw Argentina
start-up costs, and $1.4 million of inventory write-offs at McCaw Argentina.
53
<PAGE> 56
Depreciation and amortization expense increased to $0.2 million for the
year ended December 31, 1996 from $0.0 million for the year ended December 31,
1995. The increase is primarily attributable to depreciation from property,
plant and equipment associated with the corporate oversight function.
Interest income decreased $1.9 million to $4.3 million for the year ended
December 31, 1996 from $6.2 million for the year ended December 31, 1995. The
decrease is primarily due to lower amounts of cash and cash equivalents on hand
during 1996.
Interest expense of $0.3 million represents interest accrued on an
intercompany note payable to Nextel outstanding during the fourth quarter of
1996. No interest-bearing intercompany notes existed during 1995.
Loss from equity method investments decreased $0.9 million to $6.0 million
for the year ended December 31, 1996 from $6.9 million for the year ended
December 31, 1995. The decrease is primarily attributable to the net loss of
Mobilcom decreasing from $31.3 million for the year ended December 31, 1995 to
$11.8 million for the year ended December 31, 1996. The decrease in the net loss
of Mobilcom was partially offset by the Company's increase in ownership
percentage during 1996 and $1.3 million at additional amortization of the excess
purchase price over net assets acquired in its Infocom and additional Mobilcom
investments. The decrease in the net loss of Mobilcom was primarily due to
foreign currency exchange losses incurred in 1995 and interest expense
reductions during 1996.
Other, net consisted of income of $0.4 million for the year ended December
31, 1996 compared to expense of $15.0 million for the year ended December 31,
1995. Income recognized during 1996 primarily relates to amounts recognized
under technical services agreements with Infocom and Shanghai McCaw. Other
expenses recognized during 1995 consists primarily of a $15.0 million write down
of the Company's investment in Mobilcom, which represented an other than
temporary decline in value resulting from the decline in the Mexican Peso.
Income tax expense decreased $0.7 million to $1.4 million for the year
ended December 31, 1996 from $2.1 million for the year ended December 31, 1995.
The decrease in income tax expense is attributable to NIC's interest income
decreasing during 1996 as a result of lower amounts of cash and cash equivalents
on hand throughout the year.
YEAR ENDED DECEMBER 31, 1995 AND 1994
Selling, general and administrative expenses of $0.3 million for the year
ended December 31, 1995 represents the initial formation the Company's corporate
oversight function during the fourth quarter of 1995. No selling, general and
administrative expenses occurred in 1994 as the Company was an investment
holding entity prior to the establishment of the corporate oversight function.
Depreciation and amortization was insignificant during the years ended
December 31, 1995 and 1994.
Interest income increased $3.5 million to $6.2 million for the year ended
December 31, 1995 from $2.7 million for the year ended December 31, 1994. The
increase is primarily due to higher amounts of cash and cash equivalents on hand
during 1995.
Loss from equity method investments of $6.9 million for the year ended
December 31, 1995 is comprised of $2.4 million of amortization of the excess
purchase price over net assets acquired in its Mobilcom investment and $4.5
million of the Company's proportionate share of the net loss of Mobilcom, which
was acquired during 1995. No equity method investments existed during 1994.
Other expense recognized during 1995 consists primarily of a $15.0 million
write down of the Company's investment in Mobilcom which represented an other
than temporary decline in value resulting from the decline in the Mexican Peso.
Income tax expense increased $1.2 million to $2.1 million for the year
ended December 31, 1995 from $0.9 million for the year ended December 31, 1994.
The increase in income tax expense is attributable to NIC's interest income
increasing during 1995 as a result of lower amounts of cash and cash equivalents
on hand throughout the year.
54
<PAGE> 57
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred historical net losses of approximately $38.6
million since inception through March 31, 1997. These losses result from
expenditures required for the development of the Company's wireless
communications networks, other start-up costs and the fact that as of December
31, 1996 no consolidated revenues had been recorded. On a pro forma basis giving
effect to the Transactions and the Initial Offering, for the year ended December
31, 1996 and the three months ended March 31, 1997, the Company's EBITDA would
have been negative $25.8 million and negative $5.7 million, respectively. The
Company expects to continue to incur increasing losses and negative operating
cash flows as it continues to build-out and upgrade its existing wireless
communications networks. Through December 31, 1996, funds necessary to finance
the Company's activities have been provided to the Company primarily by its
parent, Nextel, in the form of equity contributions. Nextel is not obligated to
provide any additional funding to the Company.
Net cash used by operating activities for 1996 equaled $3.0 million. Net
cash used by investing activities equaled $72.3 million for 1996. Net cash
provided by financing activities equaled $43.0 million for 1996.
The Company currently estimates its proportionate share of funding
requirements at the Operating Companies for 1997 and 1998 to be approximately
$319 million and $187 million, respectively. These amounts consist primarily of
the purchase of switches and other equipment, the acquisition of cell sites, the
cost of constructing the network and operating losses. The Company currently
estimates that approximately $319 million of such requirements will be related
to expenditures in Brazil, $74 million in Argentina, $68 million in Mexico and
$18 million in the Philippines. The Company expects approximately $195 million
of the capital expenditures for equipment will be funded at the Operating
Company level through the Motorola Financing, however, the amount of borrowings
under the Motorola Financing that Nextel has agreed to make available to the
Company is limited to $95 million. Based on discussions with Nextel and
Motorola, the Company believes that it will be able to obtain sufficient funding
under the Motorola Financing to meet its business plan. The Company expects to
fund the balance of its requirements with the net proceeds from the Initial
Offering.
The Company's capital requirements may also be affected by arrangements the
Company has with other investors in the Operating Companies. In order to retain
the contractual right to designate a majority of the board of directors of
Mobilcom and a member of the Technology Committee of such board of directors,
the Company must have invested approximately $76.8 million in Mobilcom through
certain qualified capital transactions by March 1998. As of April 30, 1997, the
Company had invested approximately $64.9 million in such qualified capital
transactions. In addition, beginning on October 24, 1997, pursuant to the
Mobilcom Put, holders of approximately 28.4% of the outstanding capital stock of
Mobilcom have the right for two years to put the entire amount of their holdings
to the Company at its appraised fair market value for cash in the event of a
Mobilcom Put Event. As discussed below, however, the Company initiated the
Mobilcom Share Purchase Offer, pursuant to which the Company offered to
purchase, subject to the execution of definite documents, all of the shares of
Mobilcom held by the holders of the Mobilcom Put. The Mobilcom Put is
automatically exercisable on October 24, 1999 whether or not a Mobilcom Put
Event occurs. Valuation of Mobilcom for purposes of the Mobilcom Put will be
based on an appraisal by an investment bank, with the minimum appraisal for 100%
of Mobilcom equal to $150 million. To the extent such appraisal exceeds $250
million, 50% of such excess will be included in the valuation. In connection
with a capital call on June 7, 1996 Mobilcom shareholders purchased additional
shares of Mobilcom based on a $200 million valuation of Mobilcom (which valued
the Mobilcom Put at approximately $66 million). If the Company does not pay the
Minimum Amount and to the extent the Company does not otherwise acquire a
majority of the outstanding capital stock of Mobilcom, the Company will lose its
right to designate a majority of the board of directors of Mobilcom and a member
of the Technology Committee and its ability to block certain significant actions
of Mobilcom. The Company has the option to purchase, before March 3, 1998, up to
an additional 29.5% of Mobilcom's common stock. To the extent the Company owns a
majority of the voting stock in Mobilcom after giving effect to the exercise of
the Mobilcom Put, the Company will not be affected by the failure to have
invested the Minimum Amount by March 1998 since its equity ownership will
entitle it to elect a majority of the board of directors of Mobilcom. As of June
30, 1997, the Company owned approximately 48.1% of the voting stock of Mobilcom.
55
<PAGE> 58
On February 26, 1997, Mobilcom shareholders approved the $27 million
Mobilcom Capital Call. Nextel funded the Company's pro rata share of the
Mobilcom Capital Call (approximately $10 million) with a cash contribution.
Additionally, because not all of the Mobilcom shareholders funded their pro rata
share of the Mobilcom Capital Call, the Company had the opportunity to purchase
additional shares of Mobilcom by funding the unsubscribed portion of the
Mobilcom Capital Call (approximately $10 million). The Company thereby increased
its equity interest in Mobilcom from approximately 38% to approximately 46.3%.
The Company funded its purchase of the unsubscribed shares from the proceeds of
the Initial Offering. The funds from the Mobilcom Capital Call were used by
Mobilcom to satisfy certain overdue obligations (approximately $11 million), to
purchase the remaining 51% of Natel that Mobilcom does not own and to fund
operations. The Natel acquisition was consummated on April 16, 1997.
On July 11, 1997, the Company initiated the Mobilcom Share Purchase Offer,
pursuant to which the Company offered to purchase, subject to the execution of
definitive documents, all of the shares of Mobilcom held by the holders of the
Mobilcom Put for an aggregate purchase price of approximately $54 million. If
all such shareholders accept the Mobilcom Share Purchase Offer and if the
Company enters into definitive agreements with each such shareholder and
consummates the transactions contemplated by such offer, the Company's equity
interest in Mobilcom will increase from approximately 48.1% to approximately
76.5% and the Mobilcom Put will be terminated. The Mobilcom Share Purchase Offer
expires on August 11, 1997. As of July 31, 1997, shareholders representing
approximately 1.5% of the outstanding shares of Mobilcom had accepted the
Mobilcom Share Purchase Offer. The Company expects to consummate the Mobilcom
Share Purchase Offer with the shareholders who have accepted such offer by the
end of the third quarter of 1997 and intends to fund its purchase of the
Mobilcom shares from the net proceeds of the Initial Offering. The acquisition
of Mobilcom shares held by those parties that have accepted the Mobilcom Share
Purchase Offer is not expected to have a significant effect on the Company's
financial position or results of operations. There can be no assurance that the
Company will consummate the Mobilcom Share Purchase Offer.
The other shareholder in McCaw Brazil has the right between October 31,
2001 and November 1, 2003, to require McCaw Brazil to redeem such shareholder's
interest in McCaw Brazil at fair market value as determined pursuant to an
appraisal procedure.
The Company anticipates funding the Partner Contingencies with the net
proceeds of the Initial Offering, issuances of additional debt and equity
securities at the Company and Operating Company levels, future equity
investments in the Operating Companies by new local partners and capital
contributions from Nextel in the form of cash or Nextel common stock. Nextel has
no obligation to provide any such financing and there can be no assurance that
the Company will be able to fund Partner Contingencies. The failure to fund a
Partner Contingency may have a material adverse effect on the Company. See "Risk
Factors -- Contingent Capital Requirements."
The Company believes that the net proceeds from the Initial Offering,
together with borrowings expected to be available under vendor financing,
including the Motorola Financing, and the estimated proceeds from the Brazil
Equity Sale will be sufficient to fund the Company's current operations,
including the planned expansion of its existing operations for approximately 36
to 48 months from the Closing Date; however, there can be no assurance in this
regard. Thereafter, the Company will need substantial additional capital. If the
Company's plans or assumptions change, if its assumptions prove to be
inaccurate, if it consummates investments or acquisitions in addition to those
currently contemplated, if it experiences unanticipated costs or competitive
pressures, if the Brazil Equity Sale is not consummated or if the net proceeds
from the Initial Offering, together with the proceeds of any such borrowings,
otherwise prove to be insufficient, the Company may be required to seek
additional capital sooner than currently anticipated. The terms of any
borrowings under the Motorola Financing are subject to negotiation and execution
of definitive agreements. The Company may seek to raise such additional capital
from public or private equity or debt sources. There can be no assurance that
the Company will be able to raise such capital on satisfactory terms, if at all.
See "Risk Factors -- Significant Capital Requirements."
In the future, the Company may consider obtaining financing from various
sources, including vendor financing provided by equipment suppliers, project
financing from commercial banks and international
56
<PAGE> 59
agencies such as International Finance Corporation and Overseas Private
Investment Corporation, bank lines of credit and sales of equity and debt issued
by the Operating Companies and/or the Company. To the extent the Company issues
debt, its leverage and debt service obligations will increase. There can be no
assurance that the Company will be able to raise such capital on satisfactory
terms, if at all.
In November 1996, Nextel, McCaw International and Motorola entered into the
Motorola MOU. Under the Motorola MOU, Motorola agreed to provide an aggregate of
$400 million in vendor financing to Nextel and McCaw International for the
worldwide purchase of iDEN equipment and services and ancillary products (such
as switches). In March 1997, Motorola and Nextel entered into a term sheet
increasing the maximum worldwide vendor financing available to Nextel and McCaw
International to $650 million, with a maximum non-U.S. amount outstanding of
$400 million, subject to certain per country limits as agreed in the Motorola
MOU. The Motorola MOU sets a limit of $125 million per country (other than the
United States and Canada) on the amount that may be borrowed under the Motorola
Financing. Nextel, McCaw International and Motorola agreed to an initial
commitment to McCaw Brazil, McCaw Argentina and Infocom under the Motorola
Financing of $125 million, $81 million and $15 million, respectively.
Commitments provided by Motorola to provide financing to any Operating Company
count 100% against Motorola's $650 million aggregate commitment. Currently
Motorola has not committed any financing for Mexico. The Motorola MOU
contemplates that the loans under the Motorola Financing will bear interest at a
rate of 2% to 4% over prime rate, depending on the Operating Company placing the
order and the country in which such company is installing the iDEN equipment and
is likely to have a maturity of up to six years. Borrowings by an Operating
Company will be secured by all the assets and stock of such Operating Company
and it is expected that the Company will guarantee such borrowings on a pro rata
basis based on the equity interest of such Operating Company owned by the
Company (with the exception of Brazil where the Company will be required to
guarantee 100% of such borrowings).
Any amounts available to be borrowed by the Operating Companies under the
Motorola Financing will be reduced by any amounts borrowed by Nextel and its
subsidiaries other than the Company and the Operating Companies. Nextel has
committed to the Company that at least $95 million of the Motorola Financing
will be available to the Company. As of March 31, 1997, Nextel had borrowed $110
million pursuant to the Motorola Financing. Accordingly, there can be no
assurance that more than $95 million under the Motorola Financing will be
available to fund the Operating Companies' equipment purchases. In addition, to
the extent total amounts outstanding under the Motorola Financing to Nextel and
its subsidiaries, including the Company and the Operating Companies (other than
Clearnet), plus requests for additional financing under the Motorola Financing
by Nextel and its subsidiaries other than the Company and the Operating
Companies would exceed $400 million, McCaw International is required to repay or
cause to be repaid sufficient borrowings such that after giving effect to such
repayment, the total amount of loans outstanding from Motorola to Nextel and its
subsidiaries, including the Company and the Operating Companies (other than
Clearnet), will not exceed $400 million. Nextel has agreed with the Company not
to cause a Forced Repayment.
In July 1997, Infocom and Motorola entered into an equipment financing
agreement (the "Philippines Motorola Financing"), pursuant to which Motorola
will provide up to $15 million of vendor financing to Infocom. The Philippines
Motorola Financing provides for a maturity of two years and an annual interest
rate of LIBOR plus 505.5 basis points. Pursuant to the Philippines Motorola
Financing the loans are secured by a first-priority lien on substantially all of
Infocom's assets and a pro rata guarantee of such financing by each of Infocom's
shareholders, including the Company.
McCaw International intends to structure its future capital contributions
to the Operating Companies as equity contributions and/or loans and thereafter
to rely on the payment of dividends and/or interest and principal payments as a
means of obtaining cash from the Operating Companies. The Company will evaluate
on an on-going basis which means of contributing cash to the Operating Companies
is most effective.
The Company holds a majority interest in McCaw Brazil and a 50% interest in
McCaw Argentina. The Company's other assets consist of minority ownership
interests in the Operating Companies and approximately $482 million of the net
cash proceeds from the Initial Offering which have been invested in short-term
57
<PAGE> 60
investments. Even though the Company participates in the management of the
Operating Companies, except in China and Canada, it cannot control the outcome
of matters submitted to the shareholders of the Operating Companies in which it
has less than a majority interest. In addition, the Company may be unable to
access the cash flow of its affiliated companies because (i) it does not have
the requisite control to cause such entities to pay dividends, and (ii)
substantially all of such entities are parties to or expected to become parties
to vendor financing or other borrowing agreements that severely restrict or
prohibit the payment of dividends, and such entities are likely to continue to
be subject to such restrictions and prohibitions for the foreseeable future. The
Motorola Financing will prohibit the payment of dividends to the Company by the
Operating Companies that have debt outstanding under the Motorola Financing. To
the extent any Motorola Financing is outstanding in 2002, when cash interest
payments on the Notes are required to be made, the Company would need to obtain
funds for such interest payments from other sources. The Company does not have a
revolving credit or other facility providing for funding of the Company. In
addition, to the extent the Company contributes capital to the Operating
Companies in the form of loans, interest payments to the Company may be subject
to withholding taxes. See "Risk Factors -- Substantial Indebtedness; Ability to
Service Debt; Refinancing Risks."
INFLATION AND FOREIGN CURRENCY EXCHANGE
The net monetary assets of the Company's subsidiaries are subject to
foreign currency exchange risks since they are maintained in local currency.
Certain of the Company's subsidiaries operate in countries in which the rate of
inflation is significantly higher than that of the United States. The Company
will attempt to protect its earnings from inflation and possible currency
devaluation by trying to periodically adjust its prices in local currencies and
in some cases setting its prices in direct relation to the U.S. dollar. However,
there can be no assurance that any significant devaluation against the U.S.
dollar could be offset, in whole or in part, by a corresponding price increase.
The countries in which the Company's subsidiaries now conduct business
generally do not restrict the repatriation or conversion of local or foreign
currency. There can be no assurance, however, that this will be the case in each
market that the Company may enter in the future or that this situation will
continue in the Company's existing markets. See "Risk Factors -- Currency Risks
and Exchange Controls." The Company's subsidiaries are all directly affected by
their respective countries' governmental, economic, fiscal and monetary policies
and other political factors.
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1996, the Company had approximately $6.0 million of net
operating loss carryforwards ("NOLs") available in the United States, which
expire commencing in 2010. See "Certain Relationships and Related
Transactions -- Tax Sharing Agreement." The Company may be limited in its
ability to use NOLs in any one year depending on its ability to generate
sufficient taxable income. A number of other factors may also have an effect on
the Company's ability to fully utilize these NOLs, such as U.S. tax law
provisions limiting the use of the NOLs if certain changes in the Company's
ownership occur. In addition, as of December 31, 1996 there were the following
NOLs at the Operating Company level: (i) $15.7 million in Brazil; (ii) $1.9
million in Argentina and (iii) $57.5 million in Mexico. Such NOLs are only
available to be utilized as a potential future reduction of taxes at the
Operating Company level.
58
<PAGE> 61
INDUSTRY OVERVIEW
DEMAND FOR COMMUNICATIONS SERVICES IN EMERGING MARKETS
The rapid expansion and modernization of economies in many emerging markets
have resulted in a significant increase in demand for telecommunications
services. Telecommunications services are viewed as essential to sustaining
rapid economic growth and to improving productivity and competitiveness in
emerging markets. Telephone service and system quality in most of these markets,
however, remains poor due to under investment in landline infrastructure. In
addition, telecommunications providers have been unable to meet the rising
demand for telecommunications service which has resulted in long waiting lists
for the installation of telephone lines and service. Countries in which the
Company operates currently have an average of 6.9 access lines per 100 people
compared to 59.4 access lines per 100 people in the United States. Waiting time
for the installation of a landline telephone is estimated to range from nine
months in Mexico to approximately 3.5 years in Brazil and as long as nearly nine
years in the Philippines.
While wireless communications in the United States provides an attractive
supplemental service to a well developed and reliable landline telephone system,
in many emerging markets wireless communications have become an important
alternative to the relatively antiquated, overburdened and unreliable landline
telephone systems. Furthermore, in most of the emerging markets where the
Company operates, wireless communications services tend to be more readily
available and in many cases provide higher quality service than landline
systems. In addition, wireless networks can be constructed relatively quickly
and are less expensive to install than landline networks. In 1995, the average
cellular penetration rate in the emerging markets in which the Company operates
was .7% (compared to a cellular penetration rate of 12.8% in the United States).
By 2000, the average cellular penetration rate in those countries is expected to
increase to 3.9% representing an average annual growth rate of 39.1%, compared
to 17% in the United States. In terms of regional cellular growth from 1996
through the year 2001, the number of cellular subscribers is estimated to grow
an average of 37% per year in Latin America and 34% per year in the Asia Pacific
region.
The following table sets forth certain information with respect to the
emerging markets in which the Company operates, together with comparative
information for the United States.
<TABLE>
<CAPTION>
WAITING TIME CELLULAR
FOR MONTHLY
INSTALLATION AVERAGE
GDP REAL GDP TELEPHONE OF LAND-LINE CELLULAR REVENUE
POPULATION PER GROWTH LINES PER TELEPHONE PENETRATION PER
POPULATION GROWTH CAPITA 1996 100 POPS (YEARS) (% OF POPS) SUBSCRIBER
1996 1995(1) 1995(1) PROJECTED(1) 1994(2) 1993(3) 1995(2) 1995(4)
------------- ---------- ------- ----------- --------- ------------ ----------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Argentina............ 34 1.2% $8,167 4.4% 14.3 1.3 1.26% $130
Brazil............... 160 2.0 4,601 2.8 7.4 3.5 0.81 119
China................ 1,215 1.2 517 9.5 2.3 4.7 0.30 58
Mexico............... 92 1.9 3,137 4.4 9.2 0.9 0.77 78
Philippines.......... 67 2.2 1,055 5.9 1.5 8.9 0.52 66
United States........ 264 1.0 27,490 2.0 59.4 -- 12.79 51
</TABLE>
- ---------------
(1) Source: Telecom Markets in South America, 1996 and Telecom Markets in
Southeast Asia, 1996; Blue Chip Economic Indicators, WEFA Group,
International Financial Statistics, 1996.
(2) Source: MTA-EMCI World Cellular Markets, 1996. "Cellular Penetration" is
defined as the number of cellular subscribers as a percentage of the total
population.
(3) Source: International Telecommunications Union (ITU) and Pyramid Research.
(4) Source: Pyramid Research, EMCI and CIT Research.
59
<PAGE> 62
WIRELESS TECHNOLOGY
Currently, three systems dominate the market for wireless communications
services: SMR/ESMR, cellular/PCS and paging. The Operating Companies utilize one
or more of each of these forms of wireless communications. The following is a
brief description of each type of wireless communications system.
SMR/ESMR
SMR, also referred to as "trunked radio" or wireless dispatch
communications, is primarily a business communications tool which provides cost
effective point-to-multipoint or "one-to-many" voice communications. This
service allows reliable, flexible and convenient communications among a defined
group of users typically within a business or "work group."
Historically, SMR operators have generally been unable to provide mobile
telephone service competitive with that provided by cellular operators because
of various factors affecting SMR system capacity and voice quality. The primary
factors affecting capacity and voice quality have included: the smaller portion
of the radio spectrum allocated to SMR; regulations and procedures that
initially served to spread ownership of SMR licenses among a large number of
operators in each market, thereby limiting the amount of SMR spectrum available
to any particular operator; and the limitations of traditional SMR technology
which employs analog transmission and a single site, high power transmitter
configuration which precludes the use of any given SMR frequency by more than
one caller at a time within a given service area.
Partially as a result of the constraints on capacity, SMR operators,
including the Operating Companies that offer SMR services, have traditionally
emphasized radio dispatch service, which involves shorter duration
communications than mobile telephone service and places less demand on system
capacity. The traditional SMR market, therefore, has been oriented primarily to
business customers such as contractors, service companies, security firms and
delivery services that have significant field operations and need to provide
their personnel with the ability to communicate directly with one another,
either on a one-to-one or on a one-to-many basis. The broader market of
businesses and individuals that are primarily interested in mobile telephone
service has been largely beyond the reach of traditional SMR operators.
The 800 MHz SMR spectrum in the United States and in other countries is
generally adjacent and functionally equivalent to cellular frequencies. As a
result, ESMR technology has been developed specifically to provide digital
service using the SMR frequency band.
Similar to cellular telephone technology, ESMR technology is based upon the
division of a given geographical area into a number of cells and the
simultaneous re-use of radio channels in non-contiguous cells within the system.
Each cell contains a low power transmitter-receiver at a base station that
communicates by central switching point or mobile switching center that controls
the routing of calls and that, in turn, is connected to the public switched
telephone network. The switch enables ESMR mobile telephone users to move freely
from cell to cell while continuing their calls. In general, an ESMR network
requires fewer sites than are needed for a PCS network.
ESMR technology provides the capability to offer integrated wireless
communications services over one network utilizing common cell and digital
switching infrastructures as well as multi-functional handsets. Historically,
the mobile telephone, paging, dispatch and mobile data market segments were
served by discrete networks utilizing separate technologies, handsets and phone
numbers despite the fact that a number of users subscribed to one or more of
these services. In contrast to this historical segmentation of the wireless
industry, the Company believes that ESMR technology will make it possible to
integrate all such segments of wireless mobile communications.
Motorola has developed a proprietary digital technology for use in SMR
networks, known as iDEN, that allows analog SMR networks to be upgraded to
digital ESMR networks offering enhanced services such as instant conferencing
(enhanced dispatch), mobile telephone (interconnect), short-text messaging with
acknowledgment (alphanumeric paging) and data transmission. The iDEN technology
uses a version of the Time Division Multiple Access ("TDMA") digital
transmission technology used by certain providers of digital cellular services.
The iDEN technology carries up to three voice and/or control paths per channel
for
60
<PAGE> 63
the ESMR network's mobile telephone function and up to six voice and/or control
paths per channel for the instant conferencing function.
During the third and fourth quarters of 1996, Nextel launched commercial
service of its iDEN-based ESMR networks in several markets in the United States,
including Chicago, Detroit, Boston, Denver, Atlanta, New York,
Washington/Baltimore, Los Angeles, Northern California and the Pacific
Northwest, under the "PowerFone" brand name. Additionally, during the fourth
quarter of 1996, Clearnet launched commercial services of its iDEN-based ESMR
network in the Ontario-Quebec market under the "MiKE" brand name. Both Nextel
and Clearnet have announced their plans to launch their iDEN-based ESMR networks
in additional markets during 1997 and 1998. As of December 31, 1996, Nextel
provided services to approximately 300,000 ESMR subscriber units and Clearnet
provided services to approximately 5,000 ESMR subscriber units. See "Risk
Factors -- Technology Risks."
The implementation of an ESMR network utilizing iDEN involves upgrading
existing 800 MHz SMR systems via two fundamental changes in system architecture.
First, the analog transmission format of traditional SMR systems is replaced by
a digital TDMA transmission format. Second, the single high-powered transmitter
typical of traditional SMR systems is replaced or augmented by a number of low
powered transmitters, dispersed across the coverage area, enabling frequency
reuse. Additionally, the ESMR frequency reuse system uses a mobile switching
office to enable the hand-off of transmissions from one transmitter to another
as subscribers move across the coverage area.
Cellular/PCS
Cellular telephone systems are capable of providing high quality, high
capacity voice and data communications to and from vehicle-mounted and hand-held
radio telephones. Cellular telephone systems are capable of handling thousands
of calls at any one time and providing service to hundreds of thousands of
subscribers in any particular area.
Cellular telephone technology is based upon the division of a given
geographical area into a number of cells and the simultaneous re-use of radio
channels in non-contiguous cells within the system. Each cell contains a low
power transmitter-receiver at a base station that communicates by a switch that
controls the routing of calls and that, in turn, is connected to the public
switched telephone network. The switch enables cellular telephone users to move
freely from cell to cell while continuing their calls.
Cellular telephone systems generally offer subscribers the features offered
by the most up-to-date landline telephone services. Cellular telephone systems
are interconnected with the landline telephone network which allows subscribers
to receive and originate local, long-distance and international calls from their
cellular telephones. As a result, cellular telephone system operators require an
interconnection arrangement with the local landline telephone companies and the
terms of such arrangements are material to the economic viability of the system.
A cellular telephone system's capacity can be increased in various ways.
Initially, increasing demand may be satisfied by adding available channel
capacity to cells. When all available channels are used, further growth can be
accomplished through a process known as cell splitting. Cell splitting entails
dividing a single cell into a number of smaller cells allowing for greater
channel re-use, thereby increasing the number of calls that can be handled in a
given area.
Currently, the three most widely deployed analog air-interface cellular
standards include Advanced Mobile Phone System ("AMPS"), Nordic Mobile Telephone
("NMT"), and Total Access Communications System ("TACS"). The AMPS and TACS
systems currently operate in the 800 and 900 MHz frequency band and the NMT
systems can operate in either the 450 or 900 MHz ranges. The most prevailing
air-interface standards utilizing digital technology include GSM and Digital
Advanced Mobile Phone System ("DAMPS"). DAMPS systems are currently deployed in
the 800 MHz frequency range and soon will be constructed on the 1.8-1.9 GHz
frequency ranges. DAMPS utilizes either TDMA or Code Division Multiple Access
transmission techniques. Both AMPS and DAMPS are the most widely deployed
systems in the
61
<PAGE> 64
Americas. GSM, which is widely deployed in Europe and Asia, can operate at
either the 900 MHz or 1.8-2.0 GHz frequency ranges.
Paging
Paging is a well-established wireless technology, and is widely available
in many countries. A paging system typically consists of a number of transmitter
sites connected to a central messaging center. The messaging center receives
incoming messages from the public telephone network and prepares batches of
messages for transmission to subscribers. There are two basic types of paging
services: numeric (digital display) and alphanumeric, which allows subscribers
to receive and store messages of up to 5,000 characters consisting of both
letters and numbers. Historically, paging was a one-way communication service;
however, technological advances in wireless messaging have made two-way
communications possible. Two-way paging systems allow message acknowledgment
responses and the transmission of short data messages by the paging subscriber.
In emerging markets where telephone penetration is low, paging often provides an
affordable alternative to public telephone service.
The table below illustrates some of the main differences between SMR/ESMR,
cellular/PCS and paging.
COMPARISON OF SMR/ESMR, CELLULAR/PCS AND PAGING (1995)
<TABLE>
<CAPTION>
SMR/ESMR(1) CELLULAR/PCS(2) PAGING(3)
---------------------- ---------------- ----------------
<S> <C> <C> <C>
Services Offered..................... Voice, data, instant Voice and data Data only
conferencing (one-to- (one-to-one) (one-to-one and
many and one-to-one) one-to-many)
Typical Frequency Range.............. 800 MHz 800 MHz Lowband and
(cellular) 931 MHz
1.8 and 1.9 GHz
(PCS)
U.S. Subscribers..................... 18,000,000 33,700,000 34,500,000
Latin American Subscribers........... 138,000 3,608,000 1,122,000
Southeast Asia Subscribers........... 64,200 3,330,000 2,720,000
China................................ 260,000 3,700,000 26,160,000
</TABLE>
- ---------------
(1) Source: EMCI, International Mobile Telecommunications Association (IMTA) and
Pyramid Research, 1996.
(2) Source: EMCI and Pyramid Research, 1996.
(3) Source: EMCI and Pyramid Research, 1996.
62
<PAGE> 65
BUSINESS
McCaw International is a leading international wireless communications
services company based on the number of people and the number of SMR channels in
its licensed service areas. The Company provides wireless communications
services in the four largest cities in Latin America and two of the largest
cities in Asia. The Company's markets cover approximately 230 million POPs,
approximately 120 million of which are in Latin America. McCaw International,
through the Operating Companies, is the largest SMR service provider in Brazil
and Mexico, and holds the largest SMR channel position in Argentina. McCaw
International's strategy is focused on leveraging its leading analog dispatch or
SMR channel positions in its principal markets and using Nextel's experience and
supplier relationships to upgrade its services from analog dispatch to digital
ESMR services. The upgrade to digital networks will allow the Company to
increase capacity significantly and to offer additional services and features
such as enhanced dispatch (group calling and instant conferencing), high-quality
telephone interconnect and text messaging.
McCaw International believes that wireless communications opportunities in
emerging markets, particularly in Latin America and Asia, are very attractive
compared to the market in the United States due to the poor telecommunications
infrastructure, low teledensity, favorable competitive environments and greater
expected economic growth rates in those markets. The Company believes that the
low cost of its wireless spectrum relative to cellular and PCS, as well as the
large and growing demand for wireless communications services in its markets,
provides it with a significant opportunity to expand its subscriber base in an
efficient and cost-effective manner.
The Company owns interests in and actively participates in the management
of wireless communications services companies in Brazil, Argentina, Mexico and
the Philippines. In addition, the Company has a contractual right through its
Chinese joint venture to receive 25.2% of the profits generated by the Shanghai
GSM System and has a 3.7% interest in Clearnet, a Canadian wireless
communications services company. The Operating Companies have networks in some
of the largest cities in their respective countries, including Sao Paulo, Mexico
City, Buenos Aires and Rio de Janeiro, which are the four largest cities in
Latin America, and Shanghai and Manila, which are two of the largest cities in
Asia. The subscriber base of the Operating Companies has grown 59% from
approximately 111,000 subscribers at December 31, 1995 to approximately 177,000
subscribers at December 31, 1996.
The following table provides certain financial information relating to
foreign and domestic operations:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Operating Loss:
United States......................... $ (6,747,488) $ (271,720) $ (2,033)
Argentina............................. (2,738,697) (23,889) --
------------ ------------ ------------
Total............................ $ (9,486,185) $ (295,609) $ (2,033)
============ ============ ============
Identifiable Assets:
United States......................... $177,004,841 $159,521,952 $171,535,926
Argentina............................. 22,362,474 10,153,502 --
------------ ------------ ------------
Total............................ $199,367,315 $169,675,454 $171,535,926
============ ============ ============
</TABLE>
The Company believes it has established the leading position in terms of
the number of SMR channels in its principal markets. The Company's asset base
includes (i) 5,190 SMR channels in the 800 MHz band (which is adjacent to and
functionally equivalent to cellular frequencies) and the related licenses to
provide wireless communications services over such channels and (ii) deployed
networks in the markets where it operates. At January 31, 1997, the Company's
licenses and assets were acquired for approximately $365 million, or
approximately $3.72 per POP, which is significantly less than the prices paid
for cellular and PCS licenses in comparable markets around the world.
63
<PAGE> 66
McCaw International currently markets its wireless communications services
primarily to business customers with mobile work forces, such as service
companies, security firms, contractors and delivery services. In general, the
Company markets its services through a direct sales force, dealers and
independent agents. Companies with mobile work forces represent growing sectors
of the economy in the Company's markets. These types of businesses often have
the need to provide their personnel with the ability to communicate directly
with one another, either on a one-to-one or a one-to-many basis. By upgrading
its operations to provide ESMR services, the Company will increase capacity
significantly and be in a position to target a broader customer base. The
Company currently plans to launch ESMR commercial service in the Philippines by
the end of 1997, in Brazil during the first quarter of 1998 and in Argentina and
Mexico later in 1998. McCaw International differentiates itself from its
competitors by (i) providing superior quality telecommunications services, (ii)
focusing on customer service and (iii) targeting primarily business customers.
The following table provides a brief overview of each of the Company's
wireless communications systems.
<TABLE>
<CAPTION>
MCCAW INVESTED
INTERNATIONAL PROPORTIONATE CAPITAL AS
OWNERSHIP POPULATION AS SUBSCRIBERS OF
AS OF POPULATION OF 6/30/97 EXISTING SYSTEM AS OF 1/31/97(1)
MARKET 6/30/97 (MILLIONS) (MILLIONS) TYPE 12/31/96 ----------
- ------------------- ------------- ---------- ------------- ---------------- ----------- (MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Brazil............. 81.0% 59.9 48.5 SMR 16,000 $186.3
Argentina.......... 50.0%(2) 17.6 8.8 Paging/SMR 4,000 20.7
Mexico............. 48.1% 42.5 20.5 SMR 24,000 103.8
Philippines........ 30.0% 67.0 20.1 Paging/ESMR(3) 46,000 20.0
China (Shanghai)... 25.2%(4) 14.0 3.5 GSM 28,000 20.5
Canada............. 3.7%(5) 29.5 1.1 SMR/ESMR/PCS(6) 59,000 13.2(7)
----- ----- ----------- ----------
Total.............. 230.5 102.5 177,000 $364.5
======== =========== ========= ========
<CAPTION>
START DATE
OF
COMMERCIAL
MARKET SERVICES
- ------------------- ----------------
<S> <C>
Brazil............. October 1994
Argentina.......... April 1996/
February 1997
Mexico............. September 1993
Philippines........ February 1995
China (Shanghai)... June 1995
Canada............. April 1994/
October 1996
Total..............
</TABLE>
- ---------------
(1) Invested capital consists of the total amounts invested in the Operating
Companies by McCaw International or Nextel. Amounts include amounts paid for
licenses and capital contributions made to the Operating Companies and in
the case of China also includes a loan made to fund the Shanghai GSM System.
(2) After giving effect to the Argentina Transaction. Under U.S. GAAP in effect
on the date hereof, McCaw Argentina will be accounted for under the equity
method. Prior to the Argentina Transaction, the Company owned 100% of McCaw
Argentina.
(3) The Company currently expects to launch commercial ESMR services in the
Philippines by the end of 1997.
(4) Represents the Company's share of profits from the Shanghai GSM System which
is accounted for under the cost method.
(5) Nextel also owns an approximately 15.3% equity interest in Clearnet
accounted for at fair market value.
(6) Clearnet currently expects to launch commercial PCS services in Canada's
largest urban centers in mid-1997.
(7) Reflects the market value of Nextel's initial investment in Clearnet on
October 20, 1994, the date the investment was made. On April 30, 1997, the
Company's Clearnet common stock had a market value of approximately $11.8
million.
McCaw International has a senior management team comprised of experienced
executives, most of whom have had substantial experience in the
telecommunications industry and many of whom have been involved in the
development of other telecommunications businesses both in the United States and
in emerging markets. In addition, senior management teams at the Operating
Companies are comprised of both nationals of the countries in which the
Operating Companies are located, most of whom have experience in the
telecommunications industry, as well as U.S. nationals, most of whom have
experience in emerging markets.
McCaw International is an indirect wholly owned subsidiary of Nextel, which
is the largest provider of SMR and ESMR services in the United States with
revenues of approximately $333 million for the year ended December 31, 1996. As
of December 31, 1996, Nextel provided service to approximately 300,000 ESMR
subscriber units. As of February 1, 1997, Nextel had invested approximately $365
million in the Company. A company controlled by Craig O. McCaw, the founder of
McCaw Cellular Communications, Inc. (now AT&T Wireless Services, Inc.), and his
family and Motorola are significant investors in Nextel.
64
<PAGE> 67
STRATEGY
The Company's strategy is to grow by upgrading and expanding its existing
networks to incorporate digital wireless communications services, which will
enable the Company to increase its subscriber base and revenues, and to pursue
new investment opportunities in markets which satisfy the characteristics
described above. The key elements of the Company's strategy are:
Capitalize on Leading Position. In most of its markets, the Company has a
larger SMR channel position than any other SMR service provider, which allows it
to compete effectively with other wireless communications service providers. Its
large channel positions also reduce the capital expenditures required to upgrade
to digital networks and create operating synergies.
Expand by Providing Digital Enhanced Services. The Company intends to
upgrade its analog SMR networks to digital ESMR networks using Motorola's iDEN
technology. The upgrade to digital networks will allow the Company to increase
capacity significantly and also offer additional services and features, which
the Company believes will lead to increases in its subscriber base and average
monthly revenue per subscriber.
Develop Cost-Efficient Networks. The Company's strategy of investing in SMR
channels has enabled it to acquire spectrum in its markets at a much lower cost
than cellular and PCS providers have paid in comparable markets around the
world. As a result, the Company believes it has an important competitive
advantage relative to cellular and PCS providers.
Leverage Nextel and Motorola Relationships. Nextel is the largest SMR and
ESMR provider in the United States. The Company intends to access Nextel's
technology, operations, supplier relationships, network development and
marketing expertise in upgrading its SMR networks to ESMR in its existing
markets and to leverage its relationship with Nextel in entering new markets. In
addition, the Company believes that it will benefit from Nextel's relationship
with Motorola, which is expected to supply the Company with iDEN equipment and
services. The Company will have access to financing for iDEN equipment on
substantially similar terms as Nextel under a vendor financing commitment among
Nextel, the Company and Motorola. By utilizing Nextel's expertise and
relationships with suppliers, in particular with Motorola, the Company believes
that it will be able to deploy networks that are competitive with cellular and
PCS networks.
Partner with Strong Local Groups. McCaw International seeks financially
strong local groups to invest as equity holders at the operating level. The
Company's local partners often own or have access to an existing strategic asset
base (such as real estate for cell sites or distribution outlets) that the
Operating Companies can use to reduce capital expenditures, operating costs and
network deployment time. Local partners also frequently play an active role in
securing licenses, obtaining necessary regulatory approvals and managing
governmental relations for the Operating Companies.
Maintain Active Management Role. The Company seeks to acquire controlling
ownership and management positions in its principal markets to the extent local
law does not restrict foreign ownership or management. Where the Company holds
less than a majority interest in an Operating Company, it manages its investment
through contractual arrangements that, other than in China and Canada, ensure
board representation and enable it to veto certain corporate actions. The
Company actively participates in the management of the Operating Companies,
other than in China and in Canada, by (i) selecting the key members of the local
management team, (ii) developing the system's technology and infrastructure,
(iii) developing business plans and marketing plans together with local
management, and (iv) maintaining close working relationships with local
partners.
Pursue New Investments in Attractive Markets. The Company is continuing to
pursue new investment opportunities in geographic areas that offer attractive
market fundamentals. At present, the Company plans to focus on emerging markets
in Asia and Latin America. The Company believes that such markets offer
favorable long-term economic growth prospects and that geographic concentration
may provide significant business synergies.
65
<PAGE> 68
SPECTRUM POSITION
The Operating Companies' current license holdings represent one of the
largest international wireless footprints, covering a total of 230 million POPs.
Based on its proportionate equity ownership, the Company's investments cover
approximately 98 million proportionate POPs.
The Company's spectrum strategy in the short-term is to strengthen its
channel position in its existing markets. For example, the Argentina Transaction
doubled the Company's spectrum position in Argentina. The Company will also seek
to acquire SMR channels or other wireless communications spectrum in other
selected urban centers in emerging markets on an opportunistic basis. See
"Summary -- Recent Developments."
In order to construct a digital network utilizing iDEN technology, the
Company believes that at least 100 SMR channels are necessary in any given
market. Generally, the Company estimates that each SMR channel has the capacity
to provide service to approximately 100 subscribers using analog SMR technology.
Deploying digital technology on these SMR channels will increase subscriber
capacity significantly. Moreover, the Company believes its large channel
position reduces capital expenditures required to upgrade to digital networks.
McCaw International owns or has options to acquire at least 100 channels in each
of the markets in which it intends to construct digital networks. In smaller
markets, McCaw International will continue to focus its efforts on growing its
SMR subscriber base. The Company's licenses and assets were acquired for
approximately $365 million as of January 31, 1997, or approximately $3.72 per
POP, which is significantly less than the prices paid for cellular or PCS
licenses in comparable markets around the world.
66
<PAGE> 69
The Company believes it has established the leading market position in
terms of number of SMR channels in each of its principal markets. The following
chart summarizes the Company's spectrum position as of March 6, 1997.
<TABLE>
<CAPTION>
POPULATION OF TOTAL SMR TOTAL
LICENSED AREA(1) CHANNELS SPECTRUM
---------------- --------- --------------
(MILLIONS) (MHZ)
<S> <C> <C> <C> <C>
I. SMR PROPERTIES
BRAZIL(2)
Greater Sao Paulo Area
Sao Paulo..................................... 18.4 195 9.75
Campinas...................................... 1.0 120 6.00
Santos........................................ 0.5 100 5.00
Sao Jose dos Campos........................... 0.5 100 5.00
------ ---------
Total Greater Sao Paulo Area............. 20.4 515
Rio de Janeiro.................................. 12.0 160 8.00
Belo Horizonte.................................. 3.9 140 7.00
Porto Alegre.................................... 3.1 100 5.00
Recife.......................................... 3.0 60 3.00
Salvador........................................ 2.6 60 3.00
Fortaleza....................................... 2.3 40 2.00
Curitiba........................................ 2.1 120 6.00
Brasilia........................................ 1.9 60 3.00
Belem........................................... 1.5 20 1.00
Other Cities.................................... 7.1 425 --
------ ---------
Total Brazil............................. 59.9 1,700
ARGENTINA(3)
Buenos Aires.................................... 11.3 180 9.00
Cordoba......................................... 2.4 200 10.00
Rosario......................................... 2.0 200 10.00
Mendoza......................................... 0.9 200 10.00
Other Cities.................................... 1.0 40 --
------ ---------
Total Argentina.......................... 17.6 820
MEXICO(4)
Mexico City..................................... 17.9 204 10.20
Monterrey....................................... 3.1 25 1.25
Guadalajara..................................... 3.4 60 3.00
Tijuana......................................... 0.9 60 3.00
Other Cities.................................... 17.2 2,221 --
------ ---------
Total Mexico............................. 42.5 2,570
PHILIPPINES(5)
Nationwide...................................... 67.0 100 5.00
CANADA
Nationwide...................................... 29.5 NA 30.00
------ ---------
TOTAL SMR......................................... 216.5 5,190
================= ============
II. CELLULAR PROPERTIES
CANADA
Nationwide PCS.................................. 29.5 -- 30.00
CHINA
Shanghai GSM.................................... 14.0 -- 12.00
------
TOTAL CELLULAR.................................... 43.5 --
=================
III. PAGING PROPERTIES
PHILIPPINES
Nationwide...................................... 67.0 -- --
ARGENTINA......................................... 34.0 -- --
------
TOTAL PAGING...................................... 101.0
=================
</TABLE>
(footnotes on next page)
67
<PAGE> 70
- ---------------
(1) Represents the estimated POPs in the markets in which the Operating
Companies have channels.
(2) Interest in 1,180 channels in Brazil is structured pursuant to a number of
option agreements entered into with the respective corporate licensees of
such channels. None of such channels are located in Sao Paulo. See
"-- Brazil -- Regulatory and Legal Overview."
(3) Includes additional channels that McCaw Argentina owns as a result of the
consummation of the Argentina Transaction. Additional channels acquired in
the Argentina Transaction include 80 channels in Buenos Aires and 100
channels in each of Cordoba, Rosario and Mendoza.
(4) Excludes 1,040 channels in the 400 MHz frequency range that the Company
intends to divest.
(5) Infocom is negotiating a joint operating agreement which would allow it to
operate an additional 100 channels for a total of 200 nationwide channels in
the Philippines. See "Company -- Philippines."
NETWORK IMPLEMENTATION, DESIGN AND CONSTRUCTION
The Company's networks are in various stages of development. In 1996, the
Company began to build-out its ESMR network in the Philippines and its SMR
network in Argentina, and continued to build-out its SMR network in Brazil. In
1997, the Company intends to begin the design and development of its ESMR
network in Argentina, Brazil and Mexico and to continue to build-out its ESMR
network in the Philippines. The Company plans to launch commercial ESMR services
in the Philippines by the end of 1997, in Brazil during the first quarter of
1998 and in Argentina and Mexico later in 1998.
As the Company builds out its ESMR networks primarily using iDEN, it
intends to leverage Nextel's expertise and relationships in converting its
United States SMR networks to ESMR networks. Nextel is the largest operator of
SMR and ESMR services in the United States.
The Company's critical design criteria for its upgrade to ESMR include:
- Contiguous wide area coverage of substantially all of the major
population areas and traffic corridors in its licensed areas;
- Signal quality comparable to that currently provided by existing cellular
carriers;
- Call "hand-off" for mobile telephone service throughout the ESMR
networks;
- Minimization of blocked and dropped calls;
- The ability to offer advanced features such as data transmission and
message services; and
- Cost-efficient routing of calls to minimize local interconnection costs
and toll charges and to provide maximum utilization of the Company's ESMR
network facilities.
The Company believes careful frequency planning is necessary prior to
commencing network construction in order to ensure seamless coverage over the
entire network. Frequency planning involves the selection of specific areas in
the Company's markets for the placement of transmitter sites and the
identification of specific frequencies that will be employed at each site in the
initial configuration. Sites will be selected on the basis of their coverage and
on frequency propagation characteristics.
In addition to frequency planning and system design, the implementation of
the proposed digital wireless networks requires site acquisition, equipment
procurement, construction and equipment installation, testing and optimization.
Sites are selected on the basis of their proximity to targeted customers, the
ability to acquire and build the site and frequency propagation characteristics.
Site procurement efforts include obtaining leases and permits and, in many
cases, zoning approvals. Once the requisite governmental approvals are obtained,
the preparation of each site, including grounding, ventilation, air conditioning
and construction, typically takes three months, while equipment installation,
testing and optimization generally takes an additional four weeks. Following
commencement of system operations in a selected market, the Company expects to
add new sites to its networks continually in order to improve coverage and
capacity.
68
<PAGE> 71
One of the Company's objectives is to reduce the risk of delays during the
initial build-out of its ESMR networks while maintaining the integrity of the
system design. During the initial implementation, the Company intends, where
feasible, to use its existing sites, sites already occupied by other
communications service providers and other sites where zoning approvals and
other necessary permits are likely to be obtained easily. The Company also plans
to pursue concurrently access to multiple sites to mitigate delays resulting
from any permit denials and to use prefabricated buildings and pre-installed
equipment where possible in order to accelerate the installation process.
In certain instances, the Company's ability to proceed with the build-out
of its ESMR networks in its coverage areas or elsewhere may be subject to
successful negotiation of site acquisitions or leases, the availability of
equipment and receiving necessary governmental approvals. In addition, the
timing of the scheduled build-out will be subject to obtaining additional
financing on a timely basis, and typical construction and other delays. See
"Risk Factors -- Significant Capital Requirements for Operations" and "--
Expansion; Management of Growth."
BUSINESS DEVELOPMENT
The Company's business development objective is to pursue undervalued
license opportunities in major population centers in emerging markets throughout
the world. Consistent with this objective, the Company intends to expand its
subscriber base by building high-quality digital wireless networks in select
countries. The Company will pursue such opportunities by acquiring or investing
in projects in emerging markets that meet the Company's investment criteria. The
Company's criteria for investment include: (i) large, unsatisfied demand for
telecommunications; (ii) favorable economic growth, business and regulatory
climate; (iii) the availability of strong local equity partners; (iv) the
ability to have an active management role; (v) emerging market economies and
high-density population areas; and (vi) favorable SMR/ESMR investment
opportunities.
Although the Company plans to direct its business development efforts
primarily toward SMR/ESMR opportunities, it intends to make technology and
spectrum decisions based on (i) the relative cost and availability of spectrum
in each market, (ii) the nature of its existing operations in nearby
geographical areas, (iii) appropriateness of a given technology in a specific
market, and (iv) return on investment.
OPERATIONS AND INVESTMENTS
The Operating Companies offer wireless communications services in Latin
America (Brazil, Argentina and Mexico), Asia (Philippines and Shanghai, China)
and Canada.
BRAZIL
The Company has an 81% equity interest in McCaw Brazil, the largest SMR
service provider in Brazil with over a 50% market share by subscribers and owns
or has options to purchase licenses for 1,700 SMR channels in Brazil, the
largest SMR channel position of any SMR provider in the country. McCaw Brazil
provides service under the tradename "AirLink."
Country Overview. With a population of approximately 160 million, Brazil is
the largest country in Latin America and the fifth largest in the world. Over
77% of Brazil's inhabitants reside in urban areas. The two largest cities in
Brazil are Sao Paulo, with a population of approximately 18.4 million and Rio de
Janeiro, with a population of approximately 12 million. Brazil has the highest
GDP in Latin America, accounting for approximately 40% of Latin America's
aggregate GDP. Sao Paulo and Rio de Janeiro, urban areas in which McCaw Brazil
has the largest SMR channel positions, account for over 50% of the economic
activity in Brazil.
Beginning in December 1993, the Brazilian government launched an economic
stabilization plan called the Real Plan (the "Real Plan"), which was intended to
reduce inflation by decreasing certain public expenditures, collecting
liabilities owed to the Brazilian government, increasing tax revenues,
continuing a privatization program and introducing a new currency, the Real.
Following the implementation of the Real Plan, inflation dropped significantly
from previous levels, which at times had exceeded 40% per month, to
69
<PAGE> 72
monthly rates of between 1% and 3%, and the value of the Brazilian Real has been
relatively stable since its introduction.
Although Brazil is the fifth most populated country in the world, it ranks
only thirty-ninth in terms of telephone density. Less than 2% of the rural
population and only 19% percent of all residences have telephone service,
compared to 94% in the United States. In addition, 45% of Brazilian businesses
do not own a telephone. The waiting list for landline telephone service in
Brazil can be as long as approximately 3.5 years.
Although Brazil was the last major country in Latin America to grant
cellular licenses, it is now Latin America's largest cellular market, with more
than 1.5 million subscribers as of December 31, 1995, which represented 33% of
the total Latin American cellular subscriber base. Despite the large number of
cellular subscribers in Brazil, the country's cellular penetration rate is only
.8%, which is well below the United States 1995 cellular penetration rate of
12.8%. Driven by the backlogged demand for telecommunications, Brazil's cellular
market has experienced substantial growth over the past few years, making it one
of the fastest growing wireless markets in Latin America. The number of cellular
subscribers in Brazil increased from 22,500 in 1992 to 1.5 million in 1995, a
compound annual growth rate of over 300%. Over 40% of all subscribers were in
Sao Paulo. Brazil's subscriber growth is expected to continue, with the number
of subscribers projected to increase to over nine million in 2000, an average
annual growth rate of 46%. By the year 2000, Brazil's penetration rate is
expected to be 5.5% and the country's share of Latin America subscribers is
expected to reach 42%. At an average revenue per subscriber of $119 per month,
Brazil's revenue per cellular subscriber is more than two times the average in
the United States.
The SMR business in Brazil is underdeveloped compared to the U.S. market.
In 1995, Brazil had approximately 34,000 SMR subscribers or a .02% SMR
penetration rate compared to 7.0% in the U.S. The average revenue per SMR
subscriber per month of $67 is four times the comparable U.S. average.
Operating Company Overview. McCaw Brazil provides SMR services in 10 of
Brazil's largest cities including Sao Paulo, Rio de Janeiro, Belo Horizonte and
Brasilia.
McCaw Brazil has over 460 SMR channels installed and operational in Brazil.
It has 30 radio sites, five of which are in Sao Paulo and six in Rio de Janeiro.
McCaw Brazil has a centralized customer service and installation center located
in Sao Paulo.
The Company acquired McCaw Brazil's operations in January 1997 and has
performed a review of McCaw Brazil's business operations, billing and reporting
practices. Based on its review to date, the Company has determined that McCaw
Brazil's past reporting practices may have resulted in an overstatement in the
number of revenue-generating subscriber units for the relevant periods.
Specifically, the number of subscriber units reported may have included (i)
units used by customers who were intermittent or seasonal users of McCaw
Brazil's SMR services, but were not active during the periods reported, (ii)
units issued to persons who had canceled or otherwise terminated their active
use of McCaw Brazil's SMR services, but had not returned their subscriber units,
and (iii) units issued as demonstration units, but not activated as revenue-
generating units.
The Company has determined that the previously reported number of SMR units
for McCaw Brazil as of December 31, 1996, which was reported to be more than
16,000, including more than 12,000 in Sao Paulo, may be overstated by
approximately 15%. The overstatement in the number of SMR subscriber units for
McCaw Brazil does not have any impact on the accuracy of the revenue, expense or
other financial data reported by the Company with respect to McCaw Brazil's
operations (other than in the context of any information expressed as a "per
subscriber unit" amount).
McCaw Brazil intends to upgrade to ESMR in Sao Paulo, Rio de Janeiro and
Belo Horizonte, the three largest metropolitan cities in Brazil. This will
increase system capacity and allow McCaw Brazil to offer a broader range of
services to a broader set of business customers. Preliminary system design for
the greater Sao Paulo area and Rio de Janeiro are currently underway and the
Company has entered into iDEN equipment purchase contracts with Motorola with
respect to iDEN equipment for each city. McCaw Brazil plans to launch ESMR
commercial service in Sao Paulo in the first quarter of 1998. The Company
intends to evaluate the timing of any steps in connection with an upgrade to
ESMR in Belo Horizonte and any other cities in
70
<PAGE> 73
Brazil based on the then-current competitive and regulatory environment. See
"Risk Factors -- Wireless Communications Operations -- Government Regulation"
and "-- Possible Delay in Offering ESMR Services in Brazil."
McCaw Brazil offers its customers a broad range of services and pricing
plans designed to meet the specific needs of its customers. It offers dispatch
and integrated service plans (dispatch and interconnect). As of March 6, 1997,
approximately 22% of McCaw Brazil's subscribers were primarily interconnect
users, 34% were dispatch users and 44% were users of both dispatch and
interconnect. These plans include the sale or rental of various models of
handsets. The basic price package consists of a monthly fee of approximately
$40, interconnect rates per minute ranging from $.24 to $.31 and dispatch rates
per minute ranging from $.15 to $.23.
McCaw Brazil's sales and marketing efforts currently focus primarily on
providing cost-effective local and regional integrated services (dispatch and
interconnect). Its target markets are businesses engaged in transportation,
construction, security, services and also include utilities and government
agencies. McCaw Brazil utilizes both a direct sales force as well as dealers and
independent agents. It currently has over 13 direct sales representatives and 57
dealers and independent agents.
McCaw Brazil is headquartered in Sao Paulo and has branch offices in seven
other major cities. As of December 31, 1996, McCaw Brazil had 137 employees. Of
these, 115 were based in Sao Paulo.
Operating Company Subsidiaries. The following are subsidiaries or
affiliates of McCaw Brazil:
- AirLink. In September 1994, McCaw Brazil formed an indirect wholly
owned subsidiary, AirLink Servicos e Comercio Ltda. ("AirLink"). AirLink
owns equipment and, pursuant to service contracts, provides certain
technical support, billing, marketing and other administrative functions to
the licensee companies in Brazil.
- Telemobile Telecomunicacoes, Ltda. and Promobile Telecomunicacoes,
Ltda. In November 1994, McCaw Brazil entered into an agreement to purchase
49 percent of the capital stock of Telemobile Telecomunicacoes, Ltda. and
Promobile Telecomunicacoes, Ltda. with an option to acquire the remaining
51 percent.
- LMP Consultoria e Representacoes Ltda. In May 1996, McCaw Brazil
entered into an agreement to purchase 49 percent of the capital stock of
LMP Consultoria e Representacoes Ltda. ("LMP") with an option to acquire
the remaining 51 percent.
- Telecomunicacoes Brastel S/C Ltda. In May 1996, McCaw Brazil entered
into an agreement to purchase 49 percent of the capital stock of
Telecomunicacoes Brastel S/C Ltda. ("Brastel") with an option to acquire
the remaining 51 percent.
- Via Radio Administracao e Participacoes Ltda. In April 1994, McCaw
Brazil, through a holding company, acquired all the outstanding capital
stock of Via Radio Administracao e Participacoes Ltda. ("VRA"). In November
1993, McCaw Brazil, through the same holding company, acquired the four
Brazilian subsidiaries that were substantially wholly owned by VRA: (i)
Comercial Telecar Ltda., (ii) Telemovel Servicos Ltda., (iii) Car-Tel
Telefonia Movel S/C Ltda. and (iv) Comercial Teleservice Ltda.
- Via Radio-1 Telecomunicacoes e Comercio Ltda. In August 1993, McCaw
Brazil acquired 94 percent, and in July 1994, the remaining 6 percent, of
the capital stock of Via Radio-1 Telecomunicacoes e Comercio Ltda.
("VR-1"). In November 1994, the ownership of VR-1 was transferred from
McCaw Brazil to VRA.
- ATG-Telecomunicacoes a Comercio Ltda. and Radio Telecomunicacoes do
Brasil Ltda. In November 1993, VRA acquired all of the outstanding capital
stock of ATG Telecomunicacoes e Comercio, Ltda. ("ATG"), and its 70 percent
owned subsidiary, Radio Telecomunicacoes do Brazil Ltda. ("Radio-Telecom").
In September 1994, VRA acquired an additional 69 percent of capital stock
of Radio-Telecom.
71
<PAGE> 74
- Air-fone Participacoes e Empreendimentos S/C Ltda. In July 1994,
McCaw Brazil indirectly acquired all the outstanding capital stock of
Air-fone Participacoes e Empreendimentos S/C Ltda. ("Airfone") which, in
turn, held all of the outstanding capital stock of Airfone Comercio e
Servicos de Radiofonia Movel Ltda. and SOW Comercio e Servicos de
Radiofonia Movel Ltda.
- Master-Tec Industria e Comercio de Produtos Electronicos Ltda. In
September 1994, McCaw Brazil indirectly acquired 49 percent of the capital
stock of Master-Tec with an option to acquire the remaining 51 percent
interest.
Competition. McCaw Brazil is the largest SMR service provider in Brazil. In
addition, it has the largest SMR channel position of any service provider in
Brazil. There are a number of SMR competitors in Brazil, including MComCast (a
joint venture between Comcast Corporation and Banco Garantia), MCS and Radio
Movel Digital Americas, Inc.
On February 20, 1997, the Ministry of Communications released the new SMR
Rules (the "New SMR Rules") (i) permitting the combination of adjacent channels
in certain frequencies in the 400 MHz, 800 MHz and 900 MHz band and (ii)
requiring the use of digital technology for SMR systems operating in channels
401 to 600 of the 806-821 MHz and 851-866 MHz bands. The New SMR Rules also
provide that channels which have already been assigned to licensees, including
the Company, will be the object of a study addressing the prospective regrouping
of such channels for application in systems using digital technology. Because
the New SMR Rules allow SMR operators to combine adjacent channels to create
contiguous blocks and may provide for a regrouping of SMR channels to create
more contiguous blocks in the future, SMR operators may have additional
technology choices available to them. Although the Company does not believe that
the New SMR Rules will materially affect its technology decisions or the
attractiveness of McCaw Brazil's product or service offerings, the New SMR Rules
and technology decisions by other SMR operators, including existing and future
competitors, may increase competition in Brazil. The proposed regulations issued
on May 15, 1997 and June 25, 1997, if enacted by the Ministry of Communications
as drafted, would impose limitations on the Company's ability to (i) obtain
direct telephone numbers for all of its subscriber units in Brazil and (ii)
interconnect with the public telecommunications network, and therefore, may
limit the Company's ability to compete effectively with other wireless
communications service providers in Brazil, including the operators of the Band
B cellular licenses.
Brazil is one of the last major emerging countries to have only one
cellular provider per market. Telebras, the government-owned holding company
that controls the local telephone operators, is currently the only provider of
cellular service in Brazil. The current waiting list for a cellular telephone is
estimated to be three million people, with more than one million in Sao Paulo
where the average waiting time for a cellular telephone is two years. Due to the
demand for cellular telephony, the average price of a new cellular telephone on
the secondary market is estimated to be $2,000. In addition, there is reported
to be a 3.5 year waiting list for a landline phone. The average price on the
secondary market for a landline in Sao Paulo is estimated to be between $3,000
and $6,000.
In June 1997 and July 1997, the Government of Brazil awarded Band B
cellular licenses covering two of the ten areas throughout Brazil, including Sao
Paulo, pursuant to the Band B Rules. The Band B Rules divide the country into
ten regions for the auction of Band B cellular licenses. The total of the
minimum bids required by the Brazilian government for each of Brazil's ten
regions is $3.7 billion. This equates to a value of approximately $23 per POP in
Brazil. The minimum bid for the city of Sao Paulo is $600 million or
approximately $33 per POP in Sao Paulo. However, under the Band B Rules, a
cellular license winner can provide service in only one major Brazilian market
and one secondary market (e.g., the winner of the Sao Paulo license will be
precluded from owning the Rio de Janeiro license). In addition, future licensing
and commencement of cellular services will not be permitted until December 31,
1999. Some of the largest telecommunications companies in the world are expected
to be granted cellular licenses in the Band B auction, which will result in
significant competition in the Company's Brazilian markets. See "Risk
Factors -- Possible Delay in Offering ESMR Services in Brazil."
Partner Description. On January 30, 1997, Nextel acquired an 81% equity
interest in McCaw Brazil for a purchase price of $186.3 million, which was paid
with shares of Nextel Class A Common Stock, and
72
<PAGE> 75
simultaneously contributed its interest in McCaw Brazil to the Company. The
Telcom Group owns the remaining 19% equity interest in McCaw Brazil.
The Company is currently in discussions with several large Brazilian
corporate groups regarding the possible sale of up to a 15% equity interest in
the Brazil Holding Company. The proceeds from any such sale will be applied to
the upgrade of McCaw Brazil's network to ESMR. There can be no assurance that
the Company will be able to consummate any such transaction.
Regulatory and Legal Overview. The Ministry of Communications is the
Brazilian telecommunications authority responsible for administering and
regulating the SMR industry. In particular, the Ministry of Communications
regulates SMR licensing procedures and enforces both industry-wide and
contract-specific operating requirements. Notwithstanding the above, the
President of Brazil has announced that, as a result of the upcoming
privatization of the entire public telecommunications system, the Government of
Brazil may eliminate the Ministry of Communications and transfer its functions
to a new regulatory agency.
Before McCaw Brazil can launch commercial iDEN-based ESMR services in
Brazil, it will need to obtain the following approvals from the Ministry of
Communications: (i) project installation approval; and (ii) post-installation
operating approval. In addition, before McCaw Brazil can commence ESMR service,
"type certifications" must be obtained from the Ministry of Communications with
respect to the equipment to be deployed in Brazil. Motorola has received type
certification for most of its iDEN equipment, however, the Nortel switch and the
subscriber units that are used with iDEN networks have not yet been type
certified. The Company believes that these approvals will be obtained on a
timely basis. No assurance can be given that the Ministry of Communications will
grant the approvals or that the Company's planned roll-out of ESMR will not be
delayed.
Since July 13, 1994, it had been the Ministry of Communication's practice
to grant SMR licenses for a 15-year period and to renew such licenses for an
equal period upon submission of an application to the Ministry of
Communications. Certain of the Company's licenses granted prior to July 13, 1994
were granted for a term of five years and the Company believes that such
licenses have been automatically extended for a term of 15 years from their
original issuance date in accordance with Administrative Ruling No. 478.
Effective July 20, 1996, however, Law No. 9295 (the "Minimum Law"), modified
existing law so that SMR licenses granted after such effective date are issued
for a period of ten years and renewable for an additional ten-year period upon
submission of an application to the Ministry of Communications. The reduction to
ten years of the term and renewal periods for the licenses was confirmed by
Decree No. 2197, effective April 19, 1997. In either case, a license will be
renewed absent existing violations of applicable rules and regulations and upon
application 18 months prior to the expiration of the license. The Company
believes the legal doctrine of vested right ("direito adquirido") under
Brazilian law should insulate the existing terms of SMR licenses issued prior to
July 20, 1996, from the changes effected by the Minimum Law. All of the
Company's licenses were granted prior to July 20, 1996. Notwithstanding the
Minimum Law, a bill was signed into law on July 16, 1997 (the "General Law"),
which, among other things, revokes several provisions of the Minimum Law,
including the ten-year license term. Pursuant to the General Law, absent any new
regulations, existing SMR licenses will remain valid for the term for which they
were issued, however, to be renewed or extended, the term of the licenses must
be adapted to comply with the General Law. The General Law does not specify the
term of renewal or extension of SMR licenses. There can be no assurance that the
Ministry of Communications or a Brazilian court would invoke the doctrine of
vested right to insulate the existing terms of SMR licenses issued prior to July
20, 1996, from the reduced duration periods of SMR licenses as provided in the
Minimum Law.
The Ministry of Communications has established comprehensive operating
standards and requirements applicable to SMR licensees. A license holder of SMR
channels is required to meet certain installation and minimum loading
requirements. Failure to comply with such requirements may subject the licenses
relating to such channels to revocation by the Ministry of Communications.
Certain SMR equipment must be installed within 12 months after receiving an SMR
license from the Ministry of Communications. Additional installation time may be
permitted if more than four repeater stations are being installed. The
installation time also may be extended in the discretion of the Ministry of
Communications if circumstances beyond the control of the licensee contribute to
the delay. Under proposed regulations released for public comment on May 16,
1997 ("Regulation No. 16"), the period for installation of the equipment would
be fixed in the proposal
73
<PAGE> 76
submitted to the Ministry of Communications by the licensee, but no longer than
24 months from the date of issuance of the license. Further, installation cannot
be extended for longer than 6 months after the agreed upon installation date.
The Ministry of Communications requires each channel to be loaded with 30 SMR
radios within six months of the completion of the installation, and with 70 SMR
radios within four years of such date. McCaw Brazil currently is not in
compliance with applicable installation deadlines and minimum loading
requirements with respect to licenses covering 545 channels, all of which are
outside of Sao Paulo. Requests for extensions of the relevant deadlines have
been filed with the Ministry of Communications, except for channels where McCaw
Brazil failed to comply with applicable installations requirements due to
television frequency interference, for which extensions were granted
automatically by statute. No responses, however, have been received to date with
respect to such requests. There can be no assurance that the Ministry of
Communications will not take action in response to such failure to comply which
would have an adverse effect on McCaw Brazil.
Under the regulations of the Ministry of Communications, an SMR license is
not transferable before the installation of the SMR system infrastructure is
completed and the transfer of a majority interest in a licensee is also
restricted until installation is completed. Under the proposed regulations
issued on June 25, 1997, the transfer may only be effected after the actual
commencement of commercial operation of service, except for transfers between
entities under common control. The transfer of the license or the controlling
interest of a licensee also requires prior authorization from the Ministry of
Communications. Under Decree No. 2197, however, a transfer of the controlling
interest in the licenseholder to a controlled or controlling company does not
require prior approval from the Ministry of Communications if such transfer is
by succession or as a result of a stock split. Sales of shares comprising less
than a majority interest may be made at any time, provided notification is
submitted to the Ministry of Communications within 30 days after the
effectuation of the transfer. The Ministry of Communications has not established
clear procedures governing the transfer of SMR licenses or the time frame within
which it may approve such requests for transfer.
In Brazil, the transfer of control of an SMR licensee is subject to the
prior approval of the Ministry of Communications, except as noted above with
regard to stock splits. Because of these license transfer restrictions, McCaw
Brazil's interest in 1,180 of its 1,700 channels in Brazil is structured
pursuant to a number of option agreements entered into with the shareholders of
the respective corporate licensees of such channels. Pursuant to the Option
Agreements, McCaw Brazil has acquired a minority interest in each such licensee
not exceeding 49% and holds the option to acquire the balance of the ownership
interest in each such licensee upon the payment of an option exercise price. The
closing of each such option would be conditioned upon securing the approval of
the Ministry of Communications for the transfer of control of the relevant
licensees. The aggregate amount of the exercise price if all the options are
exercised is not material. A licensee is not eligible to request approval for
change of control until system installation has been completed, and many of the
channels that are the subject of the Option Agreements have not been installed.
The Company is currently conducting analog SMR system installation with regard
to a significant portion of the channels that are the subject of the Option
Agreements. While the Company believes it will receive Ministry of
Communications approval when it has met the installation requirements, no
assurance can be given that such approval will be obtained. Under the proposed
regulations issued on June 25, 1997, the transfer may only be effected after the
actual commencement of commercial operation of service. To the extent the
Company is not able to exercise its option to acquire the balance of the
ownership interest in a particular licensee, the Company believes that AirLink
would be able to continue to maintain its contractual right to manage the
operations subject to the license held by such licensee pursuant to a service
agreement and receive fees under such service agreement. However, the Company
would not own such license and the Company's rights with respect to such license
could be limited. There can be no assurance that the Ministry of Communications
would not challenge the validity of such service agreements. All of McCaw
Brazil's channels in Sao Paulo are indirectly owned entirely by the Company and
are not held pursuant to Option Agreements.
The Company owns or has options to acquire multiple channels in each of its
service areas in Brazil, which have been acquired from private parties rather
than the Ministry of Communications. Under Administrative Ruling No. 478, one
entity may not "receive" more than one SMR license in a given service area. Such
ruling also provides that an entity may not receive an SMR license if such
entity is a member of a commonly controlled or commonly managed group where
another member of such group already holds a
74
<PAGE> 77
license in the same service area. The Company believes that Administrative
Ruling No. 478 does not restrict an entity from acquiring prior to July 13, 1994
more than one license in the same service area from private parties and holding
such licenses directly or indirectly.
Administrative Ruling No. 478 also is unclear as to whether, in the event
of a transfer of multiple licenses, it would be permissible to consolidate such
licenses under the ownership of one entity. In any event the Company believes
that any limitation on acquiring or holding multiple SMR licenses in the same
service area or consolidation of multiple licenses would not affect those
licensees who held SMR licenses prior to July 13, 1994, the effective date of
Administrative Ruling No. 478. All of McCaw Brazil's licenses in Sao Paulo were
issued prior to July 13, 1994. There can be no assurance that the Ministry of
Communications will approve transfers of majority control of licensees in the
same service area. Furthermore, Decree No. 2197 effective April 9, 1997 provides
that any transfers of control can only occur after the period of time
established in rules to be issued by the Ministry of Communications.
Notwithstanding Ruling No. 478, proposed Regulation No. 16 would prohibit the
performance of SMR services in the same service area by an affiliate, a
controlled or controlling entity of an existing licensee or by a licensee that
is already the holder of an SMR license in the same service area. Any failure to
approve such transfers could have a material adverse effect on the Company.
Any Brazilian company headquartered in Brazil is eligible to obtain
licenses to operate SMR services and there are no limitations on foreign
ownership of such companies. However, under Decree No. 2197, licenses can only
be obtained pursuant to a public bid.
Brazil has recently made efforts to restructure its telecommunications
laws. The adoption of the Minimum Law, which is designed to rationalize
telecommunications services, including SMR, is an example of such efforts. The
Minimum Law provides that telecommunications services should be provided in such
a manner as to ensure interconnectivity, interoperability, fair competition
among service providers and equitable use of telephone numbers. In addition, the
Minimum Law requires public telecommunications service providers to allow for
interconnection of their networks with mobile cellular service networks. McCaw
Brazil is in the process of negotiating interconnection agreements with relevant
parties. Under Decree No. 2197, an SMR licensee may interconnect with the public
telecommunications network system at any convenient point of interconnection in
its service area. The General Law, however, revokes Article 12 of the Minimum
Law, which guaranteed SMR licensees the right to interconnect with the public
telecommunications network, and provide that interconnection for SMR services
will be subject to regulation by the Ministry of Communications or the newly
created regulatory agency.
The Government of Brazil received on April 7, 1997, bids for the auction of
Band B cellular licenses covering ten areas throughout Brazil, including Sao
Paulo and Rio de Janeiro. On January 13, 1997, the Ministry of Communications
released the Band B Rules, which contain a provision prohibiting the initiation
of operations by certain other mobile telecommunications service providers in
the areas covered by the Band B licenses until December 31, 1999. It is unclear
whether this provision of the Band B Rules will prevent the Company from
providing iDEN-based ESMR services in Brazil before December 31, 1999. The
Company does not believe that the Band B Rules are applicable to its current SMR
operations in Brazil. There can be no assurance, however, that either the
Ministry of Communications or companies bidding for the Band B licenses will not
attempt to prevent the Company from offering ESMR services before December 31,
1999. In addition, companies bidding for the Band B licenses may request that
the December 31, 1999 date be extended or seek clarification as to the
applicability of the Band B Rules to iDEN-based ESMR services. Any significant
delay in offering ESMR services would have a material adverse effect on the
Company's competitive position in Brazil and on its business and results of
operations.
On April 26, 1997 and in the beginning of June 1997, news reports appeared
in Brazilian newspapers and international wire services that an anonymous source
had forwarded to the Ministry of Communications a copy of the Company's offering
memorandum prepared in connection with the Initial Offering and a letter
alleging that the Company was operating in Brazil without authorization from the
Ministry of Communications. Based upon these allegations, the Ministry of
Communications sent to the Company a letter requesting its comments regarding
the allegations. On June 6, 1997, the Company sent to the Minister of
Communications a letter in response to the allegations. Although the Company
believes that the current regulatory
75
<PAGE> 78
framework permits the operation of its existing business in Brazil, there can be
no assurance that the Ministry of Communications will not modify the existing
regulatory framework, or initiate administrative proceedings, to impede the
Company from providing the existing SMR services or launching ESMR services.
Further, certain members of the Brazilian Congress introduced an amendment,
which was enacted as part of the General Law, to revoke Article 12 of the
Minimum Law, which provided for interconnectivity on a nondiscriminatory basis
and guarantees the right of SMR service providers, such as the Company, to
interconnect with the public telecommunications network. Any actions by the
Ministry of Communications or the Brazilian Congress impeding or placing
substantial restrictions on the Company's ability to deploy ESMR services could
have a material adverse effect on the Company's competitive position in Brazil
and on its business and results of operations.
On June 25, 1997, the Ministry of Communications issued proposed
regulations for public comment. Regulation No. 20 of June 25, 1997 ("Regulation
20"), if approved as drafted, would impose limitations on the Company's ability
to obtain direct telephone numbers for all of its subscriber units and
interconnect with the public telecommunications network. Under Regulation 20,
the public service company must apply to the Ministry of Communications to
obtain blocks of telephone numbers to be used for the SMR services and the
telephone numbers granted by the Ministry of Communications cannot exceed 50
percent of the total number of SMR stations projected to be in operation, as
provided in the schedule for the deployment of the services. Within the SMR
network, the volume of traffic interconnected with the public telecommunications
network cannot exceed 33 percent of the total of the intra-network traffic
volume plus calls interconnected to the public telecommunications network. The
evaluation of the traffic volumes for the purposes of the above restrictions is
to take place on a quarterly basis. In connection with the transfer of licenses,
or of the controlling interest in SMR licensees, such transfers still must be
approved by the Ministry of Communications and may take place only after the
effective commencement of commercial operations of the service of the
transferee. Notwithstanding the proposed limitations, Regulation 20 may allow
for the licensee to hold more than one SMR license in the same geographic area
and to aggregate the channels corresponding to each such licenses under one SMR
license, subject to the prior approval of the Ministry of Communications.
The purchase and sale of foreign currency in Brazil are subject to
governmental control. There are two foreign exchange markets in Brazil that are
subject to Central Bank regulations. The first is the commercial/ financial
floating exchange rate market which is reserved generally for: (i) trade related
transactions, such as import and export transactions; (ii) registered foreign
currency investments in Brazil; and (iii) certain other transactions involving
remittances abroad. The second is the tourism floating exchange rate market.
While both of these markets operate at floating rates freely negotiated between
the parties, the commercial/financial exchange market is restricted to
transactions which require prior approval of the Brazilian monetary authorities.
The purchase of currency for repatriation of capital invested in the country and
for payment of dividends to foreign shareholders of Brazilian companies is made
in the commercial/financial floating market.
Provided that the original investment of foreign capital and capital
increases were registered with the Brazilian monetary authorities, there are no
significant restrictions on the repatriation of share capital and dividends.
Application has been made to register a substantial portion of the foreign
capital invested by McCaw Brazil and its subsidiaries with the Brazilian
monetary authorities. The majority of the capital of AirLink, the Brazilian
subsidiary through which any dividends are expected to flow, has been registered
with the Brazilian monetary authorities, and McCaw Brazil intends to structure
future capital contributions to Brazilian subsidiaries to maximize the amount of
share capital and dividends that can be repatriated through the Brazilian
monetary authority. There can be no assurance that McCaw Brazil can repatriate
share capital and dividends on foreign investments that have not been registered
with Brazilian monetary authorities. Dividends paid out of profits generated
after 1996 are currently not subject to withholding tax.
Brazilian law provides that whenever there is a material imbalance or a
serious risk of a material imbalance in Brazil's balance of payments, the
Brazilian government may, for a limited period of time, impose restrictions on
the remittance by Brazilian companies to foreign investors of the proceeds of
investments in Brazil. The Brazilian government may also impose restrictions on
the conversion of Brazilian currency into foreign currency. Any such
restrictions may hinder or prevent the Company from purchasing equipment
required to be paid for in any currency other than Brazilian Reals.
76
<PAGE> 79
Under current law, there is a 15% withholding tax on interest payment and
no withholding tax on dividends.
ARGENTINA
The Company currently owns a 50% interest in McCaw Argentina. As a result
of the Argentina Transaction, the Company doubled its spectrum position, became
the largest SMR channel holder in Argentina, owning 820 SMR channels, which is
twice as many SMR channels as the second largest SMR operator and became the
holder of a nationwide paging business.
Country Overview. With a population of approximately 34 million, Argentina
is the fourth most populous country in Latin America. In 1995, over 86% of the
country's inhabitants resided in urban areas and over 50% of the total
population resided in the three largest metropolitan areas: Buenos Aires
metropolitan area (11.3 million POPs), Cordoba (2.4 million POPs) and Rosario
(2.0 million POPs). Argentina is characterized by above-average income levels
relative to other Latin American countries and had a GDP per capita of
approximately $8,167 in 1995, the highest in Latin America. The high penetration
of passenger vehicles in Argentina, approximately 18 per 100 population, is
another indication of the relative wealth of Argentines and the demand for
mobile communications services.
In 1991, the Argentine government implemented a stabilization and
structural reform program. Such efforts resulted in a sharp turnaround in
economic conditions. Real GDP growth accelerated to an average of approximately
5.0% a year from 1991 to 1996, up from .2% in the previous six years. The annual
rate of inflation declined to 1.6% in 1995 from 2,300% in 1990. The government
also carried out a substantial privatization program which included politically
sensitive sectors such as telecommunications, public utilities, oil, railroads,
provincial banks and the pension system.
The Argentine government was the first Latin American government to issue a
cellular license to a private entity. In July 1988, the Secretary of
Communications granted the first cellular license to Movicom.
Despite the relative maturity of the Argentine cellular market, it is one
of the fastest growing cellular markets in Latin America. From 1994 to 1995,
cellular subscribers grew 79%, reaching approximately 418,000 at the end of
1995, at which time, cellular penetration levels reached 2.6% in Buenos Aires,
.5% in the northern and southern interiors, and 1.3% for the entire country, as
compared to 12.8% cellular penetration in the United States. Strong cellular
growth is expected to continue, with 2.3 million projected subscribers
nationwide by 2000, reflecting a penetration rate of 6.2% for the entire
country. On a regional basis, Buenos Aires is projected to reach 10.6% market
penetration by the year 2000 and account for 65% of Argentina's total subscriber
base. At a monthly average of $130, Argentina's revenue per cellular subscriber
is one of the highest in Latin America. By comparison, average monthly revenue
per cellular subscriber is $51 in the United States.
The SMR business in Argentina is underdeveloped compared to the U.S.
market. In 1995, there were approximately 12,200 SMR subscribers in Argentina (a
penetration rate of less than .04%), compared to over 18 million SMR subscribers
in the United States (a penetration rate of 7.0%). Argentina's monthly average
revenue per SMR subscriber is approximately $50 compared to $16 in the United
States.
Operating Company Overview. McCaw Argentina has 180 SMR channels (9 MHz) in
Buenos Aires, 200 SMR channels (10 MHz) in each of Cordoba, Rosario and Mendoza
and an additional 20 SMR channels in each of Mar del Plata and Tucuman. The
Company believes its channel position will allow McCaw Argentina to compete more
effectively with other wireless communications providers. McCaw Argentina also
operates a paging business with approximately 4,000 subscribers under a
nationwide paging license.
In February 1997, McCaw Argentina launched commercial SMR service in Buenos
Aires. In the second quarter of 1997, the company began offering commercial SMR
service in Cordoba and Rosario. Additionally, McCaw Argentina offers paging
services in Buenos Aires and Mar del Plata.
McCaw Argentina plans to construct a digital ESMR network in Buenos Aires,
Cordoba, Rosario and Mendoza utilizing Motorola's iDEN technology. The company
expects to launch commercial ESMR service later in 1998. While migrating its
analog customers to the digital network, the company intends to operate parallel
digital and analog networks. As part of the migration process, the company will
encourage its higher
77
<PAGE> 80
usage customers to convert to the digital network so they can benefit from the
broader range of service offerings. Digital service offerings will include
interconnect services, dispatch radio and paging using one multi-functional
handset. Initially, the company will target the mobile workforce, which it
believes will be the most likely users of iDEN's integrated service offerings.
McCaw Argentina currently offers analog dispatch and interconnect service
utilizing both Motorola and Ericsson equipment. Service offerings include
private call, call alert and scanning. The company plans to differentiate itself
from other SMR providers by offering superior voice quality, providing extensive
service coverage and maintaining a high level of customer service. The company
has a centralized customer service and installation center located in Buenos
Aires.
The company's SMR service is designed to be a business tool for the mobile
workforce. The company intends to focus its marketing efforts on businesses that
have a need for mobile communications such as trucking and transportation
companies, real estate firms, construction companies, suppliers and distributors
and security companies. McCaw Argentina is in the process of developing a
distribution network and believes a strong direct sales force is essential to
reaching potential business customers. The company is currently building a
direct sales force and expects to have 26 direct sales representatives by the
end of 1997. In addition, the company has contracted with independent dealers to
market McCaw Argentina's products and is providing extensive training to each of
its distribution channels in order to ensure a high level of customer
satisfaction. The company expects 25% of new customers will be added through
independent dealers.
McCaw Argentina will offer multiple pricing plans tailored for the business
user and will maintain broad flexibility on its pricing decisions. Unlike many
of its competitors, McCaw Argentina sells its SMR handsets instead of leasing
them. The sale of handsets provides a more stable revenue stream and tends to
reduce customer churn. Currently, the average retail price for an analog handset
is $429.
To establish brand identity, the company has begun a promotional
advertising campaign which targets the business segment of the market. In
addition to advertising, the company initially will rely heavily on its direct
sales force to educate potential customers on the benefits of using McCaw
Argentina's service.
McCaw Argentina is headquartered in Buenos Aires. As of December 31, 1996,
McCaw Argentina had 23 employees.
Operating Company Subsidiaries. The following are subsidiaries of McCaw
Argentina:
- McCaw Argentina S.A. Incorporated in Buenos Aires on June 28, 1994,
McCaw Argentina S.A. holds trunking licenses for Buenos Aires, Cordoba,
Mendoza and Rosario and shares management and operations, including billing
and selling of handsets, with Airlink S.A. The Company plans to transfer
the management and operations functions currently performed by Airlink S.A.
to McCaw Argentina S.A.
- Buenos Aires Trunking S.A. Incorporated in Buenos Aires on September
15, 1994, Buenos Aires Trunking S.A. holds trunking licenses for Buenos
Aires, Cordoba, Mendoza and Rosario.
- Communications Services of Argentina S.A. Incorporated in Buenos
Aires on March 16, 1993, Communications Services of Argentina S.A.
("Communications Services") holds trunking and paging licenses in Mar del
Plata and Tucuman. Communications Services also holds a paging frequency
and two bidirectional paging frequencies in Buenos Aires, Cordoba, Mar del
Plata, Mendoza, Rosario and Tucuman.
- Airlink S.A. Incorporated in Buenos Aires on August 4, 1995, Airlink
S.A. currently shares management and operations with McCaw Argentina S.A.
The Company plans to transfer the management and operations functions
currently performed by Airlink S.A. to McCaw Argentina S.A.
Competition. The two largest SMR providers in Argentina, as measured by
subscribers, are owned by Movicom and Miniphone S.A. ("Miniphone") (the two
cellular providers in Buenos Aires) and operate under the tradenames "Movilink"
and "Starcom," respectively. Movicom owns 100 channels in Buenos Aires and 40
SMR channels in each of the three other major cities. In addition to operating
various SMR networks, Movicom also operates an iDEN-based system in Buenos
Aires. Movicom's iDEN system utilizes the higher capacity "first-generation"
voice algorithm system. Movicom has an arrangement with Motorola that gives it
exclusive use of iDEN in Argentina until September 15, 1997. Based on
discussions between the Company
78
<PAGE> 81
and Motorola, the Company does not believe that this exclusivity period will be
extended. Starcom owns and operates 60 channels in Buenos Aires and additional
SMR channels in two other major cities. There are two cellular service providers
in each of the major markets in Argentina. In Buenos Aires, the two service
providers are Movicom (a joint venture among BellSouth Corporation, Motorola and
others) and Miniphone (a joint venture among the two Argentine telephone
companies, Telefonica de Argentina S.A. and Telecom Argentina STET-France
Telecom S.A.). Over 300,000, or 70%, of Argentina's cellular subscribers are
located in Buenos Aires. In the northern region of Argentina, the two service
providers are Compania de Telefonos del Interior S.A. ("CTI") (a joint venture
that includes GTE and Lucent Technologies) and Telecom Personal S.A. (a wholly
owned subsidiary of Telecom Argentina STET-France Telecom S.A.). In the southern
region of Argentina, the two service providers are CTI and Telefonica
Comunicaciones Personales S.A., a wholly owned subsidiary of Telefonica de
Argentina S.A., which operates under the name UNIFON.
The Company expects additional competition following the auction of PCS
licenses and the auction of an additional 220 SMR channels in Buenos Aires and
other major cities, which are expected to occur during 1997.
Partner Description. The Company and WVA each own 50% of McCaw Argentina.
Regulatory and Legal Overview. The Comision Nacional de Comunicaciones
("CNC") and the Secretary are the Argentine telecommunications authorities
responsible for administration and regulation of the SMR industry.
CNC regulations require SMR operators to build-out their channels within 12
months of the channel authorization issuance if the system is multi-site and to
guarantee their performance by posting a bond equivalent to the price paid in
the spectrum auction. The bond is released once the installation and activation
of the SMR site or sites have been verified by the CNC. McCaw Argentina S.A. has
built out its channels in a timely fashion and the bonds posted by McCaw
Argentina S.A. and WVA in connection with its build-out obligation have expired
and are not required to be replaced.
SMR licenses have an indefinite term, but are subject to revocation for
violation of applicable regulatory rules as discussed below. SMR service must
commence within six months to one year after receipt of the channel assignment
(depending on the type of network configuration). Failure to meet service or
loading requirements can result in revocation of the channel authorizations. The
CNC will revoke the licensee's license upon the finding of a third breach by a
licensee of service requirements. Licenses and channel authorizations may be
revoked for violation of other regulatory authority rules and regulations. All
SMR channel holders, including McCaw Argentina S.A. and WVA's Argentine
subsidiaries, that received their channel authorizations pursuant to the
November 1995 SMR auction were granted an extension to December 1997 from the
original December 1996 deadline to meet initial loading requirements. The
Company has been loading subscribers to its analog SMR network since the
commencement of service in February 1997 and expects to meet the initial loading
requirements by the deadline. Argentina imposes no limitation on foreign
ownership of SMR licenses.
SMR providers are assured unlimited interconnect pursuant to the terms of
the tender rules under which the channels were awarded, as well as pursuant to
applicable laws. Furthermore, interconnection with the public switched telephone
network must be on a nondiscriminatory basis. McCaw Argentina S.A. is in the
process of negotiating interconnect agreements with the applicable parties.
Under current law, Argentine currency is convertible into U.S. dollars
without restrictions, and Argentina has a free exchange market for all foreign
currency transactions.
Under applicable Argentine corporate law, dividends may be paid only from
liquid and realized profits as shown on the company's financial statements
prepared in accordance with Argentine generally accepted accounting principles.
Five percent of such profits must be set aside until a reserve equal to twenty
percent of the company's capital stock has been established. Subject to these
requirements, the balance of profits may be declared as dividends and paid in
cash pursuant to a majority vote of the shareholders. Under current law, there
is a 13.2% withholding tax on interest payments and no withholding taxes on
dividends.
79
<PAGE> 82
MEXICO
The Company owns an approximately 48.1% equity interest in Mobilcom.
Mobilcom is the largest SMR service provider in Mexico.
Country Overview. Mexico is the second most populated country in Latin
America, with a population of 92 million. Mexico's population is 75% urban, and
approximately 18 million people, or more than one-fifth of the country's total
population, reside in the Mexico City metropolitan area. Other major
metropolitan population centers include Guadalajara (3.4 million POPs) and
Monterrey (3.1 million POPs). In addition, Mexico's income level is above
average relative to other countries in Latin America.
The Mexican government's fiscal and monetary policies since the 1994 peso
devaluation have been credited with preventing a deeper economic crisis and have
stabilized the country's economic recovery. After contracting 6.2% in 1995, the
economy is expected to grow 4.4% in 1996 and nearly 5.9% in 1997. Inflation is
estimated to have fallen to 27.0% in 1996 from 52.0% in 1995, and is projected
to decline to 17.0% in 1997.
Mexico has a relatively low teledensity, with approximately 9.2 lines per
100 inhabitants. Mexico's cellular market is the second largest in Latin America
based on the number of subscribers, but with a penetration rate of 0.8% in 1995,
cellular penetration in the Mexican market is still significantly below the U.S.
cellular penetration rate of 12.8% and the Latin American cellular penetration
rate of 1.3%. In a country where fewer than 10 out of every 100 inhabitants have
a telephone line, cellular telephony can serve as a landline substitute.
Mexico has experienced very rapid growth in the number of wireless
subscribers. Over the last five years, annual growth has averaged 62%. Cellular
subscribers are projected to grow from 686,000 at the end of 1995 to
approximately 2.9 million at the end of 2000, an annual growth rate of 33%. The
principal factor driving demand over the next five years will be the expected
accelerated growth of the Mexican economy. By 2000, cellular penetration in
Mexico is expected to reach 3.5%. Currently, over 48% of cellular subscribers in
Mexico are located in Mexico City.
Mexico has an SMR penetration rate of approximately .05%. Unlike many SMR
providers, the company sells the majority of its handsets instead of leasing
handsets. The average revenue per subscriber per month for cellular and SMR in
Mexico is $78 and $19, respectively, which is higher than the average monthly
U.S. revenue for cellular $51 and for SMR $16.
Operating Company Overview. Mobilcom began commercial SMR operations in
September 1993 under the brand name "Tricom." Mobilcom, through its subsidiaries
and management agreements, provides SMR services in 15 cities and along a number
of major highways. As of December 31, 1996, the company had approximately 24,000
subscribers. The cities in which Mobilcom, through its subsidiaries and
management agreements, holds SMR licenses include: Mexico City (with a total of
204 channels representing approximately 10 MHz), Guadalajara (with a total of 60
channels) and Monterrey (with a total of 25 channels). As of December 31, 1996,
Mobilcom had 43 transmitter sites. Mobilcom has deployed Motorola, Uniden, Nokia
and General Electric technology in its analog SMR networks.
Mobilcom initially intends to construct a digital ESMR network in Mexico
City utilizing Motorola's iDEN technology. The company expects to launch
commercial service on its digital ESMR network later in 1998. While migrating
its analog customers to the digital network, the company intends to operate
parallel digital and analog networks, but within two years of commercial
implementation of ESMR services the company anticipates all of its customers
will be migrated to digital. As part of the migration process, the company will
encourage its higher usage customers to convert to the digital network so they
can benefit from the broader range of service offerings. Digital service
offerings will include interconnect services, dispatch radio and paging using
one multi-functional handset. Initially, the company will target the mobile
workforce which it believes will be the most likely users of iDEN's integrated
services.
Mobilcom's assets also include 1,040 channels in the 400 MHz frequency band
covering central and northern Mexico. Mobilcom currently is considering a sale
of its 400 MHz channels because this frequency is not central to Mobilcom's
business plan. In addition, Mobilcom is building a digital microwave network
throughout central and northern Mexico to provide regional dispatch radio
services. The Company is also contemplating leasing excess capacity on its
digital microwave network to one or more of the recently licensed
80
<PAGE> 83
long distance providers in Mexico, including Telecomunicaciones Globales, S.A.
de C.V., a company in which the Company holds a 13% equity interest
("Globales"). Mobilcom and Globales have entered into certain arrangements
pursuant to which Globales leases access to Mobilcom's microwave network.
In 1995 and 1996, Mobilcom experienced high rates of churn (reaching an
average of 3.7% per month over the two-year period) which the Company believes
was caused primarily by the economic downturn in Mexico. Further, the company
suffered from a high level of bad debt expense. To address these problems,
Mobilcom's board of directors appointed a new chief operating officer in the
fourth quarter of 1996. The primary short-term objectives of the company are to:
(i) implement a plan to reduce overall operating expenses; (ii) build a high
quality customer base and focus on maximizing profitability rather than building
market share; and (iii) establish a high level of customer service, comparable
in quality to the customer service provided by wireless communications companies
in the United States.
Mobilcom offers its customers a broad range of services and pricing plans
designed to meet the specific needs of its customers. Mobilcom offers dispatch
only and integrated service plans (dispatch and interconnect). These plans
include sale or rental of various models of handsets. The basic price package
consists of a monthly fee and interconnect and dispatch charges depending on
minutes of use.
Mobilcom's sales and marketing efforts focus primarily on providing
cost-effective local and regional dispatch radio services to its target
customers, which are businesses engaged in manufacturing and distribution.
Mobilcom markets its services through a multichannel distribution network
including direct sales representatives and independent dealers. Direct sales
representatives account for 40% of new customers and distributors account for
60%. In the future, the company expects to increase sales through the
distributor channel because it believes this channel will be the most effective
in targeting small businesses.
Mobilcom is headquartered in Mexico City and has branch offices in
Guadalajara, Monterrey and Tijuana. As of December 1996, Mobilcom had
approximately 150 employees in Mexico.
Operating Company Subsidiaries. The following are active subsidiaries of
Mobilcom:
Tricom Network S.A. de C.V. Incorporated in Mexico on August 18, 1994,
Tricom Network S.A. de C.V. ("Tricom") is responsible for billing Mobilcom
customers. Mobilcom owns 99.9% of the equity of Tricom.
Servicios de Radiocomunicacion Movil de Mexico S.A. de C.V. Incorporated in
Mexico on November 9, 1990, Servicios de Radiocomunicacion Movil de Mexico S.A.
de C.V. ("Servicios") holds 800 MHz SMR licenses. Mobilcom owns 97.11% of the
equity of Servicios.
Sistemas de Comunicaciones Troncales S.A. de C.V. Incorporated in Mexico on
March 16, 1989, Sistemas de Comunicaciones Troncales S.A. de C.V. ("Sistemas")
holds 800 MHz and 400 MHz SMR licenses. Mobilcom indirectly owns 99.99% of the
equity of Sistemas.
Teletransportes Integrales S.A. de C.V. Incorporated in Mexico on June 29,
1991, Teletransportes Integrales S.A. de C.V. ("Teletransportes") owns fixed
assets including antennae, amplifiers and channels. Teletransportes lease these
fixed assets to Tricom. Mobilcom indirectly owns 99.99% of the equity of
Teletransportes.
Fonotransportes Nacionales S.A. de C.V. Incorporated in Mexico on March 9,
1993, Fonotransportes Nacionales S.A. de C.V. ("Fonotransportes Nacionales")
holds 400 MHz SMR licenses. Mobilcom indirectly owns 99.8% of the equity of
Fonotransportes Nacionales.
Fonotransportes A.C. Organized as a not-for-profit civil association in
Mexico on June 12, 1989, Fonotransportes A.C. holds permits for 2 GHz microwave
links.
Radiophone S.A. de C.V. Incorporated in Mexico on June 29, 1991, Radiophone
S.A. de C.V. ("Radiophone") is a holding company for the following subsidiaries:
(i) Sistemas, (ii) Teletransportes, (iii) Fonotransportes Nacionales and (iv)
Fonotransportes A.C. Mobilcom owns 99.99% of the equity of Radiophone.
Comunicacion Integral San Luis S.A. de C.V. Prop. Incorporated in Mexico on
January 12, 1993, Comunicacion Integral San Luis S.A. de C.V. ("Comunicacion
Integral") owns fixed assets including antennae, amplifiers and towers.
Comunicacion Integral leases these assets to Tricom. Mobilcom owns 99.98% of the
equity of Comunicacion Integral.
81
<PAGE> 84
Multifon S.A. de C.V. Incorporated in Mexico on June 17, 1987, Multifon
S.A. de C.V. ("Multifon") imports equipment for sale to Tricom. Mobilcom owns
99.99% of the equity of Multifon.
Equipos de Radiocomunicacion Movil S.A. Incorporated in Mexico on June 12,
1989, Equipos de Radiocomunicacion Movil S.A. ("Equipos") holds 800 MHz SMR
licenses. Mobilcom owns 99.99% of the equity of Equipos.
Autofon de Mexico S.A. de C.V. Incorporated in Mexico on December 9, 1977,
Autofon de Mexico S.A. de C.V. ("Autofon") holds 800 MHz SMR licenses. Mobilcom
owns 99% of the equity of Autofon.
Telecomunicacion Radial S.A. de C.V. Incorporated in Mexico on July 19,
1993, Telecomunicacion Radial S.A. de C.V. ("Radial") holds 800 MHz SMR
licenses. Mobilcom owns 99.99% of the equity of Radial.
Comunicaciones 2000 S.A. de C.V. Incorporated in Mexico on June 30, 1989,
Comunicaciones 2000 S.A. de C.V. ("Comunicaciones 2000") holds 800 MHz SMR
licenses. Mobilcom owns 99.98% of the equity of Comunicaciones 2000.
Promocion de Servicios de Telecomunicacion S.A. de C.V. Incorporated in
Mexico on September 12, 1990, Promocion de Servicios de Telecomunicacion S.A. de
C.V. ("Promocion") holds 800 MHz SMR licenses. Mobilcom owns 99.99% of the
equity of Promocion.
Nacional de Telecomunicaciones S.A. de C.V. Incorporated in Mexico on May
2, 1985, Nacional de Telecomunicaciones S.A. de C.V. ("Natel") holds 800 MHz SMR
licenses. Mobilcom owns 99.99% of the equity of Natel.
Competition. Mexico currently has only 85,000 commercial SMR subscribers,
compared to more than 18 million in the United States. Mobilcom is the largest
SMR provider in Mexico, both in terms of channels and subscribers. The Mexican
cellular market is divided into nine regions and there are two cellular licenses
per region. Telefonos de Mexico, S.A. de C.V. ("Telmex"), Mexico's national
telephone company, has a nationwide cellular license. In the Mexico City region
and throughout most of the southern portion of Mexico, the second cellular
carrier is Iusacell, S.A. de C.V. (a joint venture between Bell Atlantic and
Grupo Iusacell). In the northern part of Mexico, cellular carriers include
Movitel, Cedetel and Baja Cellular Mexicana. Poctatel del Sureste is also active
in Southern Mexico.
As part of its drive to improve and increase Mexican telecommunications
services, the Mexican government has announced its intention to auction a number
of licenses to provide wireless communications services, including licenses for
dispatch services in the 900 MHz frequency band, for narrowband dispatch
services in the 220 MHz frequency band and PCS. Such auctions, which are
anticipated to occur during 1997, will increase the number of actual and
potential competitors that Mobilcom will face.
Partner Description. The Company's strategic partners in Mobilcom include
Grupo San Luis, WVM and Associated SMR, which hold approximately 21%, 11.6% and
11.3% interests, respectively. The remaining interests in Mobilcom are held by
the Carlyle Group, one smaller shareholder and a number of individuals.
Regulatory and Legal Overview. The Secretary of Communications and
Transportation regulates the telecommunications industry in Mexico. Since early
1994, the Mexican government has been deregulating the telecommunications
industry in order to improve the quality and expand the coverage of
telecommunications services. The Mexican government has stated its intention to
increase competition within the telecommunication industries and its desire to
attract foreign investment for the purpose of improving Mexico's
telecommunications infrastructure. Mexico's Federal Telecommunications Law (the
"Mexican Federal Telecommunications Law"), which became effective in June 1995,
outlines the broad rules for opening the local and long distance service markets
to competition.
The Mexican Federal Telecommunications Law requires that all
telecommunications licenses (referred to as "concesiones" in Mexico) must be
owned by entities that do not have more than 49% of their voting equity interest
owned by non-Mexican entities. Although such 49% limitation existed prior to the
enactment of the Mexican Federal Telecommunications Law for certain types of
telecommunications licenses, SMR licenses issued prior to the effectiveness of
the legislation could be owned by entities wholly owned by non-Mexicans.
Mobilcom believes that in accordance with the terms of the Mexican Federal
Telecommunications Law and Mexican constitutional law principles, the 49%
limitation on non-Mexican participation does not apply to the SMR licenses in
which it had an interest at the time of the effectiveness of the Mexican
82
<PAGE> 85
Federal Telecommunications Law. Consistent with this view, in May 1996, the
Mexican Secretary of Communications and Transportation amended all of the 800
MHz SMR licenses issued prior to the effective date of the Mexican Federal
Telecommunications Law in which Mobilcom had an interest to delete a provision
limiting non-Mexican participation to 49%. Accordingly, all of Mobilcom's 800
MHz SMR licenses, except for one license covering 10 channels along a major
highway from Mexico City to Guadalajara, were amended to remove the 49%
foreign-ownership limitation. The provisions of the Mexican Federal
Telecommunications Law restricting foreign ownership of telecommunications
licenses may, however, have an impact on future acquisitions of licenses by
Mobilcom, including licenses for channels needed to build-out digital mobile
networks in Mexico, and renewal of existing licenses. Although licenses to
provide cellular services are also subject to the 49% limitation on foreign
ownership, the Mexican Federal Telecommunications Law explicitly provides for a
waiver procedure of such limitations for cellular providers upon receipt of a
favorable opinion from the Mexican National Foreign Investments Commission.
The Mexican Federal Telecommunications Law provides all wireless services
providers with the right to interconnect to the public switched network operated
by Telmex. Mobilcom has entered into an interconnection agreement with Telmex
and currently provides interconnection services through Telmex to a limited
number of its subscribers. Mobilcom plans to increase subscriber interconnection
significantly as it upgrades its SMR network.
Mexican companies may remit dividends and profits outside of Mexico if the
Mexican company meets certain distribution and legal reserve requirements. A
Mexican company must distribute 10% of its pretax profits to employees and
allocate 5% of net profits to the legal reserve until 20% of the stated capital
is set aside. Although the Company's investment in Mobilcom is registered with
the Mexican National Registry of Foreign Investments, registration is no longer
a prerequisite for the remittance of dividends and profits outside of Mexico.
Under Mexican corporate law, approval of a majority of shareholders of a
corporation is required to pay dividends. Dividends paid by Mobilcom to its U.S.
shareholders are subject to a 10% withholding tax unless Mobilcom chooses to pay
the Mexican corporate income tax on the net earnings from which the dividends
are being paid. Interest paid by Mobilcom to U.S. residents is subject to a 10%
withholding tax.
PHILIPPINES
In August, 1996, McCaw International acquired a 30% equity interest in
Infocom, a company organized under the laws of the Republic of the Philippines.
Infocom owns nationwide licenses (with a total of 100 channels representing
approximately 5 MHz), to provide SMR, ESMR and paging services. Infocom began
commercial service of its paging network in February 1995 under the brandname
"Infopage" and plans to begin commercial service of an iDEN-based ESMR network
by the end of 1997.
Country Overview. The Philippines has a population of approximately 67
million people and population density of 228 people per square kilometer,
compared to a population density of 29 people per square kilometer in the United
States. The principal cities include Manila, Quezon City, Davao City, Caloocan
City and Cebu City. The country has experienced strong economic growth. In 1995,
GDP increased by 4.8% and by 4.3% in 1994.
The Philippines has one of the lowest teledensities in Southeast Asia, with
approximately one line per 100 inhabitants. It is estimated that only 45% of
total demand has been satisfied. Further, metropolitan Manila, the country's
most urban area, has 80% of all telephone lines with approximately two per 100
inhabitants. The waiting list for landline telephone service contains
approximately 800,000 names and it can take nearly nine years to get a landline
telephone. Current efforts to increase landline installation are expected to
bring teledensity to ten lines per 100 inhabitants by the year 2000.
The demand for wireless telephone services has grown significantly,
principally due to low teledensity, competition and rising income levels
resulting from strong economic growth in the country. In 1994 and 1995 the
market for wireless services grew by nearly 110% and 150%, respectively. Despite
this growth, the Philippines has one of the lowest cellular penetration rates in
Southeast Asia at .5%. Comparatively, Singapore and Malaysia have penetration
rates of 10.0% and 5.0%, respectively. Currently, there are more than 500,000
cellular subscribers nationwide, with most of this base concentrated in
metropolitan Manila. The continuing economic prosperity in the Philippines is
expected to drive the demand for wireless services over
83
<PAGE> 86
the next decade. According to industry estimates, the number of cellular
subscribers should grow at a compounded annual rate of 47% to reach 3.3 million
subscribers, or a 4.4% penetration rate, by the end of the decade.
The Philippine paging market has experienced substantial growth over the
past few years. From 1993 to 1995, paging subscribers grew 202%, reaching
325,000 subscribers at the end of 1995. Despite the rapid growth of the
Philippine paging market, it remains largely underdeveloped with a penetration
rate of only .5%. Strong paging growth is expected to continue, with 1.4 million
paging subscribers projected in the year 2000, reflecting a five year compound
annual growth rate of 35% and a penetration rate of 1.8%. The Philippine SMR
market is underdeveloped as well, with only 18,000 SMR subscribers at the end of
1995, or a penetration rate of .03%.
Operating Company Overview. Infocom commercially launched paging services
in February 1995 under the brand name "Infopage." The company has approximately
42,000 subscribers at December 31, 1996 and the Company believes that it was the
fourth largest paging company in the country. Infocom currently offers coverage
across metropolitan Manila and Subic Bay and expects to offer nationwide
coverage by the end of 1997.
Infocom offers both alphanumeric and numeric paging services utilizing
Motorola's FLEX technology and differentiates itself from its competitors by
offering a variety of value-added services including secretarial services, voice
mail, call forwarding, fax mail and group call. Moreover, the company places
considerable emphasis on providing a high level of customer service through its
customer service center located at the company's headquarters in Manila. Unlike
many of its competitors, Infocom does not lease or rent its pagers and currently
its average retail sale price for alphanumeric units exceeds $250. The company's
monthly subscription rate for alphanumeric paging services is currently
approximately $12.
Paging services in the Philippines are targeted at both the business and
consumer segments. Infocom has developed a comprehensive and diverse
distribution network and believes that such a diverse distribution mix will
contribute to an increased growth in its subscriber base. In order to capture
the consumer segment and create brand awareness, Infocom has ten owned and
operated retail outlets, primarily located within large shopping malls, that
exclusively carry the company's products. The company intends to expand this
channel to twenty retail locations by the end of 1997. To target the business
segment, the company has a direct sales force of 130 people, which it intends to
increase to 200 by the end of 1997. Finally, the company has contracted with ten
major dealers and 70 independent dealers to market Infopage's products. The
company expects this independent channel to grow to over 100 dealers by the end
of 1997.
Infocom has a nationwide SMR license and is currently constructing a
digital ESMR network utilizing Motorola's iDEN technology. Infocom currently
does not have any ESMR subscribers, but expects to launch commercial ESMR
service in metropolitan Manila during 1997. In December 1996, Infocom signed an
equipment purchase contract with Motorola. At present, the company has acquired
12 of the 44 proposed radio cell sites and has begun construction of its switch
facility.
Infocom's ESMR business will initially target the larger business customers
in its markets. The company intends to focus on building profitability rather
than building market share in a similar fashion to its efforts in its paging
business. Within the business segment, the company believes the mobile workforce
including construction, service, real estate and sales companies will be the
most likely users of iDEN's integrated service offerings.
Although the company intends to fully utilize its established paging
distribution network and leverage Infopage's brand recognition, the company also
intends to substantially augment its direct sales force in order to effectively
target other business customers. The company has begun to formulate a strategy
for its pricing plans and aims to charge a premium to low usage subscribers and
a slight discount to high usage subscribers while offering a significantly
greater number of services.
Infocom is headquartered in Manila. As of December 31, 1996, Infocom had
456 employees of which 320 were operators serving its paging customers. In
addition to designating three of the 11 members of Infocom's board of directors
as well as having one of its directors serve as an advisor to Infocom's
executive committee (which is a management committee that under Philippine law
may only have Philippine nationals as
84
<PAGE> 87
members), the Company has seconded two of its managers as full time employees of
Infocom with responsibility for leading Infocom's marketing and technical
efforts.
Competition. There are two major SMR license holders in the Philippines,
each owning 100 channels nationwide, and 10 licensed paging operators. Infocom
believes that it is uniquely positioned to compete effectively in the
Philippines as a result of its nationwide SMR license and its fast-growing
paging business. In addition, the Joint Operating Agreement would enable Infocom
to jointly operate the largest SMR system in the Philippines. There are
currently five cellular providers with nationwide licenses in the Philippines,
two of which are AMPS operators, one of which is a TACS operator and two of
which are GSM operators. Pilipino Telephon Corporation ("Piltel"), the operator
of the public switched telephone network, is the largest cellular provider, with
over 50% market share. As part of its effort to improve teledensity, the
government requires cellular providers to meet certain landline buildout
requirements, which require the installation of 400,000 telephone lines. This
represents a significant investment for each of these providers. See
"-- Regulatory and Legal Overview."
Partner Description. The Company's partners in Infocom include the Gotesco
Group, a leading diversified conglomerate engaged in retail, real estate,
banking, manufacturing and trading in the Philippines headed by Jose C. Go,
which owns a 20% interest in Infocom. Affiliates of AIG recently purchased a 10%
interest in Infocom from an existing Infocom shareholder at a significantly
higher implied valuation than that paid by the Company for its interest in
Infocom. Other shareholders include a 32% holder and an 8% holder.
Regulatory and Legal Overview. In the Philippines, the telecommunications
industry is principally governed by Republic Act No. 7925 (the "Telecoms Act")
enacted on March 1, 1995. Under the Telecoms Act, the National
Telecommunications Commission (the "National Commission"), an agency under the
Department of Transportation and Communications, is mandated to regulate the
telecommunications industry.
Engaging in telecommunications operations requires a franchise from the
Philippine Congress, which is the country's legislative body. After securing a
Congressional franchise, a franchise holder must apply to the National
Commission for an operating license called a Certificate of Public Convenience
and Necessity ("CPCN"). The grant of a CPCN goes through a process of public
notice and hearing. After receipt of an application for a CPCN for a particular
telecommunications service, and pending its legal, technical and financial
evaluation through a public hearing, the National Commission will initially
issue a Provisional Authority ("PA"), which serves as a temporary operating
permit for the particular telecommunications services applied for. Pursuant to
the PA an applicant can commence construction and commercial operations.
Infocom's PA authorizes it to operate a nationwide digital trunked radio
dispatch communications system. It is subject to revocation for failure to (i)
operate continuously for two years or (ii) commence operations within two years
of the issuance of the PA. Pursuant to Infocom's PA, as amended, it is required
to commence operations by January 20, 1998.
The Telecoms Act provides that a telecommunications entity with regulated
types of services must make a public offering of at least 30% of its aggregate
common stock within a period of five years from the effective date of the
Telecoms Act or the entity's first start of commercial operations, whichever
occurs later. Accordingly, Infocom is mandated to make a public offering of 30%
of its common stock by March 1, 2000.
Under Philippine law, foreign entities' direct ownership of a public
utility telecommunications company is limited to 40% of the company's capital
stock. Philippine law also limits the participation of foreign investors in the
governing body of any public utility enterprise to their proportionate share in
its capital; therefore, a foreign investor's participation in the management of
a telecommunications company is limited solely to membership on its board of
directors. Accordingly, all the executive and managing officers (e.g.,
president, chief executive officer, treasurer) are required to be citizens of
the Philippines.
Presidential Executive Order No. 59 (1993) prescribes, as a matter of
national policy, for the compulsory and nondiscriminatory interconnection of
authorized public telecommunications carriers. Interconnection is negotiated and
effected through bilateral negotiations between the parties involved subject to
certain technical/operational and traffic settlement rules of the National
Commission. Infocom is discussing an interconnection agreement with Piltel.
85
<PAGE> 88
Presidential Executive Order No. 109 Series of 1993, and, subsequently, the
Telecoms Act (as implemented by the National Commission's Memorandum Circular
No. 8-9-25) require cellular mobile operators to install at least 400,000 local
exchange lines. The Company does not believe that Infocom is subject to such
requirement, however, there can be no assurance that this will be the case. If
this requirement were found to be applicable to Infocom, it would require a
significant capital investment.
Under current regulations of the Central Bank of the Philippines (the
"Central Bank"), foreign exchange may be freely sold and purchased outside the
Philippine banking system. Restrictions exist on the sale and purchase of
foreign exchange in the banking system. The Philippine monetary authority, with
the approval of the President of the Philippines, has the statutory authority,
during a foreign exchange crisis or in times of national emergency, to
temporarily suspend or restrict sales of foreign exchange, require licensing of
foreign exchange transactions or require delivery of foreign exchange in the
Central Bank or its designee.
Foreign investments need not be registered with the Central Bank. The
registration of a foreign investment with the Central Bank is only required if
the foreign exchange needed to service the repatriation and the remittance of
capital and dividends are to be sourced from the Philippine banking system.
Nevertheless, even without Central Bank registration, foreign exchange needed
for capital repatriation and remittance of dividends of unregistered investments
can be sourced lawfully outside of the Philippine banking system. The Company's
investment in Infocom has been registered with the Central Bank.
Under current law there is a 15% withholding tax on dividends and a 20%
withholding tax on interest payments.
SHANGHAI, PEOPLE'S REPUBLIC OF CHINA
The Company currently has a contractual right to receive 25.2% of the
profits generated by the Shanghai GSM System, which is operated by Unicom. The
Shanghai GSM System covers the greater Shanghai area comprising over 14 million
POPs. Unicom is one of only two licensed cellular operators in Shanghai. See
"-- Corporate Governance -- China."
Country Overview. With a population of approximately 1.2 billion, the
People's Republic of China is the most populous country in the world and the
third largest behind Russia and Canada in terms of geographic size. Shanghai is
one of China's leading cities. It is one of four cities in China which has been
accorded provincial level status and also has the largest port in China. The
city covers an area of over 6,000 square kilometers and has a population of
approximately 14 million. Shanghai's GDP experienced a growth rate approaching
15% per year in both 1993 and 1994, and its GDP per capita was $1,303 in 1995,
over two times the national average of $517.
In 1990, the State Council approved the establishment of a new economic
trade zone in the "Pudong New Area" section of Shanghai. The Pudong New Area is
similar to China's Special Economic Zones, which have been established to
attract foreign investment, and is expected to be the region's primary
international business conduit.
The demand for telecommunications services continues to grow and
teledensity remains at one of the lowest levels in the world at less than one
line per 100 inhabitants. China was the fifth largest cellular market in the
world in 1995, with over 3.7 million subscribers, and was the second largest
paging market in the world with over 26.1 million subscribers. The cellular
market has grown at a compounded annual growth rate of 175% over the last 5
years. Although China has one of the lowest cellular penetration rates in the
world at .3%, its cellular penetration rate is expected to reach 2% by the end
of the decade.
Operating Company Overview. The Shanghai GSM System is a cooperative
project established by Unicom and SSTIC to construct and operate a GSM cellular
network in Shanghai. The Shanghai GSM System has grown quickly since the
commencement of commercial operations in July 1995 and as of December 31, 1996
had approximately 28,000 subscribers. The current network has 55 cell sites
covering the greater Shanghai region (including the Pudong New Area). Under the
current laws of the People's Republic of China, foreign investors are not
permitted to be involved directly in the ownership or operation of
telecommunications services. In the event that such laws change, the Company may
seek to convert its
86
<PAGE> 89
contractual right to share profits generated by the Shanghai GSM System to a
direct ownership interest, although there can be no assurance that this would be
possible.
In August 1995, the Company formed a joint venture with SSTIC called
Shanghai McCaw pursuant to which the Company provided financial support to the
Shanghai GSM System for construction of the initial phases of the system in
exchange for a contractual right to share profits from the system with SSTIC.
Through its joint venture arrangements, the Company provides advice and
direction to the Shanghai GSM System in the key areas of engineering, customer
care, billing practices, quality assurance and system performance.
Shanghai McCaw currently employs seven people. Of these seven employees,
the General Manager is an employee of McCaw International who has been seconded
to the joint venture. The remainder of the joint venture's personnel are native
Chinese.
Shanghai McCaw initially provided technical advice to the Shanghai GSM
System during the construction phase of the network. Shanghai McCaw has
continued to provide technical support in the ongoing process of upgrading the
quality and coverage of the GSM network and has become increasingly involved in
supporting the development of a diversified sales and marketing plan to compete
with the systems operated by the Ministry of Post and Telecommunications (the
"MPT").
Competition. There are only two authorized cellular providers in Shanghai,
Unicom and the Shanghai PTA (the local branch of the MPT). The Shanghai PTA has
been in operation since 1989 and operates three cellular networks (two TACS
systems and one GSM system).
Partner Description. SSTIC, the Company's partner in Shanghai McCaw, is an
investment holding company which was established for the purpose of developing
the Shanghai high-technology industry. SSTIC was formed by the Municipal
Government of Shanghai, six major Shanghai banks as well as two major
diversified Shanghai conglomerates. SSTIC was one of the original shareholders
of Unicom.
Regulatory and Legal Overview. Until 1994, the MPT was the sole entity
authorized to provide public telecommunications services in China. In July 1994,
the State Council established Unicom with the authority to provide public
telecommunications services. In addition, pursuant to a 1995 agreement the MPT
and the Peoples Liberation Army (the "PLA") agreed to jointly develop 800 MHz
cellular communications networks to provide wireless communications services to
the public using spectrum originally allocated to the PLA for military
communications use. Accordingly, there are three entities in China authorized to
provide cellular telecommunications services to the public. The MPT continues in
its role as the central government's regulatory authority over the
telecommunications sector.
Under current Chinese law, foreign investors are not permitted to be
involved directly in the ownership or operation of telecommunications services.
Renminbi, the currency of China, is not freely convertible. The stated goal
of the government is to achieve full convertibility by the year 2000. Under
current laws, a foreign invested enterprise is permitted to convert its Renminbi
earnings to foreign currencies for the purpose of enabling its foreign investors
to receive dividends and interest payments. Conversion of Renminbi to foreign
currencies for the purpose of repatriating foreign investors' capital
contributions to, and principal payments from, a foreign invested enterprise is
subject to approval by relevant government authorities, which approval will be
granted upon showing that the foreign invested enterprise has been lawfully
terminated and dissolved or the loan has been properly registered, as the case
may be. The Company's loan to Shanghai McCaw has been properly registered with
the relevant governmental authority. Under current law there is a 10%
withholding tax on interest payments and no withholding tax on dividends.
CANADA
Operating Company Overview. The Company owns 1,596,067 shares of common
stock of Clearnet, a Nasdaq-listed company, representing approximately 3.7%
interest. On June 30, 1997, the Company's Clearnet common stock had a market
value of approximately $19 million. Clearnet is the largest SMR operator in
Canada as measured by the number of current subscribers, the number of 800 MHz
channels and the population of its service territory. As of December 31, 1996,
Clearnet provided analog SMR services in over 40 cities across Canada to
approximately 54,000 subscriber units and ESMR services in Ontario and Quebec
87
<PAGE> 90
to approximately 5,000 subscriber units. In addition, Clearnet holds one of the
two national 30 MHz licenses to provide PCS in Canada. Clearnet plans to launch
its PCS network in Canada's largest urban centers in 1997.
The Company has one representative on the Clearnet board of directors.
Nextel owns additional shares of common stock of Clearnet representing an
approximate 15.3% interest and also has one representative on the Clearnet board
of directors.
On June 26, 1997, Nextel announced that it received the consent of the
holders of its public notes regarding certain amendments to the indentures
governing such notes. The Nextel noteholders agreed, among other things, to
permit Nextel to transfer its equity interest in Clearnet to McCaw
International. If Nextel effects such transfer, McCaw International will hold an
aggregate of 8,373,845 shares of Clearnet, representing approximately 19% of the
outstanding common stock of Clearnet, which represents a 1.7% voting interest.
Additionally, McCaw International will have the right to nominate an additional
director to Clearnet's board of directors. As of June 30, 1997, based on the
closing price of Clearnet stock on the Nasdaq Stock Market, Nextel's equity
interest in Clearnet had a market value of approximately $82 million. Although
Nextel is permitted to transfer its interest in Clearnet to the Company, there
can be no assurance that Nextel will effect such transfer or, should such
transfer occur, that the market value of Nextel's equity interest in Clearnet on
the date of any such transfer will not be less than the market value of such
equity interest as of June 30, 1997.
CORPORATE GOVERNANCE
The following is a description of the Company's contractual relationships
with its partners in the Operating Companies.
Brazil. The Company owns 81% of the Class A voting stock of McCaw Brazil,
which entitles it to 90% of the voting rights. The Company, therefore, has the
right to make management and operating decisions of McCaw Brazil. The Telcom
Group owns 19% of the Class B voting stock, which entitles it to 10% of the
voting rights. The Telcom Group has the right to designate candidates
representing at least 10% of the directors of McCaw Brazil, but at least one
candidate so long as the Telcom Group owns at least 10% of McCaw Brazil. The
Telcom Group holds veto rights with respect to the following actions: (i)
amending the articles of incorporation or bylaws of McCaw Brazil; (ii) creating
any equity senior to the existing shares of McCaw Brazil or changing or
adversely affecting any provisions or rights of the existing shares of McCaw
Brazil; (iii) permitting or causing McCaw Brazil or any of its material
subsidiaries to issue voting securities with voting rights different from those
to which then-issued securities are entitled; (iv) entering into a merger, a
sale of substantially all of the assets, a dissolution, a liquidation or a
spinoff of McCaw Brazil or any of its material subsidiaries; (v) permitting
McCaw Brazil or any of its subsidiaries to enter into a material contract with
the Company or its affiliates other than on an arm's-length, fair-market-value
basis; or (vi) permitting McCaw Brazil or any of its affiliates to issue or
dispose of securities of the Company other than for cash at fair market value.
If the Telcom Group exercises its veto rights, McCaw Brazil has the right to
purchase (upon vote of a simple majority of its board of directors) all of the
Telcom Group's shares of McCaw Brazil then owned by them at their appraised fair
market value. The repurchase price can be paid in cash or in shares of Nextel
common stock or a combination thereof. McCaw Brazil has the right to declare
dividends without the approval of the Telcom Group.
The Telcom Group has the right to forego making its pro rata share of any
capital calls that may arise until April 1999 without suffering any dilution of
its right to receive dividends and other cash or noncash distributions;
provided, however, the failure by the Telcom Group to ultimately make such
capital contributions (and interest thereon) by April 1999 will result in the
proportionate dilution of its economic interest in McCaw Brazil. The Telcom
Group has the right at any time between October 31, 2001 and November 1, 2003,
or at any time after a change of control of McCaw Brazil, to require McCaw
Brazil to redeem the Telcom Group's entire interest at its appraised fair market
value. The redemption price is payable in cash, or, at McCaw Brazil's election,
publicly-traded common stock of any entity owning 50% or more of McCaw Brazil or
a combination thereof. In the event that McCaw Brazil issues additional shares
of its common stock to such a third party and, as a result, the Telcom Group's
interest in McCaw Brazil is reduced to less than
88
<PAGE> 91
17%, the Telcom Group has the right to purchase additional shares in McCaw
Brazil such that after the issuance to a third party, the Telcom Group would own
no more than 17% of the outstanding common stock.
The Company has a right of first refusal with respect to proposed transfers
by members of the Telcom Group of their respective interests in McCaw Brazil and
has the right to compel the Telcom Group to join in any proposed transfer by the
Company of its entire interest in McCaw Brazil. The Telcom Group has the right
to join in any proposed transfer by the Company of its entire interest in McCaw
Brazil.
Argentina. As long as the Company holds at least a 30% interest in McCaw
Argentina and WVA holds at least a 40% interest in McCaw Argentina, the
six-member board of McCaw Argentina will be equally divided. If one party fails
to maintain such level of ownership (while the other maintains it), the party
failing to maintain its ownership will lose the right to designate one of its
three members of the board of directors. Failure to maintain at least a 10%
ownership interest will result in loss of all board seats held by such party.
As long as WVA maintains at least a 40% ownership interest, McCaw Argentina
will be operated in accordance with a three-year business plan adopted by its
board of directors. As long as the Company owns at least 30% of McCaw Argentina,
the following actions will require the approval of two-thirds of the board of
directors: (i) appoint McCaw Argentina's chief executive officer, president and
senior executives in charge of technology, finance and marketing; (ii) amend or
adopt any three-year business plan; or (iii) issue equity securities
representing 5% or more of the shares of McCaw Argentina. The declaration of
dividends also requires the approval of WVA.
As long as each of the Company and WVA own at least 10% of the outstanding
shares of McCaw Argentina the following actions will require the approval of
two-thirds of the directors: (i) creating any equity senior to the existing
shares of McCaw Argentina or changing or adversely affecting any provisions or
rights of the existing shares of McCaw Argentina; (ii) permitting or causing
McCaw Argentina or any of its material subsidiaries to issue voting securities
with voting rights different from those to which then-issued securities are
entitled; (iii) permitting McCaw Argentina or any of its subsidiaries to enter
into a material contract with the Company or its affiliates other than on an
arm's-length, fair-market-value basis; or (iv) permitting McCaw Argentina or any
of its affiliates to issue or dispose of securities of the company other than
for cash at fair market value. In addition, for as long as the Company and WVA
each own at least 10% of the outstanding shares of McCaw Argentina, the
following actions require approval of the holders of two-thirds of McCaw
Argentina's shares: (i) amending the organizational documents of McCaw
Argentina; and (ii) entering into a merger, a sale of substantially all of the
assets, a dissolution, a liquidation or a spinoff of McCaw Argentina or any of
its material subsidiaries.
If (i) WVA exercises its veto power or (ii) at a time when the Company owns
less than 30% and WVA owns at least 40% of the outstanding shares of McCaw
Argentina, respectively, the Company exercises its veto power, McCaw Argentina
shall have the right, upon approval of a majority of the directors of McCaw
Argentina (excluding the directors nominated by the party that exercised its
veto), to repurchase the shares of the party exercising its veto right at their
appraised fair market value. The repurchase price is payable, at McCaw
Argentina's option, in cash, Nextel common stock or in any combination thereof.
The Company has a right of first refusal with respect to transactions by
WVA of its shares of McCaw Argentina and has the right to compel WVA to join in
any proposed transfer by the Company of its entire interest in McCaw Argentina.
WVA has the right to join in any proposed transfer by the Company of its entire
interest in McCaw Argentina.
Mexico. In accordance with agreements with other principal shareholders of
Mobilcom, so long as the Company owns 27.5% of the outstanding voting stock of
Mobilcom, the Company has the right to designate a majority of Mobilcom's board
of directors. The Company, therefore, subject to the business plan adopted by
the Mobilcom shareholders, has control over Mobilcom's day-to-day operational
decisions, such as the selection of senior management, sales and marketing
decisions and acquisitions or disposition of assets (up to $20 million). Under
these same agreements, Grupo San Luis, so long as it owns at least 5% of
Mobilcom (15% of Mobilcom in the event that it has disposed of any of its
current shareholdings) has the right to designate two members of the Mobilcom
board of directors. The other board members are elected by a cumulative voting
process and currently are representatives of each of WVM and Associated SMR. The
89
<PAGE> 92
Company also has the right to designate one of the two members of the Technology
Committee of the Mobilcom board of directors. The Technology Committee has sole
and exclusive authority to make all technology decisions relating to the
Company's digital mobile systems including technology decisions related to
vendor selection and build-out and system design. The other member of the
Technology Committee is a designee of WVM.
Under the agreements relating to the governance of Mobilcom, so long as
Grupo San Luis owns at least 5% and the Company owns at least 20% of Mobilcom,
the following matters require a supermajority vote of the shareholders: (i)
amendments to Mobilcom's and its subsidiaries' charter; (ii) issuance of shares
with disproportionate voting rights; (iii) adoption of any stockholders rights
plan to disadvantage any shareholder on the basis of this size of its holding;
(iv) issuances of shares aggregating to more than 15% of the outstanding shares
at the commencement of any 36-month period, subject to certain exceptions; (v)
the establishment of an executive or special committee of the board of directors
other than the Technology Committee; (vi) acquisition, disposition, loan and
certain other transactions having a value in excess of $20 million; (vii)
adoption of and approval of any material deviation of business plans, marketing
plans, capital expenditure plan or operating budget; (viii) incurrence of
capital expenditures in excess of 125% of the capital expenditure budget
approved by shareholders; (ix) a decision to change the core business; and (x)
approval of any offer for subscription of treasury shares in respect of which
shareholders preemptive rights have been waived.
In order to maintain its right to designate a majority of the board of
directors, to designate one of the two members of the Technology Committee and
to block certain significant actions of Mobilcom, the Company must invest a
minimum of approximately $76.8 million in Mobilcom by March 3, 1998. As of April
30, 1997, the Company had invested approximately $64.9 million in Mobilcom. The
Company may satisfy its remaining commitment by (i) making capital contributions
to Mobilcom, provided that such capital contributions are not part of the pro
rata capital contributions to Mobilcom in which the other principal shareholders
of Mobilcom participate; (ii) making a capital contribution to Mobilcom to be
used for the purchase of Radiocel; or (iii) exercising the Mobilcom Options.
Pursuant to one of the Mobilcom Options, the Company has an option to
purchase up to 19.5% of the common stock of Mobilcom outstanding as of June 6,
1996, for an aggregate exercise price of $76.8 million. The other Mobilcom
option gives the Company the right to purchase up to an additional 9.98% of the
outstanding common stock of Mobilcom for an aggregate exercise price of $67.5
million.
Beginning on October 24, 1997, pursuant to the Mobilcom Put the holders of
approximately 28.4% of the outstanding common stock of Mobilcom have the right
for two years to put the entire amount of their holdings to the Company at its
appraised fair market value for cash. As discussed below, however, the Company
initiated the Mobilcom Share Purchase Offer, pursuant to which the Company
offered to purchase, subject to the execution of definitive documents, all of
the shares of Mobilcom held by the holders of the Mobilcom Put. The Mobilcom Put
is exercisable if Mobilcom takes any of the following corporate actions and the
directors designated to Mobilcom's board of directors by the holders of the
Mobilcom Put vote against such action: (i) a material amendment of the charter
or bylaws; (ii) issuance of voting securities with disproportionately larger
voting rights or a class vote; (iii) certain issuance of shares in excess of 15%
of the outstanding shares during a 36-month period; (iv) making any investment,
loaning any amount, or selling assets in excess of $20 million; (v) the adoption
of material deviations from any business plan, operating budget or capital
expenditure plan; and (vi) making capital expenditures that would exceed 125% of
the capital expenditure budget approved by the shareholders. In addition, the
Mobilcom Put is exercisable in the event that the holders of the Mobilcom Put
are no longer entitled to designate in the aggregate at least two directors. The
Mobilcom Put is automatically exercisable on October 24, 1999 whether or not a
Mobilcom Put Event occurs. Valuation of Mobilcom for purposes of the Mobilcom
Put will be based on an appraisal by an investment bank, with the minimum
appraisal for 100% of Mobilcom equal to $150 million. To the extent that such
appraisal exceeds $250 million, 50% of such excess will be included in the
valuation. In connection with a June 7, 1996 capital call, Mobilcom shareholders
purchased additional shares of Mobilcom based on a $200 million valuation (which
valued the Mobilcom Put at approximately $57 million). If the Mobilcom Put is
not exercised by October 24, 1999, the Company has right to buy the shares
subject to the Mobilcom Put on the same terms as described above.
90
<PAGE> 93
On July 11, 1997, the Company initiated the Mobilcom Share Purchase Offer,
pursuant to which the Company offered to purchase, subject to the execution of
definitive documents, all of the shares of Mobilcom held by the holders of the
Mobilcom Put for an aggregate purchase price of approximately $54 million. If
all such shareholders accept the Mobilcom Share Purchase Offer and if the
Company enters into definitive agreements with each such shareholder and
consummates the transactions contemplated by such offer, the Company's equity
interest in Mobilcom will increase from approximately 48.1% to approximately
76.5% and the Mobilcom Put will be terminated. The Mobilcom Share Purchase Offer
expires on August 11, 1997. As of July 31, 1997, shareholders representing
approximately 1.5% of the outstanding shares of Mobilcom had accepted the
Mobilcom Share Purchase Offer. The Company expects to consummate the Mobilcom
Share Purchase Offer with the shareholders who have accepted such offer by the
end of the third quarter of 1997 and intends to fund its purchase of the
Mobilcom shares from the net proceeds of the Initial Offering. The acquisition
of Mobilcom shares held by those parties that have accepted the Mobilcom Share
Purchase Offer is not expected to have a significant effect on the Company's
financial position or results of operations. There can be no assurance that the
Company will consummate the Mobilcom Share Purchase Offer.
In order to effectuate their agreement relating to the governance of
Mobilcom, the principal shareholders of Mobilcom, including the Company and
Grupo San Luis, have agreed to hold all of their shares under a trust
arrangement, and all such shares are registered in the name of a Mexican bank
that serves as the trustee.
The Company has agreed under certain circumstances to attempt to provide
Grupo San Luis with liquidity with respect to its equity interest in Mobilcom.
At any time after January 1, 1999, the Company, if requested by Grupo San Luis,
will cause Mobilcom to undertake a U.S. registered public offering or sale for
cash to a third party of Grupo San Luis' shares at their appraised fair market
value within one year of such request. If Mobilcom fails to provide Grupo San
Luis with liquidity through either of these methods, Grupo San Luis has the
right to cause Mobilcom to file a registration statement in the United States
covering Grupo San Luis' Mobilcom shares.
Philippines. The Company owns 30% of the outstanding shares of Infocom and
has the right to designate three of 11 members of the board of directors and one
of four advisers of the executive committee of the board. The Company holds veto
rights with respect to decisions involving a number of significant corporate
actions including the following: (i) the acquisition of any entity; (ii) the
merger; consolidation or sale of the company or any subsidiary or any
disposition of a material amount of assets; (iii) the amendment of the articles
of incorporation or by-laws; (iv) any amendment affecting the preemptive rights
of stockholders; (v) entering into an agreement relating to marketing or
distribution; (vi) decisions to pursue a CPCN license; (vii) entering other
lines of business; (viii) issuances of stock; (ix) the approval of annual
operating and capital budgets; (x) any borrowings in excess of $200,000; (xi)
any transactions with affiliates in excess of $200,000; and (xii) any
dispositions of assets or making loans other than in the ordinary course of
business.
Infocom and the Company have entered into a technical services agreement
pursuant to which the Company agreed to provide Infocom with engineering and
other technical services, marketing assistance and system operation assistance
for $432,000 per year. The agreement has an initial term of three years.
China. Under current Chinese law, foreign entities or individuals are
prohibited from participating directly in the ownership and operation of
telecommunications services. Because of this limitation, the Company's interest
in the Shanghai GSM System is held through its 60% equity interest in a Chinese
equity joint venture, Shanghai McCaw. Shanghai McCaw participates in the
Shanghai GSM System through a profit-sharing arrangement entered into originally
between SSTIC, its Chinese partner, and Unicom (the "Unicom Agreement"). SSTIC,
holds a 40% equity interest in Shanghai McCaw.
Pursuant to the Unicom Agreement, Shanghai McCaw receives 42% of the net
revenues of the Shanghai GSM System. The Unicom Agreement is structured to
provide the financing for the construction of a system that can service 50,000
subscribers. As of December 31, 1996, the Shanghai GSM System had 28,000
subscribers. The Unicom Agreement expires on February 25, 2007.
Pursuant to a joint venture agreement and other agreements entered into
between the Company and SSTIC (the "Shanghai McCaw Agreements"), the Company and
SSTIC have equal representation on the board of directors of Shanghai McCaw. In
addition, the Company has the right to appoint Shanghai McCaw's
91
<PAGE> 94
general manager and chief engineer, subject to SSTIC's approval. Certain
significant corporate actions require unanimous approval of the board of
directors, including: (i) an amendment to the articles of association; (ii)
changes in the ratio of the partners' capital contribution; and (iii) the merger
or dissolution of Shanghai McCaw. Certain other matters require the approval of
at least six of eight members of the board of directors. Those matters include
the following: (i) allowing a third party to participate in the ownership of
McCaw Shanghai; (ii) changes in capitalization; (iii) borrowing money; (iv)
paying dividends; (v) approving operating and capital budgets; (vi) changing the
management structure; (vii) entering into transactions with affiliates; (viii)
the purchase and sale of capital equipment; and (ix) any action not in the
ordinary course of business of Shanghai McCaw. Neither party is permitted to
sell its interest in Shanghai McCaw without the consent of the other party.
In addition to its capital contribution, the Company was responsible for
providing a $13.2 million loan facility to Shanghai McCaw to fund the Shanghai
GSM System. At December 31, 1996, the outstanding balance of this loan was $10.5
million. In the event of an overrun in the budget for the Shanghai GSM System,
the Company agreed to lend an additional $2.2 million to Shanghai McCaw.
On March 29, 1997, Unicom and Shanghai McCaw entered into the Phase III
Unicom Agreement, which modifies certain arrangements under the Unicom
Agreement. Pursuant to the Phase III Unicom Agreement (i) Shanghai McCaw has
agreed to provide 60% of the funds required to expand the capacity of the
Shanghai GSM System to provide service for an additional 100,000 subscribers.
Shanghai McCaw's share of the funds is estimated to be equal to approximately
RMB 386.4 million (approximately US$46.4 million). Pursuant to the Phase III
Unicom Agreement (i) the 42% profit sharing arrangements under the Unicom
Agreement were retained for the period up to the date on which the 50,001st
subscriber (currently, there are approximately 30,000 subscribers) of the
Shanghai GSM System is activated (the "Phase III Commencement Date"); (ii)
following the Phase III Commencement Date the allocation of profit sharing
arrangement between the parties is revised to provide Unicom with a greater
percentage resulting in Shanghai McCaw receiving 40.2% of the profits of the
Shanghai GSM System; (iii) the Phase III Unicom Agreement expires 14 1/3 years
after the Phase III Commencement Date.
EMPLOYEES
As of December 31, 1996, the Company, at the corporate level, employed
approximately 25 employees, of which 19 were located at the Company's principal
executive and administrative offices in Seattle, Washington and 6 were located
outside of the U.S. in countries where the Company operates. As of December 31,
1996, the Operating Companies had an aggregate of 1,646 employees. The Company
is not a party to any collective bargaining agreements and the Company believes
its relationship with its employees is good.
PROPERTIES
The Company currently leases 6,559 square feet for its principal executive
and administrative offices in Seattle, Washington, and payments under such lease
equals approximately $110,000 per year. In addition, the Company's subsidiaries
have leases for office space and transmission sites in each of the countries
where the Company operates.
LITIGATION
The Company is not a party to any material litigation.
92
<PAGE> 95
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ------------------------------------- --- -------------------------------------------------
<S> <C> <C>
Daniel F. Akerson 48 Chairman of the Board
Keith D. Grinstein 36 President, Chief Executive Officer and Director
Heng-Pin Kiang 48 Senior Vice President and General Counsel
William S. Roberts 42 Senior Vice President and Chief Operating Officer
David E. Rostov 31 Senior Vice President and Chief Financial Officer
Brian A. Vincent 38 Senior Vice President of Business Development
C. James Judson 52 Vice Chairman of the Board
Craig O. McCaw 47 Director
Steven M. Shindler 34 Director
Dennis M. Weibling 46 Director
</TABLE>
Daniel F. Akerson has served as Chairman of the Board of the Company since
March 1996. Mr. Akerson is also Chairman of the Board and Chief Executive
Officer of Nextel, positions he has held since March 1996. From June 1993 to
March 1996, Mr. Akerson served as a general partner of Forstmann Little & Co., a
private investment firm ("Forstmann Little"), and also held the positions of
Chairman of the Board and Chief Executive Officer of General Instrument
Corporation, a technology company acquired by Forstmann Little. From 1983 to
1993, Mr. Akerson held various senior management positions with MCI
Communications Corporation, including President and Chief Operating Officer. Mr.
Akerson currently serves as a director of American Express Company. Mr. Akerson
received a B.S. from the United States Naval Academy and a M.S. from the London
School of Economics.
Keith D. Grinstein has served as President, Chief Executive Officer and as
a director of the Company since January 1996. From January 1991 to December
1995, Mr. Grinstein was President and Chief Executive Officer of the aviation
communications division of AT&T Wireless Services, Inc. (formerly known as McCaw
Cellular Communications, Inc. ("McCaw Cellular")). Mr. Grinstein held a number
of positions at McCaw Cellular and its subsidiaries, including Vice President,
General Counsel and Secretary of LIN Broadcasting Company, a subsidiary of McCaw
Cellular, and Vice President and Assistant General Counsel of McCaw Cellular.
Mr. Grinstein received a B.A. from Yale University and a J.D. from Georgetown
University.
Heng-Pin Kiang has served as Senior Vice President and General Counsel of
the Company since January 1996. From September 1984 to December 1995, Mr. Kiang
was a partner in the Perkins Coie law firm. Mr. Kiang received a B.S.E. in
Chemical Engineering from Princeton University and a J.D. from Columbia
University.
William S. Roberts has served as Senior Vice President and Chief Operating
Officer of the Company since November 1996. From 1983 to November 1996, Mr.
Roberts held various management positions with BellSouth Corporation
("BellSouth"), an international telecommunications services company, most
recently as the Chief Financial Officer and the Chief Operating Officer of
BellSouth Investment S.A. (Chile), a Chilean investment and services company
owned by BellSouth. Prior to joining BellSouth, Mr. Roberts was a senior
internal auditor for a satellite communications company. Mr. Roberts is a
certified public accountant and received a B.A. in accounting from the
University of West Florida.
David E. Rostov has served as Senior Vice President and Chief Financial
Officer since joining the Company in January 1996. From 1992 to 1996, Mr. Rostov
held various positions at McCaw Cellular, most recently as Assistant Vice
President in the Development Group. Mr. Rostov was a financial analyst with
Goldman, Sachs & Co. from 1987 to 1989. Mr. Rostov received a B.A. from Oberlin
College and an M.B.A. and M.A. in Public Policy from The University of Chicago.
Brian A. Vincent has served as Senior Vice President of Business
Development. Mr. Vincent joined the Company in January 1996. From 1986 to 1995,
Mr. Vincent served as Vice President of Worldwide Marketing Operations at
Intermec Corporation, a leading manufacturer of handheld data collection
computers and on-
93
<PAGE> 96
premise wireless communication networks. Mr. Vincent received a B.A. from the
University of California at Berkeley and an M.B.A from the University of
Washington. Mr. Vincent currently is a director of Clearnet.
C. James Judson has served as a director of the Company since February
1995. Mr. Judson is Vice President, Secretary and General Counsel of Eagle
River, Inc., a company formed to make strategic investments in
telecommunications ventures ("Eagle River"), a position he has held since
January 1995. From 1969 to January 1995, Mr. Judson was a partner in the Davis
Wright Tremaine law firm. Mr. Judson received a B.A. and a L.L.B. from Stanford
University. Mr. Judson is a director of Real Time Data Corporation.
Craig O. McCaw served as a director of the Company from February 1995 until
the acquisition of the Company by Nextel in August 1995. Mr. McCaw was reelected
to the Company's board of directors in February 1997. From February 1995 to
August 1995, Mr. McCaw served as Chairman of the Board and Chief Executive
Officer of Eagle River, the indirect majority owner of Digital Radio, L.L.C., a
company formed for the purpose of making an equity investment in Nextel. From
March 1990 to November 1994, Mr. McCaw served as Chairman of the Board and Chief
Executive Officer of LIN Broadcasting Company. From 1974 to September 1994, Mr.
McCaw served as Chairman of the Board and Chief Executive Officer of McCaw
Cellular, which was sold to AT&T Corporation in September 1994. Mr. McCaw serves
as a director of Nextel and as Chairman of the Operations Committee of the
Nextel Board. Mr. McCaw is an appointee to the President's National Security
Telecommunications Advisory Committee.
Steven M. Shindler has served as a director of the Company since May 1997.
Mr. Shindler is Vice President and Chief Financial Officer of Nextel, a position
he has held since May 1996. Between 1987 and 1996, Mr. Shindler was an officer
with The Toronto Dominion Bank where most recently he was a Managing Director in
its Communications Finance Group.
Dennis M. Weibling has served as a director of the Company since February
1995. From October 1995 to March 1996, Mr. Weibling served as Nextel's acting
Chief Executive Officer. Mr. Weibling is President of Eagle River, a position he
has held since 1993. From 1981 to 1993, Mr. Weibling was a shareholder of Clark,
Nuber and Co., P.S., a public accounting firm in Bellevue, Washington. Mr.
Weibling received a B.A. from Wittenberg University and a J.D. from the
University of Nebraska. Mr. Weibling is a director of Nextel and is a member of
the Operations Committee, Audit Committee and Compensation Committee of the
Nextel Board. He is also a director of NextLink Communications, L.L.C., a
facilities-based local exchange carrier and majority-owned subsidiary of Eagle
River.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors currently has no standing committees.
COMPENSATION OF DIRECTORS
Currently, the Company's directors do not receive any compensation or
reimbursements for out-of-pocket expenses for their service on the Company's
board of directors.
94
<PAGE> 97
COMPENSATION OF EXECUTIVE OFFICERS
The following table and discussion summarize the compensation earned by the
Company's President and Chief Executive Officer and the other most highly
compensated executive officers of the Company, who earned more than $100,000 in
salary and bonuses (collectively, the "Named Executive Officers") for services
rendered in all capacities to the Company during the fiscal year ended December
31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM(1)
COMPENSATION
AWARDS
ANNUAL COMPENSATION --------------
---------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER(2)
SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
- ---------------------------- ---- ------- ------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Keith D. Grinstein.......... 1996 150,000 -- -- 50,000/400,000 2,500
President and Chief
Executive Officer
Heng-Pin Kiang.............. 1996 150,000 -- -- 25,000/250,000 3,625
Senior Vice President
and General Counsel
Brian A. Vincent............ 1996 140,000 -- -- 10,000/100,000 2,450
Senior Vice President
of Business Development
</TABLE>
- ---------------
(1) Options were granted pursuant to the Nextel Incentive Equity Plan. Options
vest over a four-year period and become exercisable, subject to the
provisions of the plan, for shares of Nextel Class A Common Stock. SARs were
granted pursuant to the SAR Plan.
(2) Comprised of the Company's contributions to the Nextel Section 401(k) Plan
on behalf of the Named Executive Officers.
OPTION AND SAR GRANTS IN FISCAL YEAR 1996
The following table sets forth certain information with respect to options
exercisable for shares of Nextel Class A Common Stock and SARs granted to the
Named Executive Officers during fiscal year 1996.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/ POTENTIAL REALIZABLE
UNDERLYING SARS GRANT VALUE OF SARS AT
OPTIONS/ GRANTED TO EXERCISE DATE ASSUMED ANNUAL
SARS EMPLOYEES OR BASE PRESENT RATES ($)(3)
GRANTED IN FISCAL PRICE EXPIRATION VALUE ----------------------
NAME (#)(1) YEAR(%) ($/SHARE) DATE ($)(2) 5% 10%
- ---------------------------------- ---------- ---------- --------- ---------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Keith D. Grinstein
Options......................... 50,000 .95 15.63 11/07/05 519,000
SARs............................ 400,000 32.92 10.00 11/01/10 2,516,000 6,376,000
Heng-Pin Kiang
Options......................... 25,000 .47 15.63 11/07/05 259,500
SARs............................ 250,000 20.58 10.00 11/25/10 1,572,500 3,985,000
Brian A. Vincent
Options......................... 10,000 .19 15.13 03/04/06 102,300
SARs............................ 100,000 8.23 10.00 11/01/11 629,000 1,594,000
</TABLE>
- ---------------
(1) Options were granted pursuant to the Nextel Incentive Equity Plan. Options
granted vest over a four-year period, becoming exercisable with respect to
25% of the shares at the beginning of each year following the date of grant.
(2) Black-Scholes pricing model used to estimate the present value of the
options at date of grant.
(3) The Company's common stock is not registered or publicly traded and
therefore a public market price for the common stock is not available. Net
realizable value of the SARs is based on a fair market value of
95
<PAGE> 98
$10 per share as of the date of grant. The base price per share is based on
the Board of Directors' estimate of fair market value at the time of grant.
The actual value, if any, an employee may realize will depend on the excess
of fair market value of McCaw International common stock over the base price
on the date the SAR is exercised. The dollar amounts under these columns are
the result of calculations at the 5% and 10% rates set by the Commission
and, therefore, are not intended to forecast future appreciation, if any, of
the SARs.
OPTION AND SAR EXERCISES IN FISCAL 1996 AND YEAR-END OPTION AND SAR VALUES
The following table sets forth information concerning the exercise of
options and SARs during the year ended December 31, 1996 and year-end
unexercised options and SAR values as of the end of the fiscal year ended
December 31, 1996 with respect to each of the Named Executive Officers.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1996 AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS OPTIONS/SARS
ACQUIRED ON VALUE AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)
EXERCISE REALIZED ---------------------------- ----------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Keith D. Grinstein
Options................... -- -- 12,500 37,500 -- --
SARs...................... -- -- -- 400,000 -- --
Heng-Pin Kiang
Options................... -- -- 6,250 18,750 -- --
SARs...................... -- -- -- 250,000 -- --
Brian A. Vincent
Options................... -- -- -- 10,000 -- --
SARs...................... -- -- -- 100,000 -- --
</TABLE>
EMPLOYMENT AGREEMENTS
In November 1995, the Company entered into an employment agreement with Mr.
Grinstein providing for his employment as President and Chief Executive Officer.
The agreement with Mr. Grinstein terminates on June 30, 1997 and is
automatically renewable for a subsequent one-year term. The agreement provides
for a base salary of $150,000 per year, subject to an annual performance
evaluation (plus performance bonuses based on the achievement of mutually
determined objectives).
The Company also entered into an employment agreement with Mr. Kiang in
November 1995 providing for his employment as Senior Vice President and General
Counsel. The agreement with Mr. Kiang terminates on June 30, 1997 and is
automatically renewable for a subsequent one-year term. The agreement provides
for a base salary of $150,000 per year, subject to an annual performance review
(plus performance bonuses based on the achievement of mutually determined
objectives).
In January 1996, the Company entered into an employment agreement with Mr.
Vincent providing for his employment as Senior Vice President of Business
Development. The agreement is renewable for subsequent one-year terms, provided
that either party may terminate the agreement upon 60 days' written notice. The
agreement provides for a base salary of $140,000 per year, subject to an annual
performance evaluation (plus performance bonuses based on the achievement of
certain objectives).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors does not currently have a compensation
committee. The Company's Board of Directors is responsible for executive
compensation matters. During 1996, Mr. Grinstein served on the Company's Board
of Directors and as Chief Executive Officer and President of the Company.
96
<PAGE> 99
BENEFIT PLANS
Nextel Incentive Equity Plan. All officers, key employees of and
consultants to Nextel and its subsidiaries, including McCaw International, are
eligible to participate in the Nextel Incentive Equity Plan (the "Incentive
Equity Plan"). The Compensation Committee of the Nextel Board (the "Nextel
Compensation Committee") may grant each eligible participant options entitling
the optionee to purchase shares of Nextel Class A Common Stock at a price equal
to or greater than market value on the date of grant, except that the option
price of an option that is granted in exchange for the surrender and
cancellation of an option to purchase shares of another corporation that has
been acquired by the Nextel or one of its subsidiaries ("Replacement Options")
or options granted to a consultant may be less than the market value on the date
of grant. Replacement Options and options granted to consultants are otherwise
subject to the same terms, conditions and discretion as other options granted
under the Incentive Equity Plan.
The option price is payable at the time of exercise (i) in cash, (ii) by
the transfer to Nextel of nonforfeitable, nonrestricted shares of Nextel Class A
Common Stock that are already owned by the optionee and have a value at the time
of exercise equal to the option price, (iii) with any other legal consideration
the Nextel Compensation Committee may deem appropriate or (iv) by any
combination of the foregoing methods of payment. Any grant of options may
provide for deferred payment of the option price from the proceeds of sale
through a bank or broker on the date of exercise of some or all of the shares of
Nextel Class A Common Stock to which the exercise relates.
No option may be exercised more than 10 years from the date of grant. Each
option must specify the vesting period and other terms for the exercise of such
option and may provide for the earlier exercise of the options in the event of a
change in control of Nextel or other similar transaction or event. Options
granted under the Incentive Equity Plan may be designated as "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), or may be designated as options that are not intended
to so qualify.
The Nextel Compensation Committee may also grant eligible participants in
the Incentive Equity Plan Appreciation Rights, Restricted Shares, Deferred
Shares, Performance Shares or Performance Units (each as defined in the
Incentive Equity Plan). The Nextel Compensation Committee must specify at the
time of grant the vesting period and other terms of any such award.
No option, appreciation right or other "derivative security" within the
meaning of Rule 16b-3 under the Exchange Act is transferable by a recipient
except by will or the laws of descent and distribution. Options and Appreciation
Rights may not be exercised during a recipient's lifetime except by the
recipient or, in the event of his or her incapacity, by his or her guardian or
legal representative acting in a fiduciary capacity on behalf of the recipient
under state law and court supervision. The Nextel Compensation Committee may
specify at the date of grant that all or any part of the shares of Nextel Class
A Common Stock that are to be issued or transferred by Nextel pursuant to the
Incentive Equity Plan shall be subject to further restrictions on transfer.
The Incentive Equity Plan is administered by the Nextel Compensation
Committee, which consists of not less than three nonemployee directors who are
"disinterested persons" within the meaning of Rule 16b-3 under the Exchange Act.
The Nextel Compensation Committee may make grants to participants under any or a
combination of all of the various categories of awards that are authorized under
the Incentive Equity Plan and may provide for special terms for awards to
participants who either are foreign nationals or are employed by or provide
consulting services to Nextel or any of its subsidiaries outside of the United
States, as the Nextel Compensation Committee may consider necessary or
appropriate to accommodate differences in local law, tax policy or custom.
The Incentive Equity Plan may be amended from time to time by the Nextel
Compensation Committee, but without further approval by the stockholders of
Nextel no such amendment may (i) increase the aggregate number of shares of
Nextel Class A Common Stock that may be issued or transferred and covered by
outstanding awards, or increase the aggregate number of Performance Units that
may be granted, thereunder or (ii) otherwise cause Rule 16b-3 under the Exchange
Act to cease to be applicable to the Incentive Equity Plan.
97
<PAGE> 100
Nextel Stock Purchase Plan. All employees of Nextel and its subsidiaries,
including McCaw International, who are customarily employed for more than 20
hours per week are eligible to elect to be granted options under the Nextel
Stock Purchase Plan (the "Stock Purchase Plan"). Section 423 of the Code,
however, prohibits the granting of an option to any employee who would own stock
possessing five percent or more of the total combined voting power or value of
all classes of stock of Nextel or any of its subsidiaries following the granting
of the option. For purposes of the foregoing, shares of stock that are subject
to outstanding options or other vested or contingent rights to acquire the same
are deemed to be owned by the optionee.
The option price per share upon exercise of an option granted under the
Stock Purchase Plan is an amount equal to 85 percent of the lesser of (i) the
fair market value of a share of Nextel Class A Common Stock on the date of grant
or (ii) the fair market value of a share of Nextel Class A Common Stock on the
date of exercise. For purposes of the Stock Purchase Plan, "fair market value"
means the closing price of the Nextel Class A Common Stock on the Nasdaq
National Market on the last trading date preceding the date of the grant or the
date of exercise, as the case may be.
The option price is payable by the optionee on the date of exercise with
funds accumulated through payroll withholding over the term of the option or, at
the discretion of the Nextel Compensation Committee, with funds paid to Nextel
by the optionee in a lump sum on or before the date of exercise. An optionee may
elect to have not less than one percent and not more than ten percent of his or
her "basic compensation," which includes base salary and any commissions paid
pursuant to an ongoing sales incentive compensation program but does not include
cash bonuses or any form of noncash compensation, withheld from payroll and
applied to the purchase of Nextel Class A Common Stock upon the exercise of
options granted under the Stock Purchase Plan.
The maximum number of shares of Nextel Common Stock that an optionee may
purchase upon exercise of an option granted under the Stock Purchase Plan is
equal to ten percent of his or her basic compensation divided by an amount equal
to 85 percent of the lesser of (i) the fair market value of a share of Nextel
Class A Common Stock on the date of grant or (ii) the fair market value of a
share of Nextel Class A Common Stock on the date of exercise, subject to further
limitations imposed by Section 423 of the Code. Section 423 of the Code provides
that, among other things, the right of an optionee to purchase stock under all
"employee stock purchase plans" (as defined in Section 423 of the Code) of a
corporation and its subsidiaries may not accrue at a rate that exceeds $25,000
of fair market value (determined at the time of grant) for each calendar year in
which the option is outstanding at any time.
Options granted under the Stock Purchase Plan may have terms of not less
than three months and not more than one year, as determined by the Nextel
Compensation Committee in its sole discretion, provided that all options granted
pursuant to any particular offering under the Stock Purchase Plan must have the
same term for all optionees. The first day of the relevant term of an option
granted under the Stock Purchase Plan is the grant date with respect to such
option, and the date of exercise of an option granted under the Stock Purchase
Plan is the last day of its term. No option granted under the Stock Purchase
Plan may be transferred by the optionee.
The Stock Purchase Plan is administered by the Nextel Compensation
Committee, which may establish such policies or procedures and adopt such rules
for the operation and administration of the Stock Purchase Plan as it deems
appropriate. Nextel may engage the services of a professional plan administrator
on such terms and conditions as the Nextel Compensation Committee deems
appropriate for the purposes of establishing and maintaining custodial accounts
and holding shares of Nextel Common Stock acquired by employees upon the
exercise of options granted under the Stock Purchase Plan and otherwise
operating the Stock Purchase Plan. The Nextel Compensation Committee also has
the authority to promulgate terms and conditions (to the extent not inconsistent
with the terms and conditions prescribed in the Stock Purchase Plan) applicable
to grants made under the Stock Purchase Plan, including, without limitation,
holding periods for shares of Nextel Class A Common Stock purchased upon the
exercise of an option granted under the Stock Purchase Plan beyond those
required to obtain favorable tax treatment under Section 423 of the Code and
sanctions for failing to comply with the terms and conditions applicable to
particular grants (in addition to those otherwise imposed by law or the terms of
the Stock Purchase Plan).
98
<PAGE> 101
The Stock Purchase Plan will terminate the tenth anniversary of its
adoption by the Nextel Board, unless sooner terminated by the Nextel Board, and
no options will thereafter be granted thereunder. The Stock Purchase Plan may be
amended from time to time by the Board of Directors, but without further
approval by the stockholders of Nextel, no such amendment may (i) increase the
aggregate number of shares of Nextel Class A Common Stock covered by the Stock
Purchase Plan, except for adjustments to reflect the effects of stock dividends,
stock splits, combinations of shares or other changes in the capital structure
of Nextel, (ii) permit the granting of options under the Stock Purchase Plan to
persons other than employees of Nextel and its subsidiaries who are customarily
employed for more than 20 hours per week, (iii) cause options granted under the
Stock Purchase Plan to fail to satisfy any of the conditions of Section 423 of
the Code or (iv) cause Rule 16b-3 under Section 16(b) of the Exchange Act (or
any successor rule to the same effect) to cease to be applicable to the Stock
Purchase Plan.
McCaw International Stock Appreciation Rights Plan. The Company has
granted to selected employees and agents SARs in accordance with the Company's
SAR Plan. The surrender of a SAR, in accordance with the terms of the SAR Plan,
entitles the holder thereof to receive the increase in fair market value of one
share of the Company's Common Stock between the date of its grant and the date
of surrender. The SAR Plan contains provisions establishing how the fair market
value of the Company's Common Stock will be determined. As of December 31, 1996,
1,235,000 SARs had been granted pursuant to the SAR Plan. SARs vest on a monthly
basis over a four-year period and once vested may be surrendered by a holder in
installments of 20% per year; provided, however, that no more than a maximum of
$5 million in the aggregate will be paid out in any one year to all SAR holders.
Certain of the senior officers of the Company have been granted rights whereby
their SARs will automatically vest upon a change of control of the Company (as
defined in the SAR Plan).
On June 23, 1997, the board of the directors of the Company adopted,
subject to the approval of Nextel, the Company's sole shareholder, the Company's
1997 Stock Option Plan and approved a plan to terminate the SAR Plan. Each
holder of SARs granted previously under the SAR Plan has been given the option
to exchange his or her SARs for stock options to be granted under the 1997 Stock
Option Plan. The Company has agreed to grant additional stock options to certain
SAR holders who exchange their SARs for stock options as an inducement to such
SAR holders. As of July 25, 1997, SAR holders representing approximately 80% of
the outstanding SARs, including all of the members of the Company's senior
management team, had agreed to exchange their SARs for options granted under the
1997 Stock Option Plan. With respect to SAR holders who elect not to exchange
their SARs for stock options, the Company will continue to be obligated by the
terms and conditions of the SAR agreements previously entered into with such
holders.
McCaw International Stock Option Plan. All employees, officers, directors,
agents, independent contractors of and advisors and consultants to McCaw
International, its subsidiaries and affiliates are eligible to participate in
the 1997 Stock Option Plan. The McCaw International Board of Directors or a
committee designated thereby (the "Plan Administrator") may grant each eligible
participant options entitling the optionee to purchase shares of McCaw
International common stock at a price equal to at least 100% of the market value
on the date of grant.
The option price is payable at the time of exercise (i) in cash, (ii) by
the transfer to the Company of shares of McCaw International common stock
already owned by the optionee for at least six months and having a value at the
time of exercise equal to the aggregate option exercise price, (iii) with any
other legal consideration the Plan Administrator may deem appropriate or (iv) at
the discretion of the Plan Administrator, by any combination of the foregoing
methods of payment.
No option may be exercised more than 10 years from the date of grant. Each
option must specify the vesting period and other terms for the exercise of such
option. Options granted under the 1997 Stock Option Plan vest over four years
but may not be exercised prior to two years following the date of grant. Options
granted under the 1997 Stock Option Plan may be designated as "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), or may be designated as options that are not intended
to so qualify.
Each optionee has the right to sell any shares acquired pursuant to the
exercise of an option to the Company or an affiliate of the Company after such
shares have been held for at least six months. The sale
99
<PAGE> 102
price for such shares is the fair market value as of the date of sale.
Additionally, the Company has a right of first refusal on any proposed sale of
shares acquired pursuant to the exercise of an option. Options are not
transferable by a recipient except by will or the laws of descent and
distribution. Options may not be exercised during a recipient's lifetime except
by the recipient or, in the event of his or her incapacity, by his or her
guardian or legal representative acting in a fiduciary capacity on behalf of the
recipient under state law and court supervision. The Plan Administrator may
specify at the date of grant that all or any part of the shares of the McCaw
International common stock are to be issued pursuant to the 1997 Stock Option
Plan shall be subject to further restrictions on transfer.
The Plan Administrator may provide for special terms for awards to
participants who either are foreign nationals or are employed by or provide
consulting services to the Company or any of its subsidiaries outside of the
United States, as the Plan Administrator may consider necessary or appropriate
to accommodate differences in local law, tax policy or custom.
The 1997 Stock Option Plan may be amended from time to time by the Board of
Directors of McCaw International; provided, however, to the extent required for
compliance with any applicable law or regulation, shareholder approval will be
required for any amendment that will (i) increase the aggregate number of shares
of McCaw International common stock as to which options may be granted under the
plan; (ii) modify the class of persons eligible to receive options; or (iii)
otherwise require shareholder approval under any applicable law or regulations.
100
<PAGE> 103
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TAX SHARING AGREEMENT
The Tax Sharing Agreement effective as of January 1, 1997, between Nextel
and the Company (the "Tax Sharing Agreement") provides that the Company must pay
Nextel its federal income tax liability computed as if the Company had filed a
separate federal income tax return. Such computation would take into account any
carryovers and carrybacks of losses and credits that would be allowed if the
Company had filed a separate federal income tax return except that, in making
such computation for any taxable year, such liability will be determined at the
highest corporate tax rate, and without an exemption for purposes of calculating
the alternative minimum tax and the environmental tax. The Tax Sharing Agreement
further provides that the Company may be included in any consolidated, combined,
or unitary state or local income or franchise tax return or report, and the
Company's liability with respect to such taxes will be computed in a manner
similar to and consistent with the calculation of the Company's federal income
tax liability.
Furthermore, the Tax Sharing Agreement provides that Nextel is entitled to
utilize on behalf of the consolidated group all of the tax attributes and other
items of income, gain, loss, deduction, expense, credit and similar treatments
of the Company arising in the current taxable year or another taxable year or
years and which properly may be carried back or carried forward to such taxable
year. The Company is not entitled to receive any compensation by reason of
Nextel's utilization of such attributes or items on behalf of the group in
determining for any taxable year or years the consolidated taxable income and
consolidated tax liability for such taxable year or years.
Nextel will not be required to compensate the Company for the benefit of
loss or credit carryback from the Company's separate filing to the consolidated
group should the Company leave the Nextel consolidated group.
Under the U.S. consolidated income tax rules, the Company and each other
member of the U.S. consolidated tax group of which it is a member will be
jointly and severally liable for the U.S. tax liabilities of each other member
of such group.
OVERHEAD SERVICES AGREEMENT
Pursuant to an Overhead Services Agreement effective as of the Closing Date
between the Company and Nextel (the "Services Agreement"), Nextel has agreed to
provide to the Company certain services, including those relating to accounts
payable, cash management, payroll, human resources, finance reporting and audit
and legal, engineering and technical and marketing and sales assistance. The fee
for services provided pursuant to the Services Agreement is the actual cost
incurred by Nextel, which is billed monthly and payable in 45 days. Pursuant to
the Services Agreement, Nextel has agreed to apportion the aggregate cost
incurred by it to provide such services to the Company and Nextel's other
subsidiaries on the basis that Nextel determines in good faith, from time to
time, represents the relative portion of such services provided by Nextel and
used by each such subsidiary, including the Company, for the relevant period.
The Company has the right to review Nextel's determination and to discuss with
Nextel adjustments that the Company considers appropriate in light of the
services provided to the Company. Nextel's good faith determination after such
consultation is final and binding. The Services Agreement has a ten-year term
and, with the consent of Nextel, the Company may elect to discontinue a
particular service or services provided by Nextel and/or obtain any service from
an independent third party.
Pursuant to the Services Agreement the Company has agreed that the legal
counsel employed by Nextel as parttime or full-time employees will provide legal
services to Nextel as well as to other subsidiaries of Nextel and potentially to
other entities in which Nextel holds an ownership interest. The Company has
agreed that such legal counsel may represent the Company as well as Nextel or
any such other subsidiary or any other entity.
NONCOMPETE AGREEMENT
The Company and Nextel entered into the Non-Compete Agreement effective as
of the Closing Date pursuant to which Nextel has agreed that neither Nextel nor
any Affiliate (as defined in the agreement)
101
<PAGE> 104
controlled by Nextel will in the future participate in the ownership or
operation of two-way terrestrial-based mobile wireless communications systems
anywhere other than in the United States and Canada (for so long as Nextel owns
an equity interest in Clearnet) unless such opportunities have first been
presented to the Company. Such restriction does not apply to, among other
things, any commercial relationship with any Wireless Entity (including channel
or frequency sharing, roaming, purchase or sale of goods or services, licensing
of intellectual property or other intangible rights or similar business related
arrangement) that does not involve the directing or participating in the
management of such Wireless Entity. The Company has agreed that, without the
consent of Nextel, neither it, its Restricted Affiliates nor any of its
Unrestricted Affiliates (each as defined in the "Description of the Notes") will
participate in the ownership or management of any wireless communications
service business in the United States or Canada other than with respect to its
interest in Clearnet. Such restrictions terminate upon the earliest to occur of
(i) April 15, 2007 and (ii) the date on which a Change of Control (as defined in
the "Description of the Notes") occurs.
If Nextel gives the Company an Initial Notice of a Future Wireless
Opportunity, the Company will have 60 days to notify Nextel that it intends to
pursue such opportunity, and how it intends to finance its participation. The
Company must have secured a financing commitment within 90 days of the date of
the Initial Notice and the Future Wireless Opportunity must be consummated
within nine months of the date of the Initial Notice. In the event the Company
fails to respond to Nextel within the 60 and 90 day time frames or fails to
consummate the transaction within the nine-month period, Nextel will be free to
pursue the Future Wireless Opportunity.
Nextel and the Company have agreed not to amend the Non-Compete Agreement
if such amendment is material and adverse to the holders of the Notes or the
Warrants and to provide such holders with written notice 30 days prior to any
amendment.
MOTOROLA RELATIONSHIPS
Motorola, a significant shareholder of Nextel, provides equipment and
vendor financing to the Operating Companies. For a description of the Motorola
Financing, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Nextel and the Company have entered into an agreement relating to the
Motorola Financing pursuant to which Nextel has agreed to make at least $95
million of the $400 million of vendor financing available to the Company. Nextel
is not obligated to make any additional amounts available to the Company under
the Motorola Financing. However, based on discussions with Nextel the Company
believes that it will be able to obtain sufficient funding under the Motorola
Financing to meet its business plan.
102
<PAGE> 105
DESCRIPTION OF THE EXCHANGE NOTES
The Private Notes were, and the Exchange Notes will be, issued under the
Indenture, dated as of March 6, 1997, between the Company, as issuer, and The
Bank of New York, as Trustee. A copy of the Indenture has been filed as an
Exhibit to the Registration Statement of which this Prospectus is a part. The
following summary of certain provisions of the Indenture does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Indenture, including the definitions of certain terms
therein and those terms made a part thereof by reference to the Trust Indenture
Act of 1939, as amended. Whenever particular defined terms of the Indenture not
otherwise defined herein are referred to, such defined terms are incorporated
herein by reference. For definitions of certain capitalized terms used in the
following summary, see "-- Certain Definitions."
GENERAL
The Exchange Notes will be unsecured unsubordinated obligations of the
Company and will mature on April 15, 2007. Although for federal income tax
purposes a significant amount of original issue discount, taxable as ordinary
income, will be recognized by a Holder as such discount accrues from the issue
date of the Exchange Notes, no interest will be payable on the Exchange Notes
prior to October 15, 2002. From and after April 15, 2002, interest on the
Exchange Notes will accrue at the rate shown on the front cover of this
Prospectus from April 15, 2002 or from the most recent interest payment date to
which interest has been paid or provided for, payable semiannually (to Holders
of record at the close of business on the April 1 or October 1 immediately
preceding the interest payment date) on April 15 and October 15 of each year,
commencing October 15, 2002. Interest will be computed on the basis of a 360-day
year of twelve 30-day months.
Principal of, premium, if any, and interest on the Exchange Notes will be
payable, and the Exchange Notes may be exchanged or transferred, at the office
or agency of the Company in the Borough of Manhattan, the City of New York
(which initially will be the corporate trust office of the Trustee at 101
Barclay Street, 21 West, New York, New York 10286); provided, that, at the
option of the Company, payment of interest may be made by check mailed to the
address of the Holders as such address appears in the Security Register.
The Company may, subject to the covenants described below under "Covenants"
and applicable law, issue additional Notes under the Indenture. The Exchange
Notes offered hereby and any additional Notes subsequently issued would be
treated as a single class for purposes of the Indenture.
BOOK-ENTRY; DELIVERY AND FORM
Exchange Notes issued in exchange for the Private Notes currently
represented by one or more fully registered global notes will be represented by
one or more fully registered global notes (collectively, the "Global Note"), and
will be deposited upon issuance with The Depository Trust Company (the
"Depository") or an agent of the Depository and registered in the name of the
Depository or a nominee of the Depository (the "Global Note Registered Owner").
Except as set forth below, the Global Note may be transferred, in whole and not
in part, only to another nominee of the Depository or to a successor of the
Depository or its nominee.
Exchange Notes issued in exchange for other Private Notes will be issued in
registered, certificated form without interest coupons.
The Depository has advised the Company that the Depository is a
limited-purpose trust company created to hold securities for its participating
organizations (collectively, the "Participants") and to facilitate the clearance
and settlement of transactions in those securities between Participants through
electronic book-entry changes in the accounts of its Participants. The
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. Access to the
Depository's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants or Indirect
Participants may beneficially own securities held by or on behalf of the
Depository only through the Participants or the Indirect Participants. The
ownership interests
103
<PAGE> 106
and transfer of ownership interests of such persons held by or on behalf of the
Depository are recorded on the records of the Participants and Indirect
Participants.
The Depositary has also advised the Company that pursuant to procedures
established by it, (i) upon deposit of the Global Note, the Depository will
credit the accounts of its Participants with portions of the principal amount of
the Global Note representing the Exchange Notes issued in exchange for the
Private Notes that each such Participant has instructed the Depository to
surrender for exchange and (ii) ownership of such interests in the Global Note
will be shown on, and the transfer of ownership thereof will be effected only
through, records maintained by the Depository (with respect to the Participants)
or by the Participants and the Indirect Participants (with respect to other
owners of beneficial interests in the Global Note).
Under the terms of the Indenture, the Company and the Trustee will treat
the persons in whose names the Exchange Notes, including the Global Note, are
registered as the owners thereof for the purpose of receiving payments in
respect of the principal of and premium, if any, and interest on any Exchange
Notes and for any and all other purposes whatsoever. Payments on any Exchange
Notes registered in the name of the Global Note Registered Owner will be payable
by the Trustee to the Global Note Registered Owner in its capacity as the
registered holder under the Indenture. Consequently, neither the Company, the
Trustee nor any agent of the Company or the Trustee has or will have any
responsibility or liability for (i) any aspect of the Depository's records or
the records of any Participant or Indirect Participant relating to or payments
made on account of beneficial ownership interests in the Global Note, or for
maintaining, supervising or reviewing any of the Depository's records or records
of any Participant or Indirect Participant relating to the beneficial ownership
interests in the Global Note or (ii) any other matter relating to the actions
and practices of the Depository or any of its Participants or Indirect
Participants. The Depository has advised the Company that its current practice,
upon receipt of any payment in respect of securities such as the Exchange Notes
(including principal and interest), is to credit the accounts of the relevant
Participants with the payment on the payment date, in amounts proportionate to
their respective holdings in principal amount of beneficial interests in the
relevant security as shown on the records of the Depository unless the
Depository has reason to believe it will not receive payment on such payment
date. Payments by the Participants and the Indirect Participants to the
beneficial owners of Exchange Notes will be governed by standing instructions
and customary practices and will be the responsibility of the Participants or
the Indirect Participants and will not be the responsibility of the Depository,
the Trustee or the Company. Neither the Company nor the Trustee will be liable
for any delay by the Depository or any of its Participants or Indirect
Participants in identifying the beneficial owners of the Exchange Notes, and the
Company and the Trustee may conclusively rely on and will be protected in
relying on instructions from the Global Note Registered Owner for all purposes.
OPTIONAL REDEMPTION
The Exchange Notes will be redeemable, at the Company's option, in whole or
in part, at any time or from time to time, on or after April 15, 2002 and prior
to maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first class mail to each Holder's last address as it appears in the Security
Register, at the following Redemption Prices (expressed in percentages of
principal amount at maturity), plus accrued and unpaid interest, if any, to the
Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date that is on or prior to the Redemption Date to receive
interest due on an Interest Payment Date), if redeemed during the 12-month
period commencing April 15, of the years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
------------------------------------- ----------------
<S> <C>
2002 106.50%
2003 103.25
2004 and thereafter 100.00
</TABLE>
In addition, at any time prior to April 15, 2000, the Company may redeem up
to 35% of the principal amount at maturity of the Exchange Notes with the Net
Cash Proceeds of one or more sales by the Company of its Capital Stock (other
than Redeemable Stock), at any time as a whole or from time to time in part, at
a Redemption Price (expressed as a percentage of Accreted Value on the
Redemption Date) of 113%, plus accrued and unpaid interest, if any, to the
Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date that is on or prior to the Redemption Date to receive
interest due on an Interest
104
<PAGE> 107
Payment Date); provided that at least $618.5 million aggregate principal amount
at maturity of Exchange Notes remains outstanding after each such redemption.
In the case of any partial redemption, selection of the Exchange Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Exchange Notes
are listed or, if the Exchange Notes are not listed on a national securities
exchange by lot or by such other method as the Trustee in its sole discretion
shall deem to be fair and appropriate; provided that no Note of $1,000 in
principal amount at maturity or less shall be redeemed in part. If any Note is
to be redeemed in part only, the notice of redemption relating to such Note
shall state the portion of the principal amount at maturity thereof to be
redeemed. A new Note in principal amount equal to the unredeemed portion thereof
will be issued in the name of the Holder thereof upon cancellation of the
original Note.
REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement, the Company agreed, for the
benefit of the Holders, that it would use its best efforts, at its cost, to
consummate this Exchange Offer. In satisfaction of this obligation, the Company
is hereby offering the Exchange Notes in return for surrender of the Private
Notes. It is intended by the Company that the Exchange Offer will satisfy these
registration rights, which will terminate upon the consummation of the Exchange
Offer. For each Private Note surrendered to the Company pursuant to the Exchange
Offer, the Holder will receive an Exchange Note of equal principal amount at
maturity. The Accreted Value of each Exchange Note shall be identical to, and
shall be determined in the same manner as, the Accreted Value of the Private
Notes so surrendered and exchanged therefor. Interest on each Exchange Note
shall be calculated and paid in the same manner as interest on the Private Notes
so surrendered and exchanged therefor.
RANKING
The indebtedness evidenced by the Exchange Notes will rank pari passu in
right of payment with all existing and future unsubordinated unsecured
indebtedness of the Company and senior in right of payment to all existing and
future indebtedness of the Company that by its terms is subordinated to the
Exchange Notes. After giving pro forma effect to the Transactions and the
Initial Offering, as of December 31, 1996, the Company would have had no
indebtedness outstanding other than the Exchange Notes. All existing and future
liabilities (including trade payables) of the Company's Restricted Group Members
will be effectively senior to the Exchange Notes. As of December 31, 1996, after
giving effect to the Transactions, the Company's Restricted Group Members would
have had approximately $79.7 million of liabilities, including $25 million of
indebtedness.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other capitalized
term used herein for which no definition is provided.
"Accreted Value" is defined to mean, for any "Specified Date", the amount
calculated pursuant to (i), (ii), (iii) or (iv) for each $1,000 principal amount
at maturity of Exchange Notes:
105
<PAGE> 108
(i) if the Specified Date occurs on one or more of the following dates
(each a "Semi-Annual Accrual Date"), the Accreted Value will equal the
amount set forth below for such Semi-Annual Accrual Date:
<TABLE>
<CAPTION>
SEMI-ANNUAL ACCRETED
ACCRUAL DATE VALUE
----------------------------------------------------------------- ---------
<S> <C>
October 15, 1997................................................. $ 567.35
April 15, 1998................................................... $ 604.23
October 15, 1998................................................. $ 643.51
April 15, 1999................................................... $ 685.33
October 15, 1999................................................. $ 729.88
April 15, 2000................................................... $ 777.32
October 15, 2000................................................. $ 827.85
April 15, 2001................................................... $ 881.66
October 15, 2001................................................. $ 938.97
April 15, 2002................................................... $1,000.00
</TABLE>
(ii) if the Specified Date occurs before the first Semi-Annual Accrual
Date, the Accreted Value will equal the sum of (a) $525.51 and (b) an
amount equal to the product of (1) the Accreted Value for the first
Semi-Annual Accrual Date less $525.51 multiplied by (2) a fraction, the
numerator of which is the number of days from the issue date of the
Exchange Notes to the Specified Date, using a 360-day year of twelve 30-day
months, and the denominator of which is the number of days elapsed from the
issue date of the Exchange Notes to the first Semi-Annual Accrual Date,
using a 360-day year of twelve 30-day months;
(iii) if the Specified Date occurs between two Semi-Annual Accrual
Dates, the Accreted Value will equal the sum of (a) the Accreted Value for
the Semi-Annual Accrual Date immediately preceding such Specified Date and
(b) an amount equal to the product of (1) the Accreted Value for the
immediately following Semi-Annual Accrual Date less the Accreted Value for
the immediately preceding Semi-Annual Accrual Date multiplied by (2) a
fraction, the numerator of which is the number of days from the immediately
preceding Semi-Annual Accrual Date to the Specified Date, using a 360-day
year of twelve 30-day months, and the denominator of which is 180; or
(iv) if the Specified Date occurs after the last Semi-Annual Accrual
Date, the Accreted Value will equal $1,000.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Group Member or assumed in connection with an
Asset Acquisition by a Restricted Group Member and not Incurred in connection
with, or in anticipation of, such Person becoming a Restricted Group Member or
such Asset Acquisition; provided that Indebtedness of such Person which is
redeemed, defeased, retired or otherwise repaid at the time of or immediately
upon consummation of the transactions by which such Person becomes a Restricted
Group Member or such Asset Acquisition shall not be Acquired Indebtedness.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Group Members for such period
determined in conformity with GAAP; provided that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without duplication):
(i) the net income (or loss) of any Unrestricted Subsidiary or Unrestricted
Affiliate, except (x) with respect to net income, to the extent of the amount of
dividends or other distributions actually paid to the Company or any Restricted
Group Member by such Unrestricted Subsidiary or Unrestricted Affiliate during
such period, and (y) with respect to net losses, to the extent of the amount of
cash contributed by the Company or any Restricted Group Member to such
Unrestricted Subsidiary or Unrestricted Affiliate during such Period; (ii)
solely for the purposes of calculating the amount of Restricted Payments that
may be made pursuant to clause (C) of the first paragraph of the "Limitation on
Restricted Payments" covenant described below (and in such case, except to the
extent includable pursuant to clause (i) above), the net income (or loss) of any
Person accrued prior to the date it becomes a Restricted Group Member or is
merged into or
106
<PAGE> 109
consolidated with the Company or any Restricted Group Member or all or
substantially all of the property and assets of such Person are acquired by the
Company or any Restricted Group Member; (iii) the net income of any Restricted
Group Member to the extent that the declaration or payment of dividends or
similar distributions by such Restricted Group Member of such net income is not
at the time permitted by the operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Restricted Group Member; provided, in the case of
restrictions imposed in connection with outstanding Indebtedness, that the
amount of net income excluded during any period shall not exceed the aggregate
amount of such Indebtedness that would need to be repaid to enable such
Restricted Group Member to declare and pay dividends or similar distributions of
such net income; (iv) any gains or losses (on an after-tax basis) attributable
to Asset Sales; (v) except for purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments" covenant described below, any amount paid or
accrued as dividends on Preferred Stock of the Company or any Restricted Group
Member owned by Persons other than the Company and any Restricted Group Member;
(vi) all extraordinary gains and extraordinary losses; and (vii) to the extent
not otherwise excluded in accordance with GAAP, the net income (or loss) of any
Restricted Group Member in an amount that corresponds to the percentage
ownership interest in the income of such Restricted Group Member not owned on
the last day of such period, directly or indirectly, by the Company.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of the Company and its Restricted Group Members (less applicable
depreciation, amortization and other valuation reserves), except to the extent
resulting from write-ups of capital assets (excluding write-ups in connection
with accounting for acquisitions in conformity with GAAP), after deducting
therefrom (i) all current liabilities of the Company and its Restricted Group
Members (excluding intercompany items) and (ii) all goodwill, trade names,
trademarks, patents, unamortized debt discount and expense and other like
intangibles other than radio frequency licenses, all as set forth on the most
recent quarterly or annual consolidated balance sheet of the Company and its
Restricted Group Members, prepared in conformity with GAAP and filed with the
Commission pursuant to the "Commission Reports and Reports to Holders" covenant;
provided that Adjusted Consolidated Net Tangible Assets shall be reduced (to the
extent not otherwise reduced in accordance with GAAP) by an amount that
corresponds to the percentage ownership interest in the assets of each
Restricted Group Member not owned on the date of determination, directly or
indirectly, by the Company.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" means (i) an investment by the Company or any
Restricted Group Member in any other Person pursuant to which such Person shall
become a Restricted Group Member or shall be merged into or consolidated with
the Company or any Restricted Group Member; provided that such Person's primary
business is related, ancillary or complementary to the businesses of the Company
and its Restricted Group Members on the date of such investment or (ii) an
acquisition by the Company or any Restricted Group Member of the property and
assets of any Person other than the Company or any Restricted Group Member that
constitute substantially all of a division or line of business of such Person;
provided that the property and assets acquired are related, ancillary or
complementary to the businesses of the Company and its Restricted Group Members
on the date of such acquisition.
"Asset Disposition" means the sale or other disposition by the Company or
any Restricted Group Member (other than to the Company or another Restricted
Group Member) of (i) all or substantially all of the Capital Stock of any
Restricted Group Member or (ii) all or substantially all of the assets that
constitute a division or line of business of the Company or any Restricted Group
Member.
"Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation or sale-leaseback transaction) in one transaction
or a series of related transactions by the Company or any
107
<PAGE> 110
Restricted Group Member to any Person other than the Company or any Restricted
Group Member of (i) all or any of the Capital Stock of any Restricted Group
Member, (ii) all or substantially all of the property and assets of an operating
unit or business of the Company or any Restricted Group Member or (iii) any
other property and assets of the Company or any Restricted Group Member outside
the ordinary course of business of the Company or such Restricted Group Member
and, in the case of any of the foregoing clauses (i) through (iii), that is not
governed by the provisions of the Indenture applicable to mergers,
consolidations and sales of assets of the Company; provided that "Asset Sale"
shall not include (a) sales or other dispositions of inventory, receivables and
other current assets, (b) sales or other dispositions of assets for
consideration at least equal to the fair market value of the assets sold or
disposed of, provided that the consideration received would satisfy clause (B)
of the "Limitation on Asset Sales" covenant, (c) sales or other dispositions of
obsolete equipment, (d) sales or other dispositions of the Capital Stock of an
Unrestricted Subsidiary or an Unrestricted Affiliate or (e) sales or other
distributions of assets with a fair market value (as certified in an officers'
certificate) not in excess of $1 million.
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of (a)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether now outstanding or
issued after the Closing Date, including, without limitation, all Common Stock
and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person; and "Capitalized
Lease Obligations" means the discounted present value of the rental obligations
under such lease.
"Change of Control" means such time as (i) (a) prior to the occurrence of a
Public Market, a "person" or "group" (within the meaning of Section 13(d) or
14(d)(2) of the Exchange Act) becomes the ultimate "beneficial owner" (as
defined in Rule 13d-3 of the Exchange Act) of Voting Stock representing a
greater percentage of the total voting power of the Voting Stock of the Company,
on a fully diluted basis, than is held by the Existing Stockholders and their
Affiliates on such date and (b) after the occurrence of a Public Market, a
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Exchange Act) becomes the ultimate "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act) of more than 35% of the total voting power of the Voting
Stock of the Company on a fully diluted basis and such ownership is greater than
the amount of voting power of the Voting Stock, on a fully diluted basis, held
by the Existing Stockholders and their Affiliates on such date; or (ii)
individuals who on the Closing Date constitute the Board of Directors (together
with any new directors whose election by the Board of Directors or whose
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds of the members of the Board of Directors then in office who
either were members of the Board of Directors on the Closing Date or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the members of the Board of Directors then in
office.
"Closing Date" means March 6, 1997, the date on which the Notes were
originally issued under the Indenture.
"Consolidated EBITDA" means, for any period, the sum of the amounts for
such period of (i) Adjusted Consolidated Net Income, (ii) Consolidated Interest
Expense, to the extent such amount was deducted in calculating Adjusted
Consolidated Net Income, (iii) income taxes, to the extent such amount was
deducted in calculating Adjusted Consolidated Net Income (other than income
taxes (either positive or negative) attributable to extraordinary and
nonrecurring gains or losses or sales of assets), (iv) depreciation expense as
determined in conformity with GAAP, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income, (v) amortization expense as
determined in conformity with GAAP, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income, and (vi) all other non-cash items
to the extent reducing Adjusted Consolidated Net Income (other than items that
will require cash
108
<PAGE> 111
payments and for which an accrual or reserve is, or is required by GAAP to be,
made), less all non-cash items to the extent increasing Adjusted Consolidated
Net Income, as determined in conformity with GAAP.
"Consolidated Interest Expense" means, for any period, the aggregate amount
of interest in respect of Indebtedness (including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; and interest
in respect of any Indebtedness that is Guaranteed or secured by the Company or
any Restricted Group Member) and all but the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid
or to be accrued by the Company and its Restricted Group Members during such
period; excluding, however, (i) any amount of such interest of any Restricted
Group Member if the net income of such Restricted Group Member is excluded in
the calculation of Adjusted Consolidated Net Income pursuant to clause (iii) or
(vii) of the definition thereof (but only in the same proportion as the net
income of such Restricted Group Member is excluded from the calculation of
Adjusted Consolidated Net Income pursuant to clause (iii) or (vii) of the
definition thereof) and (ii) any premiums, fees and expenses (and any
amortization thereof) payable in connection with the offering of the Exchange
Notes, all as determined (without taking into account Unrestricted Subsidiaries
or Unrestricted Affiliates) in conformity with GAAP.
"Consolidated Leverage Ratio" means, on any Transaction Date, the ratio of
(i) the aggregate amount (determined as set forth in the definition of
"Indebtedness") of Indebtedness of the Company and its Restricted Group Members
as at such Transaction Date to (ii) the aggregate amount of Consolidated EBITDA
for the latest fiscal quarter for which financial statements of the Company have
been filed with the Commission pursuant to the "Commission Reports and Reports
to Holders" covenant described below (such fiscal quarter being the "One Quarter
Period"), multiplied by four; provided that (A) pro forma effect shall be given
to (x) any Indebtedness Incurred from the beginning of the One Quarter Period
through the Transaction Date (the "Reference Period"), to the extent such
Indebtedness is outstanding on the Transaction Date and (y) any Indebtedness
that was outstanding during such Reference Period but that is not outstanding or
is to be repaid on the Transaction Date; (B) pro forma effect shall be given to
Asset Dispositions and Asset Acquisitions (including giving pro forma effect to
the application of proceeds of any Asset Disposition) that occur during such
Reference Period, as if they had occurred and such proceeds had been applied on
the first day of such Reference Period; and (C) pro forma effect shall be given
to asset dispositions and asset acquisitions (including giving pro forma effect
to the application of proceeds of any asset disposition) that have been made by
any Person that has become a Restricted Group Member or has been merged with or
into the Company or any Restricted Group Member during such Reference Period and
that would have constituted Asset Dispositions or Asset Acquisitions had such
transactions occurred when such Person was a Restricted Group Member as if such
asset dispositions or asset acquisitions were Asset Dispositions or Asset
Acquisitions that occurred on the first day of such Reference Period; provided
that to the extent that clause (B) or (C) of this sentence requires that pro
forma effect be given to an Asset Acquisition or Asset Disposition, such pro
forma calculation shall be based upon the full fiscal quarter immediately
preceding the Transaction Date of the Person, or division or line of business of
the Person, that is acquired or disposed of for which financial information is
available, multiplied by four.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity as set forth on the most recently available quarterly or annual
consolidated balance sheet of the Company and its Restricted Group Members
(which shall be as of a date not more than 90 days prior to the date of such
computation, and which shall not take into account Unrestricted Subsidiaries or
Unrestricted Affiliates), less any amounts attributable to Redeemable Stock or
any equity security convertible into or exchangeable for Indebtedness, the cost
of treasury stock and the principal amount of any promissory notes receivable
from the sale of the Capital Stock of the Company or any Restricted Group
Member, each item to be determined in conformity with GAAP.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
109
<PAGE> 112
"Existing Stockholders" means Craig O. McCaw and Nextel Communications,
Inc.
"fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive if
evidenced by a Board Resolution; provided that for purposes of clause (viii) of
the second paragraph of the "Limitation on Indebtedness" covenant (x) the fair
market value of any security registered under the Exchange Act shall be the
average of the closing prices, regular way, of such security for the 20
consecutive trading days immediately preceding the capital contribution or sale
of Capital Stock and (y) in the event the aggregate fair market value of any
other property received by the Company exceeds $10 million, the fair market
value of such property shall be determined by a nationally recognized investment
banking firm and set forth in their written opinion which shall be delivered to
the Trustee.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. Except as specifically provided, all ratios and
computations contained or referred to in the Indenture shall be computed in
conformity with GAAP applied on a consistent basis, except that calculations
made for purposes of determining compliance with the terms of the covenants and
with other provisions of the Indenture shall be made without giving effect to
the amortization of any expenses incurred in connection with the offering of the
Exchange Notes.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness of
such other Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services
(unless such purchase arrangements are on arm's-length terms and are entered
into in the ordinary course of such Person's business), to take-or-pay, or to
maintain financial statement conditions or otherwise) or (ii) entered into for
purposes of assuring in any other manner the obligee of such Indebtedness of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); provided that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including an "Incurrence" of Indebtedness by reason of a Person becoming a
Restricted Group Member; provided that neither the accrual of interest nor the
accretion of original issue discount shall be considered an Incurrence of
Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto, but excluding obligations
(including reimbursement obligations) with respect to (x) letters of credit
(including trade letters of credit) securing obligations (other than obligations
described in (i) or (ii) above or (v), (vi) or (vii) below) entered into in the
ordinary course of business of such Person to the extent such letters of credit
are not drawn upon or, if drawn upon, to the extent such drawing is reimbursed
no later than the third Business Day following receipt by such Person of a
demand for reimbursement and (y) letters of credit secured by cash collateral,
to the extent secured thereby), (iv) all obligations of such Person to pay the
deferred and unpaid purchase price of property or services, which purchase price
is due more than six months after the date of placing such property in service
or taking delivery and title thereto or the completion of such services, except
Trade Payables, (v) all obligations of such Person as lessee under Capitalized
Leases, (vi) all Indebtedness of other Persons secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such Person;
provided that the amount of such Indebtedness shall be the lesser of (A) the
fair market value of
110
<PAGE> 113
such asset at such date of determination and (B) the amount of such
Indebtedness, (vii) all Indebtedness of other Persons Guaranteed by such Person
to the extent such Indebtedness is Guaranteed by such Person and (viii) to the
extent not otherwise included in this definition, obligations under Currency
Agreements and Interest Rate Agreements. The amount of Indebtedness of any
Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and, with respect to contingent
obligations, the maximum liability upon the occurrence of the contingency giving
rise to the obligation, provided (A) that the amount outstanding at any time of
any Indebtedness issued with original issue discount is the face amount of such
Indebtedness less the unamortized portion of the original issue discount of such
Indebtedness at the time of its issuance as determined in conformity with GAAP,
(B) that the amount of Indebtedness at any time of any Restricted Group Member
shall be reduced by an amount that corresponds to the percentage ownership
interest in the assets of such Restricted Group Member not owned on the date of
determination, directly or indirectly, by the Company, (C) money borrowed at the
time of the Incurrence of any Indebtedness in order to pre-fund the payment of
interest on such Indebtedness shall be deemed not to be "Indebtedness" and (D)
that Indebtedness shall not include any liability for federal, state, local or
other taxes.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to customers in the ordinary course
of business that are, in conformity with GAAP, recorded as accounts receivable
on the balance sheet of the Company or its Restricted Group Members) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, bonds, notes, debentures or other
similar instruments issued by, such Person and shall include (i) the designation
of a Restricted Subsidiary of the Company as an Unrestricted Subsidiary, (ii)
the designation of a Restricted Affiliate as an Unrestricted Affiliate and (iii)
the fair market value of the Capital Stock (or any other Investment), held by
the Company or any Restricted Group Member, of (or in) any Person that has
ceased to be a Restricted Group Member, including without limitation, by reason
of any transaction permitted by clause (iii) of the "Limitation on the Issuance
and Sale of Capital Stock of Restricted Group Members" covenant or an Investment
ceasing to be a Permitted Investment pursuant to clause (ii)(y) of the
definition of "Permitted Investment"; provided that the fair market value of the
Investment remaining in any Person that has ceased to be a Restricted Group
Member shall not exceed (x) the value of the aggregate amount of Investments
previously made in such Person valued at the time such Investments were made
less (y) the net reduction of such Investments. For purposes of the definition
of "Unrestricted Affiliate" and "Unrestricted Subsidiary" and the "Limitation on
Restricted Payments" covenant described below, (i) "Investment" shall include
the fair market value of the assets (net of liabilities (other than liabilities
to the Company or any of its Subsidiaries)) of any Restricted Group Member at
the time that such Restricted Group Member is designated an Unrestricted
Subsidiary or Unrestricted Affiliate, (ii) the fair market value of the assets
(net of liabilities (other than liabilities to the Company or any of its
Subsidiaries)) of any Unrestricted Subsidiary or Unrestricted Affiliate at the
time that such Unrestricted Subsidiary or Unrestricted Affiliate is designated a
Restricted Subsidiary or Restricted Affiliate shall be considered a reduction in
outstanding Investments and (iii) any property transferred to or from an
Unrestricted Subsidiary or Unrestricted Affiliate shall be valued at its fair
market value at the time of such transfer; provided that the amount of any
Investment made by a Restricted Group Member shall be reduced by an amount that
corresponds to the percentage ownership interest in the assets of such
Restricted Group Member not owned on the date of determination, directly or
indirectly, by the Company.
"Involuntary Event" has the meaning specified in the definition of
"Permitted Investments."
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof or any agreement to
give any security interest); provided that the amount of assets of a Restricted
Group Member subject to a Lien shall be reduced by an amount that corresponds to
the percentage ownership interest in the assets of such Restricted Group Member
not owned on the date of determination, directly or indirectly, by the Company.
111
<PAGE> 114
"Minority Owned Affiliate," of any specified Person, means any other Person
in which an Investment in the Capital Stock of such Person has been made by such
specified Person other than a direct or indirect Subsidiary of such specified
Person.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Motorola Credit Agreement" means any credit agreement, loan or other
similar agreement entered into pursuant to the Motorola Vendor Financing
Template Memorandum of Understanding, together with all other agreements,
instruments and documents executed or delivered pursuant thereto or in
connection therewith, as such agreements, instruments or documents may be
amended, supplemented, extended, renewed, replaced or otherwise modified from
time to time.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Group Member) and proceeds
from the conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without regard
to the consolidated results of operations of the Company and its Restricted
Group Members, taken as a whole, (iii) payments made to repay Indebtedness or
any other obligation outstanding at the time of such Asset Sale that either (A)
is secured by a Lien on the property or assets sold or (B) is required to be
paid as a result of such sale and (iv) appropriate amounts to be provided by the
Company or any Restricted Group Member as a reserve against any liabilities
associated with such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as determined in conformity with GAAP; provided that with
respect to any Asset Sale by a Restricted Group Member, Net Cash Proceeds shall
be reduced by an amount that corresponds to the percentage ownership interest in
the assets of such Restricted Group Member not owned on the date of such Asset
Sale, directly or indirectly, by the Company; and (b) with respect to any
capital contribution or issuance or sale of Capital Stock, the proceeds of such
capital contribution or issuance or sale in the form of cash or cash
equivalents, including payments in respect of deferred payment obligations (to
the extent corresponding to the principal, but not interest, component thereof)
when received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any Restricted
Group Member) and proceeds from the conversion of other property received when
converted to cash or cash equivalents, net of attorney's fees, accountants'
fees, underwriters' or placement agents' fees, discounts or commissions and
brokerage, consultant and other fees incurred in connection with such capital
contribution or issuance or sale and net of taxes paid or payable as a result
thereof.
"Offer to Purchase" means an offer to purchase Exchange Notes by the
Company from the Holders commenced by mailing a notice to the Trustee and each
Holder stating: (i) the covenant pursuant to which the offer is being made and
that all Exchange Notes validly tendered will be accepted for payment on a pro
rata basis; (ii) the purchase price and the date of purchase (which shall be a
Business Day no earlier than 30 days nor later than 60 days from the date such
notice is mailed) (the "Payment Date"); (iii) that any Note not tendered will
continue to accrue interest (or amortize original issue discount, as the case
may be) pursuant to its terms; (iv) that, unless the Company defaults in the
payment of the purchase price, any Note accepted for payment pursuant to the
Offer to Purchase shall cease to accrue interest (or amortize original issue
discount, as the case may be) on and after the Payment Date; (v) that Holders
electing to have a Note purchased pursuant to the Offer to Purchase will be
required to surrender the Note, together with the form entitled "Option of the
Holder to Elect Purchase" on the reverse side of the Note completed, to the
Paying Agent at the address specified in the notice prior to the close of
business on the Business Day immediately preceding the Payment Date; (vi) that
Holders will be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the third Business Day
immediately preceding the Payment Date, a telegram, facsimile transmission or
letter setting forth the name of such Holder, the principal amount
112
<PAGE> 115
of Exchange Notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such Exchange Notes purchased; and (vii) that
Holders whose Exchange Notes are being purchased only in part will be issued new
Exchange Notes equal in principal amount to the unpurchased portion of the
Exchange Notes surrendered; provided that each Note purchased and each new Note
issued shall be in a principal amount at maturity of $1,000 or integral
multiples thereof. On the Payment Date, the Company shall (i) accept for payment
on a pro rata basis Exchange Notes or portions thereof tendered pursuant to an
Offer to Purchase; (ii) deposit with the Paying Agent money sufficient to pay
the purchase price of all Exchange Notes or portions thereof so accepted; and
(iii) deliver, or cause to be delivered, to the Trustee all Exchange Notes or
portions thereof so accepted together with an Officers' Certificate specifying
the Exchange Notes or portions thereof accepted for payment by the Company. The
Paying Agent shall promptly mail to the Holders of Exchange Notes so accepted
payment in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such Holders a new Note equal in principal amount to
any unpurchased portion of the Note surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount at maturity of
$1,000 or integral multiples thereof. The Company will publicly announce the
results of an Offer to Purchase as soon as practicable after the Payment Date.
The Trustee shall act as the Paying Agent for an Offer to Purchase. The Company
will comply with Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable, in the event that the Company is required to repurchase Exchange
Notes pursuant to an Offer to Purchase.
"Overhead Services Agreement" means the Overhead Services Agreement, dated
as of the Closing Date, between the Company and Nextel.
"Permitted Investment" means (i) an Investment in the Company or a
Restricted Subsidiary of the Company or a Person which will, upon the making of
such Investment, become a Restricted Subsidiary of the Company or be merged or
consolidated with or into or transfer or convey all or substantially all its
assets to, the Company or a Restricted Subsidiary of the Company; provided that
such Person's primary business is related, ancillary or complementary to the
businesses of the Company and its Restricted Subsidiaries on the date of such
Investment; (ii) an Investment by the Company or a Restricted Group Member in a
Restricted Affiliate or a Person which will, upon the making of such Investment,
become a Restricted Affiliate or be merged or consolidated with or into or
transfer or convey all or substantially all its assets to, a Restricted
Affiliate; provided that (x) such Person's primary business is related,
ancillary or complementary to the businesses of the Company and its Restricted
Group Members on the date of such Investment and (y) any such Investment shall
cease to be a Permitted Investment in the event such Restricted Affiliate shall
cease to be a Restricted Affiliate or shall cease to observe any of the
provisions of the covenants that are applicable to such Restricted Affiliate,
provided that in the event such Restricted Affiliate ceases to be a Restricted
Affiliate or such Restricted Affiliate ceases to observe any of the provisions
of the covenants applicable to it solely as a result of circumstances,
developments or conditions beyond the control of the Company (such failure to be
a Restricted Affiliate or failure to observe a covenant as a result of any such
circumstance, development or condition, being an "Involuntary Event") any such
Investment previously made in such Restricted Affiliate will not cease to be a
Permitted Investment unless such Involuntary Event continues for 90 days; (iii)
an Investment by a Restricted Affiliate in a Restricted Subsidiary of such
Restricted Affiliate or a Person which will, upon the making of such Investment,
become a Restricted Subsidiary of such Restricted Affiliate or be merged or
consolidated with or into or transfer or convey all or substantially all its
assets to, such Restricted Affiliate or a Restricted Subsidiary of such
Restricted Affiliate; provided that such Person's primary business is related,
ancillary or complementary to the businesses of the Company and its Restricted
Group Members on the date of such Investment; (iv) Temporary Cash Investments;
(v) payroll, travel and similar advances to cover matters that are expected at
the time of such advances ultimately to be treated as expenses in accordance
with GAAP; and (vi) stock, obligations or securities received in satisfaction of
judgments or as part of or in connection with the bankruptcy, winding up or
liquidation of a Person, except if such stock, obligations or securities are
received in consideration for an Investment made in such Person in connection
with or anticipation of such bankruptcy, winding up or liquidation.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have
113
<PAGE> 116
been made; (ii) statutory and common law Liens of landlords and carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen or other similar
Liens arising in the ordinary course of business and with respect to amounts not
yet delinquent or being contested in good faith by appropriate legal proceedings
promptly instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made; (iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security; (iv) Liens incurred or deposits
made to secure the performance of tenders, bids, leases, statutory or regulatory
obligations, bankers' acceptances, surety and appeal bonds, government
contracts, performance and return-of-money bonds and other obligations of a
similar nature incurred in the ordinary course of business (exclusive of
obligations for the payment of borrowed money); (v) easements, rights-of-way,
municipal and zoning ordinances and similar charges, encumbrances, title defects
or other irregularities that do not materially interfere with the ordinary
course of business of the Company or any Restricted Group Member; (vi) Liens
(including extensions and renewals thereof) upon real or personal property
acquired after the Closing Date; provided that (a) such Lien is created solely
for the purpose of securing Indebtedness Incurred, in accordance with the
"Limitation on Indebtedness" covenant described below, (1) to finance the cost
(including the cost of design, development, construction, improvement,
installation or integration) of the item of property or assets subject thereto
and such Lien is created prior to, at the time of or within six months after the
later of the acquisition, the completion of construction or the commencement of
full operation of such property or (2) to refinance any Indebtedness previously
so secured, (b) the principal amount of the Indebtedness secured by such Lien
does not exceed 100% of such cost and (c) any such Lien shall not extend to or
cover any property or assets other than such item of property or assets and any
improvements on such item; (vii) leases or subleases granted to others that do
not materially interfere with the ordinary course of business of the Company and
its Restricted Group Members, taken as a whole; (viii) Liens encumbering
property or assets under construction arising from progress or partial payments
by a customer of the Company or its Restricted Group Members relating to such
property or assets; (ix) any interest or title of a lessor in the property
subject to any Capitalized Lease or operating lease; (x) Liens arising from
filing Uniform Commercial Code financing statements (or substantially equivalent
filings outside the United States) regarding leases; (xi) Liens on property of,
or on shares of Capital Stock or Indebtedness of, any Person existing at the
time such Person becomes, or becomes a part of, any Restricted Group Member;
provided that such Liens do not extend to or cover any property or assets of the
Company or any Restricted Group Member other than the property or assets
acquired; (xii) Liens in favor of the Company or any Restricted Group Member;
(xiii) Liens arising from the rendering of a final judgment or order against the
Company or any Restricted Group Member that does not give rise to an Event of
Default; (xiv) Liens securing reimbursement obligations with respect to letters
of credit that encumber documents and other property relating to such letters of
credit and the products and proceeds thereof; (xv) Liens in favor of customs and
revenue authorities arising as a matter of law to secure payment of customs
duties in connection with the importation of goods; (xvi) Liens encumbering
customary initial deposits and margin deposits, and other Liens that are either
within the general parameters customary in the industry and incurred in the
ordinary course of business, in each case, securing Indebtedness under Interest
Rate Agreements and Currency Agreements and forward contracts, options, future
contracts, futures options or similar agreements or arrangements designed solely
to protect the Company or any of its Restricted Group Members from fluctuations
in interest rates, currencies or the price of commodities; (xvii) Liens arising
out of conditional sale, title retention, consignment or similar arrangements
for the sale of goods entered into by the Company or any Restricted Group Member
in the ordinary course of business in accordance with the past practices of the
Company and its Restricted Group Members prior to the Closing Date; (xviii)
Liens on or sales of receivables; (xix) Liens on the Capital Stock of
Unrestricted Subsidiaries and Unrestricted Affiliates; and (xx) Liens securing
Indebtedness in an amount not to exceed at any one time outstanding 10% of
Adjusted Consolidated Net Tangible Assets.
"Public Equity Offering" means an underwritten primary public offering of
Common Stock of the Company pursuant to an effective registration statement
under the Securities Act.
A "Public Market" shall be deemed to exist if (i) a Public Equity Offering
has been consummated and (ii) at least 15% of the total issued and outstanding
Common Stock of the Company has been distributed by
114
<PAGE> 117
means of an effective registration statement under the Securities Act or sales
pursuant to Rule 144 under the Securities Act.
"Redeemable Stock" means any class or series of Capital Stock of any Person
that by its terms or otherwise is (i) required to be redeemed prior to the
Stated Maturity of the Exchange Notes, (ii) redeemable at the option of the
holder of such class or series of Capital Stock at any time prior to the Stated
Maturity of the Exchange Notes or (iii) convertible into or exchangeable for
Capital Stock referred to in clause (i) or (ii) above or Indebtedness having a
scheduled maturity prior to the Stated Maturity of the Exchange Notes; provided
that any Capital Stock that would not constitute Redeemable Stock but for
provisions thereof giving holders thereof the right to require such Person to
repurchase or redeem such Capital Stock upon the occurrence of an "asset sale"
or "change of control" occurring prior to the Stated Maturity of the Exchange
Notes shall not constitute Redeemable Stock if the "asset sale" or "change of
control" provisions applicable to such Capital Stock are no more favorable to
the holders of such Capital Stock than the provisions contained in "Limitation
on Asset Sales" and "Repurchase of Exchange Notes Upon a Change of Control"
covenants described below and such Capital Stock specifically provides that such
Person will not repurchase or redeem any such stock pursuant to such provision
prior to the Company's repurchase of such Exchange Notes as are required to be
repurchased pursuant to the "Limitation on Asset Sales" and "Repurchase of
Exchange Notes Upon a Change of Control" covenants described below.
"Restricted Affiliate" means any direct or indirect Minority Owned
Affiliate of the Company or a Restricted Subsidiary of the Company that has been
designated by the Board of Directors as a Restricted Affiliate based on a
determination by the Board of Directors that the Company has, directly or
indirectly, the requisite control over such Minority Owned Affiliate to prevent
it from Incurring Indebtedness, or taking any other action at any time, in
contravention of any of the provisions of the Indenture that are applicable to
Restricted Affiliates; provided that immediately after giving effect to such
designation (x) the Liens and Indebtedness of such Minority Owned Affiliate
outstanding immediately after such designation would, if Incurred at such time,
have been permitted to be Incurred for all purposes of the Indenture and (y) no
Default or Event of Default shall have occurred and be continuing. The Company
will be required to deliver an Officers' Certificate to the Trustee upon
designating any Minority Owned Affiliate as a Restricted Affiliate.
"Restricted Group Members" means collectively, each Restricted Subsidiary
of the Company, each Restricted Affiliate and each Restricted Subsidiary of a
Restricted Affiliate.
"Restricted Subsidiary" means any Subsidiary other than an Unrestricted
Subsidiary.
"Significant Group Member" means, at any date of determination, any
Restricted Group Member that, together with its Restricted Subsidiaries and
Restricted Affiliates, (i) for the most recent fiscal year of the Company,
accounted for more than 10% of the consolidated revenues of the Company and its
Restricted Group Members or (ii) as of the end of such fiscal year, was the
owner of more than 10% of the consolidated assets of the Company and its
Restricted Group Members, all as set forth on the most recently available
consolidated financial statements of the Company for such fiscal year.
"S&P" means Standard & Poor's Ratings Services and its successors.
"Stated Maturity" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting power
of the outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or obligations
fully and unconditionally guaranteed by the United States of America or any
agency thereof, (ii) time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States, and which bank or trust company has capital, surplus and
undivided profits aggregating
115
<PAGE> 118
in excess of $50 million (or the foreign currency equivalent thereof) and has
outstanding debt which is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating organization (as
defined in Rule 436 under the Securities Act) or any money-market fund sponsored
by a registered broker dealer or mutual fund distributor, (iii) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clause (i) above entered into with a bank meeting the
qualifications described in clause (ii) above, (iv) commercial paper, maturing
not more than 90 days after the date of acquisition, issued by a corporation
(other than an Affiliate of the Company) organized and in existence under the
laws of the United States of America, any state thereof or any foreign country
recognized by the United States of America with a rating at the time as of which
any investment therein is made of "P-1" (or higher) according to Moody's or
"A-1" (or higher) according to S&P, and (v) securities with maturities of six
months or less from the date of acquisition issued or fully and unconditionally
guaranteed by any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority thereof, and rated
at least "A" by S&P or Moody's.
"Trade Payables" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Company or any Restricted Group Member, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Unrestricted Affiliate" means any Minority Owned Affiliate of the Company
other than a Restricted Affiliate. The Board of Directors may designate any
Restricted Affiliate to be an Unrestricted Affiliate unless such Minority Owned
Affiliate owns any Capital Stock of, or owns or holds any Lien on any property
of, the Company or any Restricted Group Member; provided that (A) any Guarantee
by the Company or any Restricted Group Member of any Indebtedness of the
Minority Owned Affiliate being so designated shall be deemed an "Incurrence" of
such Indebtedness and an "Investment" by the Company or such Restricted Group
Member (or both, if applicable) at the time of such designation; (B) either (I)
the Minority Owned Affiliate to be so designated has total assets of $1,000 or
less or (II) if such Minority Owned Affiliate has assets greater than $1,000,
such designation would be permitted under the "Limitation on Restricted
Payments" covenant described below and (C) if applicable, the Incurrence of
Indebtedness and the Investment referred to in clause (A) of this proviso would
be permitted under the "Limitation on Indebtedness" and "Limitation on
Restricted Payments" covenants described below. Any such designation by the
Board of Directors shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of, or owns or holds any Lien on any property of, the Company or
any Restricted Subsidiary; provided that (A) any Guarantee by the Company or any
Restricted Subsidiary of any Indebtedness of the Subsidiary being so designated
shall be deemed an "Incurrence" of such Indebtedness and an "Investment" by the
Company or such Restricted Subsidiary (or both, if applicable) at the time of
such designation; (B) either (I) the Subsidiary to be so designated has total
assets of $1,000 or less or (II) if such Subsidiary has assets greater than
$1,000, such designation would be permitted under the "Limitation on Restricted
Payments" covenant described below and (C) if applicable, the Incurrence of
Indebtedness and the Investment referred to in clause (A) of this proviso would
be permitted under the "Limitation on Indebtedness" and "Limitation on
Restricted Payments" covenants described below. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that immediately after giving effect to such designation (x) the Liens and
Indebtedness of such Unrestricted Subsidiary outstanding immediately after such
designation would, if Incurred at such time, have been permitted to be Incurred
for all purposes of the Indenture and (y) no Default or Event of
116
<PAGE> 119
Default shall have occurred and be continuing. Any such designation by the Board
of Directors shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"Voting Stock" means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
COVENANTS
The Indenture contains, among others, the following covenants.
Limitation on Indebtedness
(a) The Company will not, and will not permit any Restricted Group Member
to, Incur any Indebtedness (other than the Exchange Notes and Indebtedness
existing on the Closing Date); provided that the Company may Incur Indebtedness,
and any Restricted Group Member may Incur Acquired Indebtedness, if, after
giving effect to the Incurrence of such Indebtedness and the receipt and
application of the proceeds therefrom, the Consolidated Leverage Ratio would be
less than 9 to 1, for Indebtedness Incurred on or prior to December 31, 1999, or
7 to 1, for Indebtedness Incurred thereafter.
Notwithstanding the foregoing, the Company and any Restricted Group Member
(except as specified below) may Incur each and all of the following: (i)
Indebtedness outstanding at any time in an aggregate principal amount not to
exceed $100 million, less any amount of such Indebtedness permanently repaid as
provided under the "Limitation on Asset Sales" covenant described below; (ii)
Indebtedness (A) to the Company evidenced by an unsubordinated promissory note
or (B) to any Restricted Group Member; provided that any event which results in
any such Restricted Group Member ceasing to be a Restricted Group Member or any
subsequent transfer of such Indebtedness (other than to the Company or another
Restricted Group Member) shall be deemed, in each case, to constitute an
Incurrence of such Indebtedness not permitted by this clause (ii); (iii)
Indebtedness of the Company or any Restricted Group Member issued in exchange
for, or the net proceeds of which are used to refinance or refund, then
outstanding Indebtedness of the same Person (other than Indebtedness Incurred
under clause (i), (ii), (iv) or (vi) of this paragraph) or any refinancings
thereof in an amount not to exceed the amount so refinanced or refunded (plus
premiums, accrued interest, fees and expenses); provided that Indebtedness the
proceeds of which are used to refinance or refund the Exchange Notes or
Indebtedness that is pari passu with, or subordinated in right of payment to,
the Exchange Notes shall only be permitted under this clause (iii) if (A) in
case the Exchange Notes are refinanced in part or the Indebtedness to be
refinanced is pari passu with the Exchange Notes, such new Indebtedness, by its
terms or by the terms of any agreement or instrument pursuant to which such new
Indebtedness is outstanding, is expressly made pari passu with, or subordinate
in right of payment to, the remaining Exchange Notes, (B) in case the
Indebtedness to be refinanced is subordinated in right of payment to the
Exchange Notes, such new Indebtedness, by its terms or by the terms of any
agreement or instrument pursuant to which such new Indebtedness is issued or
remains outstanding, is expressly made subordinate in right of payment to the
Exchange Notes at least to the extent that the Indebtedness to be refinanced is
subordinated to the Exchange Notes and (C) such new Indebtedness, determined as
of the date of Incurrence of such new Indebtedness, does not mature prior to the
Stated Maturity of the Indebtedness to be refinanced or refunded, and the
Average Life of such new Indebtedness is at least equal to the remaining Average
Life of the Indebtedness to be refinanced or refunded; (iv) Indebtedness (A) in
respect of performance, surety or appeal bonds provided in the ordinary course
of business, (B) under Currency Agreements and Interest Rate Agreements;
provided that such agreements (a) are designed solely to protect the Company or
its Restricted Group Members against fluctuations in foreign currency exchange
rates or interest rates and (b) do not increase the Indebtedness of the obligor
outstanding at any time other than as a result of fluctuations in foreign
117
<PAGE> 120
currency exchange rates or interest rates or by reason of fees, indemnities and
compensation payable thereunder; and (C) arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or from
Guarantees or letters of credit, surety bonds or performance bonds securing any
obligations of the Company or any Restricted Group Member pursuant to such
agreements, in any case Incurred in connection with the disposition of any
business, assets or Restricted Group Member (other than Guarantees of
Indebtedness Incurred by any Person acquiring all or any portion of such
business, assets or Restricted Group Member for the purpose of financing such
acquisition), in a principal amount not to exceed the gross proceeds actually
received by the Company or any Restricted Group Member in connection with such
disposition; (v) Indebtedness of the Company, to the extent the net proceeds
thereof are promptly (A) used to purchase Exchange Notes tendered in an Offer to
Purchase made as a result of a Change in Control or (B) deposited to defease the
Exchange Notes as described below under "Defeasance"; (vi) Guarantees of the
Exchange Notes and Guarantees of Indebtedness of the Company by any Restricted
Group Member provided the Guarantee of such Indebtedness is permitted by and
made in accordance with the "Limitation on Issuance of Guarantees by Restricted
Group Members" covenant described below; (vii) Indebtedness Incurred to finance
the cost (including the cost of design, development, construction, improvement,
installation or integration and all import duties) of telecommunications network
assets, equipment or inventory acquired by the Company or a Restricted Group
Member after the Closing Date; and (viii) Indebtedness of the Company not to
exceed, at any one time outstanding, two times, or Indebtedness of a Restricted
Group Member not to exceed at any one time outstanding, one times (x) the Net
Cash Proceeds received by the Company after the Closing Date from contributions
of capital or the issuance and sale of its Capital Stock (other than Redeemable
Stock) to a Person that is not a Subsidiary of the Company or a Restricted
Affiliate, to the extent such Net Cash Proceeds have not been used pursuant to
clause (C)(2) of the first paragraph of the "Limitation on Restricted Payments"
covenant described below to make a Restricted Payment and (y) 80% of the fair
market value of property other than cash received by the Company after the
Closing Date from contributions of capital or the issuance and sale of its
Capital Stock (other than Redeemable Stock) to a Person that is not a Subsidiary
of the Company or a Restricted Affiliate.
(b) Notwithstanding any other provision of this "Limitation on
Indebtedness" covenant, the maximum amount of Indebtedness that the Company or a
Restricted Group Member may Incur pursuant to this "Limitation on Indebtedness"
covenant shall not be deemed to be exceeded, with respect to any outstanding
Indebtedness due solely to the result of fluctuations in the exchange rates of
currencies.
(c) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, (1) Indebtedness Incurred under the
Motorola Credit Agreement on or prior to the Closing Date shall be treated as
Incurred pursuant to clause (i) of the second paragraph of this "Limitation on
Indebtedness" covenant, (2) Guarantees of, Liens securing or obligations with
respect to letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included and (3) any Liens
granted pursuant to the equal and ratable provisions referred to in the
"Limitation on Liens" covenant described below shall not be treated as
Indebtedness. For purposes of determining compliance with this "Limitation on
Indebtedness" covenant, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the above
clauses (other than Indebtedness referred to in clause (1) of the preceding
sentence), the Company, in its sole discretion, shall classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses.
Limitation on Restricted Payments
The Company will not, and will not permit any Restricted Group Member to,
directly or indirectly, (i) declare or pay any dividend or make any distribution
on or with respect to its Capital Stock (other than (x) dividends or
distributions payable solely in shares of its Capital Stock (other than
Redeemable Stock) or in options, warrants or other rights to acquire shares of
such Capital Stock and (y) pro rata dividends or distributions on Capital Stock
of Restricted Group Members held by Persons other than the Company or other
Restricted Group Members, provided that the Company or any other Restricted
Group Members holding shares of Capital Stock of such dividend or distribution
paying Restricted Group Member shall receive such pro rata dividends or
distributions as may be due to such other Restricted Group Members or the
118
<PAGE> 121
Company at or prior to the payment of such pro rata dividends or distributions
to such other Persons) held by Persons other than the Company or any Restricted
Group Member, (ii) purchase, redeem, retire or otherwise acquire for value any
shares of Capital Stock of (A) the Company or an Unrestricted Subsidiary
(including options, warrants or other rights to acquire such shares of Capital
Stock) held by any Person or (B) a Restricted Group Member (including options,
warrants or other rights to acquire such shares of Capital Stock) held by any
Affiliate of the Company (other than a Restricted Group Member) or any holder
(or any Affiliate of such holder) of 5% or more of the Capital Stock of the
Company, (iii) make any voluntary or optional principal payment, or voluntary or
optional redemption, repurchase, defeasance, or other acquisition or retirement
for value, of Indebtedness of the Company that is subordinated in right of
payment to the Exchange Notes (other than the purchase, repurchase or the
acquisition of Indebtedness in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in any case due within one
year of the date of acquisition) or (iv) make any Investment, other than a
Permitted Investment, in any Person (such payments or any other actions
described in clauses (i) through (iv) being collectively "Restricted Payments")
if, at the time of, and after giving effect to, the proposed Restricted Payment:
(A) a Default or Event of Default shall have occurred and be continuing, (B)
except with respect to Investments, the Company could not Incur at least $1.00
of Indebtedness under the first paragraph of the "Limitation on Indebtedness"
covenant or (C) the aggregate amount of all Restricted Payments (the amount, if
other than in cash, to be determined in good faith by the Board of Directors,
whose determination shall be conclusive and evidenced by a Board Resolution)
made after the Closing Date shall exceed the sum of (1) 50% of the aggregate
amount of the Adjusted Consolidated Net Income (or, if the Adjusted Consolidated
Net Income is a loss, minus 100% of the amount of such loss) (determined by
excluding income resulting from transfers of assets by the Company or a
Restricted Group Member to an Unrestricted Subsidiary or Unrestricted Affiliate)
accrued on a cumulative basis during the period (taken as one accounting period)
beginning on the first day of the fiscal quarter immediately following the
Closing Date and ending on the last day of the last fiscal quarter preceding the
Transaction Date for which reports have been filed pursuant to the "Commission
Reports and Reports to Holders" covenant plus (2) the aggregate Net Cash
Proceeds received by the Company after the Closing Date from the issuance and
sale permitted by the Indenture of its Capital Stock (other than Redeemable
Stock) to a Person who is not a Subsidiary or Restricted Affiliate of the
Company (except to the extent such Net Cash Proceeds are used to Incur
Indebtedness outstanding pursuant to clause (viii) of the second paragraph of
the "Limitation on Indebtedness" covenant) or from the issuance to a Person who
is not a Subsidiary or Restricted Affiliate of the Company of any options,
warrants or other rights to acquire Capital Stock of the Company (in each case,
exclusive of any Redeemable Stock or any options, warrants or other rights that
are redeemable at the option of the holder, or are required to be redeemed,
prior to the Stated Maturity of the Exchange Notes) plus (3) an amount equal to
the net reduction in Investments (other than reductions in Permitted
Investments, reductions in Investments made pursuant to clause (ix) of the
following paragraph) in any Person resulting from payments of interest on
Indebtedness, dividends, repayments of loans or advances, or other transfers of
assets, in each case to the Company or any Restricted Group Member or from the
Net Cash Proceeds from the sale of any such Investment (except, in each case, to
the extent any such payment or proceeds are included in Adjusted Consolidated
Net Income), or from redesignations of Unrestricted Subsidiaries as Restricted
Subsidiaries of the Company or a Restricted Affiliate or from redesignations of
Unrestricted Affiliates as Restricted Affiliates (valued in each case as
provided in the definition of "Investments"), not to exceed, in each case, the
amount of Investments previously made by the Company or any Restricted Group
Member in such Person, Unrestricted Subsidiary or Unrestricted Affiliate.
The foregoing provision shall not be violated by reason of: (i) the payment
of any dividend within 60 days after the date of declaration thereof if, at said
date of declaration, such payment would comply with the foregoing paragraph;
(ii) the redemption, repurchase, defeasance or other acquisition or retirement
for value of Indebtedness that is subordinated in right of payment to the
Exchange Notes including premium, if any, and accrued and unpaid interest, with
the proceeds of, or in exchange for, Indebtedness Incurred under clause (iii) of
the second paragraph of part (a) of the "Limitation on Indebtedness" covenant;
(iii) the repurchase, redemption or other acquisition of Capital Stock of the
Company (or options, warrants or other rights to acquire such Capital Stock) in
exchange for, or out of the proceeds of a substantially concurrent offering of,
shares of Capital Stock (other than Redeemable Stock) of the Company; (iv) the
making of any principal
119
<PAGE> 122
payment or the repurchase, redemption, retirement, defeasance or other
acquisition for value of Indebtedness of the Company which is subordinated in
right of payment to the Exchange Notes in exchange for, or out of the proceeds
of, a substantially concurrent offering of, shares of the Capital Stock of the
Company (other than Redeemable Stock); (v) the declaration or payment of
dividends on the Common Stock of the Company following a Public Equity Offering
of such Common Stock, of up to 6% per annum of the Net Cash Proceeds received by
the Company in such Public Equity Offering; (vi) payments or distributions, to
dissenting stockholders pursuant to applicable law, pursuant to or in connection
with a consolidation, merger or transfer of assets that complies with the
provisions of the Indenture applicable to mergers, consolidations and transfers
of all or substantially all of the property and assets of the Company; (vii)
Investments acquired as a capital contribution to the Company or in exchange for
Capital Stock (other than Redeemable Stock) of the Company or Capital Stock of
Nextel or any of its subsidiaries (other than the Company and its Subsidiaries);
(vii) the repurchase, redemption or other acquisition for value of Capital Stock
of the Company to the extent necessary to prevent the loss or secure the renewal
or reinstatement of any license or franchise held by the Company or any of its
Subsidiaries from any governmental agency; (ix) Investments in an aggregate
amount not to exceed $30 million, plus reductions in such Investments (except to
the extent any such reduction is included in Adjusted Consolidated Net Income)
not to exceed the amount of the Investments previously made; (x) Investments in
a Person which has ceased to be a Restricted Affiliate or ceases to observe any
of the provisions of the covenants applicable to it as a result of an
Involuntary Event; provided (I) such Investment is made with the proceeds of a
substantially concurrent capital contribution to, or sale of Capital Stock
(other than Redeemable Stock) of, the Company and (II) after such Investment
such Involuntary Event shall no longer continue and such person shall be a
Restricted Affiliate; or (xi) repurchases of Warrants pursuant to a Repurchase
Offer; provided that, except in the case of clauses (i) and (iii), no Default or
Event of Default shall have occurred and be continuing or occur as a consequence
of the actions or payments set forth therein, other than with respect to clause
(x), a Default or Event of Default that will cease to exist substantially
contemporaneously with such Investment.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof and an
exchange of Capital Stock for Capital Stock or Indebtedness referred to in
clause (iii) or (iv) thereof), and the Net Cash Proceeds from any issuance of
Capital Stock referred to in clauses (iii) and (iv), shall be included in
calculating whether the conditions of clause (C) of the first paragraph of this
"Limitation on Restricted Payments" covenant have been met with respect to any
subsequent Restricted Payments.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Group Members
The Company will not, and will not permit any Restricted Group Member to,
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted Group
Member to (i) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted Group Member owned by the
Company or any other Restricted Group Member, (ii) pay any Indebtedness owed to
the Company or any other Restricted Group Member, (iii) make loans or advances
to the Company or any other Restricted Group Member or (iv) transfer any of its
property or assets to the Company or any other Restricted Group Member.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in the Indenture or any other
agreements in effect on the Closing Date, and any extensions, refinancings,
renewals or replacements of such agreements; provided that the encumbrances and
restrictions in any such extensions, refinancings, renewals or replacements are
no less favorable in any material respect to the Holders than those encumbrances
or restrictions that are then in effect and that are being extended, refinanced,
renewed or replaced; (ii) existing under or by reason of applicable law; (iii)
existing with respect to any Person or the property or assets of such Person
acquired by the Company or any Restricted Group Member, existing at the time of
such acquisition and not incurred in contemplation thereof, which encumbrances
or restrictions are not applicable to any Person or the property or assets of
any Person other than such Person or the property or assets of such Person so
acquired; (iv) in the case of clause (iv) of the first paragraph of this
"Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Group Members" covenant, (A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is a
120
<PAGE> 123
lease, license, conveyance or contract or similar property or asset, (B)
existing by virtue of any transfer of, agreement to transfer, option or right
with respect to, or Lien on, any property or assets of the Company or any
Restricted Group Member not otherwise prohibited by the Indenture or (C) arising
or agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, detract from
the value of property or assets of the Company or any Restricted Group Member in
any manner material to the Company or any Restricted Group Member; (v) with
respect to a Restricted Group Member and imposed pursuant to an agreement that
has been entered into for the sale or disposition of all or substantially all of
the Capital Stock of, or property and assets of, such Restricted Group Member;
(vi) contained in the terms of any Indebtedness or any agreement pursuant to
which such Indebtedness was issued if the encumbrance or restriction applies
only in the event of a default with respect to a financial covenant contained in
such Indebtedness or agreement is not materially more disadvantageous to the
Holders of the Exchange Notes than is customary in comparable financings (as
determined by the Company) and the Company determines that any such encumbrance
or restriction will not materially affect the Company's ability to make
principal or interest payments on the Exchange Notes; (vii) contained in any
stockholders or similar agreement, so long as such encumbrance or restriction is
not materially more disadvantageous to the Holders of the Exchange Notes than
the encumbrances and restrictions contained in comparable agreements entered
into in the past by the Company or a Restricted Group Member; or (viii)
contained in any agreement entered into after the Closing Date, so long as such
encumbrance or restriction is not materially more disadvantageous to the Holders
of the Exchange Notes than the encumbrances and restrictions contained in the
Motorola Credit Agreement. Nothing contained in this "Limitation on Dividend and
Other Payment Restrictions Affecting Restricted Group Members" covenant shall
prevent the Company or any Restricted Group Member from (1) creating, incurring,
assuming or suffering to exist any Liens otherwise permitted in the "Limitation
on Liens" covenant or (2) restricting the sale or other disposition of property
or assets of the Company or any Restricted Group Member that secure Indebtedness
of the Company or any Restricted Group Member.
Limitation on the Issuance and Sale of Capital Stock of Restricted Group
Members
The Company will not sell, and will not permit any Restricted Group Member,
directly or indirectly, to issue or sell, any shares of Capital Stock of a
Restricted Group Member (including options, warrants or other rights to purchase
shares of such Capital Stock) except (i) to the Company or a Wholly Owned
Restricted Subsidiary of the Company; (ii) issuances of director's qualifying
shares or sales to foreign nationals of shares of Capital Stock of a foreign
Restricted Group Member, to the extent required by applicable law; (iii) if,
immediately after giving effect to such issuance or sale, such Restricted Group
Member would no longer constitute a Restricted Group Member, provided any
Investment in such Person remaining after giving effect to such issuance or sale
would have been permitted to be made under the "Limitation on Restricted
Payments" covenant, if made on the date of such issuance or sale; and (iv)
issuances or sales of Common Stock (including options, warrants or other rights
to purchase Common Stock) of a Restricted Group Member, provided the Net Cash
Proceeds, if any, of such sale are applied in accordance with clause (A) or (B)
of the "Limitation on Asset Sales" covenant described below.
Limitation on Issuances of Guarantees by Restricted Group Members
The Company will not permit any Restricted Group Member, directly or
indirectly, to Guarantee any Indebtedness of the Company which is pari passu
with or subordinate in right of payment to the Exchange Notes ("Guaranteed
Indebtedness"), unless (i) such Restricted Group Member simultaneously executes
and delivers a supplemental indenture to the Indenture providing for a Guarantee
(a "Subsidiary Guarantee") of payment of the Exchange Notes by such Restricted
Group Member and (ii) such Restricted Group Member waives and will not in any
manner whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Restricted Group Member as a result of any payment by such
Restricted Group Member under its Subsidiary Guarantee; provided that this
paragraph shall not be applicable to (x) any Guarantee of any Restricted Group
Member that existed at the time such Person became a Restricted Group Member and
was not Incurred in connection with, or in contemplation of, such Person
becoming a Restricted Group Member or (y) any Guarantee of any Restricted Group
Member of Indebtedness Incurred (I) under a revolving credit, vendor financing
or working capital facility pursuant to clause (i) of the second paragraph of
the "Limitation on Indebtedness" covenant or
121
<PAGE> 124
(II) pursuant to clause (vii) of the second paragraph of the "Limitation on
Indebtedness" covenant. If the Guaranteed Indebtedness is (A) pari passu with
the Exchange Notes, then the Guarantee of such Guaranteed Indebtedness shall be
pari passu with, or subordinated to, the Subsidiary Guarantee or (B)
subordinated to the Exchange Notes, then the Guarantee of such Guaranteed
Indebtedness shall be subordinated to the Subsidiary Guarantee at least to the
extent that the Guaranteed Indebtedness is subordinated to the Exchange Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Group Member may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of the Company, of all of the Company's and each
Restricted Group Member's Capital Stock in, or all or substantially all the
assets of, such Restricted Group Member (which sale, exchange or transfer is not
prohibited by the Indenture) or (ii) the release or discharge of the Guarantee
which resulted in the creation of such Subsidiary Guarantee, except a discharge
or release by or as a result of payment under such Guarantee.
Limitation on Transactions with Shareholders and Affiliates
The Company will not, and will not permit any Restricted Group Member to,
directly or indirectly, enter into, renew or extend any transaction (including,
without limitation, the purchase, sale, lease or exchange of property or assets,
or the rendering of any service) with any holder (or any Person known by the
Company to be an Affiliate of such holder) of 5% or more of any class of Capital
Stock of the Company or with any Affiliate of the Company or any Restricted
Group Member, except upon fair and reasonable terms no less favorable to the
Company or such Restricted Group Member than could be obtained, at the time of
such transaction or, if such transaction is pursuant to a written agreement, at
the time of the execution of the agreement providing therefor, in a comparable
arm's-length transaction with a Person that is not such a holder or an
Affiliate.
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors of the Company or (B) for which the Company or a Restricted
Group Member delivers to the Trustee a written opinion of a nationally
recognized investment banking firm stating that the transaction is fair to the
Company or such Restricted Group Member from a financial point of view; (ii) any
transaction solely between the Company and any of its Wholly Owned Restricted
Subsidiaries or solely between Wholly Owned Restricted Subsidiaries of the
Company; (iii) the payment of reasonable and customary regular fees to directors
of the Company who are not employees of the Company; (iv) any payments or other
transactions pursuant to any tax-sharing agreement between the Company and any
other Person with which the Company files a consolidated tax return or with
which the Company is part of a consolidated group for tax purposes; (v) any
Restricted Payments not prohibited by the "Limitation on Restricted Payments"
covenant; (vi) any payments or other transactions pursuant to the Overhead
Services Agreement as in effect on the Closing Date; or (vii) any transaction or
series of related transactions involving consideration or payments of less than
$5 million. Notwithstanding the foregoing, any transaction covered by the first
paragraph of this "Limitation on Transactions with Shareholders and Affiliates"
covenant and not covered by clauses (ii) through (v) of this paragraph, the
aggregate amount of which exceeds $10 million in value, must be approved or
determined to be fair in the manner provided for in clause (i)(A) or (B) above.
Limitation on Liens
The Company will not, and will not permit any Restricted Group Member to,
create, incur, assume or suffer to exist any Lien on any of its assets or
properties of any character, or any shares of Capital Stock or Indebtedness of
any Restricted Group Member, without making effective provision for all of the
Exchange Notes and all other amounts due under the Indenture to be directly
secured equally and ratably with (or, if the obligation or liability to be
secured by such Lien is subordinated in right of payment to the Exchange Notes,
prior to) the obligation or liability secured by such Lien.
The foregoing limitation does not apply to (i) Liens existing on the
Closing Date; (ii) Liens granted after the Closing Date on any assets or Capital
Stock of the Company or its Restricted Group Members created in favor or for the
benefit of the Holders; (iii) Liens with respect to the assets of a Restricted
Group Member
122
<PAGE> 125
granted by such Restricted Group Member to the Company or another Restricted
Group Member to secure Indebtedness owing to the Company or such other
Restricted Group Member; (iv) Liens securing Indebtedness which is Incurred to
refinance secured Indebtedness which is permitted to be Incurred under clause
(iii) of the second paragraph of the "Limitation on Indebtedness" covenant;
provided that such Liens do not extend to or cover any property or assets of the
Company or any Restricted Group Member other than the property or assets
securing the Indebtedness being refinanced; (v) Liens securing Indebtedness
Incurred under clause (i) or clause (vii) of the second paragraph of the
"Limitation on Indebtedness" covenant; or (vi) Permitted Liens.
Limitation on Sale-Leaseback Transactions
The Company will not, and will not permit any Restricted Group Member to,
enter into any sale-leaseback transaction involving any of its assets or
properties whether now owned or hereafter acquired, whereby the Company or a
Restricted Group Member sells or transfers such assets or properties and then or
thereafter leases such assets or properties or any part thereof or any other
assets or properties which the Company or such Restricted Group Member, as the
case may be, intends to use for substantially the same purpose or purposes as
the assets or properties sold or transferred.
The foregoing restriction does not apply to any sale-leaseback transaction
if (i) the lease is for a period, including renewal rights, of not in excess of
three years; (ii) the lease secures or relates to industrial revenue or
pollution control bonds; (iii) the transaction is solely between the Company and
any Wholly Owned Restricted Subsidiary of the Company or solely between Wholly
Owned Restricted Subsidiaries of the Company; or (iv) the Company or such
Restricted Group Member, within twelve months after the sale or transfer of any
assets or properties is completed, applies an amount not less than the net
proceeds received from such sale in accordance with clause (A) or (B) of the
first paragraph of the "Limitation on Asset Sales" covenant described below.
Limitation on Asset Sales
The Company will not, and will not permit any Restricted Group Member to,
consummate any Asset Sale, unless (i) the consideration received by the Company
or such Restricted Group Member is at least equal to the fair market value of
the assets sold or disposed of and (ii) at least 75% of the consideration
received consists of cash or Temporary Cash Investments or the assumption of
Indebtedness of the Company or any Restricted Group Member relating to such
assets, provided that the Company or such Restricted Group Member is irrevocably
released and discharged from such Indebtedness. In the event and to the extent
that the Net Cash Proceeds received by the Company or any Restricted Group
Member from one or more Asset Sales occurring on or after the Closing Date in
any period of 12 consecutive months exceed $5 million, then the Company shall or
shall cause the relevant Restricted Group Member to (i) within twelve months
after the date Net Cash Proceeds so received exceed $5 million (A) apply an
amount equal to such excess Net Cash Proceeds to permanently repay
unsubordinated Indebtedness of the Company or any Restricted Group Member
providing a Subsidiary Guarantee pursuant to the "Limitation on Issuances of
Guarantees by Restricted Group Members" covenant described above or Indebtedness
of any other Restricted Group Member, in each case owing to a Person other than
the Company or any Restricted Group Member, provided that in the event
Indebtedness of a Restricted Group Member is repaid, only the Company's pro rata
portion (determined as provided in the definition of "Indebtedness") of such
repaid Indebtedness shall be deemed to have been repaid in accordance with this
clause (A), or (B) invest an equal amount, or the amount not so applied pursuant
to clause (A) (or enter into a definitive agreement committing to so invest
within twelve months after the date of such agreement), in property or assets
(other than current assets) of a nature or type or that are used in a business
(or in a company having property and assets of a nature or type, or engaged in a
business) similar or related to the nature or type of the property and assets
of, or the business of, the Company and its Restricted Group Members existing on
the date of such investment and (ii) apply (no later than the end of the
twelve-month period referred to in clause (i)) such excess Net Cash Proceeds (to
the extent not applied pursuant to clause (i)) as provided in the last paragraph
of this "Limitation on Asset Sales" covenant. The amount of such excess Net Cash
Proceeds required to be applied (or to be committed to be applied)
123
<PAGE> 126
during such twelve-month period as set forth in clause (i) of the preceding
sentence and not applied as so required by the end of such period shall
constitute "Excess Proceeds."
Notwithstanding the foregoing, to the extent that any or all of the Net
Cash Proceeds of any Asset Sale of assets based outside the United States are
prohibited or delayed by applicable local law from being repatriated to the
United States and such Net Cash Proceeds are not actually applied in accordance
with the foregoing paragraphs, the Company shall not be required to apply the
portion of such Net Cash Proceeds so affected but may permit the applicable
Restricted Group Members to retain such portion of the Net Cash Proceeds so
long, but only so long, as the applicable local law will not permit repatriation
to the United States (the Company hereby agreeing to cause the applicable
Restricted Group Member to promptly take all actions required by the applicable
local law to permit such repatriation) and once such repatriation of any such
affected Net Cash Proceeds is permitted under the applicable local law, such
repatriation will be immediately effected and such repatriated Net Cash Proceeds
will be applied in the manner set forth in this covenant as if the Asset Sale
had occurred on such date; provided that to the extent that the Company has
determined in good faith that repatriation of any or all of the Net Cash
Proceeds of such Asset Sale would have a material adverse tax cost consequence,
the Net Cash Proceeds so affected may be retained by the applicable Restricted
Group Member for so long as such material adverse tax cost event would continue.
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $5 million, the Company
must commence, not later than the fifteenth Business Day of such month, and
consummate an Offer to Purchase from the Holders on a pro rata basis an
aggregate Accreted Value of Exchange Notes on the relevant Payment Date equal to
the Excess Proceeds on such date, at a purchase price equal to 101% of the
Accreted Value of the Exchange Notes on the relevant Payment Date, plus, in each
case, accrued interest (if any) to the Payment Date.
REPURCHASE OF EXCHANGE NOTES UPON A CHANGE OF CONTROL
The Company must commence, within 30 days of the occurrence of a Change of
Control, and consummate an Offer to Purchase for all Exchange Notes then
outstanding, at a purchase price equal to 101% of the Accreted Value thereof on
the relevant Payment Date, plus accrued interest (if any) to the Payment Date.
There can be no assurance that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Exchange Notes) required by the foregoing covenant (as
well as may be contained in other securities of the Company which might be
outstanding at the time). The above covenant requiring the Company to repurchase
the Exchange Notes will, unless consents are obtained, require the Company to
repay all indebtedness then outstanding which by its terms would prohibit such
Note repurchase, either prior to or concurrently with such Note repurchase.
COMMISSION REPORTS AND REPORTS TO HOLDERS
At all times from and after the date of the commencement of this Exchange
Offer, the Company shall file with the Commission all such reports and other
information as it would be required to file with the Commission by Sections
13(a) or 15(d) under the Exchange Act if it were subject thereto. The Company
shall supply the Trustee and each Holder or shall supply to the Trustee for
forwarding to each such Holder, without cost to such Holder, copies of such
reports and other information.
EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the
Indenture: (a) default in the payment of principal of (or premium, if any, on)
any Note when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise; (b) default in the payment of interest on any Note when
the same becomes due and payable, and such default continues for a period of 30
days; (c) default in the performance or breach of the provisions of the
Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the assets of the Company or the failure to make or
consummate an Offer to Purchase in accordance with the "Limitation on Asset
Sales" or "Repurchase of Exchange Notes upon a Change of Control" covenant;
provided that a default or breach of the "Limitation on Asset Sales" covenant
arising from
124
<PAGE> 127
an Involuntary Event shall not constitute an Event of Default unless such
Involuntary Event continues for 90 days; (d) the Company defaults in the
performance of or breaches any other covenant or agreement of the Company in the
Indenture or under the Exchange Notes (other than a default specified in clause
(a), (b) or (c) above) and such default or breach continues for a period of 60
consecutive days after written notice by the Trustee or the Holders of 25% or
more in aggregate principal amount at maturity of the Exchange Notes, provided
that a default or breach of a covenant or agreement arising from a Restricted
Affiliate ceasing to observe any covenant applicable to it resulting from an
Involuntary Event shall not constitute an Event of Default unless such
Involuntary Event continues for 90 days; (e) there occurs with respect to any
issue or issues of Indebtedness of the Company or any Significant Group Member
having an outstanding principal amount of $5 million or more in the aggregate
for all such issues of all such Persons, whether such Indebtedness now exists or
shall hereafter be created, (I) an event of default that has caused the holder
thereof to declare such Indebtedness to be due and payable prior to its Stated
Maturity and such Indebtedness has not been discharged in full or such
acceleration has not been rescinded or annulled within 30 days of such
acceleration and/or (II) the failure to make a principal payment at the final
(but not any interim) fixed maturity and such defaulted payment shall not have
been made, waived or extended within 30 days of such payment default; provided
that an acceleration or payment default arising from an Involuntary Event shall
not constitute an Event of Default unless such Involuntary Event continues for
90 days; (f) any final judgment or order (not covered by insurance) for the
payment of money in excess of $5 million in the aggregate for all such final
judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) shall be rendered against the
Company or any Significant Group Member and shall not be paid or discharged, and
there shall be any period of 30 consecutive days following entry of the final
judgment or order that causes the aggregate amount for all such final judgments
or orders outstanding and not paid or discharged against all such Persons to
exceed $5 million during which a stay of enforcement of such final judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect;
provided that a final judgment or order arising from an Involuntary Event shall
not constitute an Event of Default unless such Involuntary Event continues for
90 days; (g) a court having jurisdiction in the premises enters a decree or
order for (A) relief in respect of the Company or any Significant Group Member
in an involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, (B) appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
the Company or any Significant Group Member or for all or substantially all of
the property and assets of the Company or any Significant Group Member or (C)
the winding up or liquidation of the affairs of the Company or any Significant
Group Member and, in each case, such decree or order shall remain unstayed and
in effect for a period of 60 consecutive days; or (h) the Company or any
Significant Group Member (A) commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consents to the entry of an order for relief in an involuntary case under any
such law, (B) consents to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
the Company or any Significant Group Member or for all or substantially all of
the property and assets of the Company or any Significant Group Member or (C)
effects any general assignment for the benefit of creditors.
If an Event of Default (other than an Event of Default specified in clause
(g) or (h) above that occurs with respect to the Company) occurs and is
continuing under the Indenture, the Trustee or the Holders of at least 25% in
aggregate principal amount at maturity of the Exchange Notes, then outstanding,
by written notice to the Company (and to the Trustee if such notice is given by
the Holders), may, and the Trustee at the request of such Holders shall, declare
the Accreted Value of, premium, if any, and accrued interest on the Exchange
Notes to be immediately due and payable. Upon a declaration of acceleration,
such Accreted Value of, premium, if any, and accrued interest shall be
immediately due and payable. In the event of a declaration of acceleration
because an Event of Default set forth in clause (e) above has occurred and is
continuing, such declaration of acceleration shall be automatically rescinded
and annulled if the event of default triggering such Event of Default pursuant
to clause (e) shall be remedied or cured by the Company or the relevant
Significant Group Member or waived by the holders of the relevant Indebtedness
within 60 days after the declaration of acceleration with respect thereto. If an
Event of Default specified in clause (g) or (h) above occurs with respect to the
Company, the principal of, premium, if any, and accrued interest on the Exchange
Notes then outstanding shall ipso facto become and be immediately due and
payable without any declaration or other act
125
<PAGE> 128
on the part of the Trustee or any Holder. The Holders of at least a majority in
principal amount at maturity of the outstanding Exchange Notes by written notice
to the Company and to the Trustee, may waive all past defaults and rescind and
annul a declaration of acceleration and its consequences if (i) all existing
Events of Default, other than the nonpayment of the principal of, premium, if
any, and interest on the Exchange Notes that have become due solely by such
declaration of acceleration, have been cured or waived and (ii) the rescission
would not conflict with any judgment or decree of a court of competent
jurisdiction. For information as to the waiver of defaults, see "-- Modification
and Waiver."
The Holders of at least a majority in aggregate principal amount at
maturity of the outstanding Exchange Notes may direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee. However, the Trustee may
refuse to follow any direction that conflicts with law or the Indenture, that
may involve the Trustee in personal liability, or that the Trustee determines in
good faith may be unduly prejudicial to the rights of Holders of Exchange Notes
not joining in the giving of such direction and may take any other action it
deems proper that is not inconsistent with any such direction received from
Holders of Exchange Notes. A Holder may not pursue any remedy with respect to
the Indenture or the Exchange Notes unless: (i) the Holder gives the Trustee
written notice of a continuing Event of Default; (ii) the Holders of at least
25% in aggregate principal amount at maturity of outstanding Exchange Notes make
a written request to the Trustee to pursue the remedy; (iii) such Holder or
Holders offer the Trustee indemnity satisfactory to the Trustee against any
costs, liability or expense; (iv) the Trustee does not comply with the request
within 60 days after receipt of the request and the offer of indemnity; and (v)
during such 60-day period, the Holders of a majority in aggregate principal
amount at maturity of the outstanding Exchange Notes do not give the Trustee a
direction that is inconsistent with the request. However, such limitations do
not apply to the right of any Holder of a Note to receive payment of the
principal of, premium, if any, or interest on, such Note or to bring suit for
the enforcement of any such payment, on or after the due date expressed in the
Exchange Notes, which right shall not be impaired or affected without the
consent of the Holder.
The Indenture will require certain officers of the Company to certify, on
or before a date not more than 90 days after the end of each fiscal year, that a
review has been conducted of the activities of the Company and its Restricted
Group Members and the Company's and its Restricted Group Members' performance
under the Indenture and that the Company has fulfilled all obligations
thereunder, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default and the nature and status thereof. The
Company will also be obligated to notify the Trustee of any default or defaults
in the performance of any covenants or agreements under the Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its property
and assets (as an entirety or substantially an entirety in one transaction or a
series of related transactions) to, any Person or permit any Person to merge
with or into the Company unless: (i) the Company shall be the continuing Person,
or the Person (if other than the Company) formed by such consolidation or into
which the Company is merged or that acquired or leased such property and assets
of the Company shall expressly assume, by a supplemental indenture, executed and
delivered to the Trustee, all of the obligations of the Company on all of the
Exchange Notes and under the Indenture; (ii) immediately after giving effect to
such transaction, no Default or Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction on a pro
forma basis, the Company or any Person becoming the successor obligor of the
Exchange Notes shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction;
(iv) immediately after giving effect to such transaction on a pro forma basis
the Company, or any Person becoming the successor obligor of the Exchange Notes,
as the case may be, shall have a Consolidated Leverage Ratio not greater than
110% of the Consolidated Leverage Ratio of the Company immediately prior to the
transaction; and (v) the Company delivers to the Trustee an Officers'
Certificate (attaching the arithmetic computations to demonstrate compliance
with clauses (iii) and (iv)) and Opinion of Counsel, in each case stating that
such consolidation, merger or transfer and such supplemental indenture complies
with this provision, that all conditions precedent provided for herein relating
to such transaction have been complied
126
<PAGE> 129
with and, in the event that the continuing Person is organized under the laws of
any jurisdiction other than the United States of America or any jurisdiction
thereof, that the indenture and the Exchange Notes constitute legal, valid and
binding obligations of the continuing Person, enforceable in accordance with
their terms; provided, however, that clauses (iii) and (iv) above do not apply
if, in the good faith determination of the Board of Directors of the Company,
whose determination shall be evidenced by a Board Resolution, the principal
purpose of such transaction is to change the state of incorporation of the
Company; and provided further that any such transaction shall not have as one of
its purposes the evasion of the foregoing limitations.
DEFEASANCE
Defeasance and Discharge. The Indenture will provide that the Company will
be deemed to have paid and will be discharged from any and all obligations in
respect of the Exchange Notes on the 123rd day after the deposit referred to
below, and the provisions of the Indenture will no longer be in effect with
respect to the Exchange Notes (except for, among other matters, certain
obligations to register the transfer or exchange of the Exchange Notes, to
replace stolen, lost or mutilated Exchange Notes, to maintain paying agencies
and to hold monies for payment in trust) if, among other things, (A) the Company
has deposited with the Trustee, in trust, money and/or U.S. Government
Obligations that through the payment of interest and principal in respect
thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on the
Exchange Notes on the Stated Maturity of such payments in accordance with the
terms of the Indenture and the Exchange Notes, (B) the Company has delivered to
the Trustee (i) either (x) an Opinion of Counsel to the effect that Holders will
not recognize income, gain or loss for federal income tax purposes as a result
of the Company's exercise of its option under this "Defeasance" provision and
will be subject to federal income tax on the same amount and in the same manner
and at the same times as would have been the case if such deposit, defeasance
and discharge had not occurred, which Opinion of Counsel must be based upon (and
accompanied by a copy of) a ruling of the Internal Revenue Service to the same
effect unless there has been a change in applicable federal income tax law after
the Closing Date such that a ruling is no longer required or (y) a ruling
directed to the Trustee received from the Internal Revenue Service (the "IRS")
to the same effect as the aforementioned Opinion of Counsel and (ii) an Opinion
of Counsel to the effect that the creation of the defeasance trust does not
violate the Investment Company Act of 1940 and after the passage of 123 days
following the deposit, the trust fund will not be subject to the effect of
Section 547 of the United States Bankruptcy Code or Section 15 of the New York
Debtor and Creditor Law, (C) immediately after giving effect to such deposit on
a pro forma basis, no Event of Default, or event that after the giving of notice
or lapse of time or both would become an Event of Default, shall have occurred
and be continuing on the date of such deposit or during the period ending on the
123rd day after the date of such deposit, and such deposit shall not result in a
breach or violation of, or constitute a default under, any other agreement or
instrument to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound, and (D) if at such time
the Exchange Notes are listed on a national securities exchange, the Company has
delivered to the Trustee an Opinion of Counsel to the effect that the Exchange
Notes will not be delisted as a result of such deposit, defeasance and
discharge.
Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further will provide that the provisions of the Indenture will no
longer be in effect with respect to clauses (iii) and (iv) under "Consolidation,
Merger and Sale of Assets" and all the covenants described herein under
"Covenants," clauses (c) and (d) under "Events of Default" with respect to such
clauses (iii) and (iv) under "Consolidation, Merger and Sale of Assets" and such
covenants and clauses (e) and (f) under "Events of Default" shall be deemed not
to be Events of Default, upon, among other things, the deposit with the Trustee,
in trust, of money and/or U.S. Government Obligations that through the payment
of interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of, premium, if any,
and accrued interest on the Exchange Notes on the Stated Maturity of such
payments in accordance with the terms of the Indenture and the Exchange Notes,
the satisfaction of the provisions described in clauses (B)(ii), (C) and (D) of
the preceding paragraph and the delivery by the Company to the Trustee of an
Opinion of Counsel to the effect that, among other things, the Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and defeasance of certain
127
<PAGE> 130
covenants and Events of Default and will be subject to federal income tax on the
same amount and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred.
Defeasance and Certain Other Events of Default. In the event the Company
exercises its option to omit compliance with certain covenants and provisions of
the Indenture with respect to the Exchange Notes as described in the immediately
preceding paragraph and the Exchange Notes are declared due and payable because
of the occurrence of an Event of Default that remains applicable, the amount of
money and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the Exchange Notes at the time of their Stated
Maturity but may not be sufficient to pay amounts due on the Exchange Notes at
the time of the acceleration resulting from such Event of Default. However, the
Company will remain liable for such payments.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of not less than a majority in
aggregate principal amount at maturity of the outstanding Exchange Notes;
provided, however, that no such modification or amendment may, without the
consent of each Holder affected thereby, (i) change the Stated Maturity of the
principal of, or any installment of interest on, any Note, (ii) reduce the
Accreted Value of, or premium, if any, or interest on, any Note, (iii) change
the place or currency of payment of principal of, or premium, if any, or
interest on, any Note, (iv) impair the right to institute suit for the
enforcement of any payment on or after the Stated Maturity (or, in the case of a
redemption, on or after the Redemption Date) of any Note, (v) reduce the
above-stated percentage of outstanding Exchange Notes the consent of whose
Holders is necessary to modify or amend the Indenture, (vi) waive a default in
the payment of principal of, premium, if any, or interest on the Exchange Notes
or (vii) reduce the percentage or aggregate principal amount at maturity of
outstanding Exchange Notes the consent of whose Holders is necessary for waiver
of compliance with certain provisions of the Indenture or for waiver of certain
defaults.
NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS, OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the Exchange Notes or for any claim
based thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in the Indenture, or in any of
the Exchange Notes or because of the creation of any Indebtedness represented
thereby, shall be had against any incorporator, stockholder, officer, director,
employee or controlling person of the Company or of any successor Person
thereof. Each Holder, by accepting the Exchange Notes, waives and releases all
such liability.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a Default,
the Trustee will not be liable, except for the performance of such duties as are
specifically set forth in such Indenture. If an Event of Default has occurred
and is continuing, the Trustee will use the same degree of care and skill in its
exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; provided, however, that if it acquires any
conflicting interest, it must eliminate such conflict or resign.
CERTAIN TAX CONSIDERATIONS
Perkins Coie, special tax counsel to the Company, has advised the Company
that because the Exchange Notes should not be considered to differ materially
from the Private Notes, the exchange of the Private Notes for the Exchange Notes
pursuant to the Exchange Offer should not result in any material federal income
tax consequences to Holders. For a full description of the basis of, and
limitations on, this opinion, see "Certain U.S. Federal Income Tax
Considerations."
128
<PAGE> 131
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion, which was prepared by Perkins Coie, special tax
counsel to the Company, summarizes the material U.S. federal income tax
consequences of the exchange of the Private Notes for the Exchange Notes
pursuant to the Exchange Offer. This discussion is based on provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), its legislative history,
judicial authority, current administrative rulings and practice, and existing
and proposed Treasury Regulations, all as in effect and existing on the date
hereof. Legislative, judicial or administrative changes or interpretations after
the date hereof could alter or modify the validity of this discussion and the
conclusions set forth below. Any such changes or interpretations may be
retroactive and could adversely affect a Holder of the Private Notes or the
Exchange Notes.
This discussion does not purport to deal with all aspects of U.S. federal
income taxation that might be relevant to particular Holders in light of their
personal investment or tax circumstances or status, nor does it discuss the U.S.
federal income tax consequences to certain types of Holders subject to special
treatment under the U.S. federal income tax laws, such as certain financial
institutions, insurance companies, dealers in securities or foreign currency,
tax-exempt organizations, foreign corporations or non-resident alien
individuals, or persons holding Private Notes or Exchange Notes that are a hedge
against, or that are hedged against, currency risk or that are part of a
straddle or conversion transaction, or persons whose functional currency is not
the U.S. dollar. Moreover, the affect of any state, local or foreign tax laws is
not discussed.
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. EACH HOLDER OF A
PRIVATE NOTE THAT IS PARTICIPATING IN THE EXCHANGE OFFER IS STRONGLY URGED TO
CONSULT WITH ITS OWN TAX ADVISORS TO DETERMINE THE IMPACT OF SUCH HOLDER'S
PARTICULAR TAX SITUATION ON THE ANTICIPATED TAX CONSEQUENCES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN OR OTHER TAX LAWS OF THE EXCHANGE OF
THE PRIVATE NOTES FOR THE EXCHANGE NOTES PURSUANT TO THE EXCHANGE OFFER.
EXCHANGE OFFER
The exchange of the Private Notes by any Holder for the Exchange Notes
pursuant to the Exchange Offer should not be treated as an "exchange" for
federal income tax purposes because the Exchange Notes should not be considered
to differ materially in kind or extent from the Private Notes. Rather, the
Exchange Notes received by any Holder should be treated as a continuation of the
Private Notes in the hands of such Holder. As a result, there should be no
federal income tax consequences to Holders exchanging the Private Notes for the
Exchange Notes pursuant to the Exchange Offer, and the federal income tax
consequences of holding and disposing of the Exchange Notes should be the same
as the federal income tax consequences of holding and disposing of the Private
Notes. Accordingly, a Holder's adjusted tax basis in the Exchange Notes will be
the same as its adjusted tax basis in the Private Notes exchanged therefor and
its holding period for the Private Notes will be included in its holding period
for the Exchange Notes. Thus, the determination of gain on a sale or other
disposition of the Exchange Notes will be the same as for the Private Notes. In
addition, the Holders must, among other things, continue to include original
issue discount in income as if the exchange had not occurred.
PLAN OF DISTRIBUTION
This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of any Exchange Notes
received in exchange for Private Notes acquired by such broker-dealer as a
result of market-making or other trading activities. Each broker-dealer that
receives Exchange Notes for its own account in exchange for such Private Notes
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Company has
agreed that for a period of up to 180 days after the closing of the Exchange
Offer, it will make this Prospectus, as amended or supplemented, available to
any such brokerdealer that requests copies of this Prospectus in the Letter of
Transmittal for use in connection with any such resale.
129
<PAGE> 132
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers or any other persons. Exchange Notes received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions or through the writing of options on the Exchange Notes,
or a combination of such methods of resale, at market prices prevailing at the
time of resale or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange
Notes that were received by it for its own account pursuant to the Exchange
Offer in exchange for Private Notes acquired by such broker-dealer as a result
of market-making or other trading activities and any broker-dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
The Company has agreed to pay all expenses incident to the Company's
performance of, or compliance with, the Registration Rights Agreement and will
indemnify the holders of Private Notes (including any broker-dealers), and
certain parties related to such holders, against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Exchange Notes will be passed upon for the Company by
Chadbourne & Parke LLP, New York, New York, special counsel to the Company.
Certain U.S. federal income tax consequences relating to the Exchange Notes will
be passed upon by Perkins Coie, Seattle, Washington. With respect to matters of
Washington law, Chadbourne & Parke LLP will rely on Perkins Coie.
EXPERTS
The financial statements of the Company and its consolidated subsidiaries,
as of December 31, 1996 and 1995, and for the years ended December 31, 1996,
1995 and 1994, the financial statements of Wireless Ventures of Brazil, Inc. and
subsidiaries as of and for the year ended December 31, 1996 and the financial
statements of Corporacion Mobilcom, S.A. de C.V. as of and for the years ended
December 31, 1996 and 1995 included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein, and are included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
The consolidated financial statements of Wireless Ventures of Brazil, Inc.
and subsidiaries as of December 31, 1995 and 1994 and for the year ended
December 31, 1995 and the six month period ended December 31, 1994 have been
included herein and in the registration statement in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
130
<PAGE> 133
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
Independent Auditors' Report............................................................ F-2
Consolidated Balance Sheets as of December 31, 1996 and December 31, 1995............... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995 and
1994.................................................................................. F-4
Consolidated Statements of Stockholder's Equity for the Years Ended December 31, 1996,
1995 and 1994......................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and
1994.................................................................................. F-6
Notes to Consolidated Financial Statements.............................................. F-7
Condensed Consolidated Balance Sheet as of March 31, 1997 (Unaudited)................... F-18
Condensed Consolidated Statements of Operations for the Three Months Ended March 31,
1997 and 1996 (Unaudited)............................................................. F-19
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31,
1997 and 1996 (Unaudited)............................................................. F-20
Notes to Condensed Consolidated Financial Statements (Unaudited)........................ F-21
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
Independent Auditors' Report............................................................ F-23
Consolidated Balance Sheet as of December 31, 1996...................................... F-24
Consolidated Statement of Operations for the Year Ended December 31, 1996............... F-25
Consolidated Statement of Stockholders' Equity for the Year Ended December 31, 1996..... F-26
Consolidated Statement of Cash Flows for the Year Ended December 31, 1996............... F-27
Notes to Consolidated Financial Statements.............................................. F-28
Independent Auditors' Report............................................................ F-39
Consolidated Balance Sheets as of December 31, 1995 and 1994............................ F-40
Consolidated Statements of Operations for the Year Ended December 31, 1995
and the six months ended December 31, 1994............................................ F-41
Consolidated Statements of Stockholders' Equity for the Year Ended
December 31, 1995 and the six months ended December 31, 1994.......................... F-42
Consolidated Statements of Cash Flows for the Year Ended December 31, 1995
and the six months ended December 31, 1994............................................ F-43
Notes to Consolidated Financial Statements.............................................. F-45
MCCAW INTERNATIONAL (BRAZIL), LTD. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet as of March 31, 1997 (Unaudited)................... F-56
Condensed Consolidated Statements of Operations for the Three Months Ended March 31,
1997 and 1996 (Unaudited)............................................................. F-57
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31,
1997 and 1996 (Unaudited)............................................................. F-58
Notes to Condensed Consolidated Financial Statements (Unaudited)........................ F-59
CORPORACION MOBILCOM, S.A. DE C.V. AND SUBSIDIARIES
Independent Auditors' Report............................................................ F-60
Consolidated Balance Sheets as of December 31, 1996 and 1995............................ F-61
Consolidated Statements of Operations for the Years Ended December 31, 1996 and 1995.... F-62
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996
and 1995.............................................................................. F-63
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996 and 1995.... F-64
Notes to Consolidated Financial Statements.............................................. F-65
Condensed Consolidated Balance Sheet as of March 31, 1997............................... F-76
Condensed Consolidated Statements of Operations for the Three Months Ended March 31,
1997 and 1996......................................................................... F-77
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31,
1997 and 1996......................................................................... F-78
Notes to Condensed Consolidated Financial Statements.................................... F-79
</TABLE>
F-1
<PAGE> 134
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder of
McCaw International, Ltd.
Seattle, Washington
We have audited the accompanying balance sheets of McCaw International,
Ltd. and subsidiaries (the Company) as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholder's equity, and cash
flows for the years ended December 31, 1996, 1995 and 1994. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1996 and 1995,
and the results of its operations and its cash flows for the years ended
December 31, 1996, 1995 and 1994 in conformity with generally accepted
accounting principles.
The financial statements give retroactive effect to the mergers of McCaw
International (Services), Ltd. (formerly Special Purpose Company No. 1) and
McCaw International (CANMEX), Ltd. (formerly Nextel Investment Company), with
the Company on January 1, 1997 and March 3, 1997, respectively, which have been
accounted for in a manner similar to poolings of interests as described in Note
1 to the financial statements.
DELOITTE & TOUCHE LLP
Seattle, Washington
July 2, 1997
F-2
<PAGE> 135
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 53,029,275 $ 85,302,423
Accounts receivable....................................... 540,292 --
Radios and accessories.................................... 830,158 --
Prepaid and other......................................... 183,353 10,642
Notes receivable.......................................... 5,703,494
------------ ------------
Total current assets................................. 60,286,572 85,313,065
Property, plant, and equipment, net of accumulated depreciation
of $73,972 and $0............................................ 8,703,076 36,056
Investment in unconsolidated subsidiaries, at cost less equity
in net loss of $5,991,304 and $6,853,064..................... 98,981,700 47,951,335
Intangible assets.............................................. 10,878,235 10,135,400
Investments and other assets................................... 20,517,732 26,239,601
------------ ------------
$199,367,315 $169,675,457
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable............................................... $ 5,818,914 $ 120,824
Due to Nextel.................................................. 148,395,746 150,261,581
Income taxes payable to Nextel................................. 4,387,758 3,032,896
------------ ------------
Total current liabilities............................ 158,602,418 153,415,301
Deferred income taxes.......................................... 1,562,263 4,320,466
Commitments and contingencies (Notes 2, 5, 7 and 10)
Stockholder's equity:
Common stock (20,000,000 shares authorized, no par value,
10,000,000 shares issued and outstanding)............... 65,042,833 20,181,247
Accumulated deficit....................................... (28,741,494) (16,265,280)
Unrealized gain on investments net of tax................. 2,901,295 8,023,723
------------ ------------
Total stockholder's equity........................... 39,202,634 11,939,690
------------ ------------
$199,367,315 $169,675,457
============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 136
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
Revenues......................................... $ -- $ -- $ --
Costs and expenses related to revenues........... -- -- --
Selling, general and administrative.............. 9,317,784 276,962 --
Depreciation and amortization.................... 168,401 18,647 2,033
------------ ------------ -----------
Operating loss................................... (9,486,185) (295,609) (2,033)
------------ ------------ -----------
Other income (expense):
Interest income............................. 4,300,089 6,232,502 2,687,882
Interest expense............................ (322,532) -- --
Loss from equity method investments......... (5,991,304) (6,853,064) --
Investment impairment and other, net........ 378,580 (15,002,062) --
------------ ------------ -----------
Total other income (expense)................ (1,635,167) (15,622,624) 2,687,882
------------ ------------ -----------
Net income (loss) before taxes................... (11,121,352) (15,918,233) 2,685,849
Income tax provision............................. (1,354,862) (2,119,050) (913,846)
------------ ------------ -----------
Net income (loss)................................ $(12,476,214) $(18,037,283) $ 1,772,003
------------ ------------ -----------
Net income (loss) per common share............... $ (1.25) $ (1.80) $ 0.18
=========== =========== ==========
Weighted average number of common shares
outstanding.................................... 10,000,000 10,000,000 10,000,000
=========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 137
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED UNREALIZED
------------------------- EARNINGS GAIN (LOSS)
SHARES AMOUNT (DEFICIT) ON INVESTMENTS TOTAL
---------- ----------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994.... -- $ -- $ -- $ -- $ --
Net income............. -- -- 1,772,003 -- 1,772,003
---------- ----------- ------------ -------------- ------------
Balance, December 31,
1994...................... -- -- 1,772,003 -- 1,772,003
Common stock issued.... 10,000,000 -- -- -- --
Capital
contributions........ -- 20,181,247 -- -- 20,181,247
Net loss............... -- -- (18,037,283) -- (18,037,283)
Unrealized gain on
investments.......... -- -- -- 8,023,723 8,023,723
---------- ----------- ------------ -------------- ------------
Balance, December 31,
1995...................... 10,000,000 20,181,247 (16,265,280) 8,023,723 11,939,690
Capital
contributions........ 44,861,586 44,861,586
Net loss............... (12,476,214) (12,476,214)
Unrealized loss on
investments.......... (5,122,428) (5,122,428)
---------- ----------- ------------ -------------- ------------
Balance, December 31,
1996...................... 10,000,000 $65,042,833 $(28,741,494) $ 2,901,295 $ 39,202,634
========= ========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 138
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................... $(12,476,214) $(18,037,283) $ 1,772,003
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization.............. 168,401 18,647 2,033
Loss from equity method investments........ 5,991,304 6,853,064 --
Investment impairment...................... -- 15,000,000 --
Change in current assets and liabilities:
Accounts receivable................... (540,292) -- --
Radios and accessories................ (830,158) -- --
Prepaid and other..................... (172,711) (10,642) --
Investments and other assets.......... (2,176,539) -- --
Accounts payable...................... 5,698,090 120,824 --
Income taxes payable to Nextel........ 1,354,862 2,119,050 913,846
------------ ------------ ------------
Net cash provided by (used in) operating
activities............................... (2,983,257) 6,063,660 2,687,882
------------ ------------ ------------
Cash flows from investing activities:
Purchase of property, plant and
equipment................................ (8,817,644) (36,056) --
Purchase of licenses....................... (742,835) (10,135,400) --
Issuance of notes receivable............... (5,703,494) -- --
Investments in unconsolidated
subsidiaries............................. (57,021,669) (36,962,481) (32,841,918)
Other...................................... -- (761,972) (13,154,120)
------------ ------------ ------------
Net cash used in investing activities...... (72,285,642) (47,895,909) (45,996,038)
------------ ------------ ------------
Cash flows from financing activities:
Borrowings from (repayments to) Nextel,
net...................................... (1,865,835) (18,588,496) 168,850,077
Capital contribution from parent........... 44,861,586 20,181,247 --
------------ ------------ ------------
Net cash provided by financing
activities............................... 42,995,751 1,592,751 168,850,077
------------ ------------ ------------
Increase (decrease) in cash and cash
equivalents................................... (32,273,148) (40,239,498) 125,541,921
Cash and cash equivalents, beginning of
period........................................ 85,302,423 125,541,921 --
------------ ------------ ------------
Cash and cash equivalents, end of period........ $ 53,029,275 $ 85,302,423 $125,541,921
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 139
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ORGANIZATION AND NATURE OF OPERATIONS: McCaw International, Ltd.
is an indirect, wholly owned subsidiary of Nextel Communications Inc. (Nextel
and its wholly owned subsidiaries are referred to herein as "Nextel"). McCaw
International, Ltd. and subsidiaries (the "Company" or "McCaw") is an
international wireless telecommunications service company. As of December 31,
1996 the Company owns a 100% interest in McCaw Argentina S.A. (McCaw Argentina),
a 30% interest in Infocom Communications Network, Inc. (Infocom), a Philippine
company, accounted for using the equity method, and a contractual right to
receive 25.2% of the profits of the Shanghai GSM System accounted for as a cost
method investment (see note 2).
As described in Note 2, on January 1, 1997 and March 3, 1997, respectively,
McCaw International (Services), Ltd. (formerly Special Purpose Company No. 1
("SPC#1")) and McCaw International (CAN/MEX), Ltd. (formerly Nextel Investment
Company ("NIC")) became wholly owned subsidiaries of the Company. As these
transactions represent transfers between companies under common control, these
consolidated financial statements have been prepared under a method similar to
the pooling-of-interests method of accounting and reflect the combined financial
position and operating results of the Company, SPC#1 and NIC (collectively
referred to as the "Company") for all periods presented. Accordingly, subsequent
to their issuance, these consolidated financial statements will become the
historical financial statements of the Company.
The Company's efforts are primarily directed towards acquiring, developing
and operating wireless communications systems. The Company's ability to generate
positive cash flow and operating profits will depend on a number of factors,
including the ability to attract and retain subscribers, and the successful
deployment and upgrade of its wireless systems in its existing and new markets.
Future results may also be effected by regulatory policies in the various
countries in which the Company operates.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures 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.
The Company is subject to the laws and regulations governing
telecommunication services in effect in each of the countries in which it
operates. These laws and regulations cover, among other things, the number of
licenses that can be used in any one service area by affiliated companies, the
construction and loading requirements necessary to retain a license, the number
of telephone numbers that can be assigned to an individual licensee and the
rights of a licensee to interconnect with the public telecommunications network.
Each of these factors can have a significant influence on the Company's results
of operations and are subject to change by the governmental agency responsible
for determining the laws and regulations in the respective countries. The
financial statements as presented reflect certain assumptions based on laws and
regulations currently in effect in each of the various countries. The Company
cannot predict what future laws and regulations might be passed that could have
a material effect on the Company's results of operations. The Company assesses
the impact of significant changes in laws and regulations on a regular basis and
updates the assumptions used to prepare its financial statements accordingly.
CASH AND EQUIVALENTS: The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents. There
was no cash paid for interest or taxes for the years ended December 31, 1996,
1995 or 1994.
F-7
<PAGE> 140
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
RADIOS AND ACCESSORIES: Radios and accessories are held for sale to
customers. Radios and accessories are stated at the lower of cost or market.
Cost is determined using the first-in, first-out method.
INTANGIBLE ASSETS: Intangible assets consist primarily of wireless
licenses which are recorded at cost. Licenses in the countries in which the
Company operates are issued conditionally for various periods of time. The
licenses are generally renewable providing the licensee has complied with
applicable rules and policies. In most instances, the Company believes it has
complied and intends to comply with these standards and is amortizing the
related costs using the straight line method over 20 years. In some cases, the
Company currently is not in compliance with applicable requirements and has
filed requests for extensions with the appropriate government agency. The
Company expects that such extension requests will be granted and the risk of
having these or any other licenses revoked is remote. The Company begins
amortizing the cost of wireless licenses upon commencement of commercial
operations in each market.
The carrying value of intangible assets is reviewed for impairment on a
regular basis.
INVESTMENTS: The Company's investment in Clearnet is included in
investments and other assets and classified as available-for-sale as of the
balance sheet date. Accordingly, it is reported at fair value, with unrealized
gains and losses, net of tax, recorded in stockholder's equity. Investments
where the Company does not have the ability to exercise significant influence
over operating and financial policies and that are not considered marketable
instruments are recorded at the lower of cost or market. Realized gains or
losses and declines in value, if any, judged to be other than temporary are
reported in other income or expense.
Investments where the Company has the ability to exercise significant
influence over operating and financial policies and possesses a voting interest
of less than 50% are accounted for using the equity method. The excess of the
cost of the Company's investments over the net assets acquired is being
amortized over 20 years. Amortization of this excess of $3,677,415, $2,361,428
and $0 for the years ended December 31, 1996, 1995 and 1994, respectively, is
reflected in the accompanying statements of operations in loss from equity
method investments.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at
cost. Depreciation is provided using the straight line method over estimated
useful lives as follows:
<TABLE>
<S> <C>
Equipment.............................................................. 3-10 years
Computer equipment and software........................................ 3-5 years
Furniture and fixtures................................................. 3 years
Leasehold improvements................................................. Life of lease
</TABLE>
Construction in progress includes labor, material, transmission and related
equipment, engineering, site development, capitalized interest, and other costs
relating to the construction and development of wireless networks. The Company
will begin depreciating the cost of the wireless networks over a 10-year period
upon commencement of commercial operations in each market.
Expenditures which increase value or extend useful lives are capitalized,
while maintenance and repairs are charged to operations as incurred.
The carrying value of property, plant and equipment is reviewed for
impairment on a regular basis.
FOREIGN EXCHANGE: Financial statement amounts of the Company are expressed
in U.S. dollars. Assets and liabilities are translated at the rate in effect at
the balance sheet date. Revenues and expenses are translated at the weighted
average rate during the period. There were no translation gains or losses for
the years ended December 31, 1996, 1995 and 1994.
REVENUE RECOGNITION: Service revenue will be recorded as revenue when
earned. Sales of equipment and related services will be recorded when goods and
services are delivered. Monthly access charges will be billed
F-8
<PAGE> 141
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
in advance and will be recognized as revenue when the services are provided.
Rental fee revenue and monthly fixed access charges will be recognized in the
period service was provided.
INCOME TAXES: The Company accounts for U.S. federal income taxes under the
asset and liability method. Under this method, deferred income taxes are
recorded for the temporary differences between the financial reporting basis and
tax basis of the Company's assets and liabilities. These deferred taxes are
measured by the provisions of currently enacted tax laws. The Company is
included in the consolidated tax return of Nextel. However, the income tax
accounts of McCaw International are stated as if the Company filed a separate
return.
NET LOSS PER SHARE: Net loss per share is computed based on the weighted
average number of common shares outstanding during the period.
NEW ACCOUNTING STANDARDS: The Financial Accounting Standards Board (FASB)
issued FAS No. 128, entitled "Earnings per Share" and FAS No. 129, entitled
"Disclosure of Information about Capital Structure," which are both effective
for the fiscal year ending December 31, 1997. The Company does not expect any
significant impact on the Company's financial position or results of operations
as a result of adopting these standards.
2. BUSINESS COMBINATIONS AND INVESTMENTS
SPECIAL PURPOSE COMPANY NO. 1 AND NEXTEL INVESTMENT COMPANY: On January 1,
1997, Special Purpose Company No. 1, a wholly owned subsidiary of Nextel, was
merged into the Company and renamed McCaw International (Services), Ltd. ("McCaw
Services"). McCaw Services includes all amounts associated with the Company's
expatriate employees. Subsequent to the merger, all intercompany liabilities
were converted to contributed capital.
On March 3, 1997, Nextel Investment Company, a wholly owned subsidiary of
Nextel, was merged into the Company and renamed McCaw International (CANMEX),
Ltd. ("Canmex"). Canmex is primarily an investment and asset holding company.
Immediately prior to the merger, all of Canmex's assets were transferred to
Nextel with the exception of an investment in 38% of the outstanding common
stock of Corporacion Mobilcom, S.A. de C.V. ("Mobilcom") and related assets and
3.7% of the outstanding common stock of Clearnet Communications ("Clearnet").
The remaining intercompany liability was converted to contributed capital
subsequent to the merger.
As the mergers described above represent transfers of companies under
common control, they have been accounted for in a manner similar to poolings of
interests. The poolings-of-interests method of accounting is intended to present
as a single interest two or more common shareholders' interests which were
previously independent; accordingly, the historical financial statements for the
periods presented prior to the mergers are restated as though the companies had
been combined.
F-9
<PAGE> 142
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. BUSINESS COMBINATIONS AND INVESTMENTS -- (CONTINUED)
The following summarizes amounts previously reported by the Company prior
to the mergers for the years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ----------
<S> <C> <C> <C>
Revenues:
McCaw................................ $ -- $ -- $ --
McCaw Services and Canmex............ -- -- --
------------ ------------ ----------
Combined............................. $ -- $ -- $ --
=========== =========== =========
Net income (loss):
McCaw................................ $ (8,594,017) $ (122,035) $ --
McCaw Services and Canmex............ (3,882,197) (17,915,248) 1,772,003
------------ ------------ ----------
Combined............................. $(12,476,214) $(18,037,283) $1,772,003
=========== =========== =========
Net income (loss) per share:
McCaw................................ $ (0.86) $ (0.01) $ --
McCaw Services and Canmex............ (0.39) (1.79) 0.18
------------ ------------ ----------
Combined............................. $ (1.25) $ (1.80) $ 0.18
=========== =========== =========
</TABLE>
MCCAW ARGENTINA S.A.: On August 6, 1996, Nextel contributed its investment
in McCaw Argentina formerly Com Control Comunicacion Controlada S.A., to the
Company, including licenses with a cost of $10.4 million.
As the contribution of McCaw Argentina to the Company is deemed a
reorganization of an entity under common control, the Company's financial
statements reflect the contribution as of November 21, 1995, the date McCaw
Argentina was acquired by Nextel. Accordingly, the financial statements include
the financial position and results of operations of McCaw Argentina beginning
November 21, 1995.
McCaw Argentina has licenses to provide specialized mobile radio (SMR)
services in the Argentine cities of Buenos Aires, Cordoba, Rosario, and Mendoza.
On May 6, 1997, the Company contributed its interest in McCaw Argentina
into a joint venture between the Company and Wireless Ventures of Argentina LLC
("WVA"). WVA's contribution included all of the outstanding common stock of a
paging company in Argentina and two companies that own SMR licenses in
Argentina. The Company will have a 50% voting interest and will share equally in
the profits and losses of the joint venture. Capital contributions are to be
made equally by the two parties unless otherwise agreed to by both the Company
and Wireless Ventures of Argentina LLC. The Company will account for its
investment in the joint venture using the equity method.
INFOCOM COMMUNICATIONS NETWORK, INC.: On June 14, 1996, the Company
acquired a 30% interest in a Philippine wireless telecommunications company,
Infocom, for $16 million in cash. Infocom provides paging services to
subscribers in the Philippines through a nationwide license granted by the
Philippine government. In addition, Infocom has a nationwide license to provide
ESMR services. The Company's investment in Infocom is accounted for using the
equity method. The excess purchase price over the net assets acquired totaled
$16.2 million and is being amortized over 20 years.
Summarized financial information for Infocom as of December 31, 1996 and
the period from June 14, 1996 (date of acquisition) through December 31, 1996 is
as follows:
<TABLE>
<S> <C>
Assets.................................................................. $5,661,447
Liabilities............................................................. 5,597,526
Operating income........................................................ 340,549
</TABLE>
F-10
<PAGE> 143
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. BUSINESS COMBINATIONS AND INVESTMENTS -- (CONTINUED)
SHANGHAI GSM SYSTEM: On October 26, 1995, the Company and Shanghai Science
& Technology Investment Company (SSTIC) formed Shanghai McCaw Telecommunications
Co. Ltd. (Shanghai McCaw), a Chinese equity joint venture in which the Company
maintains a 60% ownership interest. The joint venture's sole purpose is to
facilitate the Company's investment in the Shanghai GSM System. The Company
contributed $9.7 million to Shanghai McCaw to fund the joint venture's
investment in the Shanghai GSM System.
Under current Chinese law, foreign entities or individuals are prohibited
from participating directly in the ownership and operations of
telecommunications services. Because of this limitation, Shanghai McCaw
participates in the Shanghai GSM System through a profit-sharing arrangement
(the "Unicom Agreement") entered into originally between SSTIC and China United
Telecommunications, Ltd. (Unicom). Accordingly, the Company does not have the
ability to significantly influence the operations of the Shanghai GSM System and
therefore accounts for its investment in Shanghai McCaw under the cost method
(See Note 9).
Pursuant to the Unicom Agreement, Shanghai McCaw is to receive 42% of the
Shanghai GSM System's net earnings, of which the Company is entitled to 60%.
Accordingly, the Company currently has a contractual right to receive 25.2% of
the earnings of the Shanghai GSM System, representing the consideration for its
cash investments. All assets of the Shanghai GSM System are owned by Unicom. The
Company is not obligated to participate in future capital calls, although
failure to contribute its pro rata share could dilute the Company's right to the
Shanghai GSM System's earnings. Cash payments are made to the Company from
Shanghai McCaw in the form of distributions which are made at the discretion of
the joint venture's Board of Directors. As of March 31, 1997, the Company has
received distributions totaling $1,218,047 which have been remitted to Shanghai
McCaw in the form of a loan (See Note 9).
On March 29, 1997, Unicom and Shanghai McCaw entered into the Phase III
Unicom Agreement, which modified certain arrangements under the Unicom
Agreement. Pursuant to the Phase III Unicom Agreement (i) Shanghai McCaw has
agreed to provide 60% of the funds required to expand the capacity of the
Shanghai GSM System to provide service for an additional 100,000 subscribers,
which is estimated to be equal to approximately RMB 386.4 million (approximately
US$46.4 million). Pursuant to the Phase III Unicom Agreement (i) the 42% profit
sharing arrangements under the Unicom Agreement were retained for the period up
to the date on which the 50,001st subscriber (currently, there are approximately
25,000 subscribers) of the Shanghai GSM System is activated (the "Phase III
Commencement Date"); (ii) following the Phase III Commencement Date the
allocation of profit sharing arrangement between the parties is revised to
provide Unicom with a greater percentage resulting in Shanghai McCaw receiving
40.2% of the profits of the Shanghai GSM System; (iii) the Phase III Unicom
Agreement expires 14 1/4 years after the Phase III Commencement Date.
MOBILCOM: Through a series of investments, from March, 1995 to December,
1996, NIC acquired approximately 30.1% of the outstanding shares of Mobilcom. On
October 24, 1996, as a result of NIC's ownership percentage increasing from
18.0% to 30.1%, the accounting method used to account for this investment was
changed from the cost method to the equity method. The excess purchase price
over net assets acquired recognized as a result of the investments will be
amortized over a period of 20 years.
During the year ended December 31, 1995, the Company recorded a $15.0
million charge to operations representing an other than temporary decline in
this investment as a result of the decline in the Mexican peso.
Mobilcom has licenses to provide SMR services in various cities in Mexico,
including Mexico City, Guadalajara, Monterey, and Tijuana.
In January 1997, NIC purchased additional common shares of Mobilcom at a
cost of $16.5 million, in exchange for shares of Nextel Class A Common Stock.
Such purchase increased NIC's ownership interest to approximately 38%.
F-11
<PAGE> 144
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. BUSINESS COMBINATIONS AND INVESTMENTS -- (CONTINUED)
NIC has the right to appoint a majority of Mobilcom board members. In order
to retain the contractual right to designate a majority of the board of
directors of Mobilcom, NIC must invest approximately $76.8 million in Mobilcom
through certain qualified capital transactions by March 1998. As of April 16,
1997, NIC had invested $63.7 million in such qualified capital transactions. NIC
has the option to purchase before March 1998, up to an additional 29.5% of
Mobilcom's common stock. Certain shareholders of Mobilcom retain the right to
approve certain significant transactions such as acquisitions and dispositions,
and the approval of business plans of Mobilcom. In addition, beginning on
October 24, 1997, holders of approximately 33% of the outstanding capital stock
of Mobilcom have the right for two years to put (the Mobilcom Put) the entire
amount of their holding to the company at its appraised fair market value for
cash upon occurrence of certain events. The Mobilcom Put is automatically
exercisable on October 24, 1999.
On February 6, 1997, Mobilcom notified each of its shareholders of a $27
million capital call to be funded by March 11, 1997. The Company's pro rata
share of the capital call was approximately $10 million, which was funded by
Nextel. The Company funded an additional $10 million, which increased its equity
interest to approximately 46.3%.
Summarized financial information for Mobilcom as of and for the year ended
December 31, 1996 is as follows:
<TABLE>
<S> <C>
Assets................................................................. $51,944,000
Liabilities............................................................ 32,856,000
Operating loss......................................................... 5,783,000
</TABLE>
Effective January 1, 1997, Mobilcom's operations will be considered to be
in a "highly inflationary" economy, as defined in Statement of Financial
Accounting Standards No. 52, Foreign Currency Translations. Accordingly,
Mobilcom will use the U.S. dollar as its functional currency. Mobilcom's income
and expenses will be remeasured at monthly average exchange rates, except for
those related to balance sheet accounts, which will be remeasured at historical
rates. The net gain or loss on remeasurement will be recognized in the results
of operations currently.
CLEARNET: NIC owns 1,596,067 shares of common stock representing 3.7% of
Clearnet. Clearnet provides analog SMR and ESMR services in Canada and holds a
nationwide license to provide PCS services in Canada. The Company's 3.7%
interest in Clearnet is accounted for at fair market value. The market value of
Clearnet common stock at December 31, 1996 was $11 per share.
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES (WVB): On January 30,
1997, Nextel purchased 81% of WVB for $186.3 million in Nextel Class A Common
Stock. Nextel's investment in WVB was simultaneously contributed to the Company.
WVB provides SMR services throughout Brazil. WVB holds licenses for channels in
23 cities in Brazil including Sao Paulo, Rio de Janeiro, Belo Horizonte,
Curitiba, and Brasilia. The acquisition of WVB has been accounted for as a
purchase and is included in McCaw International's fiscal year 1997 consolidated
financial statements.
Summarized financial information for WVB as of and for the year ended
December 31, 1996 is as follows:
<TABLE>
<S> <C>
Assets................................................................. $63,044,510
Liabilities............................................................ 50,561,399
Operating loss......................................................... 13,673,278
</TABLE>
F-12
<PAGE> 145
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Equipment................................................... $ 151,194 $ --
Computer equipment and software............................. 93,869 6,801
Furniture and fixtures...................................... 124,401 29,255
Leasehold improvements...................................... 15,930 --
Construction in progress.................................... 8,391,654 --
------------ ------------
8,777,048 36,056
Accumulated depreciation.................................... (73,972) --
------------ ------------
$8,703,076 $ 36,056
========== ==========
</TABLE>
4. NOTES RECEIVABLE
As of December 31, 1996, notes receivable consisted of the following (in
thousands):
<TABLE>
<S> <C>
Due from affiliated companies............................................... $5,378
Due from officer of Nextel.................................................. 250
Interest receivable......................................................... 75
------
$5,703
======
</TABLE>
On August 23, 1996, the Company advanced Grupo Comunicaciones San Luis,
S.A. de C.V., an investor in Mobilcom, $12.0 million. The principal and interest
outstanding as of December 31, 1996 was $3.4 million. The note bears interest at
a rate of 14.5% and is payable in full on January 13, 1998.
On September 17, 1996 the Company entered into an agreement with SRI, Inc.
("SRI") and Spectrum Resources of the Northeast ("SRNE") to loan up to $5.0
million to purchase certain specialized mobile radio ("SMR") equipment and
finance other costs related to constructing SMR channels. The note bears
interest at a rate equal to 10.0% per annum and is collateralized with the SMR
equipment and other assets used in construction of the SMR channels. The note
and accrued interest are due in full on the date SRI and SRNE merge with Nextel.
The merger closing date is anticipated to be during the second half of 1997. SRI
and SRNE have borrowed $1.9 million under this loan as of December 31, 1996.
Notes due from officers of the Company and Nextel earn interest at a rate
of 6% compounded annually. Principal and interest are due at various dates
through January 2000.
All of the balances outstanding as of December 31, 1996 plus accrued
interest were transferred to Nextel prior to the merger of NIC and the Company.
Accordingly, they have been classified as current.
5. DUE TO NEXTEL
The intercompany balance due to Nextel represents costs paid by Nextel on
behalf of the Company since the Company's inception, primarily to fund operating
activities. Included in the balance at December 31, 1996 is a $23.1 million note
payable to Nextel that bears interest at a rate of 7% compounded semi-annually
and is payable in full in October 2006. The remainder of the advance is
non-interest bearing.
In October 1996, the Company received from Nextel 1.3 million shares of
Nextel Class A Common Stock valued at $23.1 million in exchange for a promissory
note. The stock was subsequently used as consideration to obtain an additional
11.6% interest in Mobilcom. (See Note 2.)
In February 1997, the Company transferred all of NIC's assets with the
exception of its Clearnet and Mobilcom investment and related assets to Nextel
as repayment for the note payable and intercompany advances received from
Nextel. The remaining outstanding liability due to Nextel was converted to an
additional equity contribution to the Company in connection with the merger of
NIC into the Company. (See Note 2.) Accordingly, they have been classified as
current.
F-13
<PAGE> 146
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts have been determined by the Company, using
available market information and appropriate valuation methodologies. However,
considerable judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
The carrying amounts and fair values of the Company's financial instruments
at December 31, 1996 and 1995 are as follows:
CURRENT ASSETS AND CURRENT LIABILITIES: The carrying amounts approximate
fair value due to the short-term maturity of these instruments.
NOTES RECEIVABLE: The fair value of these noncurrent receivables
approximate book value and are estimated by discounting future cash flows using
current rates at which similar notes would be issued to similar borrowers and
quoted market prices, as applicable.
INVESTMENTS AND OTHER ASSETS: Included in investments and others assets is
the Company's investment in Clearnet, which approximates its fair value of
$17,607,000 and $25,505,000 as of December 31, 1996 and 1995, respectively. The
balance also includes the Company's 1.3% interest in non-marketable equity
securities of foreign entities. There is no market for the foreign entities'
common shares, and it was impracticable to estimate the fair market value of the
Company's investment. The investments are carried on the balance sheet at
original cost.
DUE TO NEXTEL: The fair value of the $23.1 million note included in due to
Nextel approximates book value and is based on current rates at which the
Company could borrow funds with a similar maturity.
7. LEASES
The Company leases office facilities under operating leases with terms
ranging from 1 to 5 years.
Future minimum lease payments for years ending after December 31, 1996
under operating leases that have initial noncancelable lease terms exceeding one
year are as follows:
<TABLE>
<S> <C>
1997...................................................................... 210,828
1998...................................................................... 152,132
1999...................................................................... 126,820
2000...................................................................... 124,620
2001...................................................................... --
--------
$614,400
========
</TABLE>
8. INCOME TAXES
The reconciliation of income taxes computed at the statutory rate to the
income tax benefit is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
----------- ----------- --------
<S> <C> <C> <C>
Income tax provision (benefit) at statutory
rate........................................... $(3,781,260) $(5,412,199) $913,189
Nonconsolidated subsidiary adjustments........... 2,209,480 7,430,042 --
Other............................................ 329,611 6,560 657
Increase in valuation allowance.................. 2,597,031 94,647 --
----------- ----------- --------
Tax provision (benefit).......................... $ 1,354,862 $ 2,119,050 $913,846
========== ========== ========
</TABLE>
F-14
<PAGE> 147
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES -- (CONTINUED)
Deferred taxes consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Deferred tax asset:
Operating loss carryforward.......................... $ 2,691,678 $ 94,647
Valuation allowance.................................. (2,691,678) (94,647)
----------------- -----------------
Deferred tax asset................................... $ -- $ --
============= =============
Deferred tax liability:
Unrealized gain on investments....................... $ 1,562,263 $ 4,320,466
============= =============
</TABLE>
At December 31, 1996, the Company had approximately $6.0 million of
consolidated net operating loss carryforwards for federal income tax purposes
which expire during 2010 and 2011. In addition at December 31, 1996, the Company
had approximately $1.9 million of consolidated net operating loss carryforwards
for Argentinean income tax purposes which expire in 2000 and 2001. The Company
may be limited in its ability to use tax net operating losses in any one year
depending on its ability to generate sufficient taxable income.
9. RELATED PARTIES
In 1996, the Company loaned Shanghai McCaw $10.5 million to fund the
buildout of the Shanghai GSM System. The note receivable is part of a total
commitment of $13.2 million, bears interest at 7% per annum and requires
payments of principal and interest in four annual installments, commencing
December 31, 1997. Due to the lack of significant control over the Company's
investment in Shanghai McCaw, the note is recorded as an addition to the
Company's investment in Shanghai McCaw. In addition to the $13.2 million
commitments the Company has committed to lend Shanghai McCaw $2.2 million in the
event of a budget overrun.
During the year ended December 31, 1996, Nextel has performed certain
administrative functions for the Company, consisting of accounting, legal and
other services, for approximately $504,084, which has been treated as a capital
contribution by the parties. No amounts were incurred for the years ended
December 31, 1995 or 1994 due to the limited operations of the Company.
Infocom and the Company have entered into a technical services agreement
pursuant to which the Company has agreed to provide Infocom with engineering and
other technical services, market assistance and system operation assistance. The
agreement was effective beginning, September, 1996 and provides for monthly
payments of $36,000 and has a three year renewal period.
In 1996, the Company entered into a loan agreement (the Argentina SMR
Equipment Financing) with Motorola, Inc., (Motorola) a significant shareholder
of Nextel common stock, to purchase analog SMR equipment in Argentina for $4.1
million. The agreement is collateralized by 100% of McCaw Argentina S.A.
outstanding stock and all of the assets of McCaw Argentina. The loan was due on
March 30, 1997 with interest accruing at 12% per annum unless McCaw Argentina
places an order for iDEN equipment. In such case, principal is due in October
1999 and interest will be forgiven. McCaw Argentina repaid the loan in April
1997. Accordingly, the loan has been classified as short-term.
On March 27, 1997, Nextel and Motorola reached agreement on terms and
conditions pursuant to which the Company could access up to $400.0 million of
equipment financing through Motorola, subject to certain per country limits. No
amounts have been borrowed under this agreement by Nextel or the Company to
date.
10. STOCKHOLDER'S EQUITY
In connection with the Offering of High-Yield Debt Securities (see Note
13), the board of directors approved a 100,000 for 1 stock split effective prior
to the Initial Offering which resulted in 10 million shares
F-15
<PAGE> 148
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. STOCKHOLDER'S EQUITY -- (CONTINUED)
issued and outstanding. To complete the transaction, the Company increased its
authorized shares from 10,000 to 20 million. Earnings per share for all periods
presented reflect this stock split.
11. EMPLOYEE BENEFIT PLANS
Employee Stock Option Plan
Certain of the Company's employees participate in Nextel's Incentive Equity
Plan (the "Nextel Plan"). Generally, options outstanding under the Nextel Plan
(i) are granted at prices equal to or exceeding the market value of Nextel's
stock on the grant date; (ii) vest ratably over either a four or five year
service period; and (iii) expire ten years subsequent to award.
A summary of the Nextel Plan activity related to the Company's employees is
as follows:
<TABLE>
<CAPTION>
OPTION WEIGHTED AVERAGE
SHARES PRICE RANGE EXERCISE PRICE
------- ----------------- ----------------
<S> <C> <C> <C>
Outstanding, December 31, 1994........................ -- $ -- $ --
Granted.......................................... 81,500 14.87 - 18.37 15.63
------- ------ ------ ------
Outstanding, December 31, 1995........................ 81,500 14.87 - 18.37 15.63
Granted.......................................... 59,700 15.12 15.12
Canceled......................................... (5,100) 14.87 - 15.12 14.88
------- ------ ------ ------
Outstanding, December 31, 1996........................ 136,100 $15.12 - $18.37 $15.44
======= ====== ====== ======
Exercisable, December 31, 1996........................ 18,750 $15.62 $15.62
======= ====== ======
</TABLE>
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). This Statement encourages but does not require
companies to account for employee stock compensation awards based on their
estimated fair value at the grant date with the resulting cost charged to
operations. The Company has elected to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related Interpretations. The effect of applying the fair value method to the
Company's stock-based awards results in net income and earnings per share that
are not materially different from amounts reported.
Stock Appreciation Rights
On November 1, 1996, the Company adopted a Stock Appreciation Rights Plan
(the "SAR Plan"), which was effective as of November 1, 1995, whereby selected
employees and agents of the Company may be granted rights to share in the future
appreciation in the value of the Company. Such rights do not represent an equity
interest in the Company, only a right to compensation under the terms of the
plan.
The Company retroactively granted 1,140,000 rights under the plan, at an
exercise price of $10.00 per right, on dates ranging from October 1, 1995 to
December 31, 1996, with vesting periods of 4 years. Under the provisions of the
plan, the number of shares used in calculating the fair value per share is
adjusted periodically to reflect capital contributed to the Company by its
parent. This adjustment is generally only for purposes of valuing the SAR's. It
does not necessarily reflect the actual issuance of additional shares of common
stock. Rights under the plan may not be exercised until the employee has vested
50% of the grants. As of December 31, 1996 and 1995, there were 1,240,000 and
755,000 rights outstanding, respectively. None of those rights were exercisable
under the terms of the plan. No compensation expense had been recognized and the
Company had no commitment to make payments under the plan at December 31, 1996
and 1995 because there had not been any appreciation in the value of the rights
from the time of issuance to December 31, 1996.
F-16
<PAGE> 149
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. EMPLOYEE BENEFIT PLANS -- (CONTINUED)
On June 23, 1997, the board of directors adopted, subject to the approval
of Nextel, the Company's sole shareholder, the 1997 Stock Option Plan and
approved a plan to terminate the SAR Plan. Each holder of SARs granted
previously has been given the option to exchange the SARs for stock options to
be granted at fair value under the 1997 Stock Option Plan. The Company expects
holders representing a substantial majority of the outstanding SARs, including
all of the members of the Company's senior management team, to exchange their
SARs for options granted under the 1997 Stock Option Plan. With respect to SAR
holders who elect not to exchange their SARs for stock options, the Company will
continue to be obligated by the terms and conditions of the SAR agreements
previously entered into with such holders.
12. GEOGRAPHIC SEGMENT INFORMATION
McCaw Argentina represents $22,362,474 and $10,153,502 of total assets as
of December 31, 1996 and 1995, respectively, and operating losses of $2,738,697,
$23,889 and $0 for the years ended December 31, 1996, 1995 and 1994,
respectively.
13. OFFERING OF HIGH-YIELD DEBT SECURITIES
In March, 1997, the Company issued through a private placement 951,463
units, each unit representing one senior discount note due 2007 (the Notes) and
one warrant to purchase .10616 shares of common stock (the Warrant). The Notes
are unsecured obligations of the Company and will carry a market interest rate
of 13%. The indenture governing the Notes contains substantial covenants and
restrictions of which the Company currently is in compliance. Proceeds of the
offering, net of issue costs of $16.8 million, were $482 million, with $14.8
million allocated to the Warrants.
The Warrants may be exercised for $36.45 per share. Interest on the Notes
is payable in cash on each April 15 and October 15, commencing October 15, 2002.
The Notes are redeemable at the option of the Company, in whole or in part, at
any time on or after April 15, 2002.
On May 7, 1997, the Company filed a registration statement with the
Securities and Exchange Commission in connection with an exchange offer whereby
the holders of the Notes issued in the private placement will be offered the
opportunity to exchange their Notes for publicly tradeable notes.
F-17
<PAGE> 150
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
1997
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................ $479,994,983
Accounts receivable...................................................... 3,246,379
Radios and accessories................................................... 2,299,863
Prepaid and other........................................................ 1,524,052
------------
Total current assets................................................ 487,065,277
Property, plant, and equipment, net........................................... 22,538,503
Notes receivable.............................................................. 2,170,286
Investment in unconsolidated subsidiaries..................................... 124,025,593
Intangible assets............................................................. 271,776,869
Investments and other assets.................................................. 35,014,484
------------
$942,591,012
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable.............................................................. $ 19,260,563
Payable to Nextel............................................................. 1,309,787
------------
Total current liabilities........................................... 20,570,350
Deferred income taxes......................................................... 68,768,840
Long-term debt................................................................ 489,909,208
------------
Total liabilities................................................... 579,248,398
Minority interest............................................................. 5,251,125
Stockholder's equity:
Common stock (20,000,000 shares authorized, no par value, 10,000,000
shares issued and outstanding).......................................... 395,427,766
Accumulated deficit...................................................... (38,551,777)
Unrealized gain on investments, net of tax............................... 1,215,500
------------
Total stockholder's equity.......................................... 358,091,489
------------
$942,591,012
===========
</TABLE>
See notes to condensed consolidated financial statements.
F-18
<PAGE> 151
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1997 1996
------------ -----------
<S> <C> <C>
Revenues........................................................ $ 1,460,388 $ --
Costs and expenses related to revenues.......................... 956,585 --
Selling, general and administrative............................. 3,852,548 821,027
Depreciation and amortization................................... 2,580,572 7,860
------------ -----------
Operating loss.................................................. (5,929,317) (828,887)
------------ -----------
Other income (expense):
Interest income............................................ 2,797,541 1,144,927
Interest expense........................................... (5,590,895) --
Loss from equity method investments........................ (1,866,894) (1,269,300)
Other, net................................................. (157,616) (4,987)
------------ -----------
Total other income (expense).......................... (4,817,864) (129,360)
Minority interest............................................... 437,594 --
------------ -----------
Net loss before taxes........................................... (10,309,587) (958,247)
------------ -----------
Income tax benefit (provision).................................. 499,304 (389,275)
------------ -----------
Net loss........................................................ $ (9,810,283) $(1,347,522)
------------ -----------
Net loss per common share....................................... $ (0.98) $ (0.13)
=========== ==========
Weighted average number of common shares outstanding............ 10,000,000 10,000,000
=========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
F-19
<PAGE> 152
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.......................................................... $ (9,810,283) $(1,347,522)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................ 2,580,572 7,860
Interest accretion on long term debt......................... 4,849,132 --
Loss from equity method investments.......................... 1,866,894 1,269,300
Minority interest............................................ (437,594) --
Change in current assets and liabilities:
Accounts receivable..................................... 236,272 (27,726)
Radios and accessories.................................. 243,111 --
Prepaid and other....................................... (2,149,078) (55,528)
Investments and other assets............................ -- (393,354)
Accounts payable........................................ 398,574 (68,645)
Other................................................... 1,751,218 389,275
------------ -----------
Net cash used in operating activities........................ (471,182) (226,340)
------------ -----------
Cash flows from investing activities:
Purchase of property, plant and equipment.................... (6,192,982) (167,950)
Purchase of licenses......................................... -- (233,463)
Issuance of note receivable.................................. (2,143,619) --
Investments in unconsolidated subsidiaries................... (26,916,245) (4,300,000)
Other........................................................ (2,498,640)
------------ -----------
Net cash used in investing activities........................ (37,751,486) (4,701,413)
------------ -----------
Cash flows from financing activities:
Borrowings from (repayments to) Nextel, net.................. (23,556,134) (261,553)
Capital contribution from parent............................. 6,366,087 5,347,578
Proceeds from issuance of warrants........................... 14,800,098 --
Proceeds from issuance of long term debt, net................ 467,578,325 --
------------ -----------
Net cash provided by financing activities.................... 465,188,376 5,086,025
------------ -----------
Increase in cash and cash equivalents............................. 426,965,708 158,272
Cash and cash equivalents, beginning of period.................... 53,029,275 85,302,423
------------ -----------
Cash and cash equivalents, end of period.......................... $479,994,983 $85,460,695
=========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
F-20
<PAGE> 153
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting of only
normal recurring accruals, necessary for a fair presentation of the consolidated
financial position of McCaw International, Ltd. and Subsidiaries (the "Company")
as of March 31, 1997, and the results of its operations and cash flows for the
three months ended March 31, 1997 and 1996. The results of operations for the
three months ended March 31, 1997 and 1996 are not necessarily indicative of the
results that may be expected for the full year. These condensed financial
statements are unaudited, and do not include all related footnote disclosures.
The interim unaudited condensed financial statements should be read in
conjunction with the audited financial statements of the Company.
(2) BUSINESS ACQUISITIONS
McCaw Brazil
On January 30, 1997, Nextel purchased 81% of the issued and outstanding
capital stock of Wireless Ventures of Brazil, Inc. ("WVB") from Telcom Ventures,
Inc. and affiliates (Telcom Ventures) in exchange for $186.3 million in Nextel
Class A Common Stock. Nextel's investment in WVB was simultaneously contributed
to the Company, and the Company changed its name to McCaw International
(Brazil), Ltd. ("McCaw Brazil"). McCaw Brazil and its subsidiaries hold licenses
for 1700 channels and provide SMR services in 23 cities in Brazil including Sao
Paulo, Rio de Janiero, Belo Horzonte, Curitiba, and Brazilia. Telcom Ventures
has the right between October 31, 2001 and November 1, 2003, to require the
Company to redeem their 19% interest in McCaw Brazil at fair market value as
determined pursuant to an appraisal procedure. The Company is currently required
to fund 100% of McCaw Brazil's capital requirements until April 30, 1999 when
Telcom Ventures must either i) contribute its pro rata share plus accrued
interest or ii) dilute its ownership interest. Dividends are declared at the
discretion of McCaw Brazil's board of directors and are allocated based on the
ownership percentages in effect at the date of declaration. No dividends have
been declared to date.
The total cost of the acquisition, which was accounted for as a purchase,
was $187.2 million and exceeded the net liabilities of the Company by $215.7.
The excess was allocated to licenses and goodwill based on their preliminary
estimated fair values and is being amortized over their estimated useful lives
of 20 years. The following summarized pro forma (unaudited) information assumes
the acquisition had occurred on January 1, 1996.
<TABLE>
<CAPTION>
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
<S> <C> <C>
Revenues............................................... $ 2,597,347 $ 3,568,641
=========== ===========
Net Loss............................................... (10,949,655) (5,418,503)
=========== ===========
Net Loss per share..................................... (1.09) (0.54)
=========== ===========
</TABLE>
The above amounts combine the historical results of operations prior to the
merger and reflect adjustments for interest on notes payable forgiven in
connection with the purchase agreement, the recognition of the minority interest
and the amortization of licenses and goodwill.
Mobilcom
In January 1997, the Company, through a wholly owned subsidiary, purchased
additional common shares of Corporacion Mobilcom S.A. de C.V. ("Mobilcom") at a
cost of $16.5 million, in exchange for shares of
F-21
<PAGE> 154
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(2) BUSINESS ACQUISITIONS -- (CONTINUED)
Nextel Class A Common Stock. Such purchase increased the Company's ownership
interest from 30.1% to 38%. On February 21, 1997, Mobilcom shareholders approved
a $27.0 million capital call (the "Mobilcom Capital Call"). On February 26,
1997, such subsidiary funded its pro rata share of the Mobilcom Capital Call
(approximately $10.3 million) with a cash contribution. On April 16, 1997, such
subsidiary purchased additional shares of Mobilcom by funding the unsubscribed
portion of the Mobilcom Capital Call (approximately $11.1 million), thereby
increasing its ownership percentage to 46.3%. On June 30, 1997, such subsidiary
purchased additional shares of Mobilcom at a cost of $3.2 million, thereby
increasing the Company's equity interest in Mobilcom to approximately 48.1%.
In July 1997, the Company offered to purchase, subject to the execution of
definitive documents, all of the shares of Mobilcom held by certain shareholders
of Mobilcom for an aggregate purchase price of approximately $54 million (the
"Mobilcom Share Purchase Offer"). If all such shareholders accept the Mobilcom
Share Purchase Offer and if the Company enters into definitive agreements with
each such shareholder and consummates the transactions contemplated by such
offer, the Company's equity interest in Mobilcom will increase from
approximately 48.1% to approximately 76.5%. The Mobilcom Share Purchase Offer
expires on August 11, 1997. As of July 31, 1997, shareholders representing
approximately 1.5% of the outstanding shares of Mobilcom had accepted the
Mobilcom Share Purchase Offer. The Company expects to consummate the Mobilcom
Share Purchase Offer with the shareholders who have accepted such offer by the
end of the third quarter of 1997. The acquisition of Mobilcom shares held by
those parties that have accepted the Mobilcom Share Purchase Offer is not
expected to have a significant effect on the Company's financial position or
results of operations.
(3) PHILIPPINES FINANCING
In July 1997, Infocom and Motorola entered into an equipment financing
agreement (the "Philippines Motorola Financing"), pursuant to which Motorola
will provide up to $15 million of vendor financing to Infocom. The Philippines
Motorola Financing provides for a maturity of two years and an annual interest
rate of LIBOR plus 505.5 basis points. Pursuant to the Philippines Motorola
Financing the loans are secured by a first-priority lien on substantially all of
Infocom's assets and a pro rata guarantee of such financing by each of Infocom's
shareholders, including the Company.
F-22
<PAGE> 155
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
Wireless Ventures of Brazil, Inc.
Washington, D.C.:
We have audited the accompanying consolidated balance sheet of Wireless
Ventures of Brazil, Inc. and subsidiaries (the Company) as of December 31, 1996,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the year then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Wireless Ventures of Brazil,
Inc. and subsidiaries as of December 31, 1996, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Seattle, Washington
March 27, 1997
F-23
<PAGE> 156
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 389,816
Trade accounts receivable, net of allowance for doubtful accounts of
$3,005,653............................................................ 2,647,314
Inventory, net......................................................... 1,839,116
Prepaid expenses and other current assets.............................. 784,576
Due from officers and employees........................................ 147,137
-----------------
Total current assets.............................................. 5,807,959
Property and equipment, net of accumulated depreciation of $3,117,813....... 8,842,875
License rights, net of accumulated amortization of $10,299,391.............. 48,291,499
Intangible assets, net of accumulated amortization of $154,167.............. 95,833
Other assets................................................................ 6,344
-----------------
Total assets................................................................ $ 63,044,510
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.................................. $ 10,473,831
Due to affiliates...................................................... 863,572
Interest payable....................................................... 2,060,377
Income taxes payable................................................... 200,000
Bank loans payable..................................................... 1,257,677
Deferred income taxes.................................................. 204,421
Short-term note payable to majority stockholder........................ 16,973,004
-----------------
Total current liabilities......................................... 32,032,882
Other liabilities:
Other taxes payable.................................................... 2,789,949
Deferred income taxes.................................................. 15,738,568
-----------------
Total liabilities................................................. 50,561,399
-----------------
Commitments and contingencies
Stockholders' equity:
Common stock; $.01 par value; 1,000,000 shares authorized; 90,341
shares issued and outstanding......................................... 903
Additional paid-in capital............................................. 39,528,659
Accumulated deficit.................................................... (27,046,451)
-----------------
Total stockholders' equity........................................ 12,483,111
-----------------
Total liabilities and stockholders' equity.................................. $ 63,044,510
=============
</TABLE>
See notes to consolidated financial statements.
F-24
<PAGE> 157
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Revenue....................................................................... $ 14,212,379
Cost of operations............................................................ 9,589,401
Selling, general and administrative expenses.................................. 13,019,232
Depreciation and amortization expense......................................... 5,277,024
------------
Operating loss................................................................ (13,673,278)
Other income (expense):
Interest income.......................................................... 449,303
Gain on foreign currency translation..................................... 172,909
Interest expense......................................................... (3,085,430)
Other.................................................................... (50,000)
------------
Loss before provision for income tax.......................................... (16,186,496)
Provision for income tax...................................................... (556,202)
------------
Net loss...................................................................... $(16,742,698)
===========
</TABLE>
See notes to consolidated financial statements.
F-25
<PAGE> 158
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK CAPITAL DEFICIT EQUITY
------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996.................... $903 $39,212,452 $(10,303,753) $ 28,909,602
Capital distribution................... -- (458,000) -- (458,000)
Contributed capital -- expenses paid by
majority stockholder................. -- 774,207 -- 774,207
Net loss............................... -- -- (16,742,698) (16,742,698)
---- ----------- ------------ ------------
BALANCE, DECEMBER 31, 1996.................. $903 $39,528,659 $(27,046,451) $ 12,483,111
==== =========== ============ ============
</TABLE>
See notes to consolidated financial statements.
F-26
<PAGE> 159
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss................................................................. $(16,742,698)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization expense............................... 5,277,024
Provision for doubtful accounts..................................... 1,470,598
Provision for income tax............................................ 556,202
Change in assets and liabilities, net of effects from business
acquisitions:
Increase in trade accounts receivable.......................... (988,555)
Decrease in inventory.......................................... 808,221
Increase in prepaid expenses and other current assets.......... (261,847)
Increase in due from officers and employees.................... (111,328)
Decrease in other assets....................................... 78,446
Increase in accounts payable and accrued expenses.............. 2,318,781
Increase in due to affiliates.................................. 458,969
Increase in interest payable................................... 1,378,657
Increase in other taxes payable................................ 2,789,949
------------
Net cash used in operating activities..................... (2,967,581)
------------
Cash flows from investing activities:
Purchase of property and equipment....................................... (755,349)
Payments on acquisitions of licensee companies........................... (1,130,000)
------------
Net cash used in investing activities..................... (1,885,349)
------------
Cash flows from financing activities:
Capital contributions.................................................... 774,207
Stockholder distributions................................................ (458,000)
Proceeds from short-term note payable to majority stockholder............ 4,413,334
Payments on bank loans payable........................................... (806,919)
Proceeds from bank loans payable......................................... 1,257,677
------------
Net cash provided by financing activities................. 5,180,299
------------
Net increase in cash and cash equivalents..................................... 327,369
Cash and cash equivalents, beginning of year.................................. 62,447
------------
Cash and cash equivalents, end of year........................................ $ 389,816
===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest................................... $ 1,291,432
===========
</TABLE>
See notes to consolidated financial statements.
F-27
<PAGE> 160
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
1. DESCRIPTION OF OPERATIONS AND LIQUIDITY
Wireless Ventures of Brazil, Inc. (WVB), a Virginia corporation whose
majority stockholder on December 31, 1996 is Telcom Ventures, L.L.C. (Telcom
Ventures), which is a Delaware limited liability company, was organized in
August 1993 for the purpose of pursuing wireless communications investment
opportunities in Brazil. As of December 31, 1996, WVB, through Brazilian
licensee companies, holds licenses to provide a class of mobile
telecommunications services known as specialized mobile radio (SMR) or trunking
services in the 800 MHz frequency band in Brazil. SMR services use radio
frequencies to allow multiple subscribers to communicate between remote portable
or mobile radios.
As of December 31, 1996, WVB's subsidiaries held licenses for a total of
1,400 SMR channels in 23 cities in Brazil, including 195 channels in Sao Paulo
and channels in Rio de Janeiro, Belo Horizonte, Curitiba, and Brasilia. The
initial term for such licenses is 15 years, although such licenses are issued at
the sole discretion of the Brazilian Ministry of Communications (the Ministry),
which can seek to cancel the Company's licenses if certain license requirements
are not met. In addition, licensees are required by the Ministry to complete
build-out of the channels and loading of subscribers by a certain date. Failure
to comply with the requirements could result in the revocation of the licenses
by the Ministry. At December 31, 1996, WVB had several channels that had not
been constructed and loaded with subscribers within the specified time frame.
Although there can be no assurance that the Ministry will not revoke these or
any other licenses, the management of WVB has either filed for extensions from
the Ministry or has taken other corrective action and believes the risk of loss
of the licenses due to noncompliance is remote.
In September 1994, WVB formed an indirect wholly owned subsidiary, a
Brazilian service company, AirLink Service e Comercio. Ltda (AirLink). AirLink
holds no licenses but owns equipment and, pursuant to service contracts,
provides technical support, billing, and other administrative functions to the
licensee companies in Brazil.
WVB and its subsidiaries (collectively, "the Company") expect to expand
their operations through continued capital investment in current analog and
future digital technologies to create a national mobile telecommunications
system in Brazil. The Company currently is not generating sufficient cash flows
from operations to support its current operating and capital requirements. The
Company has and will continue to be dependent upon its stockholders to fund
these requirements. The Company's future profitability is dependent upon its
ability to further develop its existing system and successfully market its
mobile radio services in its primary Brazilian markets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of WVB and its direct and indirect wholly owned subsidiaries, Via
Radio Administracao e Participacoes Ltda. (VRA), Air-fone Participacoes e
Empreendimentos Ltda. (Airfone), and AirLink, and its indirect 49 percent
interest in Master-Tec Industria e Comercio de Produtos Eletronicos Ltda.
(Master-Tec), Telemobile Telecomunicacoes Ltda. (Telemobile), Promobile
Telecomunicacoes Ltda. (Promobile), LMP Consultoria e Representacoes Ltda. (LMP)
and Telecomunicacoes Brastel S/C Ltd. (Brastel). VRA wholly owns seven Brazilian
subsidiaries, the accounts of which are consolidated with the accounts of the
Company. In addition, Airfone wholly owns two Brazilian subsidiaries, the
accounts of which are consolidated with the accounts of the Company. WVB
acquired indirect 49 percent interests in MasterTec, Telemobile, Promobile, LMP
and Brastel and has the right to obtain the remaining 51 percent for nominal
consideration when it receives approval from the Ministry. As WVB has effective
control of these five companies, the accounts of Master-Tec, Telemobile,
Promobile, LMP and Brastel are consolidated with the accounts of the Company and
no minority interest is recorded. All significant intercompany balances and
transactions have been eliminated in consolidation.
F-28
<PAGE> 161
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
The following companies are included in the consolidated financial
statements:
<TABLE>
<CAPTION>
DIRECT AND
INDIRECT INTEREST
BRAZILIAN SUBSIDIARIES HELD BY WVB
---------------------------------------------------------------------- -----------------
<S> <C>
AirLink Servicos e Comercio Ltda. .................................... 100%
Air-fone Participacoes e Empreendimentos S/C Ltda. ................... 100%
SOW Comercio e Servicos de Radiofonia Movel Ltda. .................... 100%
Air-fone Comercio e Servicos de Radiofonia Movel Ltda. ............... 100%
Via Radio Administracao e Partcipacoes Ltda. ......................... 100%
Via Radio 1 Telecomunicacoes Ltda. ................................... 100%
Comercial Telecar Ltda. .............................................. 100%
Telemovel Servicos Ltda. ............................................. 100%
Radio Telecomunicacoes do Brasil Ltda. ............................... 100%
ATG -- Telecomunicacoes e Comercio Ltda. ............................. 100%
Car-Tel Telefonia Movel S/C Ltda. .................................... 100%
Comercial Teleservice Ltda. .......................................... 100%
Promobile Telecomunicacoes Ltda. ..................................... 49%(a)
Telemobile Telecomunicacoes Ltda. .................................... 49%(a)
Master-Tec Industria e Comercio de Produtos Eletronicos Ltda.......... 49%(a)
Telecomunicacoes Brastel S/C Ltda. ................................... 49%(a)
LMP Consultoria e Representacoes Ltda. ............................... 49%(a)
</TABLE>
- ---------------
(a) Under the respective purchase agreements, the Company has the
right to obtain the remaining 51 percent for nominal consideration
when the Ministry approves the transfer of the license rights. As
of December 31, 1996, these companies had no significant
operations and their principal assets recorded were represented by
license rights.
CASH EQUIVALENTS: For purposes of the statement of cash flows, the Company
considers all highly liquid investments with original maturities of three months
or less to be cash equivalents. Cash equivalents consisted of approximately
$218,111 in overnight investments and short-term deposits as of December 31,
1996.
INVENTORY, NET: Inventory, which consists primarily of telecommunications
equipment (radios), is stated at the lower of cost or market. Cost is determined
using the first-in, first-out method. The inventory of the Company is subject to
rapid technological changes that could have an adverse financial impact on its
full realization in future periods.
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which range from 3 to 10 years. Depreciation on
constructed assets, which includes radio towers and analog mobile radio systems,
begins when the assets are substantially completed and ready for their intended
use.
For constructed assets, all costs necessary to bring such assets to the
condition and location necessary for their intended use are initially
capitalized as construction-in-progress and are subsequently transferred to
telecommunications equipment.
LICENSE RIGHTS: License rights consist of licenses to operate channels for
the provision of SMR services in Brazil. Amortization is calculated on the
straight-line method over 15 years, the initial term of the licenses. The
amortization is also calculated for the licenses of those companies that have
not yet started their operations.
F-29
<PAGE> 162
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
The license rights are held by the Brazilian subsidiaries that WVB has
acquired directly and indirectly, through its holding companies both inside and
outside Brazil from 1993 to 1996. The acquisitions have been accounted for using
the purchase method of accounting. At the time of such acquisitions, a
substantial portion of the purchase cost was allocated to the license rights.
These costs have no basis for income tax reporting purposes. Therefore, the
Company has established a deferred tax liability. This deferred tax liability
was offset by an increase in the acquisition costs of the license rights and is
being amortized over 15 years.
INTANGIBLE ASSETS: Intangible assets consist of the cost allocated to a
covenant not to compete associated with an acquisition. Amortization is
calculated on the straight-line method over 5 years, the term of the noncompete
arrangement.
REVENUE RECOGNITION: The Company's principal sources of revenue are the
provision of mobile telecommunications services to businesses and individuals
and the sale and rental of telecommunications equipment (radios) to its service
subscribers. Service revenue consists of a usage fee based on the number of
minutes the subscriber uses each month (airtime revenues) plus a fixed monthly
service fee. Revenue for equipment sales is recognized at the time the
merchandise is shipped. Service and rental revenue are recognized ratably over
the term of the agreements.
FOREIGN CURRENCY TRANSLATION: The Company accounts for translation of
foreign currency in accordance with Statement of Financial Accounting Standards
No. 52 (SFAS No. 52), Foreign Currency Translations. During the year ended
December 31, 1996, the Company's Brazilian operations were considered to be in a
"highly inflationary" economy, as defined in SFAS No. 52. Accordingly, the
Company uses the U.S. dollar as the functional currency. Therefore, certain
assets and liabilities are remeasured at historical exchange rates while other
assets and liabilities are remeasured at current exchange rates, as follows:
- Inventories, property and equipment, license rights, and stockholders'
equity are remeasured at their appropriate current exchange rates.
- Accounts receivable, other assets, accounts payable and other
liabilities denominated in U.S. dollars are stated at their actual U.S.
dollar amounts.
- Accounts receivable, certain other assets, accounts payable, and other
liabilities denominated in Brazilian reais are remeasured at the
commercial transaction foreign exchange rate published by the Brazilian
Central Bank at the balance sheet date.
- Income and expenses are remeasured at monthly average exchange rates,
except for those related to balance sheet accounts remeasured at
historical rates.
- The net gain or loss on remeasurement is recognized in the results of
operations currently.
The remeasurement into U.S. dollar equivalent should not be construed as
representation that the Brazilian real amounts actually represent or have been
or could be converted into U.S. dollars at these or any other rates.
INCOME TAXES: In accordance with Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, the Company uses the asset and
liability method to recognize deferred tax assets and liabilities. Under the
asset and liability method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
F-30
<PAGE> 163
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
VAT (ICMS AND ISS TAXES): The provision of telecommunication services by
the Company's Brazilian subsidiaries is subject to ICMS taxes, a state-level
value-added tax (VAT) levied at a rate of 25 percent. Non-telecommunication
services provided by the Brazilian subsidiaries are subject to ISS taxes, a
municipal service tax levied at rates of five percent or less depending on the
Brazilian city in which the services are provided. The Brazilian subsidiaries
generate revenues that encompass both aspects of telecommunication services and
non-telecommunication services. The management of the Company has adopted an
allocation method for segregating the revenue for tax reporting purposes. The
allocation method utilized by the Company could be subjected to review by the
Brazilian tax authorities and could be altered as a result of such examination.
Accordingly, the Company could be assessed additional taxes by the Brazilian tax
authorities. The management of the Company periodically reviews its allocation
method and accrues additional reserves for taxes to cover such exposure.
Management believes that such assessments, if any, by the Brazilian taxing
authorities would not have a material impact on the financial statements.
CONCENTRATIONS OF RISKS: Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist principally of
trade accounts receivable. The Company sells its products to commercial and
individual customers in Brazil, and extends credit, generally without requiring
collateral. The Company monitors its exposure for credit losses and maintains
allowances for anticipated losses. Since its inception the Company has suffered
significant credit losses, and these losses could continue in the future. Also,
the Company's core business is in Brazil and its operations may be adversely
affected by economic fluctuations.
USE OF ESTIMATES: The preparation of the consolidated financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
LONG-LIVED ASSETS: Effective January 1, 1996, the Company adopted
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Long-lived assets and identifiable intangibles held and used are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amounts may not be recoverable. Impairment is measured by comparing the
carrying value of the long-lived asset to the estimated undiscounted future cash
flows expected to result from use of the assets and their eventual disposition.
The Company determined that as of December 31, 1996, there had been no
impairment in the carrying value of long-lived assets.
F-31
<PAGE> 164
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996:
<TABLE>
<S> <C>
Telecommunications equipment........................................... $ 8,940,967
Furniture and equipment................................................ 582,700
Computer equipment..................................................... 1,180,886
Telephone lines........................................................ 255,992
Construction-in-progress (see Notes 2 and 5)........................... 910,445
Leasehold improvements................................................. 78,743
Vehicles............................................................... 10,955
-----------
11,960,688
Less accumulated depreciation.......................................... (3,117,813)
-----------
$ 8,842,875
==========
</TABLE>
Property and equipment at December 31, 1996, includes approximately
$453,554 in rental radios that have been shipped to customers under short-term
rental agreements. Rental radios are depreciated using the straight-line method
over the estimated useful life of the radios, which is three years.
4. BUSINESS ACQUISITIONS
ACQUISITION OF INTEREST IN TELEMOBILE AND PROMOBILE: In November 1994, the
Company entered into an agreement to purchase 49 percent of the capital stock of
Telemobile and Promobile for a total of approximately $6,782,000 with an option
to acquire the remaining 51 percent for no additional purchase price. Prior to
December 31, 1994, $3,000,000 of such purchase price was paid. Telemobile and
Promobile collectively hold licenses to operate 540 channels for the provision
of trunking services in Brazil. Of the remaining balance of the purchase price,
$3,282,000 was paid during 1995 and 1996. The remaining amount of $500,000 is
included in current liabilities within the accompanying consolidated financial
statements, and is expected to be paid prior to December 31, 1997.
The acquisition of Telemobile and Promobile has been accounted for using
the purchase method of accounting. Accordingly, the purchase price was allocated
to the licenses for the 540 channels held by Telemobile and Promobile.
Additionally, the Company established a deferred tax liability in connection
with the acquisition since the license rights acquired have no basis for tax
reporting purposes in Brazil. Such amount has been allocated as an increase in
the license rights acquired.
ACQUISITION OF INTEREST IN LMP: In May 1996, the Company entered into an
agreement to purchase all of the capital stock of LMP for a total of $900,000.
As of December 31, 1996, $450,000 of such purchase price is included in current
liabilities. Under the terms of the purchase agreement, the remaining purchase
price will be due and payable upon approval from the Ministry for transfer of
control of the licenses. LMP holds licenses to operate 220 SMR channels in
Brazil.
The acquisition of LMP has been accounted for using the purchase method of
accounting. Accordingly, the purchase price was allocated to the licenses for
the 220 channels held by LMP. Additionally, the Company established a deferred
tax liability in connection with the acquisition since the license rights
acquired have no basis for tax reporting purposes in Brazil. Such amount has
been allocated as an increase in the license rights acquired.
ACQUISITION OF INTEREST IN BRASTEL: In May 1996, the Company entered into
an agreement to purchase all of the capital stock of Brastel for a total of
$240,000. As of December 31, 1996, $60,000 of such purchase price is included in
current liabilities. Under the terms of the purchase agreement, the remaining
purchase
F-32
<PAGE> 165
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. BUSINESS ACQUISITIONS -- (CONTINUED)
price will be due and payable upon approval from the Ministry for transfer of
control of the licenses. Brastel holds licenses to operate 40 SMR channels in
Brazil.
The acquisition of Brastel has been accounted for using the purchase method
of accounting. Accordingly, the purchase price was allocated to the licenses for
the 40 channels held by Brastel. Additionally, the Company established a
deferred tax liability in connection with the acquisition since the license
rights acquired have no basis for tax reporting purposes in Brazil. Such amount
has been allocated as an increase in the license rights acquired.
PURCHASE OF AUGUSTUS AND MULTIPONTO: In September 1995, the Company
entered into a purchase agreement with Augustus Administracao e Participacoes
S.A. (Augustus) to purchase its 100 SMR channels in Brazil. The total purchase
price is approximately $408,000. Once the Ministry has approved transfer of
control of the SMR licenses from Augustus to the Company, the purchase price
will become due and payable.
In September 1995, the Company entered into a purchase agreement with
Multiponto Telecomunicacoes, Ltda. (Multiponto) to purchase its 200 SMR channels
in Brazil. The total purchase price is approximately $856,800. Once the Ministry
has approved transfer of control of the SMR licenses from Multiponto to the
Company, the purchase price will become due and payable.
These transactions will be reflected in the financial statements on
approval from the Ministry. The Company expects to receive approval for both
transfers from the Ministry by December 31, 1997.
5. RELATED PARTY TRANSACTIONS
In 1994, LCC International, Inc. (LCC), formerly LCC, L.L.C., an affiliate
of Telcom Ventures, performed design engineering services to develop the
Company's mobile radio communications system in Brazil. Systems development
activities included development of terrain databases, channel loading,
preliminary site design, initial frequency planning, and candidate site
evaluation. The cost of such services, which amounted to $910,455, were paid
during the year ended December 31, 1994, by the Company's majority stockholder,
Telcom Ventures, on behalf of the Company, and remain in
construction-in-progress with a corresponding increase in additional paid-in
capital within the accompanying consolidated financial statements as of December
31, 1996.
In October 1994, LCC licensed its software to the Company for $200,000 per
year over the next five years. The Company's management intends to use such
software to aid in the development of a digital mobile radio communications
system. In March 1996, the software license agreement was amended to make the
software license fee a total of $200,000 for the period commencing October 21,
1994, until December 31, 1996. As of December 31, 1996, such amount was
outstanding and recorded as a due to affiliate. Amortization expense associated
with this software was $50,000 for the year ended December 31, 1996.
During 1996, Telcom Ventures paid certain expenses including salaries,
travel, consulting fees, and overhead expenses totaling $774,207 on behalf of
the Company. This amount has been reported as selling, general and
administrative expenses with a corresponding increase in additional paid-in
capital within the accompanying consolidated financial statements.
During 1996, AirLink contracted with LCC for certain engineering services
totaling $467,434. This amount is included in due to affiliates within the
accompanying consolidated financial statements.
Prior to the Company's acquisition of Air-fone, the former owners of
Air-fone made certain payments on behalf of the Company totaling $319,730. In
December 1994, $133,193 of such debt was forgiven, and reported as additional
paid-in capital within the accompanying consolidated financial statements. At
December 31, 1996, the Company has a remaining payable balance to such
individuals in the amount of
F-33
<PAGE> 166
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. RELATED PARTY TRANSACTIONS -- (CONTINUED)
$183,072. This amount is included in due to affiliates within the accompanying
consolidated financial statements.
In December 1994, the Company acquired certain telecommunications equipment
from K-Tel prior to its sale to a third party. The purchase price for the
equipment of $10,000 is included in due to affiliates within the accompanying
consolidated financial statements as of December 31, 1996.
6. INCOME TAXES
WVB is subject to corporate tax in the United States of America (U.S.)
based on its net annual earnings generated in the U.S. and distributions from
its Brazilian subsidiaries. WVB's direct and indirect Brazilian subsidiaries are
separately obligated for Brazilian taxes on their annual earnings.
The income tax provision consists of the following at December 1996:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- -------- --------
<S> <C> <C> <C>
U.S. federal.......................................... $ -- $ -- $ --
Brazilian............................................. -- 556,202 556,202
-------- -------- --------
$ -- $556,202 $556,202
======== ======== ========
</TABLE>
The income tax provision was $556,202 for the year ended December 31, 1996,
and differed from the amount computed by applying the U.S. federal income tax
rate of 34 percent as a result of the following:
<TABLE>
<S> <C>
Computed expected tax benefit.......................................... $(5,503,409)
Increase in income taxes resulting from:
Change in the valuation allowance for deferred tax assets......... 3,314,727
Permanent differences............................................. 1,007,822
Effect of differential between U.S. federal and Brazilian income
taxes and changes in enacted tax rates of Brazil................. 1,737,062
-----------
$ 556,202
==========
</TABLE>
The significant components of the U.S. and Brazilian deferred tax benefits
are as follows for the year ended December 31, 1996:
<TABLE>
<CAPTION>
U.S. BRAZILIAN TOTAL
-------- ----------- -----------
<S> <C> <C> <C>
Deferred tax benefit (exclusive of the effects of
other components listed below)................. $(12,667) $(3,520,597) $(3,533,264)
Increase in the valuation allowance for
deferred tax assets....................... 12,667 3,302,060 3,314,727
Effects of enacted changes in tax rates of
Brazil.................................... -- 774,739 774,739
-------- ----------- -----------
$ -- $ 556,202 $ 556,202
======== ========== ==========
</TABLE>
F-34
<PAGE> 167
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES -- (CONTINUED)
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and liabilities at December 31, 1996, are
presented below:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards.................................. $ 5,191,781
Due from affiliates............................................... 545,347
Fixed assets depreciation......................................... 296,170
Noncompete agreement.............................................. 39,056
-----------
Total gross deferred tax assets.............................. 6,072,354
Less valuation allowance.......................................... (5,329,383)
-----------
742,971
-----------
Deferred tax liabilities:
Intangible license rights......................................... 15,936,192
Accounts receivable............................................... 120,905
Inventory......................................................... 83,516
Due to affiliates................................................. 545,347
-----------
Total gross deferred tax liabilites.......................... 16,685,960
-----------
Net deferred tax liabilities........................................... $15,942,989
==========
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1996, was
$2,014,656. The net change in the total valuation allowance for the year ended
December 31, 1996, was an increase of $3,314,727.
The change in net deferred tax liablities from the prior year includes
$560,540 of deferred tax liabilities resulting from the acquisition of LMP and
Brastel. Such amount has been recorded as an increase in intangible license
rights.
Under the Brazilian tax legislation, each subsidiary is required to file
its tax return as a separate entity; consolidated returns are not allowed.
7. OFFICE FACILITIES AND OTHER LEASES
The Company has operating leases for office space in Sao Paulo as well as
tower sites throughout Brazil. Rental expense for the office and other operating
leases was approximately $1,190,383 during the year ended December 31, 1996.
Future minimum lease payments under operating leases as of December 31,
1996, calculated using the exchange rate in effect at December 31, 1996, are
approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
------------------------------------------------------------------------
<S> <C>
1997.......................................................... $1,196,115
1998.......................................................... 978,542
1999.......................................................... 978,542
2000.......................................................... 978,542
2001.......................................................... 982,729
----------
Total minimum lease payments.................................. $5,114,470
=========
</TABLE>
F-35
<PAGE> 168
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. BANK LOANS PAYABLE
The Company utilizes various short-term borrowing arrangements with
financial institutions in Brazil as a method of financing current operations.
The Company had bank loans payable as of December 31, 1996, as follows:
<TABLE>
<S> <C>
Short-term notes payable................................................ $ 736,363
Discounted accounts receivable.......................................... 521,314
----------
$1,257,677
=========
</TABLE>
At December 31, 1996, short-term notes payable consisted of four unsecured
loans from financial institutions in Brazil. These notes are due on various
dates up to June 1997, and carry interest at rates of 4.8 percent and 4.96
percent per month.
At December 31, 1996, the Company had an outstanding bank loan in the
amount of $521,314 from a financial institution in Brazil. This note was
collateralized by discounting with recourse an equal amount of the Company's
trade accounts receivable. The Company must pay a discount rate of 4.5 percent
per month on the outstanding balance.
9. OTHER TAXES PAYABLE
Certain taxes have not been paid at their initial due date. The Company's
management has negotiated with the tax authorities payment extensions in monthly
installments. For the taxes due in 1995, agreements were reached with the tax
authorities for payments in 24 to 68 monthly installments (see detail below).
Such balances are subject to monetary adjustments based on the Brazilian
inflation rates, plus interest at a rate of 1% per month. The taxes due in 1996
are under negotiation and management believes that agreements for payment
extension will be reached with the tax authorities in the near future. Fines and
interest have been calculated and recorded for these past-due taxes based on the
rates negotiated with the tax authorities. A total of $2,838,455 has been
included in current liabilities as of December 31, 1996. Other taxes payable
included in other liabilities is payable, as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
------------------------------------------------------------------------
<S> <C>
1998.......................................................... $ 806,023
1999.......................................................... 530,622
2000.......................................................... 515,565
2001.......................................................... 937,739
----------
$2,789,949
=========
</TABLE>
10. SHORT-TERM NOTE PAYABLE TO MAJORITY STOCKHOLDER
At December 31, 1996, the Company has a revolving unsecured promissory note
payable to its majority stockholder, Telcom Ventures, in the amount of
$16,973,004. The note bears interest at the rate of 9 percent per annum, and
principal and interest are due on demand. During 1996, the Company recognized
interest expense of $1,378,657 related to this note payable. The note can be
converted to shares of capital stock of WVB at the option of the noteholder.
11. DISTRIBUTION TO SHAREHOLDER
During 1996, the Company distributed to a shareholder $458,000 that
represented contributions made in the prior years in excess of amounts required
under certain capitalization arrangements.
F-36
<PAGE> 169
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. CONTINGENCIES
GENERAL: There are contingent liabilities of a general nature with respect
to taxes. The Company's tax returns filed in previous years are subject to final
approval by tax authorities. The application of U.S. and Brazilian tax laws to
the Company can be subjective and is dependent upon administrative
interpretations which are subject to change.
RISK OF LICENSE CANCELLATIONS: As discussed in Note 1, licenses are issued
at the sole discretion of the Brazilian Ministry of Communications, which can
seek to cancel the Company's licenses if certain license requirements are not
met. The Company's strategy is to install the required minimum number of
channels and load them as dictated by the applicable rules and edicts,
particularly when dealing with major cities like the capitals of the various
states. In certain instances, the Company has filed for extensions to the
pre-established installation dates. Management has received no reply to its
extension requests and believes that the Ministry has tacitly approved the
extensions.
Revocation of licenses must be performed by the Ministry in accordance with
applicable rules, which require that the following two conditions be met prior
to revocation:
- The licensee company has not installed and loaded the channels as
required; and
- Third parties have applied for channels in the same area and the Ministry
does not have other available radio spectrum to fulfill the application
requirements.
In certain cases, spectrum has not been available as a result of conflicts
with TV link service providers, who were provided frequencies that have been
subsequently granted to trunking operators. This conflict is regulated by edict
number 1267 dated August 31, 1993, which requires the TV link service providers
to clear these frequencies by established deadlines to permit their use by the
granted trunking operators. The edict established a deadline for the clearing of
channels 70, 77, 78, and 80 by December 1996 and a clearing deadline for
channels 71, 72, and 79 by August 1998. For channels where this conflict exists,
the time period for determining compliance with the channel installation and
loading requirements begins from the date the corresponding channels are cleared
out, rather than the date of grant. Management believes the risk of having these
or any other licenses revoked is remote.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1996. Statement of
Financial Accounting Standards No. 107, Disclosure about Fair Value of Financial
Instruments, defines the fair value of a financial instrument as the amount at
which the instrument could be exchanged in a current transaction between willing
parties:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNTS VALUE
----------- -----------
<S> <C> <C>
Financial assets:
Cash and cash equivalents............................. $ 389,816 $ 389,816
Trade accounts receivable............................. 2,647,314 2,647,314
Due from officers and employees....................... 147,137 147,137
Prepaid expenses and other current assets............. 784,576 --
Financial liabilities:
Accounts payable and accrued expenses................. 10,473,831 10,473,831
Bank loans payable.................................... 1,257,677 1,257,677
Due to affiliates..................................... 1,347,307 1,347,307
Short-term note payable to majority stockholder....... 16,973,004 16,973,004
</TABLE>
F-37
<PAGE> 170
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
- Cash and cash equivalents, trade accounts receivables, due from officers
and employees, other accounts receivable, accounts payable and accrued
expenses, bank loans payable, amounts payable for business acquisitions,
due to affiliates and short-term note payable to majority stockholder:
the carrying amounts approximate fair values because of the short
maturity of those instruments.
- Prepaid expenses and other current assets: It is not practicable to
estimate the fair value since this balance includes amounts related to
recoverable VAT, which are not transferable, and other prepaid expenses
that do not have market values.
14. SUBSEQUENT EVENTS
AGREEMENT AND PLAN OF MERGER: On October 29, 1996, the Company entered
into an Agreement and Plan of Merger (the Merger Agreement) with Nextel
Communications, Inc. (Nextel) and Dial Call Indimich, Inc., a direct wholly
owned subsidiary of Nextel. Pursuant to this Merger Agreement which was
consummated on January 30, 1997, Nextel acquired 81% of the issued and
outstanding capital stock of the Company in exchange for $186,300,000 worth of
Nextel Class A Common Stock in a tax-free reorganization. Under this Merger
Agreement, the existing Company stockholders retained the remaining 19% interest
in the Company. In addition, the Company's common stock was reclassified into
two classes with different voting rights: 1) Nextel acquired 100% of the Class A
common stock, which have 90% of the voting rights, and 2) the existing
stockholders received the Class B common stock, which have 10% of the voting
rights. On the closing date, Nextel contributed its equity interest in the
Company to McCaw International, Ltd. and the Company was renamed McCaw
International (Brazil), Ltd.
STOCK OPTIONS: The Company had entered into individual stock option
agreements with certain employees of the Company and an affiliate company. These
agreements allowed for such individuals to purchase Company common stock at an
exercise price equal to a pro rata share of the total capital contribution per
share on the option exercise date. The agreements had a five year vesting
period, as well as provisions for immediate vesting in the event of a change of
control. The Merger Agreement, as described above, qualified as a change of
control. Accordingly, these employees would have been entitled to receive a
total of 163,733 shares of Nextel Communications, Inc. common stock, based on an
assumed value of the Company at the time of the merger (i.e., the difference
between the assumed exercise price and the assumed value of the Nextel shares
purchasable as of the merger date), and would not receive any shares of the
Company's common stock. On January 23, 1997, such options were canceled and,
therefore, no compensation expense amounts were recorded for the year ended
December 31, 1996.
REPAYMENT OF NOTE PAYABLE AND RELATED INTEREST PAYABLE: Pursuant to the
Merger Agreement, the short-term note payable to majority stockholder and the
related interest payable in the amounts of $16,973,004 and $2,060,377,
respectively as of December 31, 1996, were forgiven at the time of the closing
on January 30, 1997.
INFUSION OF CAPITAL: On February 28, 1997, McCaw International, Ltd.,
infused $5,000,000 of additional paid-in capital to AirLink Servicos e Comercio
Ltda. to repay bank loans and trade payables of the Brazilian subsidiaries.
F-38
<PAGE> 171
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Wireless Ventures of Brazil, Inc.:
We have audited the accompanying consolidated balance sheets of Wireless
Ventures of Brazil, Inc. and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the year ended December 31, 1995 and the six month period ended
December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated balance sheets of Wireless Ventures of
Brazil, Inc. and subsidiaries as of December 31, 1995 and 1994 and the related
statements of operations, stockholders' equity and cash flows for the year ended
December 31, 1995 and the six month period ended December 31, 1994 present
fairly, in all material respects, the financial position of Wireless Ventures of
Brazil, Inc. and subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for the year ended December 31, 1995
and the six month period ended December 31, 1994 in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Washington, D.C.
May 31, 1996, except as to footnote 15
which is as of June 14, 1996
F-39
<PAGE> 172
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
DECEMBER
DECEMBER 31, 31,
1995 1994
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... $ 62,447 $ 572,005
Trade accounts receivable, net of allowance for doubtful
accounts of $1,535,055 and $54,641 (note 8)................. 3,129,357 228,767
Prepaid expenses and other current assets.................... 522,729 478,704
Inventory, net (note 2)...................................... 3,433,337 1,050,346
Due from officers and employees.............................. 35,809 59,271
------------ -----------
Total current assets.................................... 7,183,679 2,389,093
Property and equipment, net of accumulated depreciation of
$1,756,323 and 293,395 (notes 3 and 5).......................... 8,663,016 6,446,546
License rights, net of accumulated amortization of $6,433,857 and
$2,639,348 (notes 2 and 4)...................................... 50,466,493 54,261,002
Intangible assets, net of accumulated amortization of $104,167 and
$54,167 (notes 2 and 4)......................................... 145,833 195,833
Other assets...................................................... 84,790 17,435
------------ -----------
$ 66,543,811 $63,309,909
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses........................ $ 6,547,627 $ 3,595,382
Due to affiliates (note 5)................................... 404,603 396,538
Bank loans payable (note 8).................................. 806,919 397,447
Interest payable (notes 8 and 9)............................. 681,720 10,700
Income taxes payable (note 6)................................ 200,000 200,000
Amounts payable for business acquisitions (note 4)........... 1,000,000 4,074,648
Deferred income taxes (note 6)............................... 292,893 --
Short-term note payable to majority stockholder (note 9)..... 12,559,670 --
------------ -----------
Total current liabilities............................... 22,493,432 8,674,715
Other............................................................. 607,423 --
Deferred income taxes (note 6).................................... 14,533,354 23,519,752
------------ -----------
Total liabilities....................................... 37,634,209 32,194,467
------------ -----------
Commitments and contingencies (notes 1, 2, 4, 7, 10, 14, and 15)
Stockholders' equity:
Common stock; $.01 par value; 1,000,000 shares authorized;
90,341 and 90,300 shares issued and outstanding (notes 9,
12, and 13)................................................. 903 903
Additional paid-in capital (notes 4, 5, and 13).............. 39,212,452 36,386,585
Accumulated deficit.......................................... (10,303,753) (5,272,046)
------------ -----------
Total stockholders' equity.............................. 28,909,602 31,115,442
------------ -----------
$ 66,543,811 $63,309,909
=========== ==========
</TABLE>
See notes to consolidated financial statements.
F-40
<PAGE> 173
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE SIX MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER DECEMBER
31, 31,
1995 1994
----------- -----------
<S> <C> <C>
Revenues........................................................... $10,099,117 $ 829,608
Cost of operations................................................. 7,621,663 744,025
Selling, general and administrative expenses (note 5).............. 10,100,903 3,338,318
Depreciation and amortization expense.............................. 5,305,773 1,835,607
----------- -----------
Operating loss..................................................... (12,929,222) (5,088,342)
Other income (expense):
Interest income (note 4)...................................... 125,050 39,428
Gain (loss) on foreign currency translation................... 13,301 (210,990)
Interest expense (note 9)..................................... (964,437) (23,829)
Other, net.................................................... 30,096 33,742
----------- -----------
Loss before income tax benefit..................................... (13,725,212) (5,249,991)
Income tax benefit (note 6)........................................ 8,693,505 1,621,634
----------- -----------
Net loss........................................................... $(5,031,707) $(3,628,357)
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-41
<PAGE> 174
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE SIX MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK CAPITAL DEFICIT EQUITY
------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at July 1, 1994...................... $ 8 $21,151,352 $ (1,643,689) $ 19,507,671
Capital contributions................... -- 11,268,939 -- 11,268,939
Contributed capital -- expenses paid by
majority stockholder (note 5)......... -- 1,578,878 -- 1,578,878
Debt forgiven by K-Tel (note 5)......... -- 170,675 -- 170,675
Debt forgiven by Airfone stockholders
(note 5).............................. -- 133,193 -- 133,193
Stock split (note 12)................... 792 (792) -- --
Issuance of 10,300 shares of common
stock (note 4)........................ 103 2,084,340 -- 2,084,443
Net loss................................ -- -- (3,628,357) (3,628,357)
------ ----------- ------------ ------------
Balance at December 31, 1994................. $903 $36,386,585 $ (5,272,046) $ 31,115,442
Capital contributions................... -- 2,060,917 -- 2,060,917
Contributed capital -- expenses paid by
majority stockholder (note 5)......... -- 747,450 -- 747,450
Net loss................................ -- -- (5,031,707) (5,031,707)
Issuance of 31 shares of common stock
(note 13)............................. -- 12,500 -- 12,500
Issuance of 10 shares of common stock... -- 5,000 -- 5,000
------ ----------- ------------ ------------
Balance at December 31, 1995................. $903 $39,212,452 $(10,303,753) $ 28,909,602
====== ========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
F-42
<PAGE> 175
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE SIX MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER ENDED
31, DECEMBER 31,
1995 1994
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss..................................................... $(5,031,707) $ (3,628,357)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization expense................... 5,305,773 1,835,607
Provision for doubtful accounts......................... 1,480,416 54,641
Deferred tax benefit.................................... (8,693,505) (1,821,634)
Stock grant............................................. 12,500 --
Change in assets and liabilities, net of effects from
business acquisitions:
Increase in accounts receivable.................... (4,381,004) (267,502)
Increase in prepaid expenses and other current
assets.......................................... (111,380) (103,702)
Increase in inventory.............................. (2,382,991) (1,050,346)
(Increase) decrease in due from officers and
employees....................................... 23,462 (23,479)
Increase in accounts payable and accrued
expenses........................................ 3,559,668 3,755,876
Increase in due to affiliates...................... 8,065 114,579
Increase in interest payable....................... 671,020 10,700
Increase in income taxes payable................... -- 200,000
----------- ------------
Net cash used in operating activities............................. (9,539,683) (923,617)
----------- ------------
Cash flows from investing activities:
Purchase of property and equipment........................... (3,677,736) (4,700,685)
Acquisition of licensee companies, net of cash acquired...... (3,074,648) (6,734,157)
----------- ------------
Net cash used in investing activities............................. (6,752,384) (11,434,842)
----------- ------------
Cash flows from financing activities:
Capital contributions and stock issuances.................... 2,813,367 12,847,817
Proceeds from note payable to majority stockholder........... 12,559,670 --
Payments on bank loans payable............................... (397,447) --
Proceeds from bank loans payable............................. 806,919 41,189
----------- ------------
Net cash provided by financing activities......................... 15,782,509 12,889,006
----------- ------------
Net increase (decrease) in cash and cash equivalents.............. (509,558) 530,547
Cash and cash equivalents at beginning of period.................. 572,005 41,458
----------- ------------
Cash and cash equivalents at end of period........................ $ 62,447 $ 572,005
========== ===========
Supplemental disclosure of cash flow information
Cash paid during the period for interest..................... $ 282,717 $ 35,185
</TABLE>
See notes to consolidated financial statements.
F-43
<PAGE> 176
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
In November 1994, the Company acquired stock of
Telemobile-Telecommunicacoes, Ltda. (Telemobile) and
Promobile-Telecommunicacoes, Ltda. (Promobile) for a total purchase price of
$6,782,000, $1,000,000 and $3,782,000 of which was payable as of December 31,
1995 and 1994, respectively. These amounts have been reported in amounts payable
for business acquisitions within the accompanying consolidated financial
statements. Further, in conjunction with the acquisition of Telemobile and
Promobile, the Company established a deferred tax liability of approximately
$5,549,000 which amount has been recorded as an increase in the value of the
intangible license rights acquired.
In September 1994, the Company acquired stock of Master-Tec
Telecommunicacoes Industria e Comercio Productos Electronicos, Ltda.
(Master-Tec). In conjunction with this acquisition, the Company established a
deferred tax liability of approximately $2,455,000. Such amount has been
recorded as an increase in the value of the intangible license rights acquired.
In July 1994, the Company acquired the stock of Airfone Comercio e Servicos
de Radifonia Ltda. (Airfone) for a total purchase price of approximately
$7,555,000. Of this amount, the Company converted a current note receivable from
the former owners of Airfone in the amount of $5,000,000 plus approximately
$177,000 in accrued interest. The Company also issued stock, the value of which
was determined to be approximately $2,084,000 (see note 4). In conjunction with
the acquisition, the Company assumed liabilities of approximately $1,172,000 and
established a deferred tax liability of approximately $6,400,000 which amount
has been recorded as an increase in the value of the intangible license rights
acquired.
In July 1994, the Company acquired the remaining 6 percent of the capital
stock of Via Radio Telecommunicacoes, S.A. (VR-1). In conjunction with this
acquisition, the Company established a deferred tax liability of approximately
$64,000. Such amount has been recorded as an increase in the value of the
intangible license rights acquired.
In July 1994, the Company acquired the remaining 30 percent of the stock of
Radio Telecommunicacoes do Brazil, Ltda. (Radio-Telecom). In conjunction with
this acquisition, the Company established a deferred tax liability of
approximately $81,000. Such amount has been recorded as an increase in the value
of the intangible license rights acquired.
See notes to consolidated financial statements.
F-44
<PAGE> 177
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE SIX MONTHS ENDED DECEMBER 31, 1994
(1) DESCRIPTION OF OPERATIONS AND LIQUIDITY
Wireless Ventures of Brazil, Inc. (WVB), a Virginia corporation whose
majority stockholder on December 31, 1995 is Telcom Ventures, L.L.C. (Telcom
Ventures), a Delaware limited liability company, was organized in August 1993
for the purpose of pursuing wireless communications investment opportunities in
Brazil. As of December 31, 1995, WVB, through Brazilian licensee companies,
holds licenses to provide a class of mobile telecommunications services known as
specialized mobile radio (SMR) or trunking services in the 800 MHz frequency
band in Brazil. SMR services use radio frequencies to allow multiple subscribers
to communicate between remote portable or mobile radios.
As of December 31, 1995, WVB's subsidiaries held licenses for a total of
1,140 SMR channels in 23 cities in Brazil, including 195 channels in Sao Paulo,
and channels in Rio de Janeiro, Belo Horizonte, Curitiba, and Brasilia. The
initial term for such licenses is 15 years, although such licenses are issued at
the sole discretion of the Brazilian Ministry of Communications (the Ministry),
which can seek to cancel the Company's licenses at any time. In addition,
licensees are required by the Ministry to complete build-out of the channels and
loading of subscribers by a certain date. Failure to comply with the
requirements could result in the revocation of the licenses by the Ministry. At
December 31, 1995, WVB had several channels which had not been constructed and
loaded with subscribers within the specified timeframe. Although there can be no
assurance that the Ministry will not revoke these or any other licenses, the
management of WVB has either filed for extensions from the Ministry or has taken
other corrective action and believes the risk of loss of the licenses due to
noncompliance is remote.
In September 1994, WVB formed an indirect wholly owned subsidiary, a
Brazilian service company, AirLink Servicos e Comercio, Ltda. (AirLink). AirLink
holds no licenses, but owns equipment and, pursuant to service contracts,
provides technical support, billing, and other administrative functions to the
licensee companies in Brazil.
WVB and its subsidiaries (collectively, the Company) expect to expand their
operations through continued capital investment in current analog and future
digital technologies to create a national mobile telecommunications system in
Brazil. The Company currently is not generating sufficient cash flows from
operations to support its current operating and capital requirements. The
Company has and will continue to be dependent upon its stockholders to fund
these requirements. During 1995 and the six months ended December 31, 1994,
WVB's majority stockholder contributed approximately $800,000 and $13,000,000 to
the Company. Additionally, in 1995 WVB's majority stockholder provided
approximately $12,600,000 to the Company under a short-term unsecured note
payable. Subsequent to year-end, WVB borrowed an additional $3,000,000 under the
note payable agreement (see note 9). The Company's future profitability is
dependent upon its ability to further develop its existing system and
successfully market its mobile radio services in its primary Brazilian markets.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of WVB and its
direct and indirect wholly owned subsidiaries, Via Radio Administradora e
Participacoes Ltda. (VRA), Airfone Participacoes e Empreendimentos Ltda.
(Airfone), and AirLink, and its indirect 49 percent interest in Master-Tec
Telecomunicacoes Ltda. (Master-Tec), Telemobile-Telecomunicacoes Ltda.
(Telemobile) and Promobile-Telecomunicacoes Ltda. (Promobile). VRA wholly owns
seven Brazilian subsidiaries, the accounts of which are consolidated with the
accounts of the Company. In addition, Airfone wholly owns two Brazilian
subsidiaries, the accounts of which are consolidated with the accounts of the
Company. WVB acquired
F-45
<PAGE> 178
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
indirect 49 percent interests in Master-Tec, Telemobile, and Promobile, and has
the right to obtain the remaining 51 percent when it receives approval from the
Ministry at no additional cost to WVB. As WVB has effective control of these
three companies, the accounts of Master-Tec, Telemobile, and Promobile are
consolidated with the accounts of the Company. All significant intercompany
balances and transactions have been eliminated in consolidation.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with original maturities of 3 months or less to be
cash equivalents. Cash equivalents consisted of approximately $3,686 and $2,460
in overnight investments and short-term deposits as of December 31, 1995 and
1994.
Inventory, Net
Inventory, which consists primarily of telecommunications equipment
(radios), is stated at the lower of cost or market. Cost is determined using the
first-in, first-out (FIFO) method. The inventory of the Company is subject to
rapid technological changes which could have an adverse financial impact on its
full realization in future periods.
Inventory at December 31, 1995 and 1994, includes approximately $786,000
and $328,000, respectively, in rental radios, that have been shipped to
customers under short-term rental agreements. Rental radios are depreciated
using the straight-line method over the estimated useful life of the radios,
which is 5 years.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets which
range from 3 to 10 years. Depreciation on constructed assets, which include
radio towers and analog mobile radio systems, begins when the assets are
substantially completed and ready for their intended use.
For constructed assets, all costs necessary to bring such assets to the
condition and location necessary for their intended use are initially
capitalized as construction-in-progress and are subsequently transferred to
telecommunications equipment.
License Rights
License rights consist of licenses to operate channels for the provision of
SMR services in Brazil, which had been issued to the licensee companies acquired
(see notes 1 and 4). Amortization is calculated on the straight-line method over
15 years, the initial term of the licenses.
Intangible Assets
Intangible assets consist of the cost allocated to a covenant not to
compete associated with an acquisition. Amortization is calculated on the
straight-line method over 5 years, the term of the non-compete arrangement.
Revenue Recognition
The Company's principal sources of revenue are the provision of mobile
telecommunications services to businesses and individuals and the sale and
rental of telecommunications equipment (radios) to its service subscribers.
Service revenues consist of a usage fee based on the number of minutes the
subscriber uses the system each month (airtime revenues) plus a fixed monthly
service fee, which are recognized when the
F-46
<PAGE> 179
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
services are provided. Revenue for equipment sales is recognized at the time the
merchandise is shipped. Rental revenue is recorded monthly over the term of each
rental agreement.
Foreign Currency Translation
The Company accounts for translation of foreign currency in accordance with
Statement of Financial Accounting Standards No. 52, Foreign Currency
Translations (Statement No. 52). During the year ending December 31, 1995 and
the six months ended December 31, 1994, the Company's Brazilian operations were
considered to be in a "highly inflationary" economy, as such term is defined in
Statement No. 52. Accordingly, the Company uses the U.S. dollar as the
functional currency. Therefore, certain assets and liabilities are translated at
historical exchange rates while other assets and liabilities are translated at
current exchange rates.
Income Taxes
The Company uses the asset and liability method to recognize deferred tax
assets and liabilities. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
ICMS and ISS Taxes
The provision of telecommunication services by the Company's Brazilian
subsidiaries is subject to ICMS taxes, a state level value-added tax (VAT)
levied at a rate of 25 percent. Non-telecommunication services provided by the
Brazilian subsidiaries are subject to ISS taxes, a municipal service tax levied
at rates of 5 percent or less depending on the Brazilian city in which the
services are provided. The Brazilian subsidiaries generate revenues that
encompass both aspects of telecommunication services and non-telecommunication
services. The management of the Company has adopted an allocation method for
segregating the revenue for tax reporting purposes. The allocation method
utilized by the Company could be subjected to review by the Brazilian tax
authorities and could be altered as result of such examination. Accordingly, the
Company could be assessed additional taxes by the Brazilian tax authorities. The
management of the Company periodically reviews its allocation method and accrues
additional reserves for taxes to account for such exposure. Management believes
that such assessments, if any, by the Brazilian taxing authorities would not
have a material impact on the financial statements.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts receivable.
The Company sells its products to commercial and individual customers in Brazil,
and extends credit, generally without requiring collateral. The Company monitors
its exposure for credit losses and maintains allowances for anticipated losses.
Since inception the Company has suffered significant credit losses, and these
losses could continue in the future.
Pervasiveness of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements
F-47
<PAGE> 180
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
and the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1995 and
1994:
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Telecommunications equipment........................ $ 8,502,834 $4,891,717
Furniture and equipment............................. 357,299 427,240
Computer equipment.................................. 402,622 321,136
Telephone lines..................................... 173,666 173,666
Construction-in-progress (see note 5)............... 910,445 910,445
Leasehold improvements.............................. 65,627 8,891
Vehicles............................................ 6,846 6,846
----------- ----------
10,419,339 6,739,941
Less accumulated depreciation and amortization...... (1,756,323) (293,395)
----------- ----------
$ 8,663,016 $6,446,546
========== =========
</TABLE>
(4) BUSINESS ACQUISITIONS
Acquisition of VR-1
In August 1993, the Company acquired 94 percent, and in July 1994, the
remaining 6 percent, of the capital stock of Via Radio-1 Telecommunicacoes,
S.A., (VR-1), which holds licenses to operate 20 SMR channels in the city of Sao
Paulo, Brazil. The acquisition has been accounted for using the purchase method
of accounting. Accordingly, the purchase price of approximately $743,000,
including acquisition costs, was allocated to assets and liabilities acquired
based on estimates of the fair values of the assets and liabilities as of the
acquisition date, with approximately $555,000 of the purchase price allocated to
the license rights acquired. Such intangible license rights have no basis for
income tax reporting purposes in Brazil thus giving rise to a deferred tax
liability of approximately $454,000, which amount was allocated as an increase
in the value of the license rights acquired (see note 6).
In conjunction with the initial acquisition, in consideration for a
covenant not to compete with the Company for a 5 year period, the Company paid
the former shareholders $250,000. This amount has been included in intangible
assets within the accompanying consolidated financial statements. In November
1994, the ownership of VR-1 was transferred from WVB to VRA.
Acquisition of VRA
In October 1993, WVB, through a holding company, acquired all the
outstanding capital stock of VRA and the four Brazilian subsidiaries that it
then substantially wholly owned. The acquisition has been accounted for using
the purchase method of accounting. The purchase price of approximately
$3,477,000, including acquisition costs, was allocated to the licenses for 80
SMR channels held by VRA's four Brazilian subsidiaries, which have no basis for
income tax reporting purposes in Brazil. Accordingly, the Company established a
deferred tax liability in connection with this acquisition totaling
approximately $2,845,000 (see note 6). Such amount was allocated as an increase
in the value of the license rights acquired.
In November 1993, VRA acquired all of the outstanding capital stock of two
commonly controlled Brazilian companies, K-Tel and ATG Telecommunicacoes e
Comercio, Ltda. (ATG), and its 70 percent
F-48
<PAGE> 181
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) BUSINESS ACQUISITIONS -- (CONTINUED)
owned subsidiary, Radio Telecommunicacoes do Brazil, Ltda. (Radio-Telecom). ATG
holds licenses to operate 140 SMR channels for the provision of SMR services in
Sao Paulo and several nearby cities. K-Tel held no licenses, but provided
equipment, technical support, and other administrative functions to
approximately 2,300 subscribers as of the acquisition date. The acquisition has
been accounted for using the purchase method of accounting and, accordingly, the
purchase price of approximately $10,300,000 for both companies was allocated to
assets and liabilities acquired based on estimates of fair values as of the date
of acquisition, with approximately $9,021,000 and $1,080,000 of the purchase
price allocated to the ATG license rights and certain telecommunications
equipment maintained by ATG, respectively, with the remaining $199,000 allocated
to the net assets of K-Tel. The intangible license rights acquired have no basis
for income tax reporting purposes in Brazil thus giving rise to deferred tax
liabilities of $8,021,000 (see note 6). Such amounts were allocated as an
increase in the value of the license rights acquired.
In July 1994, VRA acquired the remaining 30 percent of capital stock of
Radio-Telecom for approximately $99,000. The purchase price and the value of
deferred tax liabilities assumed of approximately $81,000 were allocated to the
intangible license rights acquired.
On June 30, 1994, the Company sold all the outstanding shares of capital
stock of K-Tel to Telcom Ventures, the Company's majority shareholder, for its
book value of approximately $199,000.
In connection with the acquisition, the Company became aware of certain tax
contingencies which arose prior to the acquisition. Based on discussion with
legal counsel, management of the Company believes that the probability of a
material impact on the financial statements is remote.
Acquisition of Airfone
In July 1994, the Company indirectly acquired all the outstanding capital
stock of Airfone, which, in turn, held all of the outstanding capital stock of
Airfone Comercio e Servicos de Radiofonia, Ltda. and SOW Comercio e Servicos de
Radiofonia, Ltda. (collectively, the Airfone Affiliates), in exchange for 11.43
percent of the issued and outstanding shares of WVB, the value of which was
determined to be approximately $2,084,000, and the sum of approximately
$5,470,000 in additional purchase price. At the date of acquisition, the Company
had a note receivable of $5,000,000 plus accrued interest of $177,000 due from
the principal stockholders of Airfone. This amount was offset against the
purchase price. The remaining balance of the purchase price of approximately
$293,000 was paid in 1995. The Airfone Affiliates are Brazilian corporations,
which, directly or indirectly, hold licenses to operate a total of 280 SMR
channels in several Brazilian cities.
The acquisition has been accounted for using the purchase method of
accounting. Accordingly, the purchase price totaling approximately $7,555,000,
was allocated to assets and liabilities acquired based on estimates of the fair
values of the assets and liabilities as of the acquisition date, with
approximately $8,161,000 of the purchase price allocated to the license rights
acquired, approximately $566,000 allocated to telecommunications equipment,
accounts receivable and other current assets acquired, and approximately
$1,172,000 allocated to the liabilities assumed. The intangible license rights
acquired have no basis for income tax reporting purposes in Brazil thus giving
rise to deferred tax liabilities of approximately $6,400,000 (see note 6). Such
amount has been allocated as an increase in the license rights acquired.
Acquisition of Interest in Master-Tec
In September 1994, the Company indirectly acquired 49 percent of the
capital stock of Master-Tec for $3,000,000 with an option to acquire the
remaining 51 percent interest for no additional purchase price. Master-Tec is a
Brazilian corporation which holds licenses to operate 100 SMR channels in
several major cities in Brazil. The acquisition has been accounted for using the
purchase method of accounting. Accordingly, the purchase price was allocated to
the licenses for the 100 SMR channels held by Master-Tec. Additionally,
F-49
<PAGE> 182
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) BUSINESS ACQUISITIONS -- (CONTINUED)
the Company established a deferred tax liability in connection with the
acquisition in the amount of approximately $2,455,000 (see note 6), since the
license rights acquired have no basis for tax reporting purposes in Brazil. Such
amount has been allocated as an increase in the license rights acquired.
Acquisition of Interest in Telemobile and Promobile
In November 1994, the Company entered into an agreement to purchase 49
percent of the capital stock of Telemobile and Promobile for a total of
approximately $6,782,000 with an option to acquire the remaining 51 percent for
no additional purchase price. Prior to December 31, 1994, $3,000,000 of such
purchase price was paid. Telemobile and Promobile collectively hold licenses to
operate 540 channels for the provision of trunking services in Brazil. The
remaining balance of the purchase price of $3,782,000 is included in current
liabilities within the accompanying 1994 consolidated financial statements. Of
the remaining balance, $2,782,000 was paid in 1995, and the Company expects the
remaining amount of $1,000,000 to be paid prior to December 31, 1996.
The acquisition of Telemobile and Promobile has been accounted for using
the purchase method of accounting. Accordingly, the purchase price was allocated
to the licenses for the 540 channels held by Telemobile and Promobile.
Additionally, the Company established a deferred tax liability in connection
with the acquisition in the amount of approximately $5,549,000 (see note 6)
since the license rights acquired have no basis for tax reporting purposes in
Brazil. Such amount has been allocated as an increase in the license rights
acquired.
(5) RELATED PARTY TRANSACTIONS
In 1994, LCC, L.L.C. (LCC), an affiliate of Telcom Ventures, performed
design engineering services to develop the Company's mobile radio communications
system in Brazil. Systems development activities included development of terrain
databases, channel loading, preliminary site design, initial frequency planning,
and candidate site evaluation. The cost of such services for the six months
ended December 31, 1994, which was paid by the Company's majority shareholder,
Telcom Ventures, on behalf of the Company, amounted to $524,618 and has been
included in construction-in-progress with a corresponding increase in additional
paid-in capital within the accompanying consolidated financial statements.
During 1995 and the six months ended December 31, 1994, Telcom Ventures
paid certain expenses including salaries, travel, consulting fees, and overhead
expenses totaling $747,450 and $581,809 on behalf of the Company. These amounts
have been reported as selling, general and administrative expenses with a
corresponding increase in additional paid-in capital within the accompanying
consolidated financial statements. During the six months ended 1994, Telcom
Ventures also purchased certain telecommunication equipment and inventory
totaling $472,451 on behalf of the Company. This amount has been reported as an
increase in additional paid-in capital within the accompanying consolidated
financial statements.
In October 1994, LCC licensed its software to the Company for $200,000 per
year over the next five years. The Company's management intends to use such
software to aid in the development of a digital mobile radio communications
system. In March 1996, the software license agreement was amended to make the
software license fee a total of $200,000 for the period commencing October 21,
1994 until December 31, 1997. Accordingly, the license fee of $200,000, which is
due in four installments from June 1996 to December 1996, has been included in
telecommunications equipment and due to affiliates within the accompanying
consolidated financial statements, and is being amortized using the straight
line method over the three year license period. Amortization expense associated
with this software was $24,000 for the year ended December 31, 1995.
F-50
<PAGE> 183
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) RELATED PARTY TRANSACTIONS -- (CONTINUED)
During the six months ended December 31, 1994, K-Tel made certain payments
on behalf of the Company totaling $170,675. Upon the sale of K-Tel by Telcom
Ventures to a related third party in December 1994, K-Tel forgave this debt.
This amount has been reported as additional paid-in capital in the accompanying
consolidated financial statements.
Prior to the Company's acquisition of Airfone, the former owners of Airfone
made certain payments on behalf of the Company totaling $319,730. In December
1994, $133,193 of such debt was forgiven. Accordingly, this amount has been
reported as additional paid-in capital within the accompanying consolidated
financial statements. At December 31, 1995 and 1994, the Company had recorded a
payable to such individuals in the amount of $194,603 and $186,538,
respectively. These amounts are included in due to affiliates within the
accompanying consolidated financial statements.
In December 1994, the Company acquired certain telecommunications equipment
from K-Tel prior to its sale to a third party. The purchase price for the
equipment of $10,000 is included in due to affiliates within the accompanying
consolidated financial statements.
(6) INCOME TAXES
WVB is subject to corporate tax in the United States of America (U.S.) on
its net annual earnings generated in the U.S. and distributions from its
Brazilian subsidiaries. WVB's direct and indirect Brazilian subsidiaries are
separately obligated for Brazilian taxes on their annual earnings.
Income tax benefit consists of the following for the year ended December
31, 1995 and the six months ended December 31, 1994:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- ----------- -----------
<S> <C> <C> <C>
1995:
U.S. federal........................ $ -- $ -- $ --
Brazilian federal................... -- (8,693,505) (8,693,505)
-------- ----------- -----------
$ -- $(8,693,505) $(8,693,505)
======== ========== ==========
1994:
U.S. federal........................ $200,000 $ -- $ 200,000
Brazilian federal................... -- (1,821,634) (1,821,634)
-------- ----------- -----------
$200,000 $(1,821,634) $(1,621,634)
======== ========== ==========
</TABLE>
Income tax benefit was $8,693,505 and $1,621,634 for the year ended
December 31, 1995 and the six months ended December 31, 1994, respectively, and
differed from the amount computed by applying the U.S. federal income tax rate
of 34 percent as a result of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Computed expected tax benefit.............................. $(4,666,572) $(1,784,997)
Increase (reduction) in income taxes resulting from:
Change in beginning of the period balance of the
valuation allowance for deferred tax assets......... 1,537,129 237,677
Taxation of earnings of Brazilian subsidiaries deemed
remitted to WVB..................................... -- 462,000
Effect of differential between U.S. federal and
Brazilian income taxes and changes in enacted tax
rates of Brazil..................................... (5,564,062) (536,314)
----------- -----------
$(8,693,505) $(1,621,634)
========== ==========
</TABLE>
F-51
<PAGE> 184
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) INCOME TAXES -- (CONTINUED)
The significant components of the U.S. and Brazilian deferred tax benefit
are as follows for the year ended December 31, 1995 and the six months ended
December 31, 1994:
<TABLE>
<CAPTION>
U.S. BRAZILIAN TOTAL
-------- ----------- -----------
<S> <C> <C> <C>
1995:
Deferred tax benefit (exclusive of the
effects of other components listed
below)............................... $(12,682) $(2,639,365) $(2,652,047)
Increase in beginning of the year
balance of the valuation allowance
for deferred tax assets.............. 12,682 1,524,447 1,537,129
Effects of enacted changes in tax rates
of Brazil............................ -- (7,578,587) (7,578,587)
-------- ----------- -----------
$ -- $(8,693,505) $(8,693,505)
======== ========== ==========
1994:
Deferred tax benefit (exclusive of the
effects of other components listed
below)............................... $(13,707) $(2,045,604) $(2,059,311)
Increase in beginning of the period
balance of the valuation allowance
for deferred tax assets.............. 13,707 223,970 237,677
-------- ----------- -----------
$ -- $(1,821,634) $(1,821,634)
======== ========== ==========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1995 and
1994 are presented below:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................... $ 2,198,357 $ 1,789,739
Deferred assets....................................... 48,116 217,197
Due from affiliate.................................... 414,872 86,138
Fixed assets depreciation and amortization............ 73,046 3,896
Accounts receivable................................... 468,552 45,000
Accounts payable...................................... 169,014 --
Noncompete agreement.................................. 26,389 13,707
----------- -----------
Total gross deferred tax assets....................... 3,398,346 2,155,677
Less valuation allowance.............................. 2,014,656 477,527
----------- -----------
Net deferred tax assets.................................... 1,383,690 1,678,150
----------- -----------
Deferred tax liabilities:
Intangible license rights............................. 15,725,100 25,111,629
Accounts receivable................................... 48,928 --
Inventory............................................. 21,037 26,519
Due to affiliate...................................... 414,872 59,754
----------- -----------
Total gross deferred tax liabilities....................... 16,209,937 25,197,902
----------- -----------
Net deferred tax liabilities............................... $14,826,247 $23,519,752
========== ==========
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1995 and
July 1, 1994, was $477,527 and $239,850, respectively. The net change in the
total valuation allowance for the year ended December 31, 1995 and the six
months ended December 31, 1994, was an increase of $1,537,129 and $237,677,
respectively.
F-52
<PAGE> 185
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) OFFICE FACILITIES AND OTHER LEASES
The Company has operating leases for office space in Sao Paulo, as well as
tower sites throughout Brazil. Rental expense for the office and other operating
leases was approximately $850,000 and $151,000 during the year ended December
31, 1995 and the six months ended December 31, 1994, respectively.
Future minimum lease payments under operating leases as of December 31,
1995, calculated using the exchange rate at December 31, 1995, of R$.972 to US
$1, are approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
------------------------------------------------------------------------
<S> <C>
1996.................................................................... $ 655,000
1997.................................................................... 222,000
1998.................................................................... 171,000
1999.................................................................... 162,000
2000.................................................................... 94,000
----------
Total minimum lease payments............................................ $1,304,000
=========
</TABLE>
(8) BANK LOANS PAYABLE
The Company utilizes various short-term borrowing arrangements with
financial institutions in Brazil as a method of financing current operations.
The Company had bank loan payables as of December 31, 1995 and 1994,
respectively, as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Short-term notes payable........................................ $337,253 $355,167
Discounted accounts receivable.................................. 314,302 --
Bank overdrafts................................................. 155,364 42,280
-------- --------
$806,919 $397,447
======== ========
</TABLE>
At December 31, 1995, short-term notes payable consisted of three unsecured
loans from financial institutions in Brazil, due on various dates in January
1996 and carrying interest at rates varying from 4.8 percent to 5.1 percent per
month. All principal and interest was repaid in full on the due dates. At
December 31, 1994, short-term notes payable consisted of two unsecured loans
from financial institutions in Brazil carrying interest at rates varying from
9.8 percent to 12.0 percent per month. These loans were repaid during 1995.
At December 31, 1995, the Company had an outstanding bank loan in the
amount of $314,302 from a financial institution in Brazil. This note was
collateralized by discounting with recourse an equal amount of the Company's
trade accounts receivable. The Company must pay a discount rate of 4.5 percent
per month on the outstanding balance. During 1996, the Company has continued to
discount portions of its trade accounts receivable to obtain short-term
financing.
At December 31, 1995, the Company had bank overdrafts of $155,364. At
December 31, 1994, the Company had obtained a bank overdraft facility from a
financial institution in Brazil in the amount of $42,280. This note was
unsecured and carried interest at the rate of 8 percent per month and was repaid
during 1995.
(9) SHORT-TERM NOTE PAYABLE TO MAJORITY STOCKHOLDER
At December 31, 1995, the Company has a revolving unsecured promissory note
payable to its majority stockholder, Telcom Ventures, in the amount of
$12,559,670. The note bears interest at the rate of 9 percent per annum and
principal and interest are due on demand. During 1995, the Company recognized
interest
F-53
<PAGE> 186
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) SHORT-TERM NOTE PAYABLE TO MAJORITY STOCKHOLDER -- (CONTINUED)
expense of $671,020 related to this note payable. The note can be converted to
shares of capital stock of WVB at the option of the noteholder. As of May 31,
1996, the Company had borrowed an additional $3,051,538 against the promissory
note.
(10) PURCHASE OF AUGUSTUS AND MULTIPONTO
In September 1995, the Company entered into a purchase agreement with
Augustus Administracao e Participacoes S.A. (Augustus) to purchase its 100 SMR
channels in Brazil. The total purchase price is approximately $408,000. Once the
Ministry has approved transfer of control of the SMR licenses from Augustus to
the Company, the purchase price will become due and payable.
In September 1995, the Company entered into a purchase agreement with
Multiponto Telecomunicacoes, Ltda. (Multiponto) to purchase its 200 SMR channels
in Brazil. The total purchase price is approximately $856,800. Once the Ministry
has approved transfer of control of the SMR licenses from Multiponto to the
Company, the purchase price will become due and payable.
These transactions will be reflected in the financial statements on
approval from the Ministry. The Company expects to receive approval for both
transfers from the Ministry by December 31, 1996.
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1995 and 1994. FASB
Statement No. 107, Disclosure about Fair Value of Financial Instruments, defines
the fair value of a financial instrument as the amount at which the instrument
could be exchanged in a current transaction between willing parties:
<TABLE>
<CAPTION>
1995 1994
------------------------- ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNTS VALUE AMOUNTS VALUE
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents....... $ 62,447 $ 62,447 $ 572,005 $ 572,005
Trade accounts receivable....... 3,129,357 3,129,357 228,767 228,767
Due from officers and
employees..................... 35,809 35,809 59,271 59,271
Other accounts receivable....... 464,432 464,432 120,409 120,409
Financial liabilities:
Trade accounts payable and
accrued....................... 7,155,050 7,155,050 3,595,382 3,595,382
Bank loans payable.............. 806,919 806,919 397,447 397,447
Other short-term payables....... 1,000,000 1,000,000 4,074,648 4,074,648
Due to affiliates............... 404,603 404,603 396,538 396,538
Short-term note payable to
majority stockholder.......... 12,559,670 -- -- --
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and cash equivalents, trade accounts receivables, due from
officers and employees, other accounts receivable, trade accounts payable,
bank loans payable, due to affiliates, and other short-term payables: the
carrying amounts approximate fair values because of the short maturity of
those instruments.
F-54
<PAGE> 187
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
Short-term note payable to majority stockholder: It is not practicable
to estimate the fair value since the note payable is due to the majority
stockholder, and although the repayment term is due on demand, the actual
timing of repayment is uncertain.
(12) COMMON STOCK
Stock Split
On August 16, 1994, the Articles of Incorporation of WVB were amended to
increase the authorized capital from 10,000 to 1,000,000 shares of common stock
with the stated par value remaining at $.01 per share. At the same time, WVB
effected a one hundred for one stock split whereby each outstanding share of
common stock was subdivided and reclassified into 100 shares of common stock.
Stock Options
The Company has entered into individual stock option agreements with
certain employees of the Company and an affiliated company. These agreements
allow for such individuals to purchase a total of 1,303 shares, or approximately
2 percent, of the common stock of the Company at an exercise price equal to a
pro rata share of the total capital contribution per share on the option
exercise date, which management believes approximates market value. At December
31, 1995, the per share capital contribution was approximately $428. The
agreements expire in November 1996 and April 1997. As of December 31, 1995, both
options were exercisable and neither had been exercised.
(13) STOCK GRANT
In January 1995, the Company entered into an agreement with an employee of
Telcom Ventures, whereby the Company granted such employee 31 shares of common
stock of WVB. The Company recognized compensation expense in the amount of
$12,500, which management believes approximates fair value of the shares
granted. This amount has been reported as selling, general, and administrative
expenses with a corresponding increase in additional paid-in capital within the
accompanying consolidated financial statements.
(14) SUBSEQUENT EVENTS
In May 1996, WVB entered into a purchase agreement to acquire the
outstanding capital stock of LMP Consultoria Representcoes Ltd. (LMP) for
$900,000. LMP holds licenses to operate 220 SMR channels in Brazil. By
agreement, payment of one-half of the purchase price is due upon WVB building
out the channels and the balance is due upon obtaining approval from the
Ministry for the transfer of control of the SMR licenses.
In May 1996, WVB entered into a purchase agreement to acquire the
outstanding capital stock of Telecomunicacoes Brastel S/C Ltd. (Brastel) for
$240,000. Brastel holds licenses to operate 40 SMR channels in Brazil. WVB paid
$50,000 of the purchase price upon signing the agreement. The remainder of the
purchase price is due upon WVB building out the channels and obtaining approval
from the Ministry for the transfer of control of the SMR licenses.
(15) PENDING SALE OF THE COMPANY
In June 1996, the stockholders of WVB entered into a preliminary agreement
to sell all of the outstanding capital stock of the Company to a U.S. publicly
traded company. Pursuant to the agreement, the shareholders of WVB would receive
common stock of the purchaser as consideration for the sale. The negotiations
are in the preliminary stages, and therefore, are subject to the completion of
due diligence procedures by the purchaser.
F-55
<PAGE> 188
MCCAW INTERNATIONAL (BRAZIL), LTD. AND SUBSIDIARIES
(FORMERLY WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES)
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
1997
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................... $ 1,437,389
Trade accounts receivable, net.......................................... 2,678,899
Other accounts receivable............................................... 259,087
Prepaid expenses and other current assets............................... 1,410,808
Inventory............................................................... 1,560,745
------------
Total current assets............................................... 7,346,928
------------
Property and equipment, net.................................................. 13,299,260
License rights, net.......................................................... 209,140,980
Intangible assets, net....................................................... 52,396,276
Other assets................................................................. 708
------------
Total assets....................................................... $282,184,152
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses................................... $ 12,660,989
Other payables.......................................................... 1,659,524
Deferred income taxes................................................... 333,067
------------
Total current liabilities............................................... 14,653,580
Deferred income taxes........................................................ 67,781,273
------------
Total liabilities.................................................. 82,434,853
------------
Stockholders' equity......................................................... 199,749,299
------------
Total liabilities and stockholders' equity.............................. $282,184,152
============
</TABLE>
See accompanying notes to condensed consolidated financial statements
F-56
<PAGE> 189
MCCAW INTERNATIONAL (BRAZIL), LTD. AND SUBSIDIARIES
(FORMERLY WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
MARCH 31, MARCH 31,
1997 1996
----------- -----------
<S> <C> <C>
Revenues.......................................................... $ 2,542,777 $ 3,568,641
Cost of operations................................................ 1,526,242 3,023,378
Selling, general, and administrative expenses..................... 2,825,721 2,669,879
Depreciation and amortization expense............................. 2,826,372 899,470
------------ -----------
Operating loss.................................................... (4,635,558) (3,024,086)
Other expenses, net............................................... (245,489) (450,507)
------------ -----------
Loss before income tax benefit.................................... (4,881,047) (3,474,593)
Income tax benefit................................................ 674,807 644,437
------------ -----------
Net loss.......................................................... $(4,206,240) $(2,830,156)
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
F-57
<PAGE> 190
MCCAW INTERNATIONAL (BRAZIL), LTD. AND SUBSIDIARIES
(FORMERLY WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
MARCH 31, MARCH 31,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $(4,206,240) $(2,830,156)
Depreciation and amortization expense....................... 2,826,372 899,470
Deferred tax benefit........................................ (248,300) --
Changes in operating accounts, net.......................... (1,204,812) 616,103
----------- -----------
Net cash used by operating activities.................. (2,832,980) (1,314,583)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment.......................... (5,738,595) (1,982,929)
Net cash used by investing activities.................. (5,738,595) (1,982,929)
----------- -----------
Cash flows from financing activities:
Proceeds from sale of stock and net capital contributions... 10,375,607 1,642,103
Proceeds from note payable to majority stockholder..........
Proceeds from bank loans payable............................
Payments on bank loans payable.............................. (756,459) 1,794,620
----------- -----------
Net cash provided by financing activities.............. 9,619,148 3,436,723
----------- -----------
Net increase in cash and cash equivalents........................ 1,047,573 139,211
Cash and cash equivalents at beginning of year................... 389,816 62,447
----------- -----------
Cash and cash equivalents at end of year......................... $ 1,437,389 $ 201,658
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements
F-58
<PAGE> 191
MCCAW INTERNATIONAL (BRAZIL), LTD. AND SUBSIDIARIES
(FORMERLY WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1997 AND 1996
(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting of only normal
recurring accruals, necessary for a fair presentation of the consolidated
financial position of McCaw International (Brazil), Ltd. and Subsidiaries (the
"Company" or "McCaw Brazil") as of March 31, 1997, and the results of its
operations and cash flows for the three months ended March 31, 1997 and 1996.
The results of operations for the three months ended March 31, 1997 and 1996 are
not necessarily indicative of the results that may be expected for the full
year. These condensed financial statements are unaudited, and do not include all
related footnote disclosures.
The interim unaudited condensed financial statements should be read in
conjunction with the audited consolidated financial statements of the Company.
(2) MERGER OF COMPANY.
On October 29, 1996, the Company entered into an Agreement and Plan of
Merger (the Merger Agreement) with Nextel Communications, Inc. (Nextel) and Dial
Call Indimich, Inc., a direct wholly owned subsidiary of Nextel. Pursuant to
this Merger Agreement which was consummated on January 30, 1997, Nextel acquired
81% of the issued and outstanding capital stock of the Company in exchange for
$186.3 million worth of Nextel Class A Common Stock in a tax-free
reorganization. Under this Merger Agreement, the existing Company stockholders
retained the remaining 19% interest in the Company. In addition, the Company's
common stock was reclassified into two classes with different voting rights: 1)
Nextel acquired 100% of the Class A common stock, which have 90% of the voting
rights and 2) the existing stockholders received the Class B common stock, which
have 10% of the voting rights. On the closing date, Nextel contributed its
equity interest in the Company to McCaw International Ltd. and the Company was
renamed McCaw International (Brazil), Ltd.
The total cost of acquisition, which was accounted for as a purchase, was
$187.2 million and exceeded the net liabilities of the Company by $215.7
million. The excess was allocated to licenses and goodwill based on their
preliminary estimated fair values and is being amortized over their estimated
useful lives of 20 years. The following summarized pro forma (unaudited)
information assumes the acquisition had occurred on January 1, 1996.
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1997 1996
----------- -----------
<S> <C> <C>
Revenues.......................................... $ 2,542,777 $ 3,568,641
=========== ===========
Net loss.......................................... $(4,676,167) $(4,261,061)
=========== ===========
</TABLE>
The above amounts reflect adjustment for interest on notes payable forgiven
in connection with the purchase agreement and amortization of licenses and
goodwill.
F-59
<PAGE> 192
CORPORACION MOBILCOM, S. A. DE C. V. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
Corporacion Mobilcom, S. A. de C. V. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Corporacion
Mobilcom, S. A. de C. V. and Subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended (all expressed in thousands of U.S. dollars).
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statements presentation. We believe that our audits provide a
reasonable basis for our opinion.
The accompanying financial statements have been translated in accordance
with the standards set forth in Statements of Financial Accounting Standards No.
52 from Mexican pesos (the functional currency of the Company) into U.S. dollars
(the reporting currency of the Company) for purposes of incorporation into the
consolidated financial statements of McCaw International, Ltd. by the equity
method.
In our opinion, for the purpose of incorporation into the consolidated
financial statements of McCaw International, Ltd. by the equity method, the
translated consolidated financial statement referred to above present fairly, in
all material respects, the financial position of Corporacion Mobilcom, S. A. de
C. V. and Subsidiaries as of December 31, 1996 and 1995, and the results of
their operations, the changes in their stockholders' equity and the changes in
their financial position for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche
Mexico City, Mexico
March 10, 1997
F-60
<PAGE> 193
CORPORACION MOBILCOM, S. A. DE C. V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
(THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 468 $ 5,058
Accounts receivable (note 5)................................ 2,250 2,179
Due from related parties (note 4)........................... 427 544
Inventories (note 6)........................................ 385 709
Advances to suppliers....................................... 75 590
------------ ------------
Total current assets................................... 3,605 9,080
Investment in affiliate (note 7)............................ 7,553 7,989
Property, furniture and equipment, net of accumulated
depreciation of $2,947 and $1,974 (note 8)................ 13,978 14,875
Cost of licenses, net of accumulated amortization of $2,896
and $1,971 ............................................... 19,960 21,130
Goodwill, net of accumulated amortization of $908 and
$619...................................................... 6,848 7,138
------------ ------------
Total.................................................. $ 51,944 $ 60,212
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (note 9)...................................... $ 3,501 $ 23,908
Current portion and long-term debt (note 10)................ 17,706 394
Accounts payable............................................ 923 2,962
Payable to stockholders..................................... 1,049
Accrued expenses............................................ 6,031 3,164
Income tax and tax on assets................................ 13
Due to related parties...................................... 629 1,537
------------ ------------
Total current liabilities.............................. 28,790 33,027
Long-term debt, excluding current portion (note 10)......... 1,403
Deferred income taxes (note 12)............................. 3,867 3,917
Other long-term obligations................................. 199 135
------------ ------------
Total liabilities...................................... 32,856 38,482
------------ ------------
Commitments and contingencies
Stockholders' equity (note 11):
Common stock, 1,304 and 972 shares authorized, 510 and 469
shares issued and outstanding, in thousands............... 103,378 50,745
Additional paid-in capital.................................. 6,843 48,520
Accumulated deficit......................................... (84,229) (72,387)
Cumulative effect of translation............................ (6,904) (5,148)
------------ ------------
Total stockholders' equity............................. 19,088 21,730
------------ ------------
Total............................................. $ 51,944 $ 60,212
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-61
<PAGE> 194
CORPORACION MOBILCOM, S. A. DE C. V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Revenue:
Service revenue............................................. $ 4,326 $ 3,297
Equipment sales and maintenance............................. 1,059 1,192
------------ ------------
5,385 4,489
------------ ------------
Cost and expenses related to revenue:
Cost of service............................................. 1,007 1,274
Cost of equipment sales and maintenance..................... 897 1,406
------------ ------------
1,904 2,680
Operating expenses:
Selling general and administrative.......................... 7,026 9,707
Depreciation................................................ 1,024 1,104
Amortization of cost of licenses............................ 925 1,152
Amortization of goodwill.................................... 289 366
------------ ------------
Operating loss......................................... (5,783) (10,520)
------------ ------------
Other expenses:
Interest expenses, net...................................... (5,608) (9,041)
Foreign exchange loss, net.................................. (227) (11,013)
Equity in the results of affiliate (note 7)................. (176) (721)
Other, net.................................................. (48) (556)
------------ ------------
Loss before income taxes............................... (11,842) (31,851)
------------ ------------
Income taxes (note 12)...................................... 516
------------ ------------
Net loss......................................................... $(11,842) $(31,335)
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-62
<PAGE> 195
CORPORACION MOBILCOM, S. A. DE C. V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE
------------------- PAID-IN ACCUMULATED EFFECT OF
SHARES AMOUNT CAPITAL DEFICIT TRANSLATION TOTAL
------- -------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1995........... 380,962 $ 45,407 $ $ (41,052) $ (1,438) $ 2,917
Capital contributions............. 87,924 5,338 48,520 53,858
Translation adjustment............ (3,710) (3,710)
Net loss for the year............. (31,335) (31,335)
------- -------- ---------- ----------- ---------- --------
BALANCES AT DECEMBER 31, 1995......... 468,886 50,745 48,520 (72,387) (5,148) 21,730
Capital contributions............. 41,022 52,633 (41,677) 10,956
Translation adjustment............ (1,756) (1,756)
Net loss for the year............. (11,842) (11,842)
------- -------- ---------- ----------- ---------- --------
BALANCES AT DECEMBER 31, 1996......... 509,908 $103,378 $ 6,843 $ (84,229) $ (6,904) $ 19,088
======== ========= ========= =========== ========== =========
</TABLE>
See notes to consolidated financial statements.
F-63
<PAGE> 196
CORPORACION MOBILCOM, S. A. DE C. V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss....................................................... $(11,842) $(31,335)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation.............................................. 1,024 1,104
Amortization of licenses and goodwill..................... 1,214 1,518
Unrealized exchange losses................................ 219 3,658
Equity in the results of affiliate........................ 176 721
Deferred taxes............................................ (516)
Allowance for obsolescence................................ 403
Changes in operating assets and liabilities:
Accounts receivable....................................... (326) (2,034)
Inventories............................................... (127)
Accounts payable and accrued expenses..................... (452) 1,536
------------ ------------
Cash used by operating activities.................... (9,711) (25,348)
------------ ------------
Cash flows from financing activities:
Capital contributions.......................................... 9,926 12,278
Proceeds from loans............................................ 26,762
Repayment of loans............................................. (4,498) (1,251)
------------ ------------
Cash provided by financing activities.......................... 5,428 37,789
------------ ------------
Cash flows from financing activities:
Acquisition of furniture and equipment......................... (307) (6,291)
Investment in affiliate, net................................... (1,564)
------------ ------------
Cash used in investing activities......................... (307) (7,855)
------------ ------------
Increase (decrease) in cash and cash equivalents.................... (4,590) 4,586
Cash and cash equivalents:
At beginning of year........................................... 5,058 472
------------ ------------
At end of year................................................. $ 468 $ 5,058
========== ==========
Supplemental cash flow disclosures:
Cash paid for interest......................................... $ 1,730 $ 7,350
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-64
<PAGE> 197
CORPORACION MOBILCOM, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(THOUSANDS OF U. S. DOLLARS)
1. OPERATIONS
Corporacion Mobilcom, S. A. de C. V. (Mobilcom), is a holding company,
established in 1993. The principal operations of the subsidiary companies of
Mobilcom (the companies) consist of providing specialized mobile radio (SMR)
services to users (subscribers) through licenses granted by the Mexican
Department of Communications and Transportation (SCT) under the terms of the Ley
Federal de Telecomunicaciones (Federal Telecomunications Law) and Ley de Vias
Generales de Comunicacion (General Communications Law and Regulations),
establishing, constructing and exploting, public communication networks for the
transmission of signals between the subscribers' terminal SMR equipment and
interfacing with telecommunication networks authorized by the SCT.
The Companies have licenses that were granted for periods primarily of 15
years and that may be extended under the terms of the licenses granted covering
the principal cities and routes (roads) of Mexico. The terms of the contracts
stipulate that the grantee register the rates of services rendered with the STC.
There is also an obligation to pay the Mexican Federal Government 5% of gross
revenues from the services licensed, as well as an obligation to comply with the
terms established in the licenses granted.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies and practices followed by Mobilcom and
subsidiaries (the Company) in the preparation of consolidated financial
statements are described below:
a. PRINCIPLES OF CONSOLIDATION -- The consolidated financial
statements include the assets, liabilities and results of operations of
subsidiaries in which Mobilcom owns more than 50% of the voting stock. For
all periods presented, Mobilcom owns over 99% of the voting stock of its
consolidated subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
The investment in affiliate of which Mobilcom owns less than 50% of
the stock, is accounted for using the equity method.
b. FOREIGN CURRENCY TRANSLATION -- The Company's accounting records
are maintained in its functional currency, the Mexican peso. The financial
statements have been translated into U. S. dollars using the exchange rate
at each balance sheet date for assets and liabilities and a weighted
average exchange rate for each period for revenues, expenses, gains, and
losses. The resulting translation adjustments are recorded as a separate
component of stockholders' equity.
c. FOREIGN CURRENCY TRANSACTIONS -- Transactions denominated in
foreign currencies are initially recorded at the prevailing exchange rate
on the transaction date. Assets and liabilities denominated in foreign
currencies at year end are recorded at the prevailing exchange rate on the
balance sheet date. Fluctuations in exchange rates from the transaction
date to the settlement date or year end are charged to operations.
d. CASH AND CASH EQUIVALENTS -- The Company considers all highly
liquid, temporary cash investments with original maturities of three months
or less to be cash equivalents.
e. INVENTORIES -- Inventories are stated at the lower of cost or
market, as determined using the average cost method.
F-65
<PAGE> 198
CORPORACION MOBILCOM, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
f. PROPERTY, FURNITURE AND EQUIPMENT -- Property, furniture and
equipment are stated at cost. Depreciation is calculated using the
straight-line method over the estimated useful lives of the assets, as
follows:
<TABLE>
<CAPTION>
USEFUL LIFE
-----------
<S> <C>
Building................................................. 40 years
Transmission equipment................................... 13 years
Office furniture......................................... 9 years
Computer equipment....................................... 3 years
Transportation equipment................................. 7 years
</TABLE>
g. REVENUE RECOGNITION -- Service revenue is recognized at the time
service is rendered. Revenue from the sale of terminal equipment is
recognized when the goods are delivered and rental from leasing of terminal
equipment is recognized as rental income is earned.
h. INCOME TAXES -- Income taxes are provided for in accordance with
Statements of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"). Under SFAS 109, deferred tax assets and
liabilities are determined based on differences between the financial
reporting and tax basis of assets and liabilities and are measured by
applying enacted tax rates.
i. SENIORITY PREMIUMS AND SEVERANCE COMPENSATION -- Seniority premiums
and severance compensation which employees are entitled, upon retirement
after fifteen years or more of service, in accordance with the Mexican
Federal Labor Law, are recognized as costs during the years in which the
related services are rendered, based on actuarial calculations. Net
periodic expense recognized in 1996 and 1995 was $77, and $115
respectively.
j. CONCENTRATION OF CREDIT RISKS -- The companies provide SMR services
to subscribers in geographic areas throughout Mexico. The companies do not
have any single customer which accounts for a significant amount of
revenues or significant accounts receivables at December 31, 1996 and 1995.
The companies perform evaluations of their customers' credit histories and
establish an allowance for doubtful accounts based upon the credit risk of
specific customers and historical trends.
k. USE OF ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles in the United
States of America requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements
and related notes to financial statements. Actual results in such estimated
may affect amounts reported in future periods.
l. GOODWILL AND COSTS OF LICENSES -- The excess of cost over fair
value of net assets acquired of subsidiaries and the costs of licenses are
amortized on a straight-line basis over the estimated economic useful life
of 25 years.
m. RECLASSIFICATIONS -- Certain 1995 amounts have been reclassified to
conform with 1996 presentation.
3. FAIR VALUE OF FINANCIAL INSTRUMENT DISCLOSURE
U. S. Statement of Financial Accounting Standards No. 107 ("SFAS No. 107"),
"Disclosures Fair Value of Financial Instruments", requires disclosure of the
estimated fair value of certain financial instruments. The estimated fair value
amounts have been determined using available market information or other
appropriate valuation methodologies that require considerable judgment in
interpreting market data and
F-66
<PAGE> 199
CORPORACION MOBILCOM, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. FAIR VALUE OF FINANCIAL INSTRUMENT DISCLOSURE -- (CONTINUED)
developing estimates. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
The carrying amounts of the Company's cash equivalents, accounts receivable
and short-term notes payable approximate their fair values. Cash equivalents and
accounts receivable are short-term, in nature and notes payable have relatively
short maturities and bear interest at variable rates tied to market indicators.
The Company's long-term debt consists of debt instruments which bear interest at
fixed rates and variable rates tied to market indicators. Except for long-term
debt due to related parties, the fair value of long-term debt is estimated by
discounting future cash flow amounts using current interest rates at which
similar notes would be issued to similar borrowers. The fair value of these
amounts approximated the carrying value at December 31, 1996 and 1995.
The fair value information presented herein is based on information
available to management as of the above presented dates. Although management is
not aware of any factors that would significantly affect the estimated fair
value, amounts have not been comprehensively revalued for purposes of these
financial statements since those dates and, therefore, the current estimates of
fair value may difference significantly from the amounts presented herein.
4. BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Transactions with related parties carried out during the years ended
December 31, 1996 and 1995, in addition to those described in notes 14 and 15,
were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Expenses:
Interest....................................................... $409 $500
Cost of service................................................ 145
Administrative services........................................ 341
Income:
Interest....................................................... 204 87
Administrative services........................................ 26 469
</TABLE>
F-67
<PAGE> 200
CORPORACION MOBILCOM, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. BALANCES AND TRANSACTIONS WITH RELATED PARTIES -- (CONTINUED)
The balances due from and to related parties at December 31, 1996 and 1995
are summarized as follows:
<TABLE>
<CAPTION>
INTEREST RATE
OR AVERAGE
INTEREST RATE
-------------
1996 1995 1996 1995
---- ---- ---- ------
<S> <C> <C> <C> <C>
Due from related parties:
Investcom, S. A. de C. V...................... 42% $ 15 $
Com-L.D., S. A. de C. V....................... 42% 301
Nextel Communications, Inc.................... 42% 54
Nacional de Telecomunicaciones, S. A. de C.
V........................................... 42% 55% 50 544
Other......................................... 42% 7
---- ------
$427 $ 544
==== ======
Due to related parties:
Grupo Comunicaciones San Luis, S. A. de C.
V........................................... 6% 6% $ 91 $ 933
Comunicaciones Troncales, S. A. de C. V....... 42% 55% 538 604
---- ------
$629 $1,537
==== ======
</TABLE>
Nacional de Telecomunicaciones, S. A. de C. V. is a 49% owned affiliate of
Mobilcom that is accounted for using the equity method (Note 7). December 31,
1996, Grupo Communicaciones San Luis, S. A. de C. V. owned approximately 50%, of
the outstanding shares of the common stock of Mobilcom, Intercom, S. A. de C. V.
and Communicaciones Troncales, S. A. de C. V. are subsidiaries of Grupo
Communicaciones San Luis, S. A. de C. V.
5. ACCOUNTS RECEIVABLE
Accounts receivable are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------ -------
<S> <C> <C>
Trade........................................................... $1,230 $ 1,457
Officer and employees........................................... 867 95
Recoverable value added tax..................................... 575 1,611
Other........................................................... 164 157
------ -------
2,836 3,320
Less allowance for doubtful accounts............................ (586) (1,141)
------ -------
$2,250 $ 2,179
====== =======
</TABLE>
6. INVENTORIES
Inventories, which consist entirely of finished goods, include the
following:
<TABLE>
<CAPTION>
1996 1995
----- ----
<S> <C> <C>
Communication equipment............................................ $ 829 $702
Communication equipment at bonded warehouse........................ 48
Less allowance for obsolete inventories............................ (444) (41)
----- ----
$ 385 $709
===== ====
</TABLE>
F-68
<PAGE> 201
CORPORACION MOBILCOM, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INVESTMENT IN AFFILIATE
During 1995, the Company acquired a 49 percent interest in Nacional de
Telecomunicaciones, S. A. de C. V. (Natel), a Mexican company with operations
similar to Mobilcom's. (See Note 14) Relating to letter of interest to acquire
the remaining 51% of Natel. Natel's operations and the Company's equity in net
loss of Natel included:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
NATEL:
Net sales.................................................... $ 850 $ 526
Operating loss............................................... 635 839
Net gain (loss).............................................. 215 (904)
MOBILCOM 49% EQUITY IN (LOSS):
Mobilcom equity in (gain) loss............................... 105 (443)
Amortization of excess of cost over the fair value of equity
interest in net assets acquired............................. (281) (278)
----- -----
Equity in loss of Natel........................................... $(176) $(721)
===== =====
</TABLE>
The Company's investment in Natel included the unamortized excess cost over
the fair value of equity interest in Natel's net assets. This excess was $6,303
and $6,663 at December 31, 1996 and 1995 and is being amortized on a
straight-line basis over the estimated economic useful life of 25 years.
Condensed balance sheet information for Natel at December 31, 1996 and 1995
was as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Current assets................................................... $1,641 $ 636
Noncurrent assets................................................ 1,447 1,654
Current liabilities.............................................. 1,681 728
</TABLE>
The Company's investment in affiliate was comprised of the following at
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Stockholders' equity -- Natel.................................... $1,407 $1,562
Contribution not recognized...................................... 1,144 1,144
------ ------
$2,551 $2,706
====== ======
Equity participation at 49%...................................... $1,250 $1,326
Excess of cost over the fair value of equity interest in net
assets acquired net of accumulated amortization................ 6,303 6,663
------ ------
Total............................................................ $7,553 $7,989
====== ======
</TABLE>
Under the purchase agreement with Natel, the Company owes Natel $1,144 and
its shareholders $40 or a total of $1,184 at December 31, 1996 and 1995 for the
shares acquired during 1995, which is recorded as a liability and is being
offset against receivables from Natel for services provided.
F-69
<PAGE> 202
CORPORACION MOBILCOM, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. PROPERTY, FURNITURE AND EQUIPMENT
Property, furniture and equipment include the following:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Land........................................................... $ 44 45
Building....................................................... 131 133
Transmission equipment......................................... 15,188 12,624
Office furniture and fixtures.................................. 196 181
Computer equipment............................................. 296 209
Transportation equipment....................................... 117 90
Equipment at bonded warehouse.................................. 801 2,633
Construction in progress....................................... 152 934
------- -------
16,925 16,849
Less accumulated depreciation.................................. (2,947) (1,974)
------- -------
$13,978 $14,875
======= =======
</TABLE>
9. NOTES PAYABLE
Short-term debt is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
INTEREST RATE
FOR THE YEAR
---------------
1996 1995 1996 1995
------ ----- -------------- --------------
<S> <C> <C> <C> <C>
Arrendadora Financiera Invermexico, S. A.
de C. V. (Arrendadora)(1)............... 14% $ $ 14,306
Unsecured financing loan:
In Mexican pesos..................... 37.25% 59.5% 683 1,245
In U.S. dollars...................... 15.% 15.2% 2,194 2,532
Union de Credito Regional, S. A. de C. V.:
Unsecured............................ 38.5% 61% 624 646
Banco Mercantil del Norte, S. A., credit
letters
Fimexpo, S. A. de C. V. secure loans in
U.S. dollars............................ 25% 589
Financing loans in U. S. dollars.......... 12.2% 4,590
------- --------------
$3,501 $ 23,908
=========== ===========
</TABLE>
- ------------------
(1) During 1994 a Mexican bank made a loan in the amount of U. S. $8,365 to the
Company collateralized by fixed assets. Additionally in 1994, Arrendadora,
which is a leasing company, advanced U. S. $14,428 to the Company which was
used to pay off the loan from the Mexican bank plus accrued interest. The
advance was made by Arrendadora in anticipation of a sale leaseback
transaction involving the collateralized equipment. At December 31, 1995,
the Company was in arrears on accrued interest related to the notes payable
to Arrendadora in the amount of $1,331 and accordingly the amount was
classified as current liabilities. The anticipated sale leaseback
transaction occurred as of June 10, 1996. (See Note 10).
F-70
<PAGE> 203
CORPORACION MOBILCOM, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. CURRENT PORTION AND LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
Loans in Mexican pesos, bearing Nafin interest plus 6 points and
CPP interest, plus 6 to 10 points, average 40.5% 1996, and 62% in
1995, payable in monthly installments through 2000, collaterized by
fixed assets and goods purchased with the proceeds from the loans
and with the guarantee from subsidiary of the company and one of
the shareholders................................................... $ 2,104 $ 701
Arrendadora Financiera Invermexico, S. A. de C. V. (Arrendadora),
payable in semi-annual payments in U.S. dollars up to $2,007.
Interest rate libor plus 3.6 to 8.6 and one note at 22% (average
16%)(2)............................................................ 14,493
Loan in U.S. dollars, bearing annual interest of 15%, payable in
September 1997..................................................... 690 605
Capital leases in Mexican pesos, bearing the highest interest rate,
plus 9 points or CPP interest, plus 8 to 10 points, average 41.80%
in 1996 and 57.85% in 1995 payable in monthly installments through
1999, collateralized by fixed assets purchased..................... 290 339
Capital lease in U.S. dollars, bearing LIBOR interest plus 7
points, average 12.50% and 12.45% in 1996 and 1995, respectively,
payable in monthly installments through March 1998, collateralized
by fixed assets purchased.......................................... 73 109
Others:
In Mexican pesos.............................................. 56
In U.S. dollars............................................... 43
------- ------
Current portion and long-term debt(1)......................... 17,706 1,797
------- ------
Less current installments:
Capital lease agreements...................................... 105
Notes payable................................................. 289
------- ------
Current installments of long-term debt........................ 394
------- ------
Long-term debt, excluding current installments..................... $ -- $1,403
======= ======
</TABLE>
-----------------------
(1) As of January 31, 1997 all of the above long term debt agreements were
in technical default as the Company has not made all of the scheduled
installments required pursuant to the respective agreement in addition
to non-compliance with other covenants (See Note 14), and accordingly
all
F-71
<PAGE> 204
CORPORACION MOBILCOM, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. CURRENT PORTION AND LONG-TERM DEBT -- (CONTINUED)
long-term debt was classified as current liabilities. Contractual
maturities of long-term debt at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
PAYABLE IN
MEXICAN U.S.
PESOS DOLLARS TOTAL
---------- ------- -------
<S> <C> <C> <C>
1998............................................. $325 $ 1,045 $ 1,370
1999............................................. 194 1,031 1,225
2000............................................. 137 1,031 1,168
2001............................................. 110 1,031 1,141
2002............................................. 84 1,031 1,115
Thereafter....................................... 38 4,535 4,573
---------- ------- -------
$888 $ 9,704 $10,592
======== ====== =======
</TABLE>
-----------------------
(2) On February 1997 the capital lease was signed with an effective date of
June 1996. It establishes some covenants which are not fully complied
with. See also footnote 9.
At December 31, 1996 and 1995, substantially all of the Company's
property, furniture and equipment was pledged as collateral under the
Company's notes payable and long-term debt agreements. Additionally, at
December 31, 1996 and 1995, the shares of one of the Company's
subsidiaries were pledged as collateral for loans in Mexican pesos. The
liabilities of such subsidiary exceeded the book value of its assets at
December 31, 1996 and 1995.
11. STOCKHOLDERS' EQUITY
In June 1996, the Company's board of directors agreed to increase the
variable portion of common stock through a 2.65 to 1 stock split, resulting in
the issuance of 292,117 series "B" shares, with a par value of 1,000 Mexican
pesos each. Share data for all periods presented reflect this stock split.
At December 31, 1996 and 1995 1,304,481 and 971,637 shares of series "B"
shares with a par value of 1,000 Mexican pesos were authorized of which 509,908
and 468,886 shares were issued and outstanding respectively. Prior to March
1995, the company also had series "A" and "C" shares outstanding, all of which
conferred the same rights and privileges to stockholders as series "B" shares.
During 1995 the company exchanged all outstanding series "A" and "C" shares for
series "B" shares.
During 1996, the following transactions occurred:
-- The variable portion of common stock was increased through issuance
of 19,995 series "B" shares, with a par value of 1,000 Mexican pesos
each. The total subscription value was $8,240, including a premium of
$5,562, paid in cash and by capitalizing liabilities for $1,030.
-- The Company's board of directors also agreed to increase the variable
portion, through issuance of 16,427 series "B" shares, with a par
value of 1,000 Mexican pesos each; 811 shares were subscribed and
paid-in by employees, under certain conditions.
-- Common stock, was increased through payment for 4,600 series "B"
shares, with a par value of 1,000 Mexican pesos each, in the amount
of $1,896, including a premium of $1,281.
During 1995, 87,924 additional shares of common stock were acquired by
Nextel. In conjunction with this purchase, the Company received $12,519 in cash
and contributed $43,625 of debt to capital.
F-72
<PAGE> 205
CORPORACION MOBILCOM, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. INCOME TAXES
Deferred income taxes reflect the net tax effects of (a) temporary
differences between carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and (b)
operating loss carryforwards. The net deferred tax liability represents deferred
tax on the nondeductible cost of licenses less amounts included in the net
operating loss carryforwards for a ten year period. Significant components of
the Company's deferred tax liability are as follows:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Net operating loss carryforwards.......................... $ 19,560 $ 14,606
Site development costs.................................... 90
Property, furniture and equipment......................... 1,035 (2,387)
-------------- --------------
Deferred tax asset........................................ 20,595 12,309
Valuation reserve......................................... (17,679) (9,169)
-------------- --------------
Net deferred tax asset.................................... 2,916 3,140
Non deductible cost of licenses........................... (6,783) (7,057)
-------------- --------------
Net liability............................................. $ (3,867) $ (3,917)
=========== ===========
</TABLE>
The Company had net operating loss carryforwards of approximately $57,536
at December 31, 1996. These net operating loss carryforwards, which are indexed
to reflect the impact of inflation in accordance with Mexican tax law, expire as
follows:
<TABLE>
<S> <C>
2001..................................................................... $ 24
2002..................................................................... 475
2003..................................................................... 1,854
2004..................................................................... 33,043
2005..................................................................... 16,606
2006..................................................................... 5,534
</TABLE>
The Company and its subsidiaries file their tax returns individually and a
consolidated tax return is not prepared.
Even though the Company has incurred tax losses for the past 5 years,
management believes that it is more likely than not that it will generate
taxable income sufficient to realize the portion of the tax benefit associated
with the net deferred tax asset of $2,916 and $3,140 respectively. The belief is
based upon, among other factors, the expected reversal of existing deferred tax
liabilities. If the company is unable to generate sufficient taxable income in
the future through operating results, increases in valuation allowance will be
required through a charge to expense. However, if the Company achieves
sufficient profitability to utilize a greater portion of the deferred tax asset,
the valuation allowance will be reduced through a credit to income.
The actual income tax expense attributable to earnings for the years ended
December 31, 1996 and 1995 differ from the amounts computed by applying the
Mexican income tax rate of 34 percent to losses before income taxes and equity
in the results of affiliate as a result of the following:
<TABLE>
<CAPTION>
1996 1995
------- --------
<S> <C> <C>
Income tax benefit at statutory rate.............................. $(4,026) $(10,579)
Limitation on net operating loss carryforwards -- net............. 966 9,193
Differences between tax and financial accounting for effects of
inflation....................................................... 3,060 (1,371)
Other............................................................. 2,241
------- --------
Benefit for income tax............................................ $ -- $ (516)
======= ========
</TABLE>
F-73
<PAGE> 206
CORPORACION MOBILCOM, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. INCOME TAXES -- (CONTINUED)
The significant components of the deferred income tax benefit for the years
ended December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------- --------
<S> <C> <C>
Deferred income tax benefit (exclusive of the effects of other
components listed below)........................................ $(4,026) $ (4,256)
Net operating losses generated and other.......................... (4,601) (5,453)
Increase in valuation allowance................................... 8,627 9,193
------- --------
Deferred income tax benefit....................................... $ -- $ (516)
======= ========
</TABLE>
13. ASSOCIATION WITH NEXTEL COMMUNICATIONS, INC. (NEXTEL)
On March 3, 1995 Mobilcom had closed a share purchase and subscription
agreement with Nextel, pursuant to which Nextel Investment Company a subsidiary
of Nextel, acquired 16.5% minority interest in Mobilcom. This transaction
reflects the renegotiation of the terms associated with a previously
contemplated transaction involving Nextel, Nextel Investment Company, Mobilcom
and certain stockholders of Mobilcom which was initially announced in October
1994. Pursuant to this transaction, Nextel Investment Company purchased newly
issued shares comprising 16.5% of the shares of capital stock of Mobilcom
(calculated after issuance of such shares) for a cash payment of $12,519 and
$43,625 of notes representing funds advanced to Mobilcom in 1994.
In addition, Nextel made additional investments in January 1996 for an
additional 1.5% of the shares of capital stock of Mobilcom. (See Note 11). As
part of this transaction, Nextel also received two options to increase its
ownership of Mobilcom equity. The first option was an 18 month option to acquire
an additional 19.5% of Mobilcom for $76,800 and a second option is a three-year
option to acquire an additional 10% of Mobilcom for $67,500.
The agreement grants the following privileges to Nextel: (1) certain
preferred rights to acquire additional shares of Mobilcom, in order to maintain
its equity percentage; (2) certain rights to subscribe the shares proposed to be
issued in the transaction; (3) the right to designate members of the Board of
Mobilcom; and (4) veto rights with regard to various matters presented to the
Board of Directors of Mobilcom, including acquisitions, disposals, business
plans and technology rights. This agreement also set the rules for Nextel and
Mobilcom's other stockholders to acquire or dispose of their equity interests in
Mobilcom. Also executed at closing of the Mobilcom transaction were agreement
related to an interpretability relationship between Nextel and Mobilcom and the
sharing between Nextel and Mobilcom of channels along the United States-Mexican
border.
At January 31, 1997 Nextel owns 38% of the outstanding shares, of Mobilcom
and still has the option to purchase before March 1998, up to an additional
29.5% of Mobilcom's common stock. Furthermore, certain shareholders of Mobilcom,
holders of approximately 37% of Mobilcom's common stock retain the right for a
period of two years commencing October 24, 1997 to put (the "Mobilcom Put") the
entire amount of their holdings to Nextel at its appraised fair market value for
cash upon the occurrence of certain events (the "Put Events"). The Mobilcom Put
is automatically exercisable on October 24, 1999 whether or not a Put Event
occurs.
F-74
<PAGE> 207
CORPORACION MOBILCOM, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. SUBSEQUENT EVENTS
(a) On March 10, 1997 the Company has signed a purchase agreement to
acquire the remaining 51% interest in its equity investee, Natel for $6,500,
subject to the approval of the SCT. The company is exploring the possibility of
acquiring additional channels in other markets.
On February 6, 1997 the Company requested from its shareholders a capital
call of $27,000 by April 14, 1997. The funds obtained through the capital call
will be used to assist the Company to meet its cash obligations and make certain
strategic investments as follows:
<TABLE>
<CAPTION>
CAPITAL CALL
------------
<S> <C>
Pay-off of certain obligations and funds for current operating
expenses....................................................... $ 16,000
Purchase of 51% of Natel......................................... 7,000
Completion of microwave network build-out........................ 4,000
------------
$ 27,000
=========
</TABLE>
Nextel's pro rata share of the capital call is approximately $10,000 which
Nextel has committed to fund. Nextel also expects to fund an additional $12,000
which would increase its equity interest in Mobilcom by approximately 10%.
(b) At the March 10, 1997 Board meeting, the Company decided to explore the
possibility of disposing of its 400 mhz business which has a net book value of
licenses and equipment of approximately $6,500 as of December 31, 1996. As the
negotiations with potential buyers are in the early stages, there can be no
assurance that a sale will be consummated. Management believes that the disposal
will not result in losses and expects to utilize the proceeds to reduce debt.
Disposition of the 400 mhz business will allow the Company to more effectively
focus on its core business.
F-75
<PAGE> 208
CORPORACION MOBILCOM S.A. DE C.V. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(THOUSANDS OF U.S. DOLLARS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
1997
-----------
(UNAUDITED)
<S> <C>
Current assets:
Cash and cash equivalents...................................................... $12,881
Trade accounts receivable, net................................................. 787
Other accounts receivable...................................................... 2,418
Inventory...................................................................... 768
Due from related parties....................................................... 238
Prepaid expenses and other..................................................... 168
-------
Total current assets........................................................ 17,260
Investment in affiliate.......................................................... 7,471
Property and equipment, net...................................................... 13,738
Cost of licenses................................................................. 19,735
Goodwill, net.................................................................... 6,770
-------
Total assets................................................................ $64,974
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses............................................................... $ 6,703
Notes payable and current portion long term debt............................... 7,760
Accounts payable............................................................... 1,273
Payable to shareholder......................................................... 1,000
Due to related parties......................................................... --
-------
Total current liabilities................................................... 16,736
Long-term debt................................................................... 12,783
Deferred income taxes............................................................ 3,804
-------
Total liabilities........................................................... 33,323
Stockholders' equity............................................................. 31,651
-------
Total liabilities and stockholders' equity.................................. $64,974
=======
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
F-76
<PAGE> 209
CORPORACION MOBILCOM S.A. DE C.V. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------
MARCH 31, MARCH 31,
1997 1996
--------- ---------
<S> <C> <C>
Revenue................................................................ $ 1,656 $ 1,221
Cost of operations..................................................... 698 588
Selling, general and administrative expenses........................... 2,200 1,975
Depreciation and amortization.......................................... 712 609
------- -------
Operating loss.................................................... (1,954) (1,951)
Other expenses, net.................................................... 390 1,284
------- -------
Net loss............................................................... $(2,344) $(3,235)
======= =======
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
F-77
<PAGE> 210
CORPORACION MOBILCOM S.A. DE C.V. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------
MARCH 31, MARCH 31,
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................. $(2,344) $(3,235)
Depreciation and amortization expense................................ 712 609
Equity in subsidiary................................................. 17 (7)
Foreign currency translation and exchange (gain) loss, net........... (201) 152
Changes in operating accounts, net................................... 712 905
------- -------
Net cash used by operating activities............................. (1,104) (1,576)
Cash flows from investing activities:
Purchase of property and equipment................................... (102) (107)
------- -------
Net cash used by investing activities............................. (102) (107)
Cash flows from financing activities:
Proceeds from sale of stock and net capital contributions............ 13,619 --
------- -------
Net cash provided by financing activities......................... 13,619 --
------- -------
Net decrease in cash and cash equivalents.............................. 12,413 (1,683)
Cash and cash equivalents at beginning of year......................... 468 5,058
------- -------
Cash and cash equivalents at end of period............................. $12,881 $ 3,375
======= =======
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
F-78
<PAGE> 211
CORPORACION MOBILCOM S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1997 AND 1996
(THOUSANDS OF U.S. DOLLARS)
(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting of only
normal recurring accruals, necessary for a fair presentation of the consolidated
financial position of Corporacion Mobilcom. S.A. de C.V. and Subsidiaries (the
"Company") as of March 31, 1997, and the statements of operations and statements
of cash flows for the three months ended March 31, 1997 and 1996. The results of
operations for the three months ended March 31, 1997 and 1996 are not
necessarily indicative of the results that may be expected for the full year.
These condensed consolidated financial statements are unaudited, and do not
include all related footnote disclosures.
The interim unaudited condensed consolidated financial statements should be
read in conjunction with the audited consolidated financial statements of the
Company.
(2) FOREIGN CURRENCY TRANSLATION
In accordance with Statement of Financial Accounting Standards No. 52
Foreign Currency Translation the Mexican economy, in which the Company primarily
conducts operations, is considered to be highly inflationary as of January 1,
1997. Accordingly the financial statements have been remeasured to reflect the
U.S. dollar as the functional currency of the Company. Pursuant to SFAS No. 52
the translated December 31, 1996 balance sheet has become the accounting basis
for subsequent periods. Transactions subsequent to January 1, 1997 will be
recorded at current exchange rates with translation gains and losses recorded as
a component of net income before taxes.
For the three months ended March 31, 1997 net foreign currency gains of
$447 have been recognized as a component of net income.
(3) NOTES PAYABLE AND LONG-TERM DEBT
The Company was in arrears with respect to principal and interest payments
on certain notes payable and long-term debt agreements as of March 31, 1997.
Consequently certain long-term debt agreements were in technical default as the
Company had not made payment of all of the required installments pursuant to
debt agreements, in addition to non-compliance with other debt covenants.
During February 1997 the Company placed a capital call to shareholders
requesting $27,000 in additional capital of which $13,619 was contributed during
March 1997. The remaining $13,381 was contributed during April 1997. Portions of
the funds obtained as a result of the capital call were used to make payments on
the portions of debt in arrears and to make advanced payments in anticipation of
certain debt service requirements. As a result of the payments, the Company is
in compliance with its debt covenants.
Long-term debt has been classified as a non-current liability with the
applicable current portions classified as current liabilities as of March 31,
1997.
(4) SUBSEQUENT EVENTS
In April 1997 the Company acquired the remaining 51% interest in its equity
investee, Natel. In order to accomplish this transaction the Company contributed
cash to Natel in the amount of $5,356. Concurrently, the other shareholders
holding a 51% interest in Natel received $6,500 from Natel for their interest in
Natel. As a result of the transaction the Company became a 100% owner of Natel.
The excess of the cost to acquire 100% of Natel over the fair value of net
assets acquired of $11,098 is expected to be attributed to the cost of licenses
to be amortized over a period of 25 years. The Company will consolidate Natel
using purchase accounting in subsequent periods.
F-79
<PAGE> 212
- ------------------------------------------------------
------------------------------------------------------
- ------------------------------------------------------
------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE EXCHANGE OFFER TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE MAKING OF THE
EXCHANGE OFFER PURSUANT TO THIS PROSPECTUS NOR THE ACCEPTANCE OF PRIVATE NOTES
FOR SURRENDER FOR EXCHANGE PURSUANT THERETO SHALL UNDER ANY CIRCUMSTANCES CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 3
Summary............................... 4
Risk Factors.......................... 18
The Company........................... 33
No Cash Proceeds to the Company....... 36
Capitalization........................ 37
The Exchange Offer.................... 37
Selected Consolidated Historical
Financial Data...................... 45
Pro Forma Consolidated Financial
Statements.......................... 46
Management's Discussion and Analysis
of Financial Condition and Results
of Operation........................ 49
Industry Overview..................... 59
Business.............................. 63
Management............................ 93
Certain Relationships and Related
Transactions........................ 101
Description of the Exchange Notes..... 103
Certain U.S. Federal Income Tax
Considerations...................... 129
Plan of Distribution.................. 129
Legal Matters......................... 130
Experts............................... 130
Index to Financial Statements......... F-1
</TABLE>
MCCAW INTERNATIONAL, LTD. LOGO
------------------------
OFFER TO EXCHANGE
------------------------
13% SENIOR DISCOUNT NOTES DUE
APRIL 15, 2007 FOR ALL OUTSTANDING
13% SENIOR DISCOUNT NOTES DUE APRIL 15, 2007
, 1997
- ------------------------------------------------------
------------------------------------------------------
- ------------------------------------------------------
------------------------------------------------------
<PAGE> 213
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article TENTH of the Registrant's Articles of Incorporation, as amended
(the "Articles of Incorporation"), provides that no director of the Registrant
shall be personally liable for any monetary damages for any breach of fiduciary
duty as a director, except to the extent that the Washington Business
Corporation Act prohibits the elimination or limitation of liability of
directors for breach of fiduciary duty.
Article ELEVENTH of the Registrant's Articles of Incorporation provides
that a director or officer of the Registrant shall be indemnified by the
Registrant to the fullest extent of the law against all expense, liability and
loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts to be paid in settlement) actually and reasonably incurred
in connection with any litigation or other legal proceeding brought against him
or her or otherwise involving him or her (including as a witness) by virtue of
his or her position as a director or officer of the Registrant. Notwithstanding
the foregoing, the Registrant shall indemnify an officer or director in
connection with a proceeding initiated by such director or officer only if such
proceeding was authorized by the board of directors of the Registrant. The right
to indemnification includes the right to be paid expenses incurred in defending
any proceeding in advance of its final disposition, provided that such director
or officer undertakes to repay all amounts advanced if it is ultimately
determined that he or she is not entitled to indemnification under Article
ELEVENTH.
If the Registrant fails to make an indemnification payment within 60 days
(20 days in the case of a claim for expenses incurred in defending any
proceeding in advance of its final disposition) after receipt of a written claim
for such payment, the director or officer may bring suit against the Registrant
to recover the unpaid amount of the claim, and to the extent successful, may
also recover the expense of prosecuting such claim. A director or officer will
be presumed to be entitled to indemnification upon submission of a written
claim, and the Registrant will have the burden of proof to overcome such
presumption. Neither failure of the Registrant to make a prior determination
that indemnification is proper nor an actual determination that such director or
officer is not so entitled shall be a defense to such an action or create a
presumption that the director or officer is not so entitled.
Article ELEVENTH of the Registrant's Articles of Incorporation further
provides that the indemnification therein is not exclusive, and provides that in
the event that the Washington Business Corporation Act is amended to expand the
indemnification permitted to directors and officers, the Registrant must
indemnify those persons to the fullest extent permitted by such law as so
amended.
Chapter 23B.08.510 of the Washington Business Corporation Act provides that
a corporation has the power to indemnify a director of the corporation against
amounts paid and expenses incurred in connection with a proceeding to which he
or she is made a party by reason of such position, if such person shall have
acted in good faith and reasonably believed, in the case of conduct in the
director's official capacity, that such conduct was in the best interests of the
corporation, and in all other cases, that such person's conduct was not opposed
to the best interests of the corporation, and, in any criminal proceeding, that
such person had no reasonable cause to believe his conduct was unlawful;
provided that, in the case of actions brought by or in the right of the
corporation, no indemnification shall be made with respect to any matter as to
which such person shall have been adjudged to be liable to the corporation or in
connection with any proceeding charging improper personal benefit to the
director, whether or not involving action in the director's official capacity,
in which the director was adjudged liable on the basis of an improper personal
benefit.
Chapter 23B.08.570 of the Washington Business Corporation Act provides that
the corporation may indemnify an officer, employee or agent of the corporation
for expenses to the same extent as a director.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
See Index to Exhibits.
II-1
<PAGE> 214
ITEM 22. UNDERTAKINGS
1. The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
2. The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
3. The undersigned Registrant hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim of indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
4. The undersigned Registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-2
<PAGE> 215
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE UNDERSIGNED
REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN SEATTLE,
WASHINGTON ON AUGUST 7, 1997.
McCAW INTERNATIONAL, LTD.
By: /s/ HENG-PIN KIANG
-------------------------------------
Name: Heng-Pin Kiang
Title: Senior Vice President and
General Counsel
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON AUGUST 7, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------- -----------------------------------------------------
<S> <C>
* Chairman of the Board of Directors
- -------------------------------------
DANIEL F. AKERSON
* President, Chief Executive Officer
- ------------------------------------- and Director
KEITH D. GRINSTEIN (Principal Executive Officer)
* Senior Vice President
- ------------------------------------- and Chief Financial Officer
DAVID E. ROSTOV (Principal Financial and Accounting Officer)
* Director
- -------------------------------------
C. JAMES JUDSON
* Director
- -------------------------------------
CRAIG O. MCCAW
Director
- -------------------------------------
STEVEN M. SHINDLER
* Director
- -------------------------------------
DENNIS M. WEIBLING
/s/ HENG-PIN KIANG Attorney-in-fact
- -------------------------------------
HENG-PIN KIANG
</TABLE>
II-3
<PAGE> 216
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S>
*1.1 Placement Agreement, dated as of March 3, 1997, between McCaw International, Ltd.
and Morgan Stanley & Co., for itself and for Chase Securities, Inc., Lehman
Brothers, Inc. and NatWest Capital Markets Limited.
*3.1 Articles of Incorporation of the Company.
*3.2 By-laws of the Company.
*4.1 Indenture, dated as of March 3, 1997 between McCaw International, Ltd. and The Bank
of New York.
*4.2 Form of Exchange Note (included in Exhibit 4.1).
*4.3 Registration Rights Agreement, dated as of March 3, 1997, between McCaw
International, Ltd. and Morgan Stanley & Co. Incorporated, Chase Securities Inc.,
Lehman Brothers Inc. and NatWest Capital Markets Limited.
*4.4 Warrant Agreement, dated March 6, 1997, between the Company and the Bank of New
York.
5.1 Opinion and Consent of Chadbourne & Parke LLP regarding validity of the Exchange
Notes.
5.2 Opinion and Consent of Perkins Coie.
8.1 Tax Opinion of Perkins Coie.
*10.1 Motorola Vendor Financing Template Memorandum of Understanding, dated November
1996, between Motorola, Inc., Nextel Communications, Inc. and the Company.
*10.2 Shareholders Agreement, dated January 29, 1997, between the Company, McCaw
International (Brazil), Ltd. ("McCaw Brazil") and the minority shareholders of
McCaw Brazil.
*10.3 Amendment No. 1, dated April 27, 1997, to Shareholders Agreement between the
Company, McCaw Brazil and the minority shareholders of McCaw Brazil.
*10.4 Members Agreement, dated May 6, 1997, between the Company, McCaw International
(Argentina), Ltd. ("McCaw Argentina"), McCaw International (Holdings), Ltd. and
Wireless Ventures of Argentina, LLC ("WVA").
*10.5 Joint Venture Agreement, dated October 28, 1996, among the Company, McCaw
International (Holdings), Ltd., McCaw International (Delaware), Ltd., McCaw
International (Argentina), LLC, Telcom Ventures, LLC and WVA.
*10.6 Amendment, dated April 25, 1997, to the Joint Venture Agreement among the Company,
McCaw International (Holdings), Ltd., McCaw International (Delaware), Ltd., McCaw
International (Argentina), LLC, Telcom Ventures, LLC and WVA.
*10.7 Amended and Restated Shareholders Agreement, dated August 23, 1996, between
Corporacion Mobilcom S.A. de C.V. ("Mobilcom"), Nextel Communications, Inc., Nextel
Investment Company and the certain other shareholders of Mobilcom.
*10.8 Put Call Agreement, dated June 13, 1996, between Nextel Communications, Inc.,
Nextel Investment Company and certain other shareholders of Mobilcom.
*10.9 Amendment, dated August 23, 1996, to Put Call Agreement between Nextel
Communications, Inc., Nextel Investment Company and certain other shareholders of
Mobilcom.
*10.10 Exit Rights Agreement, dated August 23, 1996, between Nextel Investment Company and
Grupo Communicaciones San Luis S.A. de C.V.
*10.11 Stockholders Agreement, dated June 21, 1996, between Infocom Communications
Network, Inc. ("Infocom") and the shareholders of Infocom.
*10.12 Employment Letter, dated November 3, 1995, between the Company and Keith D.
Grinstein.
</TABLE>
<PAGE> 217
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S>
*10.13 Employment Letter, dated November 3, 1995, between the Company and Heng-Pin Kiang.
*10.14 Employment Letter, dated January 11, 1996, between the Company and Brian A.
Vincent.
*10.15 Employment Letter, dated October 9, 1996, between the Company and William S.
Roberts.
*10.16 Employment Agreement, dated January 11, 1996, between the Company and David E.
Rostov.
*10.17 McCaw International, Ltd. 1997 Stock Option Plan.
*10.18 Tax Sharing Agreement, dated January 1, 1997, between Nextel Communications, Inc.
and its subsidiaries.
*10.19 Overhead Services Agreement, dated March 3, 1997, between Nextel Communications,
Inc. and the Company.
*10.20 Right of First Opportunity Agreement, dated March 6, 1997, between Nextel
Communications, Inc. and the Company.
*10.21 Indemnification Agreement, dated March 6, 1997, between Nextel Communications, Inc.
and the Company.
21.1 Subsidiaries of the Company.
23.1 Consent of Deloitte & Touche LLP.
23.2 Not Used.
23.3 Consent of Deloitte & Touche LLP for Corporacion Mobilcom S.A. de C.V.
23.4 Consent of Deloitte & Touche LLP for Wireless Ventures of Brazil, Inc.
23.5 Consent of KPMG Peat Marwick LLP.
23.6 Consent of Chadbourne & Parke LLP (included in Ex. 5.1).
23.7 Consent of Perkins Coie (included in Exhibit 5.2).
*24.1 Power of Attorney.
*25.1 Statement of Eligibility of The Bank of New York, as Trustee.
*27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Exchange Agent Agreement.
</TABLE>
- ---------------
* Exhibits filed previously.
<PAGE> 1
EXHIBIT 5.1
[CHADBOURNE & PARKE LLP LETTERHEAD]
August 7, 1997
OPINION LETTER
- --------------
McCaw International, Ltd.
1191 Second Avenue
Seattle, Washington 98101
Ladies and Gentlemen:
We are acting as counsel to McCaw International, Ltd. (the "Company"),
a corporation organized under the laws of the State of Washington, in
connection with the offer to exchange (the "Exchange Offer") one $1,000
principal amount at maturity of the Company's 13% Senior Discount Notes due
April 15, 2007 (the "Exchange Notes") for each $1,000 principal amount at
maturity of the Company's outstanding 13% Senior Discount Notes due April 15,
2007 (the "Private Notes"), and in connection with the preparation of the
prospectus (the "Prospectus") contained in the registration statement on Form
S-4 (the "Registration Statement") (No. 333-26649) filed with
<PAGE> 2
CHADBOURNE & PARKE LLP
McCaw International, Ltd. -2- August 7, 1997
the Securities and Exchange Commission by the Company for the purpose of
registering the Exchange Notes under the Securities Act of 1933, as amended
(the "Act"). The Private Notes have been, and the Exchange Notes will be,
issued pursuant to an Indenture, dated as of March 6, 1997 (the "Indenture"),
among the Company and The Bank of New York, as Trustee. Unless otherwise
defined herein, terms defined in the Prospectus are used herein as defined
therein.
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such corporate records, agreements, documents and other
instruments and such certificates or comparable documents of public officials
and representatives of the Company, and have made such other and further
investigations, as we have deemed relevant and necessary as a basis for the
opinion hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such latter documents.
Based on the foregoing, and subject to the qualifications and
limitations stated herein, we are of the
<PAGE> 3
CHADBOURNE & PARKE LLP
McCaw International, Ltd. -3- August 7, 1997
opinion that, assuming the due authorization of the Indenture and the Exchange
Notes by the Company and the due authorization, execution and delivery by the
Trustee of the Indenture, when the Exchange Notes, substantially in the form as
set forth in an exhibit to the Indenture filed as Exhibit 4.1 to the
Registration Statement, have been duly executed by the Company and
authenticated by the Trustee in accordance with the Indenture, and duly
delivered in exchange for the Private Notes in accordance with the Exchange
Offer in the manner described in the Registration Statement, the Exchange Notes
will constitute valid and legally binding obligations of the Company, entitled
to the benefits of the Indenture.
Our opinion set forth above is subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law), an implied
covenant of good faith and fair dealing and the possible judicial application
of foreign laws or foreign governmental or judicial action affecting creditors'
rights.
We are members of the Bar of the State of New York and we do not
express any opinion herein concerning any law
<PAGE> 4
CHADBOURNE & PARKE LLP
McCaw International, Ltd. - 4- August 7, 1997
other than the laws of the State of New York and the federal law of the United
States of America.
We hereby consent ot the use of our name under the caption "Legal
Matters" in the Prospectus forming part of the Registration Statement and to
the filing of this opinion as an exhibit to the Registration Statement.
Very truly yours,
/s/ Chadbourne & Parke LLP
----------------------------
CHADBOURNE & PARKE LLP
<PAGE> 1
EXHIBIT 5.2
[PERKINS COIE LETTERHEAD]
August 7, 1997
McCaw International, Ltd.
1191 Second Avenue, Suite 1600
Seattle, WA 98101
Re: Exchange Offer Relating to 13% Senior Discount Notes
due April 15, 2007
Gentlemen and Ladies:
We have acted as your special counsel in connection with certain
proceedings related to the offer by McCaw International, Ltd., a Washington
corporation (the "Company"), to exchange its 13% Senior Discount Notes due
April 15, 2007 (the "Exchange Notes"), which are being registered under the
Securities Act of 1933, as amended (the "Act"), pursuant to a Registration
Statement on Form S-4 (the "Registration Statement"), for an equal principal
amount at maturity of its outstanding 13% Senior Discount Notes due April 15,
2007 (the "Private Notes"). Capitalized terms used but not defined herein shall
have the meanings assigned thereto in the Registration Statement.
In the course of our representation as described above, we have
examined, among other things, the Indenture dated as of March 6, 1997, between
the Company and The Bank of New York, as trustee (the "Indenture") and the form
of Exchange Notes. We have also examined originals or photocopies, certified or
otherwise identified to our satisfaction, of all such corporate books and
records of the Company and such other documents, records, certificates or other
instruments as we have deemed relevant and necessary as a basis for the
opinions hereinafter set forth.
Based on the foregoing, we are of the opinion that (i) the Indenture
has been duly authorized, executed and delivered by, and is a valid and binding
agreement of, the Company, enforceable in accordance with its terms, and (ii)
the Exchange Notes have been duly authorized and, when executed and
authenticated in accordance with the provisions of the Indenture and issued and
delivered pursuant to the Registration Rights Agreement, will constitute valid
and binding obligations of the Company, enforceable in accordance with their
terms, except in each case as (x) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws now
<PAGE> 2
McCaw International, Ltd.
August 7, 1997
Page 2
or hereafter in effect relating to or affecting creditors' rights generally,
(y) rights of acceleration, if applicable, and the availability of equitable
remedies may be limited by equitable principles, and (z) rights to
indemnification and contribution may be limited by public policy.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Legal
Matters." In giving such consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the Act.
Very truly yours,
/s/ Perkins Coie
<PAGE> 1
[Perkins Coie Letterhead] EXHIBIT 8.1
August 7, 1997
McCaw International, Ltd.
1191 Second Avenue
Suite 1600
Seattle, WA 98101
MCCAW INTERNATIONAL, LTD. (THE "COMPANY") EXCHANGE OFFER (THE
"EXCHANGE OFFER") FOR 13% SENIOR DISCOUNT NOTES
Dear Sir or Madam:
We have acted as special federal income tax counsel ("Federal Tax
Counsel") to the Company, a Washington corporation, in connection with the
Exchange Offer by the Company, as described in the Registration Statement (File
No. 333-26649) filed with the Securities and Exchange Commission on Form S-4 on
May 7, 1997 and the Prospectus contained therein (together with amendments
thereto as of the date hereof, the "Registration Statement"), pursuant to which
the Company will offer to exchange its 13% Senior Discount Notes due April 15,
2007, which have been registered under the Securities Act of 1933, as amended,
for an equal principal amount at maturity of its outstanding 13% Senior Discount
Notes due April 15, 2007, of which $951,463,000 aggregate principal amount at
maturity were issued on March 6, 1997 and are outstanding immediately prior to
the Exchange Offer. All defined terms used in this letter, and not otherwise
defined herein, have the meanings provided in the Registration Statement.
In our capacity as Federal Tax Counsel, we participated in the
preparation of the Registration Statement. In rendering our opinion expressed
below, we have assumed that all of the transactions contemplated by the Exchange
Offer and described in the Registration Statement in fact occur in accordance
with the terms and description thereof.
In addition, we have relied, as to certain factual matters, upon
statements or determinations of the Company and upon statements or
determinations of employees,
<PAGE> 2
McCaw International, Ltd.
August 7, 1997
Page 2
representatives, and agents of the Company made to us during the course of
our representation of the Company in this matter, which statements or
determinations we have not independently verified. We have also relied upon (but
have not independently verified) certain financial data set forth in the
Registration Statement.
Based upon the foregoing, and subject thereto and subject to the
assumptions and other limitations set forth in the discussion in the
Registration Statement under the caption "CERTAIN U.S. FEDERAL INCOME TAX
CONSIDERATIONS," it is our opinion that, although such discussion does not
address all of the tax consequences of the Exchange Offer, it does address the
material federal income tax consequences (other than those consequences that may
be material to a particular investor based on its tax situation) and, insofar as
it describes statements of law or legal conclusions for Holders with respect to
the Exchange Offer, is accurate in all material respects.
We express no opinion as to any other matter, including the accuracy of the
representations or reasonableness of the assumptions relied upon by us in
connection with rendering the opinion set forth above. Further, we caution that
our opinion is not binding on the Internal Revenue Service or the courts and is
based on the Internal Revenue Code of 1986, as amended, Treasury regulations
promulgated thereunder, and administrative and judicial interpretations thereof,
all as in effect on the date hereof. The conclusions reached in this opinion may
change as a result of changes in any of the foregoing.
We hereby consent to the use of our name under the caption "Legal Matters"
in the prospectus forming part of the Registration Statement and to the filing
of this opinion as an exhibit to the Registration Statement.
Very truly yours,
Perkins Coie
<PAGE> 1
EXHIBIT 21.1
MCCAW INTERNATIONAL, LTD. SUBSIDIARIES
McCaw International (Service), Ltd.
McCaw International (Delaware), Ltd.
McCaw International (Holdings), Ltd.
McCaw International (Brazil), Ltd.
McCaw International Investment Company
AirLink Servicos e Comercio Ltda.
Butler Gorge International Corp.
Telemobile Telecommunicacoes Ltda.*
Promobile Telecommunicacoes Ltda.*
LMP Consultoria e Representacoes Ltda.*
Telecommunicacoes Brastel S/C Ltda.*
Via Radio Adminstracao e Participacoes Ltda.
Via Radio-1 Telecommunicacoes Ltda.
Comercial Telecar Ltda.
Telemovel Servicos Ltda.
Car-Tel Telefonia Movel S/C Ltda.
Comercial Teleservice Ltda.
ATG-Telecommunicacoes e Comercio Ltda.
Radio Telecommunicacoes do Brasil Ltda.
Airfone Holdings, Inc.
Air-fone Participacoes e Empreendimentos S/C Ltda.
SOW Comercio e Servicos de Radiofonia Movel Ltda.
Air-fone Comercio e Servicos de Radiofonia Movel Ltda.
Art Consult Global International S/A
Master-Tec Industria e Comercio de Produtos Electronicos Ltda.*
McCaw International (Argentina), Ltd.
McCaw Argentina S.A.
- -------------------------
* McCaw International (Brazil), Ltd. directly or indirectly owns 49% and holds
an option to purchase the remaining 51%.
<PAGE> 2
Buenos Aires Trunking S.A.
Communications Services S.A.
Airlink S.A.
McCaw International (CANMEX), Ltd.
Corporacion Mobilcom S.A. de C.V.
Tricom Network S.A. de C.V.
Servicios de Radiocommunicacion Movil de Mexico S.A. de C.V.
Sistemas de Communicaciones Troncales S.A. de C.V.
Teletransportes Integrales S.A. de C.V.
Fonotransportes Nacionales S.A. de C.V.
Fonotransportes A.C.
Radiophone S.A. de C.V.
Communicacion Integral San Luis S.A. de C.V. Prop.
Multifon S.A. de C.V.
Equipos de Radiocommunicacion Movil S.A.
Autofon de Mexico S.A. de C.V.
Telecommunicacion Radial S.A. de C.V.
Communicaciones 2000 S.A. de C.V.
Promocion de Servicios de Telecommunicacion S.A. de C.V.
Nacional de Telecommunicaciones S.A. de C.V.
McCaw International (Philippines) LLC
Top Mega Enterprises, Limited
Infocom Communications Network, Inc.
Shanghai McCaw Telecommunications Systems Co., Ltd.
McCaw International (Indonesia) LLC
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of McCaw International,
Ltd. on Form S-4 of our report dated July 2, 1997 appearing in the Registration
Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Registration Statement.
Deloitte & Touche LLP
Seattle, Washington
August 7, 1997
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of McCaw International,
Ltd. on Form S-4 of our report on the financial statements of Corporacion
Mobilcom S.A. de C.V., dated March 10, 1997, appearing in the Registration
Statement.
We also consent to the reference to us under the heading "Experts" in such
Registration Statement.
Deloitte & Touche LLP
Seattle, Washington
August 7, 1997
<PAGE> 1
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of McCaw International,
Ltd., Inc. on Form S-4 of our report on the financial statements of McCaw Brazil
for the year ended December 31, 1996, dated March 27, 1997, appearing in the
Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Registration Statement.
Deloitte & Touche LLP
Seattle, Washington
August 7, 1997
<PAGE> 1
EXHIBIT 23.5
Accountants' Consent
To Board of Directors
Wireless Ventures of Brazil, Inc.
We consent to the use of our report dated May 31, 1996, except for note 15
which is as of June 14, 1996, with respect to the consolidated balance sheets
of Wireless Ventures of Brazil, Inc. and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of operations, stockholders'
equity and cash flows for the year ended December 31, 1995 and the six month
period ended December 31, 1994, included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Washington, DC
August 6, 1997
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
McCAW INTERNATIONAL, LTD.
OFFER TO EXCHANGE ITS 13% SENIOR DISCOUNT NOTES DUE APRIL 15, 2007 ("EXCHANGE
NOTES") FOR ANY AND ALL OF ITS OUTSTANDING 13% SENIOR DISCOUNT NOTES
DUE APRIL 15, 2007 ("PRIVATE NOTES")
PURSUANT TO ITS PROSPECTUS DATED , 1997
- -------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON , 1997,
UNLESS EXTENDED BY THE COMPANY (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
- -------------------------------------------------------------------------------
Delivery To: The Bank of New York, Exchange Agent
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand:
The Bank of New York (For Eligible Institutions Only) The Bank of New York
101 Barclay Street (212) 815-6339 101 Barclay Street
Floor 7 East New York, New York 10286
New York, New York 10286 Confirm by Telephone:
(212) 815-4146 Attention: Ground Level Corporate
Attention: Reorganization Section Trust Services Window
Vincent J. Hingoor
By Overnight Delivery:
The Bank of New York
101 Barclay Street
Floor 7 East
New York, New York 10286
Attention: Reorganization Section
Vincent J. Hingoor
</TABLE>
List below the Private Notes to which this Letter of Transmittal
relates. If the space provided below is inadequate, continue on a separate
signed schedule affixed hereto.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF PRIVATE NOTES 1 2 3
- ----------------------------------------------------------------------------------------------------------------------
AGGREGATE PRINCIPAL
PRINCIPAL AMOUNT OF AMOUNT AT MATURITY
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE PRIVATE NOTE(S) TENDERED**
(PLEASE FILL IN, IF BLANK) NUMBER(S)* AT MATURITY
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
TOTAL
- ----------------------------------------------------------------------------------------------------------------------
* Need not be completed if Private Notes are being tendered by book-entry transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have tendered ALL of the Private Notes
represented by the Private Notes indicated in column 2. See Instruction 2. Private Notes tendered hereby
must be in denominations of principal amount of $1,000 at maturity and any integral multiple thereof. See
Instruction 1.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] CHECK HERE IF TENDERED PRIVATE NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ____________________________________________
Account Number _________________ Transaction Code Number ________________
[ ] CHECK HERE IF TENDERED PRIVATE NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s) __________________________________________
Window Ticket Number (if any) ____________________________________________
Date of Execution of Notice of Guaranteed Delivery _______________________
Name of Institution which guaranteed delivery ____________________________
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number _______________ Transaction Code Number __________________
<PAGE> 2
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO HOLDS PRIVATE NOTES ACQUIRED FOR
YOUR OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES
AND WISH TO RECEIVE COPIES OF THE PROSPECTUS AND COPIES OF ANY AMENDMENTS
OR SUPPLEMENTS THERETO FOR USE IN CONNECTION WITH RESALES OF EXCHANGE NOTES
RECEIVED FOR YOUR OWN ACCOUNT IN EXCHANGE FOR SUCH PRIVATE NOTES.
Name: ____________________________________________________________________
Address: _________________________________________________________________
-----------------------------------------------------------------
Aggregate Principal Amount at Maturity
of Private Notes so held: $_______________________________________________
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
The Company reserves the right, at any time or from time to time, to
extend the Exchange Offer at its sole discretion, in which event the term
"Expiration Date" shall mean the latest time and date to which the Exchange
Offer is extended. The Company shall notify the holders of the Private Notes of
any extension by oral or written notice prior to 9:00 a.m., New York City time,
on the next business day after the previously scheduled Expiration Date.
This Letter of Transmittal is to be completed by a holder of Private
Notes either if certificates are to be forwarded herewith or if a tender of
certificates for Private Notes, if available, is to be made by book-entry
transfer to the account maintained by the Exchange Agent at The Depository
Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures
set forth in "The Exchange Offer--Book-Entry Transfer" section of the
Prospectus. Holders of Private Notes whose certificates are not immediately
available, or who are unable to deliver their certificates or confirmation of
the book-entry tender of their Private Notes into the Exchange Agent's account
at the Book-Entry Transfer Facility (a "Book-Entry Confirmation") and all other
documents required by this Letter to the Exchange Agent on or prior to the
Expiration Date, must tender their Private Notes according to the guaranteed
deliver procedures set forth in "The Exchange Offer--Guaranteed Delivery
Procedures" section of the Prospectus. See Instruction 1. DELIVERY OF DOCUMENTS
TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE
EXCHANGE AGENT.
If any tendered Private Notes are not exchanged pursuant to the
Exchange Offer for any reason, Certificates for such nonexchanged or
nontendered Private Notes will be returned (or, in the case of Private Notes
tendered by book-entry transfer, such Private Notes will be credited to an
account maintained at the Book-Entry Transfer Facility), without expense to the
tendering holder, promptly following the expiration or termination of the
Exchange Offer.
2
<PAGE> 3
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to McCaw International, Ltd. (the
"Company"), a Washington corporation, the aggregate principal amount at
maturity of Private Notes indicated in this Letter of Transmittal, upon the
terms and subject to the conditions set forth in the Company's Prospectus dated
________, 1997 (the "Prospectus"), receipt of which is hereby acknowledged, and
in this Letter of Transmittal, which together constitute the Company's offer
(the "Exchange Offer") to exchange one $1,000 principal amount at maturity of
its 13% Senior Discount Notes due April 15, 2007 (the "Exchange Notes"), which
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), for each $1,000 principal amount at maturity of its issued
and outstanding 13% Senior Discount Notes due April 15, 2007, of which
approximately $951.5 million aggregate principal amount at maturity was
outstanding on the date of the Prospectus (the "Private Notes" and, together
with the Exchange Notes, the "Notes"). The capitalized terms which are not
defined herein are used herein as defined in the Prospectus.
Subject to, and effective upon, the acceptance for exchange of the
Private Notes tendered hereby, the undersigned hereby sells, assigns and
transfers to, or upon the order of, the Company, all right, title and interest
in and to such Private Notes as are being tendered hereby and hereby irrevocably
constitutes and appoints the Exchange Agent as attorney-in-fact of the
undersigned (with full knowledge that the Exchange Agent is also acting as agent
of the Company in connection with the Exchange Offer) with respect to such
Private Notes, with full power of substitution (such power of attorney being an
irrevocable power coupled with an interest), to:
(a) deliver such Private Notes in registered certificated form,
or transfer ownership of such Private Notes through book-entry transfer
at the Book-Entry Transfer Facility, to or upon the order of the
Company, upon receipt by the Exchange Agent, as of the undersigned's
agent, of the same aggregate principal amount at maturity of Exchange
Notes; and
(b) receive, for the account of the Company, all benefits and
otherwise exercise, for the account of the Company, all rights of
beneficial ownership of the Private Notes tendered hereby in accordance
with the terms of the Exchange Offer.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Private Notes
tendered hereby and that, when the same are accepted for exchange, the Company
will acquire good, marketable and unencumbered title thereto, free and clear of
all security interests, liens, restrictions, charges, encumbrances, conditional
sale agreements or other obligations relating to their sale or transfer, and
not subject to any adverse claim when the same are accepted by the Company. The
undersigned hereby further represents that any Exchange Notes acquired in
exchange for Private Notes tendered hereby will have been acquired in the
ordinary course of business of the person receiving such Exchange Notes,
whether or not such person is the undersigned, that neither the holder of such
Private Notes nor any such other person has an arrangement or understanding
with any person to participate in the distribution of such Exchange Notes and
that neither the holder of such Private Notes nor any such other person is an
"affiliate," as defined in Rule 405 under the Securities Act, of the Company.
The undersigned has read and agrees to all of the terms of the Exchange Offer.
The undersigned also acknowledges that this Exchange Offer is being made
in reliance on interpretations by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties, that the Exchange Notes issued in exchange for the Private Notes
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by holders thereof (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are acquired
in the ordinary course of such holders' business and such holders have no
arrangement with any person to participate in the distribution of such Exchange
Notes. However, the Company does not intend to request the SEC to consider, and
the SEC has not considered, the Exchange Offer in the context of a no-action
letter, and there can be no assurance that the staff of the SEC would make a
similar determination with respect to the Exchange Offer as in other
circumstances. If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of Exchange Notes and has no arrangement or understanding to
participate in a distribution of Exchange Notes. If any holder is an affiliate
of the Company, is engaged in or intends to engage in or has any arrangement or
understanding with respect to the distribution of the Exchange Notes to be
acquired pursuant to the Exchange Offer, such holder (i) could not rely on the
applicable interpretations of the staff of the SEC and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. If the undersigned is a broker-dealer
that will receive Exchange Notes for its own account in exchange for Private
Notes acquired as a result of market-making or other trading activities (a
"Participating Broker-Dealer"), it represents that the Private Notes to be
exchanged for the Exchange Notes were acquired by it as a result of
market-making or other trading activities and acknowledges that it will deliver
a prospectus in connection with any resale of such Exchange Notes, which
contains a plan of distribution with respect to such resale transactions;
however, by so acknowledging and by delivering a prospectus, such Participating
Broker-Dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. The Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with any resale of Exchange Notes received for Private Notes where such Private
Notes were acquired by a broker-dealer as a result of market-making or other
trading activities (other than Private Notes acquired directly from the
Company).
The Company has agreed that, subject to the provisions of the
Registration Rights Agreement, the Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer in
connection with resales of Exchange Notes received in exchange for Private
Notes which were acquired by such Participating Broker-Dealer for its own
account as a result of market-making or other trading activities, for a period
ending 180 days after the Expiration Date or, if earlier, when all such
Exchange Notes have been disposed of by such Participating Broker-Dealer. In
that regard, each Participating Broker-Dealer, who acquired Private Notes for
its own account as a result of market-making or trading activities, by
tendering such Private Notes and executing this Letter of Transmittal, agrees
that, upon receipt of notice from the Company of the occurrence of any event or
the discovery of any fact which makes any statement contained
<PAGE> 4
or incorporated by reference in the Prospectus untrue in any material respect
or which causes the Prospectus to omit to state a material fact necessary in
order to make the statements contained or incorporated by reference therein, in
light of the circumstances under which they were made, not misleading, such
Participating Broker-Dealer will suspend the sale of Exchange Notes pursuant to
the Prospectus until the Company has amended or supplemented the Prospectus to
correct such misstatement or omission and has furnished copies of the amended
or supplemented Prospectus to the Participating Broker-Dealer or the Company
has given notice that the sale of the Exchange Notes may be resumed, as the
case may be. If the Company gives such notice to suspend the sale of the
Exchange Notes, it shall extend the 180-day period referred to above during
which Participating Broker-Dealers are entitled to use the Prospectus in
connection with the resale of Exchange Notes by the number of days during the
period from and including the date of the giving of such notice to and including
the date when Participating Broker-Dealers shall have received copies of the
supplemented or amended Prospectus necessary to permit resales of the Exchange
Notes or to and including the date on which the Company has given notice that
the sale of Exchange Notes may be resumed, as the case may be.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Private Notes tendered hereby. All
authority conferred or agreed to be conferred in this Letter of Transmittal and
every obligation of the undersigned hereunder shall be binding upon the
successors, assigns, heirs, executors, administrators, trustees in bankruptcy
and legal representatives of the undersigned and shall not be affected by, and
shall survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in "The Exchange
Offer--Withdrawal of Tenders" section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the Exchange Notes (and, if applicable,
substitute certificates representing Private Notes for any Private Notes not
exchanged) in the name of the undersigned or, in the case of a book-entry
delivery of Private Notes, please credit the account indicated above maintained
at the Book-Entry Transfer Facility. Similarly, unless otherwise indicated under
the box entitled "Special Delivery Instructions" below, please send the Exchange
Notes (and, if applicable, substitute certificates representing Private Notes
for any Private Notes not exchanged) to the undersigned at the address shown
above in the box entitled "Description of Private Notes."
The undersigned understands that tenders of Private Notes pursuant to
any one of the procedures described in "The Exchange Offer--Procedures for
Tendering" in the Prospectus and in the instructions attached hereto will, upon
the Company's acceptance for exchange of such tendered Private Notes,
constitute a binding agreement between the undersigned and the Company upon
the terms and subject to the conditions of the Exchange Offer. The undersigned
recognizes that, under certain circumstances set forth in the Prospectus, the
Company may not be required to accept for exchange any of the Private Notes
tendered hereby.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF PRIVATE
NOTES" ABOVE AND SIGNING THIS LETTER OF TRANSMITTAL, WILL BE DEEMED TO HAVE
TENDERED THE PRIVATE NOTES AS SET FORTH IN SUCH BOX ABOVE.
<PAGE> 5
<TABLE>
<S> <C>
- ---------------------------------------------------- ----------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4) (SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Private To be completed ONLY if certificates for Private
Notes not exchanged and/or Exchange Notes are to be Notes not exchanged and/or Exchange Notes are to be
issued in the name of and sent to someone other than sent to someone other than the person or persons whose
the person or persons whose signature(s) appear(s) signature(s) appear(s) below on this Letter of
below on this Letter of Transmittal, or if Private Transmittal or to such person or persons at an address
Notes delivered by book-entry transfer which are not other than shown above in the box entitled "Description
accepted for exchange are to be returned by credit of Private Notes" on this Letter of Transmittal.
to an account maintained at the Book-Entry Transfer
Facility other than the account indicated above. Mail: Exchange Notes and/or Private Notes to:
Issue: Exchange Notes and/or Private Notes to:
Name(s) ___________________________________________ Name(s) ___________________________________________
(PLEASE TYPE OR PRINT) (PLEASE TYPE OR PRINT)
___________________________________________________
(PLEASE TYPE OR PRINT)
___________________________________________________
Address ___________________________________________ (PLEASE TYPE OR PRINT)
___________________________________________________
(ZIP CODE)
Address ___________________________________________
[ ] Credit unexchanged Private Notes delivered by
book-entry transfer to the Book-Entry Transfer
Facility account set forth below.
___________________________________________________ ___________________________________________________
(Book-Entry Transfer Facility (ZIP CODE)
Account Number, if applicable)
- ---------------------------------------------------- ----------------------------------------------------
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES FOR PRIVATE NOTES
OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE
RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETION.
- -------------------------------------------------------------------------------------------------------------------
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(Complete Accompanying Substitute Form W-9 on reverse side)
___________________________________________________ _____________________________________________, 1997
___________________________________________________ _____________________________________________, 1997
___________________________________________________ _____________________________________________, 1997
Signature(s) of Owner Date
Area Code and Telephone Number _______________
If a holder is tendering any Private Notes, this Letter of Transmittal must be signed by the registered
holder(s) as the name(s) appear(s) on the certificate(s) for the Private Notes or on a securities position listing
or by any person(s) authorized to become registered holder(s) by endorsements and documents transmitted herewith.
If signature is by a trustee, executor, administrator, guardian, officer or other person acting in a fiduciary or
representative capacity, please set forth full title. See Instruction 3.
Name(s): __________________________________________________________________________________________________________
___________________________________________________________________________________________________________________
(Please Type or Print)
Capacity: _________________________________________________________________________________________________________
Address: __________________________________________________________________________________________________________
__________________________________________________________________________________________________________
(Including Zip Code)
SIGNATURE GUARANTEE
(If required by Instruction 3)
Signature(s) Guaranteed by an Eligible Institution: _______________________________________________________________
(Authorized Signature)
___________________________________________________________________________________________________________________
(Title)
___________________________________________________________________________________________________________________
(Name and Firm)
Dated: ______________________________________________________________________________________________________, 1997
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 6
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER OF
MCCAW INTERNATIONAL, LTD. TO EXCHANGE ITS 13% SENIOR DISCOUNT NOTES
DUE APRIL 15, 2007 FOR ANY AND ALL OF ITS OUTSTANDING
13% SENIOR DISCOUNT NOTES DUE APRIL 15, 2007
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND NOTES; GUARANTEED DELIVERY
PROCEDURES.
This Letter of Transmittal is to be completed by holders of Private
Notes either if certificates are to be forwarded herewith or if tenders are to
be made pursuant to the procedures for delivery by book-entry transfer set
forth in "The Exchange Offer--Book-Entry Transfer" section of the Prospectus.
Certificates for all physically tendered Private Notes, or Book-Entry
Confirmations, as the case may be, as well as a properly completed and duly
executed Letter of Transmittal (or manually signed facsimile thereof) and any
other documents required by this Letter of Transmittal, must be received by the
Exchange Agent as the address set forth herein on or prior to the Expiration
Date, or the tendering holder must comply with the guaranteed delivery
procedures set forth below. Private Notes tendered hereby must be in
denominations of principal amount of $1,000 at maturity and any integral
multiple thereof.
Holders of Private Notes whose certificates for Private Notes are not
immediately available or who cannot deliver their certificates and all other
required documents to the Exchange Agent on or prior to the Expiration Date, or
who cannot complete the procedure for book-entry transfer on a timely basis,
may tender their Private Notes pursuant to the guaranteed delivery procedures
set forth in "The Exchange Offer--Guaranteed Delivery Procedures" section of
the Prospectus. Pursuant to such procedures, (i) such tender must be made
through an Eligible Institution (as defined below), (ii) prior to the
Expiration Date, the Exchange Agent must receive from such Eligible Institution
a properly completed and duly executed Letter of Transmittal (or a facsimile
thereof) and Notice of Guaranteed Delivery, substantially in the form provided
by the Company (by telegram, telex, facsimile transmission, mail or hand
delivery), setting forth the name and address of the holder of Private Notes
and the amount of Private Notes tendered, stating that the tender is being made
thereby and guaranteeing that within three business days after the Expiration
Date, the certificates for all physically tendered Private Notes, or a
Book-Entry Confirmation, and any other documents required by this Letter of
Transmittal will be deposited by the Eligible Institution with the Exchange
Agent, and (iii) the certificates for all physically tendered Private Notes, in
proper form for transfer, or Book-Entry Confirmation, as the case may be, and
all other documents required by this Letter of Transmittal, are received by the
Exchange Agent within three business days after the Expiration Date.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE PRIVATE NOTES
AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING
HOLDERS, BUT THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR
CONFIRMED BY THE EXCHANGE AGENT. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED
THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE
AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. DO NOT
SEND THIS LETTER OF TRANSMITTAL OR ANY PRIVATE NOTES TO THE COMPANY.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance of
such tender. See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS OF PRIVATE NOTES WHO TENDER BY
BOOK-ENTRY TRANSFER); WITHDRAWAL RIGHTS.
Tender of Private Notes will be accepted only in the principal amount
of $1,000 at maturity and integral multiples thereof. If less than all of the
Private Notes evidenced by a submitted certificate are to be tendered, the
tendering holder(s) should fill in the aggregate principal amount at maturity
of Private Notes to be tendered in the boxes above entitled "Description of
Private Notes--Principal Amount at Maturity Tendered". A reissued certificate
representing the balance of nontendered Private Notes will be sent to such
tendering holder, unless otherwise provided in the appropriate box on this
Letter of Transmittal, promptly after the Expiration Date. ALL OF THE PRIVATE
NOTES DELIVERED TO THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN TENDERED
UNLESS OTHERWISE INDICATED.
Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time on or prior to the Expiration Date. In order for a
withdrawal to be effective on or prior to that time, a written, telegraphic,
telex or facsimile transmission of such notice of withdrawal must be timely
received by the Exchange Agent at one of its addresses set forth above on or
prior to the Expiration Date. Any such notice of withdrawal must specify the
name of the person who tendered the Private Notes to be withdrawn, the
aggregate principal amount at maturity of Private Notes to be withdrawn and (if
certificates for such Private Notes have been tendered) the name of the
registered holder of the Private Notes as set forth on the certificate for the
Private Notes, if different from that of the person who tendered such Private
Notes. If certificates for the Private Notes have been delivered or otherwise
identified to the Exchange Agent, then prior to the physical release of such
certificates for the Private Notes, the tendering holder must submit the serial
numbers shown on the particular certificates for the Private Notes to be
withdrawn and the signature on the notice of withdrawal must be guaranteed by an
Eligible Institution, except in the case of Private Notes tendered for the
account of an Eligible Institution. If Private Notes have been tendered pursuant
to the procedures for book-entry transfer set forth in "The Exchange
Offer--Book-Entry Transfer" section of the Prospectus, the notice of withdrawal
must specify the name and number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawal of Private Notes, in which case a
notice of withdrawal will be effective if delivered to the Exchange Agent by
written, telegraphic, telex or facsimile transmission. Withdrawals of tenders of
Private Notes may not be rescinded. Private Notes properly withdrawn will not be
deemed to have been validly tendered for purposes of the Exchange Offer, and no
Exchange Notes will be issued with respect thereto unless the Private Notes so
withdrawn are validly retendered. Properly withdrawn Private Notes may be
retendered at any subsequent time on or prior to the Expiration Date by
following the procedures described in the Prospectus under "The Exchange
Offer--Procedures for Tendering."
All questions as to the validity, form and eligibility (including time
of receipt) of such withdrawal notices will be determined by the Company, in
its sole discretion, whose determination shall be final and binding on all
parties. Neither
<PAGE> 7
the Company, any employees, agents, affiliates or assigns of the Company, the
Exchange Agent nor any other person shall be under any duty to give any
notification of any irregularities in any notice of withdrawal or incur any
liability for failure to give such notification. Any Private Notes which have
been tendered but which are withdrawn will be returned to the holder thereof
without cost to such holder as promptly as practicable after withdrawal.
3. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES.
If this Letter of Transmittal is signed by the registered holder of
the Private Notes tendered hereby, the signature must correspond exactly with
the name as written on the face of the certificates or on a securities position
listing without any change whatsoever.
If any tendered Private Notes are owned of record by two or more joint
owners, all of such owners must sign this Letter of Transmittal.
If any tendered Private Notes are registered in different names on
several certificates or securities positions listings, it will be necessary to
complete, sign and submit as many separate copies of this Letter of Transmittal
as there are different registrations.
When this Letter of Transmittal is signed by the registered holder or
holders of the Private Notes specified herein and tendered hereby, no
endorsements of certificates or separate bond powers are required. If, however,
the Exchange Notes are to be issued, or any untendered Private Notes are to be
reissued, to a person other than the registered holder, then endorsements of
any certificates transmitted hereby or separate bond powers are required.
Signatures on such certificate(s) must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder or holders of any certificate(s) specified herein, such
certificate(s) must be endorsed or accompanied by appropriate bond powers, in
either case signed exactly as the name or names of the registered holder or
holders appear(s) on the certificate(s), and the signatures on such
certificate(s) must be guaranteed by an Eligible Institution.
If this Letter of Transmittal or any certificates or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority
to so act must be submitted.
ENDORSEMENTS ON CERTIFICATES FOR PRIVATE NOTES OR SIGNATURES ON BOND
POWERS REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY A FIRM WHICH IS A
MEMBER OF A REGISTERED NATIONAL SECURITIES EXCHANGE OR A MEMBER OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC., BY A COMMERCIAL BANK OR TRUST COMPANY
HAVING AN OFFICE OR CORRESPONDENT IN THE UNITED STATES OR AN "ELIGIBLE
GUARANTOR INSTITUTION" (WITHIN THE MEANING OF RULE 17Ad-15 UNDER THE EXCHANGE
ACT) THAT IS A MEMBER OF THE RECOGNIZED SIGNATURE GUARANTEE PROGRAMS IDENTIFIED
IN THIS LETTER OF TRANSMITTAL (AN "ELIGIBLE INSTITUTION").
SIGNATURES ON THIS LETTER OF TRANSMITTAL MUST BE GUARANTEED BY AN
ELIGIBLE INSTITUTION, UNLESS THE PRIVATE NOTES ARE TENDERED: (i) BY A
REGISTERED HOLDER OF PRIVATE NOTES (WHICH TERM, FOR PURPOSES OF THE EXCHANGE
OFFER, INCLUDES ANY PARTICIPANT IN THE BOOK-ENTRY TRANSFER FACILITY SYSTEM
WHOSE NAME APPEARS ON A SECURITY POSITION LISTING AS THE HOLDERS OF SUCH
PRIVATE NOTES) WHO HAS NOT COMPLETED THE BOX ENTITLED "SPECIAL ISSUANCE
INSTRUCTIONS" OR "SPECIAL DELIVERY INSTRUCTIONS" ON THIS LETTER OR (ii) FOR THE
ACCOUNT OF AN ELIGIBLE INSTITUTION.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Private Notes should indicate in the applicable
box the name and address to which Exchange Notes issued pursuant to the
Exchange Offer and/or substitute certificates evidencing Private Notes not
exchanged are to be issued or sent, if different from the name or address of
the person signing this Letter of Transmittal. In the case of issuance in a
different name, the employer identification or social security number of the
person named must also be indicated. A holder of Private Notes tendering
Private Notes by book-entry transfer may request that Private Notes not
exchanged be credited to such account maintained at the Book-Entry Transfer
Facility as such holder may designate hereon. If no such instructions are
given, such Private Notes not exchanged will be returned to the name or address
of the person signing this Letter of Transmittal.
5. TAX IDENTIFICATION NUMBER.
Federal income tax law generally requires that a tendering holder whose
Private Notes are accepted for exchange must provide the Company (as payor) with
such holder's correct Taxpayer Identification Number ("TIN") on Substitute Form
W-9 below, which, in the case of a tendering holder who is an individual, is his
or her social security number. If the Company is not provided with the current
TIN or an adequate basis for an exemption, such tendering holder may be subject
to a $50 penalty imposed by the Internal Revenue Service. In addition, delivery
to such tendering holder of Exchange Notes may be subject to backup withholding
in an amount equal to 31% of all reportable payments made after the exchange. If
withholding results in an overpayment of taxes, a refund may be obtained.
Exempt holders of Private Notes (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. See the enclosed Guidelines of
Certification of Taxpayer Identification Number on Substitute Form W-9 (the
"W-9 Guidelines") for additional instructions.
To prevent backup withholding, each tendering holder of Private Notes
must provide its correct TIN by completing the Substitute Form W-9 set forth
below, certifying that the TIN provided is correct (or that such holder is
awaiting a TIN) and that (i) the holder is exempt from backup withholding, (ii)
the holder has not been notified by the Internal Revenue Service that such
holder is subject to backup withholding as a result of a failure to report all
interest or dividends or (iii) the Internal Revenue Service has notified the
holder that such holder is no longer subject to backup withholding. If the
tendering holder of Private Notes is a nonresident alien or foreign entity not
subject to backup withholding, such holder
<PAGE> 8
must give the Company a completed Form W-8, Certificate of Foreign Status.
These forms may be obtained from the Exchange Agent. If the Private Notes are
in more than one name or are not in the name of the actual owner, such holder
should consult the W-9 Guidelines for information on which TIN to report. If
such holder does not have a TIN, such holder should consult the W-9 Guidelines
for instructions on applying for a TIN, check the box in Part 2 of the
Substitute Form W-9 and write "applied for" in lieu of its TIN. Note: Checking
this box and writing "applied for" on the form means that such holder has
already applied for a TIN or that such holder intends to apply for one in the
near future. If such holder does not provide its TIN to the Company within 60
days, backup withholding will begin and continue until such holder furnishes
its TIN to the Company.
6. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the
transfer of Private Notes to it or its order pursuant to the Exchange Offer.
If, however, Exchange Notes and/or substitute Private Notes not exchanged are
to be delivered to, or are to be registered or issued in the name of, any
person other than the registered holder of the Private Notes tendered hereby,
or if tendered Private Notes are registered in the name of any person other
than the person signing this Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the transfer of Private Notes to the Company
or its order pursuant to the Exchange Offer, the amount of any such transfer
taxes (whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted herewith, the amount of such
transfer taxes will be billed directly to such tendering holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE PRIVATE NOTES SPECIFIED IN THIS LETTER
OF TRANSMITTAL.
7. DETERMINATION OF VALIDITY.
The Company will determine, in its sole discretion, all questions as to
the form of documents, validity, eligibility (including time of receipt) and
acceptance for exchange of any tender of Private Notes, which determination
shall be final and binding on all parties. The Company reserves the absolute
right to reject any and all tenders determined by them not to be in proper form
or the acceptance of which, or exchange for which, may, in the view of counsel
to the Company, be unlawful. The Company also reserves the absolute right,
subject to applicable law, to waive any of the conditions of the Exchange Offer
set forth in the Prospectus under the caption "The Exchange Offer" or any
conditions or irregularity in any tender of Private Notes of any particular
holder whether or not similar conditions or irregularities are waived in the
case of other holders.
The Company's interpretation of the terms and conditions of the
Exchange Offer (including this Letter of Transmittal and the instructions
hereto) will be final and binding. No tender of Private Notes will be deemed to
have been validly made until all irregularities with respect to such tender
have been cured or waived. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Private Notes, neither the
Company, any employees, agents, affiliates or assigns of the Company, the
Exchange Agent, nor any other person shall be under any duty to give
notification of any irregularities in tenders or incur any liability for
failure to give such notification.
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Private Notes, by execution of this Letter
of Transmittal, shall waive any right to receive notice of the acceptance of
their Private Notes for exchange.
9. MUTILATED, LOST, STOLEN OR DESTROYED PRIVATE NOTES.
Any holder whose Private Notes have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions. This Letter of Transmittal and related documents cannot
be processed until the procedures for replacing mutilated, lost, stolen or
destroyed certificate(s) have been followed.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests
for additional copies of the Prospectus and this Letter of Transmittal, may be
directed to the Exchange Agent, at the address and telephone number indicated
above.
8
<PAGE> 9
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: [THE BANK OF NEW YORK]
<TABLE>
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
SUBSTITUTE Part 1--PLEASE PROVIDE YOUR TIN: _______________________________
TIN IN THE BOX AT RIGHT AND Social Security Number or
Form W-9 CERTIFY BY SIGNING AND DATING Employer Identification Number
Department of the Treasury BELOW
Internal Revenue Service
-------------------------------------------------------------------------------
Payor's Request for Part 2--TIN Applied for: ___________________
Taxpayer Identification
Number ("TIN") and -------------------------------------------------------------------------------
Certification
CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
(1) the number shown on this form is my correct Taxpayer Identification Number
(or I am waiting for a number to be issued to me).
(2) I am not subject to backup withholding either because: (a) I am exempt from
backup withholding, or (b) I have not been notified by the Internal Revenue
Service (the "IRS") that I am subject to backup withholding as a result of a
failure to report all interest or dividends, or (c) the IRS has notified me
that I am no longer subject to backup withholding, and
(3) any other information provided on this form is true and correct.
SIGNATURE ____________________________________ DATE __________________________
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
You must cross out item (2) of the above certification if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting of interest or dividends on your tax return and you have not been
notified by the IRS that you are no longer subject to backup withholding.
- --------------------------------------------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of the exchange, 31
percent (31%) of all reportable payments made to me thereafter will be withheld
until I provide a number.
________________________________________ __________________________
SIGNATURE DATE
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY FOR
TENDER OF ANY AND ALL OUTSTANDING 13% SENIOR DISCOUNT NOTES
DUE APRIL 15, 2007 OF MCCAW INTERNATIONAL, LTD.
This notice of Guaranteed Delivery or one substantially equivalent
hereto must be used to accept the Exchange Offer of McCaw International, Ltd.,
a Washington corporation (the "Company"), made pursuant to the Prospectus,
dated , 1997 (the "Prospectus"), if certificates for the
outstanding 13% Senior Discount Notes due April 15, 2007 of the Company (the
"Private Notes") are not immediately available or if the procedure for
book-entry transfer cannot be completed on a timely basis or time will not
permit all required documents to reach The Bank of New York (the "Exchange
Agent") on or prior to 5:00 p.m., New York City time, on the Expiration Date of
the Exchange Offer. This Notice of Guaranteed Delivery may be delivered or
transmitted by telegram, telex, facsimile transmission, mail or hand delivery
to the Exchange Agent as set forth below. See "The Exchange Offer--Procedures
for Tendering" in the Prospectus. In addition, in order to utilize the
guaranteed delivery procedure to tender Private Notes pursuant to the Exchange
Offer, a completed, signed and dated Letter of Transmittal (or a manually
signed facsimile thereof) must also be received by the Exchange Agent on or
prior to 5:00 p.m., New York City time, on the Expiration Date. Capitalized
terms used herein but not defined herein have the respective meanings given to
them in the Prospectus.
<TABLE>
<S> <C> <C>
Delivery To:
The Bank of New York, Exchange Agent
By Mail: By Facsimile Transmission: By Hand:
The Bank of New York (For Eligible Institutions Only) The Bank of New York
101 Barclay Street (212) 815-6339 101 Barclay Street
Floor 7 East New York, New York 10286
New York, New York 10286 Confirm by Telephone:
(212) 815-4146 Attention: Ground Level Corporate
Attention: Reorganization Section Trust Services Window
Vincent J. Hingoor
By Overnight Delivery:
The Bank of New York
101 Barclay Street
Floor 7 East
New York, New York 10286
Attention: Reorganization Section
Vincent J. Hingoor
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
related Letter of Transmittal, the undersigned hereby tenders to the Company
the principal amount at maturity of Private Notes set forth below pursuant to
the guaranteed delivery procedures described in the Prospectus under the
caption "The Exchange Offer--Guaranteed Delivery Procedures."
Principal Amount at Maturity of Private Notes Tendered:*
$_________________________________
Certificate Nos. (if available): If Private Notes will be delivered by
book-entry transfer to The Depository
Trust Company, provide account number.
__________________________________
Total Principal Amount at Maturity
Represented by Private Notes
Certificate(s):
$_________________________________ Account Number________________________
__________________________________ Date:_________________________________
Name(s) of Registered Holder(s):
* Must be in denominations of principal amount of $1,000 at maturity and any
integral multiple thereof.
<PAGE> 2
- -------------------------------------------------------------------------------
AN AUTHORITY HEREIN CONFERRED OR AGREED TO BE CONFERRED SHALL SURVIVE THE DEATH
OR INCAPACITY OF THE UNDERSIGNED, AND EVERY OBLIGATION OF THE UNDERSIGNED
HEREUNDER SHALL BE BINDING UPON THE HEIRS, PERSONAL REPRESENTATIVES, SUCCESSORS
AND ASSIGNS OF THE UNDERSIGNED.
- -------------------------------------------------------------------------------
PLEASE SIGN HERE
X_______________________________ _______________________________
X_______________________________ _______________________________
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number: _______________________________
MUST BE SIGNED BY THE HOLDER(S) OF PRIVATE NOTES AS THEIR NAME(S)
APPEAR(S) ON CERTIFICATES FOR PRIVATE NOTES OR ON A SECURITY POSITION LISTING,
OR BY PERSON(S) AUTHORIZED TO BECOME REGISTERED HOLDER(S) BY ENDORSEMENT AND
DOCUMENTS TRANSMITTED WITH THIS NOTICE OF GUARANTEED DELIVERY. IF SIGNATURE IS
BY TRUSTEE, EXECUTOR, ADMINISTRATOR, GUARDIAN, ATTORNEY-IN-FACT, OFFICER OR
OTHER PERSON ACTING IN A FIDUCIARY OR REPRESENTATIVE CAPACITY, SUCH PERSON MUST
SET FORTH HIS OR HER FULL TITLE BELOW.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s): _______________________________________________________
_______________________________________________________
Capacity: _______________________________________________________
Address(es): _______________________________________________________
_______________________________________________________
GUARANTEE
The undersigned, a member of a registered national securities exchange,
or a member of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the
United States, or an "eligible guarantor institution" (within the meaning of
Rule 17Ad-15 under the Securities and Exchange Act of 1934, as amended) hereby
guarantees that the certificates representing the principal amount at maturity
of Private Notes tendered hereby in proper form for transfer, or timely
confirmation of the book-entry transfer of such Private Notes into the Exchange
Agent's account at The Depository Trust Company pursuant to the procedures set
forth in "The Exchange Offer--Guaranteed Delivery Procedures" section of the
Prospectus, together with one or more properly completed and duly executed
Letter(s) of Transmittal (or a manually signed facsimile thereof) with any
required signature guarantee and any other documents required by the Letter of
Transmittal, will be received by the Exchange Agent at the address set forth
above, no later than three business days after the Expiration Date of the
Exchange Offer.
____________________________________ ________________________________
Name of Firm Authorized Signature
____________________________________ ________________________________
Address Title
____________________________________ Name: __________________________
Zip Code (Please Type or Print)
Area Code and Tel. No.______________ Dated: _________________________
NOTE: DO NOT SEND CERTIFICATES FOR PRIVATE NOTES WITH THIS NOTICE OF
GUARANTEED DELIVERY. ACTUAL SURRENDER OF PRIVATE NOTES MUST BE
MADE PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY COMPLETED
AND DULY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED
DOCUMENTS.
<PAGE> 1
August __, 1997
EXCHANGE AGENT AGREEMENT
The Bank of New York
Corporate Trust Trustee Administration
101 Barclay Street - 21st Floor
New York, New York 10286
Ladies and Gentlemen:
McCaw International, Ltd. (the "Company") proposes to make an offer
(the "Exchange Offer") to exchange its 13% Senior Discount Notes due April 15,
2007 (the "Old Securities") for its 13% Senior Discount Notes due April 15, 2007
(the "New Securities"). The terms and conditions of the Exchange Offer as
currently contemplated are set forth in a prospectus, dated August 8, 1997 (the
"Prospectus"), proposed to be distributed to all record holders of the Old
Securities. The Old Securities and the New Securities are collectively referred
to herein as the "Securities".
The Company hereby appoints The Bank of New York to act as exchange
agent (the "Exchange Agent") in connection with the Exchange Offer. References
hereinafter to "you" shall refer to The Bank of New York.
The Exchange Offer is expected to be commenced by the Company on or
about August 8, 1997. The Letter of Transmittal accompanying the Prospectus (or
in the case of book entry securities, the ATOP system) is to be used by the
holders of the Old Securities to accept the Exchange Offer and contains
instructions with respect to the delivery of certificates for Old Securities
tendered in connection therewith.
The Exchange Offer shall expire at 5:00 P.M., New York City time, on
September __, 1997 or on such later date or time to which the Company may extend
the Exchange Offer (the "Expiration Date"). Subject to the terms and conditions
set forth in the Prospectus, the Company expressly reserves
<PAGE> 2
the right to extend the Exchange Offer from time to time and may extend the
Exchange Offer by giving oral (confirmed in writing) or written notice to you
before 9:00 A.M., New York City time, on the business day following the
previously scheduled Expiration Date.
The Company expressly reserves the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Old Securities not
theretofore accepted for exchange, upon the occurrence of any of the conditions
of the Exchange Offer specified in the Prospectus under the caption "The
Exchange Offer". The Company will give oral (confirmed in writing) or written
notice of any amendment, termination or nonacceptance to you as promptly as
practicable.
In carrying out your duties as Exchange Agent, you are to act in
accordance with the following instructions:
1. You will perform such duties and only such duties as are
specifically set forth in the section of the Prospectus captioned "The Exchange
Offer" or as specifically set forth herein; provided, however, that in no way
will your general duty to act in good faith be discharged by the foregoing.
2. You will establish an account with respect to the Old Securities
at The Depository Trust Company (the "Book-Entry Transfer Facility") for
purposes of the Exchange Offer within two business days after the date of the
Prospectus, and any financial institution that is a participant in the
Book-Entry Transfer Facility's systems may make book- entry delivery of the Old
Securities by causing the Book-Entry Transfer Facility to transfer such Old
Securities into your account in accordance with the Book-Entry Transfer
Facility's procedure for such transfer.
3. You are to examine each of the Letters of Transmittal and
certificates for Old Securities (or confirmation of book-entry transfer into
your account at the Book-Entry Transfer Facility) and any other documents
delivered or mailed to you by or for holders of the Old Securities to ascertain
whether: (i) the Letters of Transmittal and any such other documents are duly
executed and properly completed
- 2 -
<PAGE> 3
in accordance with instructions set forth therein and (ii) the Old Securities
have otherwise been properly tendered. In each case where the Letter of
Transmittal or any other document has been improperly completed or executed or
any of the certificates for Old Securities are not in proper form for transfer
or some other irregularity in connection with the acceptance of the Exchange
Offer exists, you will endeavor to inform the presenters of the need for
fulfillment of all requirements and to take any other action as may be necessary
or advisable to cause such irregularity to be corrected.
4. With the approval of the President, Senior Vice President,
Executive Vice President, or any Vice President of the Company (such approval,
if given orally, to be confirmed in writing) or any other party designated by
such an officer in writing, you are authorized to waive any irregularities in
connection with any tender of Old Securities pursuant to the Exchange Offer.
5. Tenders of Old Securities may be made only as set forth in the
Letter of Transmittal and in the section of the Prospectus captioned "The
Exchange Offer -- Procedures for Tendering", and Old Securities shall be
considered properly tendered to you only when tendered in accordance with the
procedures set forth therein.
Notwithstanding the provisions of this paragraph 5, Old Securities
which the President, Senior Vice President, Executive Vice President, or any
Vice President of the Company shall approve as having been properly tendered
shall be considered to be properly tendered (such approval, if given orally,
shall be confirmed in writing).
6. You shall advise the Company with respect to any Old Securities
received subsequent to the Expiration Date and accept its instructions with
respect to disposition of such Old Securities.
7. You shall accept tenders:
- 3 -
<PAGE> 4
(a) in cases where the Old Securities are registered in two or more
names only if signed by all named holders;
(b) in cases where the signing person (as indicated on the Letter of
Transmittal) is acting in a fiduciary or a representative capacity only when
proper evidence of his or her authority so to act is submitted; and
(c) from persons other than the registered holder of Old Securities
provided that customary transfer requirements, including any applicable transfer
taxes, are fulfilled.
You shall accept partial tenders of Old Securities where so
indicated and as permitted in the Letter of Transmittal and deliver certificates
for Old Securities to the transfer agent for split-up and return any untendered
Old Securities to the holder (or such other person as may be designated in the
Letter of Transmittal) as promptly as practicable after expiration or
termination of the Exchange Offer.
8. Upon satisfaction or waiver of all of the conditions to the
Exchange Offer, the Company will notify you (such notice if given orally, to be
confirmed in writing) of its acceptance, promptly after the Expiration Date, of
all Old Securities properly tendered and you, on behalf of the Company, will
exchange such Old Securities for New Securities and cause such Old Securities to
be cancelled. Delivery of New Securities will be made on behalf of the Company
by you at the rate of $1,000 principal amount at maturity of New Securities for
each $1,000 principal amount at maturity of the corresponding series of Old
Securities tendered promptly after notice (such notice if given orally, to be
confirmed in writing) of acceptance of said Old Securities by the Company;
provided, however, that in all cases, Old Securities tendered pursuant to the
Exchange Offer will be exchanged only after timely receipt by you of
certificates for such Old Securities (or confirmation of book-entry transfer
into your account at the Book-Entry Transfer Facility), a properly completed and
duly executed Letter of Transmittal (or facsimile thereof) with any required
signature guarantees and any other required documents. You shall issue New
Securities only in
- 4 -
<PAGE> 5
denominations of $1,000 at maturity or any integral multiple thereof.
9. Tenders pursuant to the Exchange Offer are irrevocable, except
that, subject to the terms and upon the conditions set forth in the Prospectus
and the Letter of Transmittal, Old Securities tendered pursuant to the Exchange
Offer may be withdrawn at any time prior to the Expiration Date.
10. The Company shall not be required to exchange any Old Securities
tendered if any of the conditions set forth in the Exchange Offer are not met.
Notice of any decision by the Company not to exchange any Old Securities
tendered shall be given (and confirmed in writing) by the Company to you.
11. If, pursuant to the Exchange Offer, the Company does not accept
for exchange all or part of the Old Securities tendered because of an invalid
tender, the occurrence of certain other events set forth in the Prospectus under
the caption "The Exchange Offer" or otherwise, you shall as soon as practicable
after the expiration or termination of the Exchange Offer return those
certificates for unaccepted Old Securities (or effect appropriate book-entry
transfer), together with any related required documents and the Letters of
Transmittal relating thereto that are in your possession, to the persons who
deposited them.
12. All certificates for reissued Old Securities, unaccepted Old
Securities or for New Securities shall be forwarded by first- class mail.
13. You are not authorized to pay or offer to pay any concessions,
commissions or solicitation fees to any broker, dealer, bank or other persons or
to engage or utilize any person to solicit tenders.
14. As Exchange Agent hereunder you:
(a) shall have no duties or obligations other than those
specifically set forth herein or as may be subsequently agreed to in writing by
you and the Company;
- 5 -
<PAGE> 6
(b) will be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value or genuineness of any of
the certificates or the Old Securities represented thereby deposited with you
pursuant to the Exchange Offer, and will not be required to and will make no
representation as to the validity, value or genuineness of the Exchange Offer;
(c) shall not be obligated to take any legal action hereunder
which might in your reasonable judgment involve any expense or liability, unless
you shall have been furnished with reasonable indemnity;
(d) may reasonably rely on and shall be protected in acting in
reliance upon any certificate, instrument, opinion, notice, letter, telegram or
other document or security delivered to you and reasonably believed by you to be
genuine and to have been signed by the proper party or parties;
(e) may reasonably act upon any tender, statement, request,
comment, agreement or other instrument whatsoever not only as to its due
execution and validity and effectiveness of its provisions, but also as to the
truth and accuracy of any information contained therein, which you shall in good
faith believe to be genuine or to have been signed or represented by a proper
person or persons;
(f) may rely on and shall be protected in acting upon written or
oral instructions from any officer of the Company;
(g) may consult with your counsel with respect to any questions
relating to your duties and responsibilities and the advice or opinion of such
counsel shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted to be taken by you hereunder in good faith
and in accordance with the advice or opinion of such counsel; and
(h) shall not advise any person tendering Old Securities
pursuant to the Exchange Offer as to the wisdom of
- 6 -
<PAGE> 7
making such tender or as to the market value or decline or appreciation in
market value of any Old Securities.
15. You shall take such action as may from time to time be requested
by the Company or its counsel (and such other action as you may reasonably deem
appropriate) to furnish copies of the Prospectus, Letter of Transmittal and the
Notice of Guaranteed Delivery (as defined in the Prospectus) or such other forms
as may be approved from time to time by the Company, to all persons requesting
such documents and to accept and comply with telephone requests for information
relating to the Exchange Offer, provided that such information shall relate only
to the procedures for accepting (or withdrawing from) the Exchange Offer. The
Company will furnish you with copies of such documents at your request. All
other requests for information relating to the Exchange Offer shall be directed
to the Company, Attention: David E. Rostov, Senior Vice President.
16. You shall advise by facsimile transmission or telephone, and
promptly thereafter confirm in writing to David E. Rostov, Senior Vice President
of the Company and such other person or persons as it may request, daily (and
more frequently during the week immediately preceding the Expiration Date and if
otherwise requested) up to and including the Expiration Date, as to the number
of Old Securities which have been tendered pursuant to the Exchange Offer and
the items received by you pursuant to this Agreement, separately reporting and
giving cumulative totals as to items properly received and items improperly
received. In addition, you will also inform, and cooperate in making available
to, the Company or any such other person or persons upon oral request made from
time to time prior to the Expiration Date of such other information as it or he
or she reasonably requests. Such cooperation shall include, without limitation,
the granting by you to the Company and such person as the Company may request of
access to those persons on your staff who are responsible for receiving tenders,
in order to ensure that immediately prior to the Expiration Date the Company
shall have received information in sufficient detail to enable it to decide
whether to extend the Exchange Offer. You shall prepare a final list of all
persons whose tenders were accepted, the aggregate princi-
- 7 -
<PAGE> 8
pal amount of Old Securities tendered, the aggregate principal amount of Old
Securities accepted and deliver said list to the Company.
17. Letters of Transmittal and Notices of Guaranteed Delivery shall
be stamped by you as to the date and the time of receipt thereof and shall be
preserved by you for a period of time at least equal to the period of time you
preserve other records pertaining to the transfer of securities. You shall
dispose of unused Letters of Transmittal and other surplus materials by
returning them to the Company.
18. You hereby expressly waive any lien, encumbrance or right of
set-off whatsoever that you may have with respect to funds deposited with you
for the payment of transfer taxes by reasons of amounts, if any, borrowed by the
Company, or any of its subsidiaries or affiliates pursuant to any loan or credit
agreement with you or for compensation owed to you hereunder.
19. For services rendered as Exchange Agent hereunder, you shall be
entitled to such compensation as set forth on Schedule I attached hereto.
20. You hereby acknowledge receipt of the Prospectus and the Letter
of Transmittal and further acknowledge that you have examined each of them. Any
inconsistency between this Agreement, on the one hand, and the Prospectus and
the Letter of Transmittal (as they may be amended from time to time), on the
other hand, shall be resolved in favor of the latter two documents, except with
respect to the duties, liabilities and indemnification of you as Exchange Agent,
which shall be controlled by this Agreement.
21. The Company covenants and agrees to indemnify and hold you
harmless in your capacity as Exchange Agent hereunder against any loss,
liability, cost or expense, including reasonable attorneys' fees and expenses,
arising out of or in connection with any act, omission, delay or refusal made by
you in reliance upon any signature, endorsement, assignment, certificate, order,
request, notice, instruction or other instrument or document reasonably believed
by you to be valid,
- 8 -
<PAGE> 9
genuine and sufficient and in accepting any tender or effecting any transfer of
Old Securities reasonably believed by you in good faith to be authorized, and in
delaying or refusing in good faith to accept any tenders or effect any transfer
of Old Securities; provided, however, that the Company shall not be liable for
indemnification or otherwise for any loss, liability, cost or expense to the
extent arising out of your gross negligence or willful misconduct. In no case
shall the Company be liable under this indemnity with respect to any claim
against you unless the Company shall be notified by you, by letter or by
facsimile confirmed by letter, of the written assertion of a claim against you
or of any other action commenced against you, promptly after you shall have
received any such written assertion or notice of commencement of action. The
Company shall be entitled to participate at its own expense in the defense of
any such claim or other action, and, if the Company so elects, the Company shall
assume the defense of any suit brought to enforce any such claim. In the event
that the Company shall assume the defense of any such suit, the Company shall
not be liable for the fees and expenses of any additional counsel thereafter
retained by you so long as the Company shall retain counsel satisfactory to you
to defend such suit, and so long as you have not determined, in your reasonable
judgment, that a conflict of interest exists between you and the Company.
22. You shall arrange to comply with all requirements under the tax
laws of the United States, including those relating to missing Tax
Identification Numbers, and shall file any appropriate reports with the Internal
Revenue Service. The Company understands that you are required to deduct 31% on
payments to holders who have not supplied their correct Taxpayer Identification
Number or required certification. Such funds will be turned over to the Internal
Revenue Service in accordance with applicable regulations.
23. You shall deliver or cause to be delivered, in a timely manner
to each governmental authority to which any transfer taxes are payable in
respect of the exchange of Old Securities, your check in the amount of all
transfer taxes so payable, and the Company shall reimburse you for the amount of
any and all transfer taxes payable in respect of the exchange
- 9 -
<PAGE> 10
of Old Securities; provided, however, that you shall reimburse the Company for
amounts refunded to you in respect of your payment of any such transfer taxes,
at such time as such refund is received by you.
24. This Agreement and your appointment as Exchange Agent hereunder
shall be construed and enforced in accordance with the laws of the State of New
York applicable to agreements made and to be performed entirely within such
state, and without regard to conflicts of law principles, and shall inure to the
benefit of, and the obligations created hereby shall be binding upon, the
successors and assigns of each of the parties hereto.
25. This Agreement may be executed in two or more counterparts, each
of which shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
26. In case any provision of this Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
27. This Agreement shall not be deemed or construed to be modified,
amended, rescinded, cancelled or waived, in whole or in part, except by a
written instrument signed by a duly authorized representative of the party to be
charged. This Agreement may not be modified orally.
28. Unless otherwise provided herein, all notices, requests and
other communications to any party hereunder shall be in writing (including
facsimile or similar writing) and shall be given to such party, addressed to it,
at its address or telecopy number set forth below:
- 10 -
<PAGE> 11
If to the Company:
McCaw International, Ltd.
1191 Second Avenue
Seattle, Washington 98101
Facsimile: (206) 749-8384
Attention: General Counsel
With a copy to:
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, New York
Facsimile: (212) 541-5369
Attention: Claude S. Serfilippi
If to the Exchange Agent:
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Facsimile: (212) 815-5915
Attention: Corporate Trust Trustee Administration
29. Unless terminated earlier by the parties hereto, this Agreement
shall terminate 90 days following the Expiration Date. Notwithstanding the
foregoing, Paragraphs 19, 21 and 23 shall survive the termination of this
Agreement. Upon any termination of this Agreement, you shall promptly deliver to
the Company any certificates for Securities, funds
- 11 -
<PAGE> 12
or property then held by you as Exchange Agent under this Agreement.
30. This Agreement shall be binding and effective as of the date
hereof.
- 12 -
<PAGE> 13
Please acknowledge receipt of this Agreement and confirm the
arrangements herein provided by signing and returning the enclosed copy.
McCAW INTERNATIONAL, LTD.
By:____________________________
Name: David E. Rostov
Title: Senior Vice President
Accepted as of the date
first above written:
THE BANK OF NEW YORK, as Exchange Agent
By:_____________________
Name:
Title:
- 13 -
<PAGE> 14
SCHEDULE I
FEES
$2,500
- 14 -
