As filed with the Securities and Exchange Commission on May 7, 1997
Registration Statement No. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
McCAW INTERNATIONAL, LTD.
(Exact Name of Registrant as Specified in Its Charter)
-------------------------
Washington 4812 91-167-1412
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification
organization) Number)
-------------------------
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 16001
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.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- --------------------- ---------------- ----------------------- ---------------------- -----------------------
Title of each class Proposed maximum Proposed maximum
of securities to be Amount to be aggregate price per aggregate offering Amount of registration
registered registered note price(1) fee
- --------------------- ---------------- ----------------------- ---------------------- -----------------------
13% Senior Discount $461,459,555(2) 100.0% $461,459,555 $139,837
Notes due April 15,
2007
- --------------------- ---------------- ----------------------- ---------------------- -----------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities Act of 1933.
(2) Equals the aggregate principal amount of the securities being registered
which were issued with original issue discount.
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>
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 May 7, 1997
PROSPECTUS
McCAW INTERNATIONAL, LTD.
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 _________,
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 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 16 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>
[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 _______,
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. 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. 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 (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. 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 ____________, 1997
<PAGE>
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
2
<PAGE>
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" and "MiKE" are trademarks
of Nextel Communications, Inc., Motorola, Inc., Infocom Communications Network,
Inc. and Clearnet Communications Inc., respectively.
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>
- --------------------------------------------------------------------------------
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 and pro
forma proportionate 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 46.3%; 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 (other than the pro forma financial information) 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 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.
4
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<PAGE>
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>
<S> <C> <C> <C> <C> <C> <C> <C>
McCaw Invested Start Date
International Proportionate Subscribers Capital as of
Ownership Population Existing System as of of Commercial
Market as of 4/30/97 Population as of 4/30/97 Type 12/31/96 1/31/97(1) Services
---------------- ------------- ----------- --------------- --------------- ----------- ---------- ------------
(millions) (millions) (millions)
Brazil.......... 81.0% 59.9 48.5 SMR 16,000 $ 186.3 October 1994
Argentina....... 50.0%(2) 17.6 8.8 Paging/SMR 4,000 20.7 April 1996/
February 1997
Mexico.......... 46.3% 42.5 19.7 SMR 24,000 103.8 September 1993
Philippines..... 30.0% 67.0 20.1 Paging/ESMR(3) 46,000 20.0 February 1995
China (Shanghai) 25.2%(4) 14.0 3.5 GSM 28,000 20.5 June 1995
Canada.......... 3.7%(5) 29.5 1.1 SMR/ESMR/PCS(6) 59,000 13.2(7) April 1994/
October 1996
Total....... 230.5 101.7 177,000 $ 364.5
===== ===== ======= ========
</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.
(5) Nextel also owns an approximately 15.6% equity interest in Clearnet.
(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.
5
<PAGE>
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:
o Average of 6.9 access lines per 100 people, compared to
59.4.
o Cellular penetration rate of .7% and SMR penetration rate
of .03%, compared to 12.8% and 7.0%, respectively.
o 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%.
o 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.
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:
6
<PAGE>
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.
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. 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
7
<PAGE>
currently in discussions with several large Brazilian corporate groups regarding
the possible sale of up to a 20% 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.
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 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 second 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 ("Natel") that Mobilcom did not own and to fund
operations. The Natel acquisition was consummated on April 16, 1997.
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.
8
<PAGE>
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."
9
<PAGE>
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 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 __________,
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."
10
<PAGE>
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 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.
11
<PAGE>
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
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
12
<PAGE>
and exceptions. See "Description of the
Notes-- Covenants."
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.
13
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth summary consolidated financial and
operating data of the Company for the period from February 27, 1995 (inception)
through December 31, 1995 and as of and for the year ended December 31, 1996.
The summary consolidated financial data of the Company for the period from
February 27, 1995 (inception) through December 31, 1995 and 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 pro forma consolidated
statements of operations give effect to the Transactions (as defined herein) and
the Initial Offering as if they occurred on January 1, 1995, and the pro forma
consolidated balance sheet data give effect to the Transactions and the Initial
Offering as if they occurred on December 31, 1996. 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>
<S> <C> <C> <C> <C> <C> <C>
Inception Through December 31, 1995 Year Ended December 31, 1996
---------------------------------------------- ----------------------------------------------
Pro Forma Pro Forma
As As
Actual Pro Forma(1) Adjusted(2) Actual Pro Forma(1) Adjusted(2)
------------ ------------ ------------- ------------ ------------ -------------
Consolidated
Statement of
Operations Data:
Revenues.......... $ -- $ 10,099,117 $ 10,099,117 $ -- $ 14,212,379 $ 14,212,379
Costs and expenses
related to
revenues......... -- 7,621,663 7,621,663 -- 9,589,401 9,589,401
------------ ------------ ------------- ------------ ------------ -------------
Gross profit...... -- 2,477,454 2,477,454 -- 4,622,978 4,622,978
Selling, general
and
administrative... 119,973 10,220,876 10,220,876 8,364,199 21,383,431 21,383,431
Depreciation and
amortization..... -- 23,038,807 24,784,807 649,886 23,186,907 24,932,907
------------ ------------ ------------- ------------ ------------ -------------
Operating loss.... (119,973) (30,782,229) (32,528,229) (9,014,085) (39,947,360) (41,693,360)
Other, net........ (2,062) 41,335 41,335 337,338 500,247 500,247
Interest expense, -- (168,367) (68,544,171)(3) (41,160) (1,298,630) (79,311,003)
net...............
Minority interest
in net loss...... -- 828,531 828,531 -- 2,919,168 2,919,168
Income (loss) from
equity method
investments...... -- (15,359,329) (15,359,329) 83,890 (5,315,066) (5,315,066)
------------ ------------- ------------- ------------ ------------ -------------
Loss before income
tax benefit...... (122,035) (45,440,059) (115,561,863) (8,594,017) (43,141,641) (122,900,014)
Provision for
Income tax........ -- 11,360,880 11,360,880 -- 2,111,173 2,111,173
------------ ------------ ------------- ------------ ------------ -------------
Net loss.......... $ (122,035) $(34,079,179) $(104,200,983) $ (8,594,017) $(41,030,468) $(120,788,841)
============ ============ ============= ============ ============ =============
Net loss per
share............ $ (0.01) $ (3.41) $ (10.42) $ (.86) $ (4.10) $ (12.08)
Weighted average
shares
outstanding...... 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000
Other Financial
Data:
EBITDA(4)......... $ (122,035) $(22,232,886) $ (22,232,886) $ (7,902,971) $(18,656,104) $ (18,656,104)
Cash flows from
operating
activities....... (50,912) (9,590,595) (9,590,595) (3,750,144) (6,717,725) (6,717,725)
Cash flows from
investing
activities....... (20,128,214) (26,880,598) (26,880,598) (40,941,809) (52,827,158) (52,827,158)
Cash flows from
financing
activities....... 20,181,247 35,963,756 517,963,756 44,861,586 50,041,885 532,041,885
Ratio of earnings
to fixed
charges(5)....... -- -- -- -- -- --
</TABLE>
14
<PAGE>
As of December 31, 1996
--------------------------
Pro Forma
Actual As Adjusted(6)
---------- --------------
Consolidated Balance Sheet Data:
Cash and cash equivalents........................... $ 171,754 $472,561,570
Investment in unconsolidated subsidiaries........... 38,581,077 153,137,814
Total assets........................................ 62,145,695 944,213,511
Long-term debt...................................... -- 485,157,177
Minority interest................................... -- 5,988,133
Stockholder's equity................................ 56,326,781 362,373,774
- ----------
(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,
1995: (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) NIC's acquisition of an
approximately 38% interest in Mobilcom for $76.9 million, the contribution
of such interest to the Company and the subsequent increase in the
Company's interest in Mobilcom from 38% to 46.3%, 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; and (iv) NIC's contribution of 3.7% of the
outstanding common stock of Clearnet to the Company, which is accounted for
at fair market value as of December 31, 1996. The pro forma data does not
give effect to the Argentina Transaction which was consummated on May 6,
1997. See "The Company."
(2) Adjusted to give effect to the Transactions and the Initial Offering as if
they occurred on January 1, 1995. Interest expense has been adjusted for
the year ended December 31, 1995 and the year ended December 31, 1996 to
include approximately $68.4 million and $78.0 million, respectively,
consisting of (i) interest on the Notes and (ii) amortization of the
Initial Offering costs and other related fees of $17.5 million, 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.
(3) 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.
(4) "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 Memorandum.
(5) 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 period from inception through December
31, 1995 for actual, pro forma, and pro forma as adjusted was $122,035,
$34,079,179 and $104,200,983, respectively, for the period from inception
through and for the year ended December 31, 1996 for actual, pro forma and
pro forma as adjusted as $8,594,017, $41,030,468 and $120,788,841,
respectively.
(6) Gives pro forma effect to the Transactions and adjusted for the Initial
Offering as if they occurred on December 31, 1996.
15
<PAGE>
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 $6.7
million, negative EBITDA of $18.7 million and net losses of $120.8 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. 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 $120.8 million and EBITDA would have been negative $18.7 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 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
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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; (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 must substantially increase its net cash flow in order to
meet its debt service obligations, and there can be no assurance that the
Company will be able to meet such 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 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 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.
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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 37% 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. 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 values 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 because its equity ownership will entitle it to elect a majority
of the board of directors of Mobilcom. As of April 30, 1997, the Company owned
approximately 46.3% of the voting stock of Mobilcom. See "Business -- Operations
and Investments -- Corporate Governance -- Mexico."
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
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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 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. 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. 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 or regulations affecting prices
the Company is able to charge for its services, could have a material adverse
effect on the Company. For a more detailed description of the regulatory
environment in
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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 "-- 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 Brazilian
Ministry of Communications (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.
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, 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 license 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 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 licenses. 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 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 license, the Company believes that it 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 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 owned entirely by the Company and are not
held pursuant to the Option Agreements.
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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 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 license in the same service area
from private parties and holding such license 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 licenses 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.
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, 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. 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 rules
governing the bidding process (the "Band B Rules"). 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
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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 are expected to be granted licenses in the upcoming auction 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 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.
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
22
<PAGE>
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 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 five directors that comprise the board of directors of the
Company, three are also directors 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,
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
23
<PAGE>
Investor and Motorola, the McCaw Investor and Motorola would beneficially own
approximately 26.3% and approximately 14.2% of the Nextel Class A Common Stock,
respectively, outstanding as of March 21, 1997. 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.
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 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
24
<PAGE>
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 Moto
ola 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 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
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
25
<PAGE>
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 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.
26
<PAGE>
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 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."
27
<PAGE>
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.
<TABLE>
<CAPTION>
--------------------------
Nextel Communications, Inc.
(Delaware)
--------------------------
/
--------------------------
McCaw International, Ltd.
(Washington)
--------------------------
/
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
/ 81.0% / 50.0%(1) / 46.3% / 30.0% / 25.2%(2) / 3.7%
- ------------- --------------- ------------ -------------- -------- --------------
MCCAW MCCAW CORPORACION INFOCOM SHANGHAI CLEARNET
INTERNATIONAL INTERNATIONAL MOBILCOM, COMMUNICATIONS GSM COMMUNICATIONS
(BRAZIL) LTD. (ARGENTINA) S.A. de C.V. NETWORK, INC. SYSTEM INC.
LTD.
(Virginia) (Cayman Islands) (Mexico) (Philippines) (China) (Canada)
- ------------- ---------------- ------------- --------------- --------- --------------
</TABLE>
(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 and
had approximately 16,000 SMR subscribers at December 31, 1996.
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.
28
<PAGE>
The Company is currently in discussions with several large Brazilian
corporate groups regarding the possible sale of up to a 20% equity interest in
the Brazil Holding Company. The proceeds from the Brazil 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 will be the largest SMR channel holder in Argentina, with twice as
many SMR channels as the second largest SMR operator. It will have 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 will cover over 17.6 million POPs. As part of
the Argentina Transaction, McCaw Argentina became the holder of a nationwide
paging business with approximately 4,000 subscribers. The Company and WVA share
50/50 ownership 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 46.3% 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 11.2%. The Company has options
to acquire up to an additional 29.5% of Mobilcom, which expire on March 3, 1998.
Philippines. In August 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.
Infocom is in discussions to enter into a joint operating agreement
(the "Joint Operating Agreement") with one of the leading SMR operators in the
Philippines. If consummated, the Joint Operating Agreement would enable Infocom
to operate its channels together with those of the second operator as a single
system making it the largest SMR system in the Philippines. There can be no
assurance that any such transaction will be consummated.
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
29
<PAGE>
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 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 April 30, 1997 the Company's Clearnet common stock
had a market value of approximately $11.8 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 mid-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 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.
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. NIC is considered a predecessor company to McCaw International.
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.
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.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996 on a (i) historical basis and (ii) pro forma basis as adjusted
to give effect to the Transactions and the Initial Offering. 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>
<S> <C> <C>
December 31, 1996
--------------------------
Pro Forma
Actual As Adjusted(1)
------- ---------------
(unaudited)
Long-term debt:
Notes offered hereby, net of original issue discount of
$466,305,823.................................................. $ -- $485,157,177
-------- ------------
Total long-term debt........................................ -- 485,157,177
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............. 65,042,833 353,657,722
Accumulated deficit.................................... (8,716,052) (8,716,052)
----------- ------------
Total stockholder's equity..................... 56,326,781 362,373,774
----------- ------------
Total capitalization................. $56,326,781 $847,530,951
============ =============
</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.
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.
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<PAGE>
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 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. Solely for reasons of
administration, the Company has fixed the close of business on_____, 1997 as the
record date for the Exchange Offer for purposes of determining the persons to
whom this Prospectus and the Letter of Transmittal will be mailed initially.
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
__________, 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, 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.
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<PAGE>
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 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.
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<PAGE>
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.
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
34
<PAGE>
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.
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.
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<PAGE>
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.
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:
By Mail: By Facsimile Transmission: By Hand:
The Bank of New York (For Eligible Institutions The Bank of New York
101 Barclay Street Only) 101 Barclay Street
Floor 21 W (212) 815-5915 Floor 21 W
New York, New York 10286 New York, New York 10286
Attention: Corporate Confirm by Telephone: Attention: Corporate
Trust Office (212) 815-5919 Trust Office
By Overnight Delivery:
[ ]
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
36
<PAGE>
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 $_____. 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.
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.
37
<PAGE>
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, 1995, and for the period from February 27, 1995 (inception) through December
31, 1995, and as of and for the year ended December 31, 1996. The selected
consolidated historical financial data of the Company as of December 31, 1995
and for the period from February 27, 1995 (inception) through December 31, 1995
and as of and for the year ended December 31, 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 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>
<S> <C> <C>
Inception Year
Through Ended
December 31, 1995 December 31, 1996
----------------- -----------------
Consolidated Statement of Operations Data:
Revenues................................ $ -- $ --
Costs and expenses related to revenues.. -- --
============ ==
Gross profit............................ -- --
Selling, general and administrative..... 119,973 8,364,199
Depreciation and amortization........... -- 649,886
============ =================
Operating loss.......................... (119,973) (9,014,085)
Other, net.............................. (2,062) 337,338
Interest expense, net................... -- (41,160)
Minority interest in net loss........... -- --
Income (loss) from equity method -- 83,890
investments............................. ============ =================
Loss before income tax benefit.......... (122,035) (8,594,017)
Income tax benefit...................... -- --
============ ==
Net loss................................ $ (122,035) $ (8,594,017)
============ ==================
Net loss per share...................... $ (.01) $ (.86)
Weighted average shares outstanding..... 10,000,000 10,000,000
Other Financial Data:
EBITDA(1)............................... $ (122,035) $ (7,902,971)
Cash flows from operating activities.... (50,912) (3,750,144)
Cash flows from investing activities.... (20,128,214) (40,941,809)
Cash flows from financing activities.... 20,181,247 44,861,586
Capital expenditures.................... 36,056 8,817,644
Ratio of earnings to fixed charges(2)... -- --
As of As of
December 31, 1995 December 31, 1996
----------------- -----------------
Balance Sheet Data:
Cash and cash equivalents........... $ 2,121 $ 171,754
Investment in unconsolidated
subsidiaries........................ 9,926,625 38,581,077
Total assets........................ 20,140,977 62,145,695
Long-term debt...................... -- --
Minority interest................... -- --
Stockholder's equity................ 20,059,212 56,326,781
</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 for purposes of calculating the ratio of
earnings to fixed charges for the period from inception through December
31, 1995, and the year ended December 31, 1996 was $122,035, and
$8,594,017, respectively.
38
<PAGE>
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 December 31, 1996 gives effect to the
Transactions and the Initial Offering as if they had occurred at December 31,
1996. The unaudited pro forma consolidated statements of operations for the
period from February 27, 1995 (inception) through December 31, 1995 and for the
year ended December 31, 1996 give effect to the Transactions and the Initial
Offering as if they had occurred on January 1, 1995. 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 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) NIC's
acquisition of an approximately 38% interest in Mobilcom for $76.9 million the
contribution of such interest to the Company and the subsequent increase in the
Company's ownership interest in Mobilcom from 38% to 46.3%, 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; and (iv) NIC's
contribution of approximately 3.7% of the outstanding common stock of Clearnet
to the Company, accounted for at fair market value as of December 31, 1996. The
pro forma consolidated financial statements do not give effect to the Argentina
Transaction, which was consummated on May 6, 1997.
39
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED BALANCE SHEET(1)
As of December 31, 1996
<S> <C> <C> <C> <C> <C> <C> <C>
Company WVB Pro Forma
(historical) (historical) Mobilcom(2) Adjustments(3) Pro Forma Adjustments(4) As Adjusted
=============== ================ ============= ============== ============= =============== ==============
Total current
assets........ $ 1,725,557 $ 5,807,959 $(10,000,000) $ -- $ (2,466,484) $482,000,000(5) $ 479,533,516
Investment in
unconsolidated
subsidiaries... 38,581,077 -- 97,000,000 17,556,737(6) 153,137,814 -- 153,137,814
Intangible
assets-- net... 10,878,235 48,387,332 -- 161,659,074(7)
53,347,495(7) 274,272,136 -- 274,272,136
Property, plant
and
equipment-- 8,703,076 8,842,875 -- -- 17,545,951 -- 17,545,951
net...
Other
noncurrent
assets....... 2,257,750 6,344 -- -- 2,264,094 17,460,000(5) 19,724,094
-------------- --------------- -------------- -------------- ------------- ------------- ------------
Total Non Current $60,420,138 $ 57,236,551 $ 97,000,000 $232,563,306 $ 447,219,995 $ 17,460,000 $ 464,679,995
Total Assets 62,145,695 63,044,510 87,000,000 232,563,306 444,753,511 499,460,000 944,213,511
=============== ================ ================ ============== ============= ============= ===========
Total current
liabilities... 5,818,914 32,032,882 -- (19,033,381)(7) 18,818,415 -- 18,818,415
-------------- ---------------- ------------- ----------------- ------------- ------------- -----------
Deferred income
taxes and
other........ -- 18,528,517 -- 53,347,495(7) 71,876,012 -- 71,876,012
Long-term
debt......... -- -- -- -- -- 485,157,177(9) 485,157,177
Minority
interest..... -- -- -- 5,988,133(8) 5,988,133 -- 5,988,133
-------------- --------------- ------------- -------------- ------------ ------------- ------------
Total Non Current
liabilities... -- 18,528,517 -- 59,335,628 77,864,145 485,157,177 563,021,322
-------------- ---------------- ------------- -------------- ------------ --------------- ------------
Total Liabilities 5,818,914 50,561,399 40,302,247 96,682,560 485,157,177 581,839,737
Total
stockholder's
equity....... 56,326,781 12,483,111 87,000,000 17,556,737(6)
161,659,074(7)
19,033,381(7)
(5,988,133)(8) 348,070,951 14,302,823(9) 362,373,774
-------------- --------------- -------------- --------------- ------------ --------------- ------------
Total
liabilities
and
stockholder's
equity....... $ 62,145,695 $ 63,044,510 $ 87,000,000 $232,563,306 $ 444,753,511 $499,460,000 $ 944,213,511
=============== ================ ============== ============== ============ ============= =============
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS(1)
For the Year Ended December 31, 1996
<S> <C> <C> <C> <C> <C> <C> <C>
Company WVB Pro Forma
(historical) (historical) Mobilcom(2) Adjustments(3) Pro Forma Adjustments(4) As Adjusted
-------------- --------------- ------------- ---------------- ------------- --------------- --------------
Revenues....... $ -- $ 14,212,379 $ -- $ -- $ 14,212,379 $ -- $ 14,212,379
Cost and
expense
related to
revenue...... -- 9,589,401 -- -- 9,589,401 -- 9,589,401
-------------- --------------- ------------- ----------- ------------ ------------ ------------
Gross profit... -- 4,622,978 -- -- 4,622,978 -- 4,622,978
Selling,
general and
administrative. 8,364,199 13,019,232 -- -- 21,383,431 -- 21,383,431
Depreciation
and
amortization... 649,886 5,277,024 -- 2,667,375(10) -- -- --
8,082,954(11)
337,885(12)
-- 6,171,783(13) 23,186,907 1,746,000(14) 24,932,907
-------------- --------------- ------------ --------------- ------------ --------------- -----------
Operating
loss......... (9,014,085) (13,673,278) 0 (17,259,997) (39,947,360) (1,746,000) (41,693,360)
Other, net..... 377,338 122,909 -- -- 500,247 500,247
Interest
expense, net .. (41,160) (2,636,127) -- 1,378,657(7) (1,298,630) (78,012,373)(14) (79,311,003)
Income (loss)
from equity
method
investments... 83,890 -- -- (5,482,846)(15) -- --
83,890(16) (5,315,066) (5,315,066)
Minority
interest in
net loss..... -- -- -- 2,919,168(8) 2,919,168 -- 2,919,168
-------------- --------------- ------------ --------------- ------------ ------------ ------------
Total Other
Income 420,068 (2,513,218) 0 (1,101,131) (3,194,281) (78,012,373) 81,206,654
-------------- ---------------- ------------ --------------- ------------- ------------- ------------
Loss before
income tax
benefit...... (8,594,017) (16,186,496) 0 (18,361,128) (43,141,641) (79,758,373) (122,900,014)
Income tax
benefit...... -- (556,202) 2,667,375(17) 2,111,173 2,111,173
-------------- ---------------- ------------- --------------- ------------ ------------ ------------
Net loss....... $ (8,594,017) $ (16,742,698) $ -- $ (15,693,753) $(41,030,468) $ (79,758,373) $ (120,788,841)
=============== =============== ============= ============== ============ ============ =============
Net loss per
share........ $ (.86) $ (4.10) $ (12.08)
Weighted
average
shares
outstanding... 10,000,000 10,000,000 10,000,000
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS(1)
For the Period From February 27, 1995 (inception)
through December 31, 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Company WVB Pro Forma
(historical) (historical) Mobilcom(2) Adjustments(3) Pro Forma Adjustments(4) As Adjusted
-------------- ------------- ----------- ------------- ------------ -------------- --------------
Revenues........ $ -- $ 10,099,117 $ -- $ -- $ 10,099,117 $ -- $ 10,099,117
Costs and
expenses
related to
revenues...... -- 7,621,663 -- -- 7,621,663 -- 7,621,663
-------------- ------------ ----------- ------------- ------------ ------------- --------------
Gross profit.... -- 2,477,454 -- -- 2,477,454 2,477,454
Selling, general
and
administrative 119,973 10,100,903 -- -- 10,220,876 -- 10,220,876
Depreciation and
amortization... -- 5,305,773 -- 2,667,375(10) -- -- --
8,082,954(11)
810,922(12)
6,171,783(13) 23,038,807 1,746,000(14) 24,784,807
-------------- ------------ ----------- ------------- ------------ -------------- --------------
Operating loss.. (119,973) (12,929,222) -- (17,733,034) (30,782,229) (1,746,000) (32,528,229)
Other, net...... (2,062) 43,397 -- 41,335 41,335
Interest
expense, net . -- (839,387) -- 671,020(7) (168,367) (68,375,804)(14) (68,544,171)
Income (loss) from
equity method
investments... -- -- -- (14,508,105)(15) -- -- --
(851,224)(16) (15,359,329) (15,359,329)
Minority interest
in net loss... -- -- -- 828,531(8) 828,531 -- 828,531
-------------- ------------ ----------- ------------ ------------ --------------- --------------
Loss before
income tax
benefit....... (122,035) (13,725,212) -- (31,592,812) (45,440,059) (70,121,804) (115,561,863)
Income tax
benefit....... -- 8,693,505 -- 2,667,375(17) 11,360,880 11,360,880
-------------- ------------ ----------- ------------ ------------ --------------- --------------
Net loss........ $ (122,035) $ (5,031,707) -- $(28,925,437) $(34,079,179) $(70,121,804) $(104,200,983)
=============== ============ =========== ============ ============ =============== ==============
Net loss per
share......... $ (.01) $ (3.41) $ (10.42)
Weighted average
shares
outstanding... 10,000,000 10,000,000 10,000,000
</TABLE>
- ----------
(1) For purposes of conforming the presentation of the pro forma consolidated
financial statements, certain historical amounts have been summarized.
(2) Gives effect to: (i) NIC's acquisition of an approximately 38.0% interest
in Mobilcom for $76.9 million and the contribution of such interest to the
Company; and (ii) the subsequent increase in the Company's interest in
Mobilcom from 38% to 46.3%.
(3) Adjustments to give effect to the Transactions.
(4) Adjustments to give effect to the Initial Offering.
(5) Reflects net proceeds from the Initial Offering of $482 million after
deducting estimated offering costs and other related fees of $17.5 million.
(6) Gives effect to the contribution by NIC of approximately 3.7% of Clearnet,
accounted for at fair market value ($11 per share as of December 31, 1996).
(7) Adjustments, on a preliminary basis, to record the acquisition of WVB
include: (i) the allocation of $161.7 million of the purchase price to
licenses; (ii) the recognition of goodwill of $53.3 million related to the
recognition of a $53.3 million deferred tax liability; and (iii) the
forgiveness of a note payable to a stockholder of $19.0 million concurrent
with the acquisition and related interest payable. As a result of the
forgiveness of the note payable, interest expense of $.7 million and $1.4
million for the periods from inception through December 31, 1995 and the
year ended December 31, 1996, respectively, have been eliminated.
42
<PAGE>
(8) Gives effect to the recognition of the 19% minority interest attributable
to the Company's consolidation of WVB.
(9) 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.
(10) Gives effect to the amortization of goodwill recognized, on a preliminary
basis, in the WVB acquisition over 20 years.
(11) Gives effect to the amortization of licenses acquired, on a preliminary
basis, in the WVB acquisition over 20 years.
(12) Gives effect to the amortization of goodwill recognized in the Infocom
acquisition over 20 years.
(13) Gives effect to the amortization of goodwill of $123.4 million recognized,
on a preliminary basis, in the Mobilcom acquisition over 20 years.
(14) Interest expense has been adjusted for the periods from inception to
December 31, 1995 and the year ended December 31, 1996 to include
approximately $68.4 million and $78.0 million, respectively, consisting of
(i) interest on the Notes and (ii) amortization of the offering costs and
other related fees of $17.5 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 46.3% 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.
43
<PAGE>
PRO FORMA PROPORTIONATE FINANCIAL INFORMATION
The Company believes that the presentation of certain financial data
based on the Company's pro forma proportionate ownership interest in each of the
Operating Companies is helpful for a better understanding of the Company's
results of operations and financial position. The following pro forma
proportionate financial information is unaudited and not prepared in accordance
with U.S. GAAP, is not intended to replace the pro forma consolidated financial
data or the historical consolidated financial statements, and should be read in
conjunction with the "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, WVB's and Mobilcom's consolidated
financial statements and the notes thereto, appearing elsewhere in this
Prospectus.
The pro forma consolidated financial information for the Company is
prepared in accordance with U.S. GAAP and gives effect to the Transactions and
the Initial Offering. The pro forma consolidated financial information combines
those entities in which the Company has a controlling interest, McCaw Argentina
and WVB, and uses the equity method to account for entities in which the Company
does not have a controlling interest, Infocom, (30%), and Mobilcom, (46.3%), and
accounts for the Company's 3.7% interest in Clearnet at fair market value. In
contrast, the pro forma proportionate financial information gives effect to the
Initial Offering, the Transactions, and the Company's relative ownership
interests in operating revenues and expenses for its consolidated, equity
method, and entities accounted for at cost or fair market value, excluding the
Company's investment in the Shanghai GSM System.
Inception Through Year Ended
December 31, 1995 December 31, 1996
----------------- -----------------
Statement of Operations Data:
Revenues................................ $ 11,846,161 $ 17,292,967
Costs and expenses related to revenues.. 7,903,516 9,346,329
------------ ------------
Gross profit............................ 3,942,645 7,946,638
Selling, general and administrative..... 14,899,913 25,231,119
Depreciation and amortization(1)........ 25,270,938 25,954,825
------------ ------------
Operating loss.......................... (36,228,206) (43,239,306)
Other, net.............................. (5,732,478) 193,162
Interest expense, net................... (72,543,225) (81,869,410)
------------ ------------
Minority interest in net loss (income).. -- --
Income (loss) from equity method -- --
investments............................. ------------ ------------
Loss before income tax benefit.......... (114,503,909) (124,915,554)
Income tax benefit...................... 9,881,982 2,103,826
------------ ------------
Net loss................................ $(104,621,927) $(122,811,728)
============= =============
Net loss per share...................... $ (10.46) $ (12.28)
Weighted average shares outstanding..... 10,000,000 10,000,000
Other Financial Data:
EBITDA(2)............................... $ (16,689,746) $ (17,091,319)
- ----------
(1) Includes $17,733,033 and $17,259,996 in amortization expense related to the
recording of goodwill and licenses acquired in connection with the
Transactions for the period from inception through December 31, 1995, and
the year ended December 31, 1996, respectively. See the pro forma
consolidated financial statements and the notes thereto.
(2) 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.
44
<PAGE>
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.
As of December 31, 1996, the Company owned 100% of McCaw Argentina, a
30% equity interest in 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% interest in Infocom is accounted for using
the equity method, 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, the Company's ownership interest in
McCaw Argentina was reduced to 50%. Under U.S. GAAP in effect on the date
hereof, 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. On February 28, 1997, NIC, which as of such date owned approximately 38%
of Mobilcom and 3.7% of Clearnet, was merged into an indirect wholly owned
subsidiary of the Company. The Company's 3.7% investment in Clearnet is
considered an investment in marketable securities and is reflected at fair
market value.
As of April 30, 1997, the Company owned approximately 46.3% of the
outstanding equity of Mobilcom. Beginning on October 24, 1997 and for a two-year
period thereafter, pursuant to the Mobilcom Put, holders of approximately 37% 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. 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 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.
45
<PAGE>
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.
The Company expects revenues 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 to be 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.
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.
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Depreciation and Amortization
Historically, the Company has recognized very little depreciation and
amortization expense. As a result of the acquisition of WVB, the Company expects
depreciation and amortization to increase. In particular, approximately $215.6
million of licenses and goodwill related to the acquisition of WVB will be
amortized over 20 years using the straight-line method.
Other, Net
Other, net is comprised of both other expenses and other income. Other
income includes income from Shanghai McCaw and income from Infocom which is
accounted for under the equity method. Income from Shanghai McCaw consists of
fees received by the Company for management services provided to Shanghai McCaw.
Income from Infocom consists of fees received by the Company for management
services provided to Infocom and salary and expense reimbursement for the
Company's employees who are working at Infocom.
Minority Interest
In the pro forma financial statements, minority interest represents
the 19% interest in McCaw Brazil not owned by the Company.
Income From Equity Method Investments
Income 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, income from equity
method investments consisted of the Company's 30% interest in Infocom. In future
consolidated financial statements, income from equity method investments will
also include the Company's 46.3% interest in Mobilcom. In addition, after the
Argentina Transaction, income from equity method investments will also include
the Company's 50% interest in McCaw Argentina.
Income Tax Benefit
The Company is subject to income taxes in the United States and in
each of the jurisdictions in which it operates. Although the Company has not
paid income taxes because of its significant losses, it has been precluded from
recognizing an income tax benefit under SFAS 109 because it is not reasonably
certain that the Company will have taxable income. As the Company expands its
wireless communications networks and increases its subscriber base the Company
expects to generate taxable income.
On a pro forma basis, the Company recognizes an income tax benefit
from the WVB acquisition. The benefit is attributable to certain WVB
subsidiaries which have taxable temporary differences allowing for the
recognition of an income tax benefit for utilization of net operating losses and
the effect of the differential between the U.S. Federal and Brazilian income
taxes and a change in the statutory tax rates of Brazil.
Pro Forma Results of Operations
The Company's historical results of operations reflect only a limited
period of providing wireless services to a limited number of subscribers by
certain of the unconsolidated Operating Companies and do not give effect to the
Transactions or the Initial Offering. Accordingly, historical results are not
indicative of the Company's future results of operations following the
Transactions and deployment and upgrade of the Company's wireless systems. The
Company believes that the pro forma discussion of the Company's results of
operations for the periods presented mitigates the lack of comparability of
historical periods. The pro forma data is not necessarily indicative of the
results that would have been achieved by the Company, nor is it indicative of
the Company's future results.
The Company's ability to generate positive cash flow and operating
profits will depend on a number of factors, including the timing of the
deployment and upgrade of its wireless systems in its existing and new markets
and the Company's ability to attract and retain new customers. Future results
may also be affected by regulatory policies in the various countries in which
the Company operates. See "Risk Factors."
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Year Ended December 31, 1996 Compared to Period From Inception Through December
31, 1995
All revenues are from WVB because commercial operations in Argentina
began in February 1997. WVB's revenue increased 41% to $14.2 million for the
year ended December 31, 1996 from $10.1 million for the period from inception
through December 31, 1995. This increase was primarily due to the 71% increase
in the number of WVB's subscribers from December 31, 1995 to December 31, 1996.
Average monthly revenues per subscriber were relatively consistent between
periods.
Costs and expenses related to revenues are all from WVB because
commercial operations in Argentina began in February 1997. These costs increased
26% to $9.6 million for the year ended December 31, 1996 from $7.6 million for
the period from inception through December 31, 1995. This increase was the
result of servicing additional subscribers obtained through marketing efforts
and a greater number of channels in operation during the 1996 period. As a
percentage of revenue, costs and expenses related to revenue decreased to 67%
for the year ended December 31, 1996 from 75% for the period from inception
through December 31, 1995. This decrease reflects efficiencies gained through
additional SMR network acquisitions and the decreasing costs of equipment
inventory.
Selling, general and administrative expenses increased 109% to $21.4
million for the year ended December 31, 1996 from $10.2 million for the period
from inception through December 31, 1995. Substantially all of this increase was
attributable to the expansion of the Company's operations during 1996. Selling,
general and administrative expenses attributable to WVB increased 29% to $13.0
million for the year ended December 31, 1996 from $10.1 million for the period
from inception through December 31, 1995, which reflects the growth of the
Company's operations including management of its subsidiaries and costs related
to acquisitions consummated in 1996. WVB's selling, general and administrative
expenses decreased to 92% of revenue for the year ended December 31, 1996 from
100% for the period from inception through December 31, 1995. This decrease
reflects revenue growth from a larger subscriber base and ongoing cost control
programs. Selling, general and administrative expenses attributable to the
Company increased $8.2 million to $8.4 million for the year ended December 31,
1996 from $119,973 for the period from inception through December 31, 1995. The
increase in the Company's selling, general and administrative expenses can be
attributable to $5.5 million of additional expenses related to the expansion of
the corporate headquarters, $1.3 million related to McCaw Argentina start-up
costs, and $1.4 million of inventory writedowns of McCaw Argentina.
Depreciation and amortization increased by $148,100 to $24.9 million
for the year ended December 31, 1996 compared to $24.8 million for the period
from inception through December 31, 1995. Depreciation and amortization for the
year ended December 31, 1996 included $8.1 million related to the amortization
of acquired WVB licenses, $6.2 million related to the amortization of goodwill
recognized in connection with the Mobilcom acquisition, $2.7 million related to
the amortization of goodwill recognized in connection with the WVB acquisition,
$1.7 million related to the amortization of estimated debt offering costs and
other fees related to the Initial Offering and $810,922 related to the
amortization of goodwill recognized in connection with the Infocom acquisition.
Other, net income was $500,247 for the year ended December 31, 1996
compared to $41,335 for the period from inception through December 31, 1995.
Nearly all of this increase resulted from technical services revenues recognized
during 1996.
Net interest expense on debt offering increased to $79.3 million for
the year ended December 31, 1996 from $68.5 million for the period from
inception through December 31, 1995, which primarily represents interest accrued
on the Notes. Pending the use of the net proceeds from the Initial Offering, the
Company intends to invest such net proceeds in short term, interest bearing,
investment grade securities. On the pro forma basis described herein the Company
has not recognized interest income from such short term investments.
Loss from equity method investments decreased to $5.3 million for the
year ended December 31, 1996 from $15.4 million for the period from inception
through December 31, 1995. This decrease was primarily attributable to the
Company's proportionate share of Mobilcom's decrease in net loss to $5.5 million
for the year ended December 31, 1996 from $14.5 million for the period from
inception through December 31, 1995. In 1995 Mobilcom was adversely impacted by
the 55% Mexican peso devaluation and a $1.3 million write-down of certain
non-core assets.
Minority interest in net loss increased to $2.9 million for the year
ended December 31, 1996 from $828,531 million for the period from inception
through December 31, 1995. This reflects the 19% minority interest in the net
loss of WVB.
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Income tax benefit decreased to $2.1 for the year ended December 31,
1996 from $11.4 million for the period from inception through December 31, 1995,
primarily due to a change in Brazilian statutory tax rates in 1995. Income tax
benefits are attributable to certain WVB subsidiaries which have temporary
differences allowing for the recognition of an income tax benefit for
utilization of net operating losses. Additionally, the pro forma results include
the recognition of tax benefits associated with the amortization of licenses
acquired in the WVB transaction.
Period From Inception Through December 31, 1995
Revenue was $10.1 million for the period from inception through
December 31, 1995, all of which was recognized by WVB. No revenues were
recognized by McCaw Argentina because commercial operations began in February
1997.
Costs and expenses related to revenue was $7.6 million for the period
from inception through December 31, 1995, representing 75% of revenue, all of
which was recognized by WVB. There were no costs and expenses related to revenue
recognized by McCaw Argentina.
Selling, general and administrative expense was $10.2 million for the
period, representing 101% of revenue. Nearly all of this expense was
attributable to WVB and consisted primarily of salaries, building leases and
utilities and to a lesser extent marketing, depreciation and doubtful account
provisions.
Depreciation and amortization was $24.8 million for the period from
inception through December 31, 1995 and consisted primarily of adjustments
required for pro forma presentation purposes. These adjustments included $8.1
million related to the amortization of acquired WVB licenses, $810,922 related
to the amortization of goodwill recognized in connection with the Infocom
acquisition, $6.2 million related to the amortization of goodwill recognized in
connection with the acquisition of Mobilcom, $2.7 million related to the
amortization of goodwill recognized as a result of the WVB acquisition and $1.7
million related to the amortization of projected debt offering costs and other
fees related to the Initial Offering.
Other, net represents income of $41,335 for the period from inception
through December 31, 1995 which was primarily attributable to WVB.
Net interest expense was $68.5 million for the period, which
represents interest accrued on the Notes. Pending the use of the net proceeds
from the Initial Offering, the Company intends to invest such net proceeds in
short term, interest bearing, investment grade securities.
Loss from equity method investments was $15.4 million for the period,
of which $14.5 million represents the Company's equity share of Mobilcom's net
loss and $851,224 reflects the Company's proportionate share of Infocom's net
loss.
Minority interest in net loss was $828,531 for the period from
inception through December 31, 1995, representing the 19% minority interest in
the net loss of WVB.
Income tax benefit was $11.4 million for the period from inception
through December 31, 1995. The benefit is attributable to certain WVB
subsidiaries which have taxable temporary differences allowing for the
recognition of an income tax benefit for utilization of net operating losses and
a change in Brazilian statutory tax rates. Additionally, the pro forma results
include the recognition of tax benefit associated with the amortization of the
licenses acquired in the WVB transaction.
Historical Results of Operation
Year Ended December 31, 1996 Compared to the Period From Inception Through
December 31, 1995
Commercial operations in Argentina began in February 1997. Therefore
there were no revenues or costs and expenses related to revenue during the
periods from inception through December 31, 1995 and the year ended December 31,
1996.
Selling, general and administrative expenses increased $8.2 million to
$8.4 million for the year ended December 31, 1996 from $119,973 for the period
from inception through December 31, 1995. The increase in the Company's selling,
general and administrative expenses can be attributable to $5.5 million of
additional expenses related to the increase in staffing and expenses
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associated with the corporate oversight function, $1.3 million related to McCaw
Argentina start-up costs, and $1.4 million of inventory writedowns of McCaw
Argentina.
Depreciation and amortization increased to $649,886 for the year ended
December 31, 1996 from $0 for the period from inception through December 31,
1995. This increase was primarily due to the amortization of goodwill related to
the Infocom acquisition, the amortization of the acquisition costs related to
Shanghai McCaw and depreciation of fixed assets purchased by the Company for its
corporate headquarters during 1996.
Interest expense increased to $41,160 for the year ended December 31,
1996. No amounts were recorded for the period from inception to December 31,
1995.
Income from equity method investments increased to $83,890 for the
year ended December 31, 1996 from $0 for the period from inception through
December 31, 1995. All of the income from equity method investments represents
the Company's portion of the income earned from Infocom. The Infocom investment
was made in June 1996 and therefore no income from equity method investments was
recognized in the period from inception through December 31, 1995.
Other net consisted of income of $377,338 for the year ended December
31, 1996 compared to expense of $2,062 for the period from inception through
December 31, 1995. The change was primarily attributable to amounts recognized
under technical services agreements during 1996.
Period From Inception Through December 31, 1995
There were no commercial operations as of December 31, 1995, therefore
no revenues and costs and expenses related to revenues were recorded for this
period.
Selling, general and administrative expense was $119,973 for the
period and consisted primarily of costs associated with start-up of operations
of the Company and to a lesser degree start-up of operations of McCaw Argentina,
both of which occurred during the fourth quarter.
Liquidity and Capital Resources
The Company has incurred historical net losses and negative cash flows
from operating activities of approximately $8.7 million and $3.8 million,
respectively, since inception through December 31, 1996. These losses and
negative cash flows result from capital expenditures required for the
construction 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, the Company's EBITDA
would have been negative $18.7 million. The Company expects to continue to incur
increasing losses and negative 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 $3.8 million.
Net cash used by investing activities equaled $40.9 million for 1996. Net cash
provided by financing activities equaled $44.9 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, 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.
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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 37% 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. 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 values 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
April 30, 1997, the Company owned approximately 46.3% of the voting stock of
Mobilcom.
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.
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."
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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 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 December 1996, Infocom and Motorola entered into a term sheet (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 prime plus
250 basis points or, at Infocom's option, LIBOR plus 463 basis points. The
Philippines Motorola Financing requires that loans be secured by a
first-priority lien on all of Infocom's assets, a pro rata guarantee of such
financing by each of Infocom's shareholders and a pledge of all outstanding
shares of Infocom by the shareholders.
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 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
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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 $4.9 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.
53
<PAGE>
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>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Waiting Time
for Cellular
Telephone Installation Monthly
Lines of Land- Line Cellular Average
Population GDP Per Real GDP per 100 Telephone Penetration Revenue Per
Population Growth Capita Growth 1996 POPs (years) (% of POPs) Subscriber
1996 1995(1) 1995(1) Projected(1) 1994(2) 1993(3) 1995(2) 1995(4)
----------- ---------- ---------- ------------- --------- ------------- ------------ ----------
(in millions)
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.
54
<PAGE>
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 the ESMR network's mobile telephone function and up to six voice and/or
control paths per channel for the instant conferencing function.
55
<PAGE>
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 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,
56
<PAGE>
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.
<TABLE>
<CAPTION>
Comparison of SMR/ESMR, Cellular/PCS and Paging (1995)
<S> <C> <C> <C>
SMR/ESMR(1) Cellular/PCS(2) Paging(3)
-------------------- -------------- ----------------
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 America 138,000 3,608,000 1,122,000
Subscribers.............
Southeast Asia 64,200 3,330,000 2,720,000
Subscribers.............
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.
57
<PAGE>
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 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.
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 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.
58
<PAGE>
<TABLE>
<CAPTION>
Proportionate Invested
McCaw Population Capital as
International as Subscribers of Start Date of
Ownership as of Population of 4/30/97 Existing System as of 1/31/97(1) Commercial
Market 4/30/97 (millions) (millions) Type 12/31/96 (millions) Services
------ ------- ---------- ---------- ---- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Brazil....... 81.0% 59.9 48.5 SMR 16,000 $186.3 October 1994
Argentina.... 50.0%(2) 17.6 8.8 Paging/SMR 4,000 20.7 April 1996/
February 1997
Mexico....... 46.3% 42.5 19.7 SMR 24,000 103.8 September 1993
Philippines.. 30.0% 67.0 20.1 Paging/ESMR(3) 46,000 20.0 February 1995
China 25.2%(4) 14.0 3.5 GSM 28,000 20.5 June 1995
(Shanghai)...
Canada....... 3.7%(5) 29.5 1.1 SMR/ESMR/PCS(6) 59,000 13.2(7) April 1994/
October 1996
Total....... ========= =========== ========== =============
230.5 101.7 177,000 $364.5
========= =========== ========== =============
</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.
(5) Nextel also owns an approximately 15.6% equity interest in Clearnet.
(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.
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.
59
<PAGE>
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.
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
will double 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. Moreover, the Company believes its large channel position reduces
capital expenditures required to upgrade to digital networks, which will
significantly increase subscriber capacity. 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
60
<PAGE>
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.
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.
Population of Total SMR Total
Licensed Area(1) Channels Spectrum
(millions) (MHz)
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
=======
- ----------
(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."
61
<PAGE>
(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:
o Contiguous wide area coverage of substantially all of the major
population areas and traffic corridors in its licensed areas;
o Signal quality comparable to that currently provided by existing
cellular carriers;
o Call "hand-off" for mobile telephone service throughout the ESMR
networks;
o Minimization of blocked and dropped calls;
o The ability to offer advanced features such as data transmission and
message services; and
o 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.
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
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delays resulting from any permit denials and to use pre-fabricated 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
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 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.
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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. As of December 31, 1996, McCaw Brazil had over 16,000 subscribers
with over 12,000 of its subscribers located in Sao Paulo.
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.
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 is currently underway and the Company has entered
into an iDEN equipment purchase contract and equipment financing agreement with
Motorola. McCaw Brazil plans to launch ESMR commercial service in Sao Paulo in
the first quarter of 1998. 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.
Competition. McCaw Brazil is the largest SMR service provider in
Brazil, with over a 50% market share based on subscribers. 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 Radio Telefonia Ltd. (a company
owned by Motorola) and Radio Movil 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
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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.
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 $3,000. 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.
On January 13, 1997, the Ministry of Communications released the Band
B Rules. The Ministry of Communications received bids for Band B licenses on
April 7, 1997. The Band B Rules divide the country into ten regions for the
auction of Band B 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 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 20% 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.
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.
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
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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. Notwithstanding the Minimum Law, a bill was introduced in
the Brazilian Congress on December 12, 1996 (the "General Law Bill"), which,
among other things, would revoke several provisions of the Minimum Law,
including the ten-year license term. Pursuant to the General Law Bill, 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 Bill. The General Law
Bill does not specify the term of renewal or extension of SMR licenses. This
bill has not been approved by the Brazilian Congress. There can be no assurance
that the Brazilian Congress will adopt the General Law Bill as originally
proposed, or 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. 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 certain channels outside of Sao Paulo. 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 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. 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 will 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. 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 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 which are the subject of 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 it
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 owned entirely by the Company and are not
held pursuant to Option Agreements.
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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 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 licenses 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. 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 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.
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 in McCaw Brazil and its subsidiaries with the Brazilian
monetary authorities. The majority of the capital of AirLink Servicos e Comercio
Ltda., the Brazilian subsidiary through which
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dividends most likely would 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 not
subject to withholding tax.
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, with 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 nationwide paging business with approximately 4,000 subscribers
under a nationwide paging license.
In February 1997, McCaw Argentina launched commercial SMR service in
Buenos Aires. The company intends to begin offering commercial SMR service in
Cordoba, Mendoza and Rosario during the second quarter of 1997.
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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 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.
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 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.
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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. 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.
Mexico
The Company owns an approximately 46.3% 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.
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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 long distance
providers in Mexico, including Telecomunicaciones Globales, S.A. de C.V., a
company in which NIC holds a 22% 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 businesses engaged
in manufacturing and distribution. Mobilcom markets its services through a
multi-channel 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.
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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.
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.
Competition. Mexico currently has only 50,000 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.
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 Federal
Telecommunications Law. Consistent with this view, in May 1996, the Mexican
Secretary of Communications and Transportation amended certain licenses in which
Mobilcom has an interest to delete a provision limiting non-Mexican
participation to 49%. 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
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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. Infocom is in discussions to enter into a Joint Operating
Agreement (the "Joint Operating Agreement") with one of the leading SMR
operators in the Philippines. If consummated, the Joint Operating Agreement
would enable Infocom to operate its channels together with those of the second
operator as a single system making it the largest SMR system in the Philippines.
There can be no assurance that such transaction will be consummated.
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 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.
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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 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
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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.
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
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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 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.
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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 April 30, 1997, the Company's Clearnet common stock had a
market value of $11.8 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 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 mid-1997.
The Company has one representative on the Clearnet board of directors.
Nextel owns additional shares of common stock of Clearnet representing an
approximate 15.6% interest and also has one representative on the Clearnet board
of directors.
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
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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 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 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
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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 37% 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. 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
values the Mobilcom Put at approximately $66 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.
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.
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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 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.
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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.
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MANAGEMENT
Executive Officers and Directors
The executive officers and directors of the Company are set forth below:
Name Age Positions
- -------------------- --- ---------------------------
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
Dennis M. Weibling 46 Director
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-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.
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C. James Judson has served as Vice Chairman of the Board 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 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.
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.
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 $100,000 in
salary and bonuses (collectively, the "Named Executive Officers") for services
rendered in all capacities to the Company during the fiscal year ended December
31, 1996.
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<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term(1)
Compensation
Annual Compensation Awards
------------------- ------
Securities
Other Annual Underlying All Other(2)
Name and Principal Salary Bonus Compensation Options/SARs Compensation
Position Year ($) ($) ($) (#) ($)
------------------------ ---- ------- ----- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Keith D. Grinstein...... 1996 150,000 -- -- 50,000/400,000 2,500
President and Chief
Executive Officer
Heng-Pin Kiang.......... 1996 150,000 -- -- 25,000/250,000 3,625
Senior Vice President
and General Counsel
Brian A. Vincent........ 1996 140,000 -- -- 10,000/100,000 2,450
Senior Vice President
of Business Development
</TABLE>
- ----------
(1) Options vest over a four-year period and become exercisable, subject to the
provisions of the plan, for shares of Nextel Class A Common Stock. Stock
appreciation rights ("SARs") are granted pursuant to the McCaw International
Stock Appreciation Rights Plan.
(2) Comprised of the Company's contributions to the Nextel Section 401(k) Plan
on behalf of the Named Executive Officers.
Option and SAR Grants in Fiscal Year 1996
The following table sets forth certain information with respect to
options exercisable for shares of Nextel Class A Common Stock and SARs granted
to the Named Executive Officers during fiscal year 1996.
<TABLE>
<CAPTION>
Percent of
Number of Total
Securities Options/
Underlying SARs Grant
Options/ Granted to Exercise Date Potential Realizable
SARs Employees or Base Present Value of SARs at Assumed
Granted in Fiscal Price Expiration Value Annual Rates ($) (3)
--------------------------
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 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 $10 per share as
of the date of grant. The base price per share is based on the Board of
Directors' estimate of fair market value at the time of grant. The actual value,
if any, an employee may realize will depend on the excess of fair market value
of McCaw International common stock over the base price on the date the SAR is
exercised. The dollar amounts under these columns are the result of calculations
at the 5% and 10% rates set by the Commission and, therefore, are not intended
to forecast future appreciation, if any, of the SARs.
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Option and SAR Exercises in Fiscal 1996 and Year-End Option and SAR Values
The following table sets forth information concerning the exercise of
options and SARs during the year ended December 31, 1996 and year-end
unexercised options and SAR values as of the end of the fiscal year ended
December 31, 1996 with respect to each of the Named Executive Officers.
<TABLE>
Aggregated Option/SAR Exercises in Fiscal Year 1996 and
Fiscal Year-End Option/SAR Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs Options/SARs
Shares Value at Fiscal Year-End (#) at Fiscal Year-End ($)
Acquired on Realized
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
----------------- ------------- -------- -------------- ---------------- -------------- --------------
<S> <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.
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
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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.
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
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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).
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
Stock Appreciation Rights Plan (the "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
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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).
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 part-time 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.
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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) 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.
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
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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 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
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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:
Year Redemption Price
---- ----------------
2002 106.50%
2003 103.25
2004 and thereafter 100.00
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 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.
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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:
(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:
Semi-Annual Accreted
Accrual Date Value
---------------- --------
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
(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.
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"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 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
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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 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
non-recurring 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 payments and for which an accrual or reserve is, or is
required by
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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.
"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
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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 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.
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"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.
"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
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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 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
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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 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
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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 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.
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"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 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
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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 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
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
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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
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
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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 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.
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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 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
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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 (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)
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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 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
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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) 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
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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 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 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."
109
<PAGE>
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
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
110
<PAGE>
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 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
111
<PAGE>
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."
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
112
<PAGE>
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.
113
<PAGE>
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 broker-dealer that requests copies of this Prospectus in the Letter of
Transmittal for use in connection with any such resale.
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, the year ended December 31, 1996
and for the period from February 27, 1995 (inception) to December 31, 1995, and
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.
114
<PAGE>
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 Year Ended December 31, 1996
and the Period February 27, 1995 (Inception) to December 31, 1995............... F-4
Consolidated Statements of Stockholder's Equity for the Year Ended December 31, 1996
and the Period February 27, 1995 (Inception) to December 31, 1995............... F-5
Consolidated Statements of Cash Flows for the Year Ended December 31, 1996
and the Period February 27, 1995 (Inception) to December 31, 1995............... F-6
Notes to Consolidated Financial Statements......................................... F-7
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
Independent Auditors' Report....................................................... F-14
Consolidated Balance Sheet as of December 31, 1996................................. F-15
Consolidated Statement of Operations for the Year Ended December 31, 1996.......... F-16
Consolidated Statement of Stockholders' Equity for the Year Ended December 31,
1996............................................................................ F-17
Consolidated Statement of Cash Flows for the Year Ended December 31, 1996.......... F-18
Notes to Consolidated Financial Statements......................................... F-19
Independent Auditors' Report....................................................... F-31
Consolidated Balance Sheets as of December 31, 1995 and 1994....................... F-32
Consolidated Statements of Operations for the Year Ended December 31, 1995
and the six months ended December 31, 1994...................................... F-33
Consolidated Statements of Stockholders' Equity for the Year Ended
December 31, 1995 and the six months ended December 31, 1994.................... F-34
Consolidated Statements of Cash Flows for the Year Ended December 31, 1995
and the six months ended December 31, 1994...................................... F-35
Notes to Consolidated Financial Statements......................................... F-37
CORPORACION MOBILCOM, S.A. DE C.V. AND SUBSIDIARIES
Independent Auditors' Report....................................................... F-48
Consolidated Balance Sheets as of December 31, 1996 and 1995....................... F-49
Consolidated Statements of Operations for the Years Ended December 31, 1996 and
1995............................................................................ F-50
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1996 and 1995................................................................... F-51
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996 and
1995............................................................................ F-52
Notes to Consolidated Financial Statements......................................... F-53
NEXTEL INVESTMENT COMPANY
Independent Auditors' Report....................................................... F-64
Balance Sheets as of December 31, 1996 and 1995.................................... F-65
Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994...... F-66
Statements of Stockholder's Equity for the Years Ended December 31, 1996, 1995 and
1994............................................................................ F-67
Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994...... F-68
Notes to Financial Statements...................................................... F-69
</TABLE>
F-1
<PAGE>
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 year ended December 31, 1996 and the period from February 27, 1995
(inception) to December 31, 1995. 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 year ended December
31, 1996 and the period from February 27, 1995 (inception) to December 31, 1995
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Seattle, Washington
April 16, 1997
F-2
<PAGE>
<TABLE>
<CAPTION>
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1996 and 1995
<S> <C> <C>
December 31, December 31,
1996 1995
------------ ------------
Assets
Current assets:
Cash and cash equivalents..................................... $ 171,754 $ 2,121
Accounts receivable........................................... 540,292 --
Radios and accessories........................................ 830,158 --
Prepaid and other............................................. 183,353 10,642
------------ ------------
Total current assets..................................... 1,725,557 12,763
Property, plant, and equipment, net of accumulated depreciation of
$73,972 and $0................................................... 8,703,076 36,056
Note receivable.................................................... 2,182,646
Investment in unconsolidated subsidiaries, at cost plus
undistributed earnings of $83,890 and $0......................... 38,581,077 9,926,625
Intangible assets.................................................. 10,878,235 10,135,400
Other noncurrent assets............................................ 75,104 30,133
------------ ------------
$62,145,695 $ 20,140,977
========== ==========
Liabilities and Stockholder's Equity
Current liabilities -- accounts payable............................ $ 5,818,914 $ 81,765
------------ ------------
Total liabilities........................................ 5,818,914 81,765
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........................................... (8,716,052) (122,035)
------------ ------------
Total stockholder's equity............................... 56,326,781 20,059,212
------------ ------------
$62,145,695 $ 20,140,977
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1996 and the Period February 27, 1995
(Inception)
Through December 31, 1995
<S> <C> <C>
February
27,
1995
(Inception)
Through
Year Ended December
December 31, 31,
1996 1995
------------ -----------
Revenues........................................................... $ -- $ --
Costs and expenses related to revenues............................. -- --
------------ -----------
Gross profit.................................................. -- --
------------ -----------
Other operating costs and expenses:
Selling, general and administrative........................... 8,364,199 119,973
Depreciation and amortization................................. 649,886 --
------------ -----------
Operating loss..................................................... (9,014,085) (119,973)
------------ -----------
Other income (expense):
Interest expense.............................................. (41,160) --
Income from equity method investments......................... 83,890 --
Other, net.................................................... 377,338 (2,062)
------------ -----------
Net loss........................................................... $ (8,594,017) $ (122,035)
------------ -----------
Net loss per common share.......................................... $ (0.86) $ (0.01)
========== ==========
Weighted average number of common shares outstanding............... 10,000,000 10,000,000
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
For the Year Ended December 31, 1996, and the Period February 27, 1995
(Inception)
Through December 31, 1995
<S> <C> <C> <C> <C>
Common Stock
-------------------------
Accumulated
Shares Amount Deficit Total
---------- ----------- ----------- -----------
BALANCE, February 27, 1995 (inception)..... -- $ -- $ -- $ --
Common stock issued................... 10,000,000 20,181,247 -- 20,181,247
Net loss.............................. -- -- (122,035) (122,035)
---------- ----------- ----------- -----------
BALANCE, December 31, 1995................. 10,000,000 20,181,247 (122,035) 20,059,212
Capital contribution.................. -- 44,861,586 -- 44,861,586
Net loss.............................. -- -- (8,594,017) (8,594,017)
---------- ----------- ----------- -----------
BALANCE, December 31, 1996................. 10,000,000 $65,042,833 $(8,716,052) $56,326,781
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 1996 and the Period February 27, 1995
(Inception)
Through December 31, 1995
<S> <C> <C>
February 27,
1995
Year (Inception)
Ended Through
December 31, December 31,
1996 1995
------------ ------------
Cash flows from operating activities:
Net loss.......................................................... $ (8,594,017) $ (122,035)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................ 649,886 --
Change in current assets and liabilities:
Accounts receivable..................................... (540,292) --
Radios and accessories.................................. (830,158) --
Prepaid and other....................................... (172,711) (10,642)
Accounts payable........................................ 5,737,148 81,765
------------ ------------
Net cash used in operating activities........................ (3,750,144) (50,912)
------------ ------------
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 note receivable.................................. (2,182,646) --
Investments in unconsolidated subsidiaries................... (29,153,663) (9,926,625)
Increase in other noncurrent assets.......................... (44,971) (30,133)
------------ ------------
Net cash used in investing activities........................ (40,941,809) (20,128,214)
------------ ------------
Cash flows from financing activities:
Capital contribution from parent............................. 44,861,586 20,181,247
------------ ------------
Increase in cash and cash equivalents............................. 169,633 2,121
Cash and cash equivalents, beginning of period.................... 2,121 --
------------ ------------
Cash and cash equivalents, end of period.......................... $ 171,754 $ 2,121
=========== ==========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1996, and the Period February 27, 1995
(Inception)
Through December 31, 1995
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") 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).
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.
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 year ended December 31, 1996 or
period February 27, 1995 (inception) through December 31, 1995.
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 consisting primarily of wireless
licenses are recorded at cost and are amortized over their estimated useful
lives (20 years) using the straight line method. The Company will begin
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.
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:
Equipment.................................................... 3-10 years
Computer equipment and software.............................. 3-5 years
Furniture and fixtures....................................... 3 years
Leasehold improvements....................................... Life of lease
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.
F-7
<PAGE>
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. Significant Accounting Policies -- (Continued)
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 year ended December 31, 1996, and the period from February 27, 1995
(inception) through December 31, 1995.
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 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.
2. Business Combinations and Acquisitions
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.
In 1997, the Company expects to form a joint venture between McCaw
Argentina and Wireless Ventures of Argentina LLC. The Company will have a 50%
voting interest in the joint venture. It is expected that 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 acquisition of Infocom is accounted for using the
equity method. The entire purchase price of Infocom was allocated to goodwill
which is being amortized over 20 years.
F-8
<PAGE>
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. Business Combinations and Acquisitions -- (Continued)
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:
Assets......................................................... $5,661,447
Liabilities.................................................... 5,597,526
Operating income............................................... 340,549
Shanghai GSM System: On October 26, 1995, McCaw International formed a
Chinese joint venture (Shanghai McCaw) with Shanghai Science & Technology
Investment Corp. Ltd. (SSTIC) to invest in the Shanghai GSM System. The Company
has a contractual right to receive 25.2% of the earnings of the Shanghai GSM
System. The Company contributed $9.7 million to Shanghai McCaw to fund the
Shanghai GSM System. Shanghai McCaw's investment in the Shanghai GSM System is
accounted for at cost due to their inability to exercise significant influence
over the Shanghai GSM System (see Note 7).
The Shanghai GSM System provides digital wireless services in Shanghai and
is operated by China Unicom Telecommunications, Ltd. (Unicom). As China law
prohibits foreign investment in the telecommunications industry, the Company's
interest in the Shanghai GSM System is held through its 60% ownership interest
in Shanghai McCaw. Shanghai McCaw has the right to receive earnings from the
Shanghai GSM System through its 12-year revenue sharing agreement with Unicom
(The Unicom Agreement).
Nextel Investment Company: On March 3, 1997, Nextel Investment Company
(NIC), a wholly owned subsidiary of Nextel, was merged into the Company. As of
the date of the merger NIC's assets consist of an investment in 38% of the
outstanding common stock of Corporacion Mobilcom, S.A. de C.V. (Mobilcom) and
3.7% of the outstanding common stock of Clearnet Communications (Clearnet).
Mobilcom: Through a series of acquisitions, 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
18.5% to 30.1%, the accounting method used to account for this investment was
changed from the cost method to the equity method. The goodwill created as a
result of the acquisitions will be amortized over a period of 20 years.
Mobilcom has licenses to provide SMR services in various cities in Mexico,
including Mexico City, Guadalajara, Monterey, and Tijuana.
NIC's approximate 30.1% investment in Mobilcom as of December 31, 1996
consists of the following:
Cost
-----------
Cost basis of investment....................................... $65,976,606
Amortization of goodwill....................................... (3,178,204)
Equity in net loss............................................. (2,397,779)
-----------
$60,400,623
===========
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%.
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,
F-9
<PAGE>
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. Business Combinations and Acquisitions -- (Continued)
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%.
Mobilcom owns 49% of Nacional de Telecomunicacion (Natel) and is awaiting
regulatory approval to purchase the remaining 51%. Natel owns and operates SMR
wireless channels throughout Mexico. Mobilcom is exploring opportunities to
purchase additional SMR channels throughout Mexico.
Summarized financial information for Mobilcom as of and for the year ended
December 31, 1996 is as follows:
Assets........................................................ $51,944,000
Liabilities................................................... 32,856,000
Operating loss................................................ 5,783,000
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 will be 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:
Assets........................................................ $63,044,510
Liabilities................................................... 50,561,399
Operating loss................................................ 13,673,278
F-10
<PAGE>
<TABLE>
<CAPTION>
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
3. Property, Plant and Equipment
<S> <C> <C>
December 31, December 31,
1996 1995
------------ ------------
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. Fair Value of Financial Instruments
The carrying amounts of the Company's financial investments, which
primarily consist of cash and cash equivalents, are a reasonable estimate of
their fair value.
5. 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:
1997.......................................................... 210,828
1998.......................................................... 152,132
1999.......................................................... 126,820
2000.......................................................... 124,620
2001.......................................................... --
--------
$668,562
========
6. Income Taxes
<TABLE>
<CAPTION>
The reconciliation of income taxes computed at the statutory rate to the
income tax benefit is as follows:
<S> <C> <C>
February 27, 1995
(Inception)
Year Ended Through
December 31, 1996 December 31, 1995
----------------- -----------------
Income tax benefit at statutory rate................. $(3,007,906) $ (42,712)
Nonconsolidated subsidiary adjustments............... 322,870 --
Other................................................ 333,101 227
Increase in valuation allowance...................... 2,351,935 42,485
------------- -------------
Tax benefit.......................................... $ -- $ --
============= =============
</TABLE>
F-11
<PAGE>
<TABLE>
<CAPTION>
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
6. Income Taxes -- (Continued)
Deferred tax asset consists of the following:
<S> <C> <C>
December 31, 1995 December 31, 1996
----------------- -----------------
Deferred tax asset:
Operating loss carryforward.......................... $ 2,394,420 $ 42,485
Valuation allowance.................................. (2,394,420) (42,485)
---------------- -----------------
Deferred tax asset................................... $ -- $ --
================ =================
</TABLE>
At December 31, 1996, the Company had approximately $4.9 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.
7. Related Parties
In 1996, the Company loaned Shanghai McCaw $10.5 million to facilitate 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 structure of the Company's investment in Shanghai
McCaw, the note is recorded as an addition to the Company's investment in
Shanghai McCaw. The Company's investment at December 31, 1996 also includes
accrued interest on the note of $396,954. 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 $501,025, which has been treated as a capital
contribution by the parties. No amounts were incurred for the period from
inception through December 31, 1995 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. As McCaw Argentina has ordered iDEN
equipment from Motorola, the loan has been classified as long-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. In
order to access such additional financing, Nextel would be required to procure
certain consents, waivers and/or participation commitments from a number of
third parties, and to obtain modifications to the terms of the Bank and Vendor
Credit Facilities, the related security documents and the Nextel Indentures and
to satisfy certain other conditions. No amounts have been borrowed by Nextel or
the Company to date.
F-12
<PAGE>
MCCAW INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
8. Stockholder's Equity
The board of directors has approved a 100,000 for 1 stock split effective
prior to the Initial Offering which will result in 10 million shares 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.
Stock Appreciation Rights
On November 1, 1996, the Company adopted a Stock Appreciation Rights 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 the purpose 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.
9. Geographic Segment Information
McCaw Argentina represents $22,362,474 and $10,153,502 of total assets and
operating losses of $2,738,697 and $23,889 at December 31, 1996 and 1995,
respectively.
10. 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. Proceeds of the offering, net of issue costs of $17.5 million,
were $482 million, with $14.3 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.
11. Subsequent Event
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) in total. Pursuant to the Phase III Unicom Agreement (i) the
25.2% 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 the Company receiving
24.1% 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.
F-13
<PAGE>
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-14
<PAGE>
<TABLE>
<CAPTION>
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
As of December 31, 1996
Assets
<S> <C>
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-15
<PAGE>
<TABLE>
<CAPTION>
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<S> <C>
Revenue....................................................................... $ 14,212,379
Cost of operations............................................................ 9,589,401
------------
Gross profit.................................................................. 4,622,978
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-16
<PAGE>
<TABLE>
<CAPTION>
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Year Ended December 31, 1996
<S> <C> <C> <C> <C>
Additional Total
Common Paid-In Accumulated Stockholders'
Stock Capital Deficit Equity
------ ----------- ------------ -------------
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-17
<PAGE>
<TABLE>
<CAPTION>
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1996
<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-18
<PAGE>
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 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-19
<PAGE>
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. Summary of Significant Accounting Policies -- (Continued)
<TABLE>
<CAPTION>
The following companies are included in the consolidated financial
statements:
<S> <C>
Direct and
Indirect Interest
Brazilian Subsidiaries Held by WVB
---------------------------------------------------------------------- -----------------
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-20
<PAGE>
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-21
<PAGE>
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-22
<PAGE>
<TABLE>
<CAPTION>
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:
<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-23
<PAGE>
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-24
<PAGE>
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.
<TABLE>
<CAPTION>
The income tax provision consists of the following at December 1996:
<S> <C> <C> <C>
Current Deferred Total
-------- -------- --------
U.S. federal.......................................... $ -- $ -- $ --
Brazilian............................................. -- 556,202 556,202
-------- -------- --------
$ -- $556,202 $556,202
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
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:
<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>
<TABLE>
<CAPTION>
The significant components of the U.S. and Brazilian deferred tax
benefits are as follows for the year ended December 31, 1996:
<S> <C> <C> <C>
U.S. Brazilian Total
-------- ----------- -----------
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-25
<PAGE>
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
6. Income Taxes -- (Continued)
<TABLE>
<CAPTION>
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:
<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:
Year Ending December 31:
---------------------------------------------------------------------------
1997.......................................................... $1,196,115
1998.......................................................... 978,542
1999.......................................................... 978,542
2000.......................................................... 978,542
2001.......................................................... 982,729
----------
Total minimum lease payments.................................. $5,114,470
=========
F-26
<PAGE>
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
8. Bank Loans Payable
<TABLE>
<CAPTION>
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:
<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:
Year Ending December 31:
---------------------------------------------------------------------------
1998.......................................................... $ 806,023
1999.......................................................... 530,622
2000.......................................................... 515,565
2001.......................................................... 937,739
----------
$2,789,949
=========
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-27
<PAGE>
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
F-28
<PAGE>
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
<TABLE>
<CAPTION>
13. Fair Value of Financial Instruments -- (Continued)
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:
<S> <C> <C>
Carrying Fair
Amounts Value
----------- -----------
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>
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
F-29
<PAGE>
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
14. Subsequent Events -- (Continued)
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-30
<PAGE>
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-31
<PAGE>
<TABLE>
<CAPTION>
WIRELESS VENTURES OF BRAZIL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1995 and 1994
December
December 31, 31,
1995 1994
------------ -----------
Assets
Current assets:
<S> <C> <C>
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
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
Current liabilities:
<S> <C> <C>
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
------------ -----------
</TABLE>
<TABLE>
<CAPTION>
Commitments and contingencies (notes 1, 2, 4, 7, 10, 14, and 15) Stockholders'
equity:
<S> <C> <C>
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-32
<PAGE>
<TABLE>
<CAPTION>
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
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
----------- -----------
Gross profit....................................................... 2,477,454 85,583
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-33
<PAGE>
<TABLE>
<CAPTION>
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
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-34
<PAGE>
<TABLE>
<CAPTION>
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
Year Ended Six Months
December Ended
31, December 31,
1995 1994
----------- ------------
Cash flows from operating activities:
<S> <C> <C>
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-35
<PAGE>
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-36
<PAGE>
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 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-37
<PAGE>
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-38
<PAGE>
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-39
<PAGE>
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-40
<PAGE>
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-41
<PAGE>
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-42
<PAGE>
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-43
<PAGE>
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>
<TABLE>
<CAPTION>
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:
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 3,986
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-44
<PAGE>
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:
Year ending December 31:
------------------------------------------------------------------------
1996....................................................... $ 655,000
1997....................................................... 222,000
1998....................................................... 171,000
1999....................................................... 162,000
2000....................................................... 94,000
----------
Total minimum lease payments............................... $1,304,000
=========
(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:
1995 1994
-------- --------
Short-term notes payable......................... $337,253 $355,167
Discounted accounts receivable................... 314,302 --
Bank overdrafts.................................. 155,364 42,280
-------- --------
$806,919 $397,447
======== ========
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-45
<PAGE>
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-46
<PAGE>
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-47
<PAGE>
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-48
<PAGE>
<TABLE>
<CAPTION>
CORPORACION MOBILCOM, S. A. DE C. V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1996 and 1995
(Thousands of U.S. Dollars)
December 31, December 31,
1996 1995
------------ ------------
Assets
<S> <C> <C>
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
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
<S> <C> <C>
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
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
Commitments and contingencies Stockholders' equity (note 11):
<S> <C> <C>
Common stock (1,304 and $366 authorized, 505 and $177 issued
and outstanding, in thousands) shares authorized, issued
and outstanding........................................... 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-49
<PAGE>
<TABLE>
<CAPTION>
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)
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
------------ ------------
Gross profit..................................................... 3,481 1,809
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-50
<PAGE>
<TABLE>
<CAPTION>
CORPORACION MOBILCOM, S. A. DE C. V. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY For the Years
Ended December 31, 1996 and 1995
(Thousands of U.S. Dollars)
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........... 143,622 $ 45,407 $ $ (41,052) $ (1,438) $ 2,917
Capital contributions............. 33,147 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......... 176,769 50,745 48,520 (72,387) (5,148) 21,730
Capital contributions............. 328,539 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......... 505,308 $103,378 $ 6,843 $ (84,229) $ (6,904) $ 19,088
======== ========= ========= =========== ========== =========
</TABLE>
See notes to consolidated financial statements.
F-51
<PAGE>
<TABLE>
<CAPTION>
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)
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-52
<PAGE>
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-53
<PAGE>
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:
Useful Life
-----------
Building.......................................... 40 years
Transmission equipment............................ 13 years
Office furniture.................................. 9 years
Computer equipment................................ 3 years
Transportation equipment.......................... 7 years
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-54
<PAGE>
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:
1996 1995
---- ----
Expenses:
Interest.................................... $409 $500
Cost of service............................. 145
Administrative services..................... 341
Income:
Interest.................................... 204 87
Administrative services..................... 26 469
F-55
<PAGE>
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:
1996 1995
------ -------
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
====== =======
6. Inventories
Inventories, which consist entirely of finished goods, include the
following:
1996 1995
----- ----
Communication equipment................................ $ 829 $702
Communication equipment at bonded warehouse............ 48
Less allowance for obsolete inventories................ (444) (41)
----- ----
$ 385 $709
===== ====
F-56
<PAGE>
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:
1996 1995
----- -----
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)
===== =====
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:
1996 1995
------ ------
Current assets............................ $1,641 $ 636
Noncurrent assets......................... 1,447 1,654
Current liabilities....................... 1,681 728
The Company's investment in affiliate was comprised of the following at
December 31, 1996 and 1995:
1996 1995
------ ------
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
====== ======
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-57
<PAGE>
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:
1996 1995
------- -------
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
======= =======
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-58
<PAGE>
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-59
<PAGE>
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>
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 convenants 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
At December 31, 1996 and 1995 1,304,481 and 366,305 shares of series "B"
shares with a par value of 1,000 Mexican pesos were authorized of which 505,308
and 176,769 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.
- -- In 1996, stockholders agreed to increase the variable portion of common stock
through issuance of 302,351 series "B" shares, with a par value of $1,000
each, through capitalization of additional paid in capital.
- -- The variable portion of common stock was increased through issuance of 19,995
series "B" shares, with a par value of $1,000 each. The total subscription
value was $8,240, including a premium of $5,562, paid in cash and by
capitalizing liabilities for $1,030.
- -- Stockholders also agreed to increase the variable portion, through issuance
of 6,193 series "B" shares, with a par value of $1,000 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 each, in the amount of $1,896, including a premium of
$1,281.
During 1995, 33,147 additional shares of common stock were acquired by
Nextel. In conjunction with this purchase, the Company received $12,519 million
in cash and contributed $43,625 million of debt to capital.
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
F-60
<PAGE>
CORPORACION MOBILCOM, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
12. Income Taxes -- (Continued)
(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:
1996 1995
-------------- --------------
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)
============== ==============
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:
2001....................................................... $ 24
2002....................................................... 475
2003....................................................... 1,854
2004....................................................... 33,043
2005....................................................... 16,606
2006....................................................... 5,534
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-61
<PAGE>
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:
1996 1995
------- --------
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)
======= ========
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 16.55 of the shares of capital stock of Mobilcom
(calculated after issuance of such shares) for a cash payment of $12,519 U.S.
and $43,625 U.S. dollars 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 $76.8 million U. S. dollars and a
second option is a three-year option to acquire an additional 10% of Mobilcom
for $67.5 million U. S. dollars.
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 33% of Mobilcom's common stock retain the right for two
years to put the entire amount of their holding to Nextel at its appraised fair
market value for cash upon occurrence of certain events, which is exercisable on
October 24, 1999.
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.
F-62
<PAGE>
CORPORACION MOBILCOM, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
14. Subsequent Events -- (Continued)
On February 6, 1997 the Company requested from its shareholders a capital
call of $27 million 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:
Capital Call
-----------------------
(In millions of U.S. $)
Pay-off of certain obligations and
funds for current operating expenses........ $16
Purchase of 51% of Natel...................... 7
Completion of microwave network build-out..... 4
---
$27
===
Nextel pro rata share of the capital call is approximately $10 million U.
S. Dlls. which are guaranteed to be funded, as well as it also expects to fund
an additional $12 million which should 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 $6.5 million. 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-63
<PAGE>
NEXTEL INVESTMENT COMPANY
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Shareholder of Nextel Investment Company
We have audited the accompanying balance sheets of Nextel Investment
Company (the "Company") as of December 31, 1996 and 1995, and the related
statements of operations, stockholder's equity and cash flows for the years
ended December 31, 1996, 1995 and 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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 Nextel Investment 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.
/s/ DELOITTE & TOUCHE LLP
Seattle, Washington
April 17, 1997
F-64
<PAGE>
NEXTEL INVESTMENT COMPANY
BALANCE SHEETS
As of December 31, 1996 and 1995
(in thousands, except share data)
December 31, December 31,
1996 1995
------------ ------------
Assets
Current assets
Cash and cash equivalents.................. $ 52,858 $ 85,300
Notes receivable and other................. 5,453 --
------------ ------------
Total current assets.................. 58,311 85,300
Investment in Clearnet.......................... 17,607 25,505
Due from parent................................. 27,781 --
Note receivable from officer.................... 250 --
Investment in Mobilcom.......................... 60,400 38,025
Other assets.................................... 712 710
------------ ------------
$165,061 $149,540
========== ==========
Liabilities and Deficiency in Assets
Current liabilities
Due to Nextel.............................. $151,731 $150,149
Note payable to Nextel..................... 23,119 --
Interest payable to Nextel................. 310 --
Income taxes payable....................... 4,388 3,033
------------ ------------
Total current liabilities............. 179,548 153,182
------------ ------------
Deferred income taxes........................... 1,562 4,321
------------ ------------
Commitment and Contingencies (Notes 2 and 4)
Deficiency in assets
Common stock, par value $0.01, 1,000 shares
authorized, 100 shares issued and
outstanding.............................. -- --
Accumulated deficit........................ (18,950) (15,986)
Unrealized gain on investments, net of tax. 2,901 8,023
------------ ------------
Total deficiency in assets............ (16,049) (7,963)
------------ ------------
$165,061 $149,540
========== ==========
See notes to financial statements.
F-65
<PAGE>
<TABLE>
<CAPTION>
NEXTEL INVESTMENT COMPANY
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996, 1995 and 1994
(in thousands)
Year Ended
----------------------------------------------
December 31, December 31, December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Operating expenses
Selling, general and administrative.............. $ 35 $ -- $ --
Amortization..................................... 18 19 2
------------ ------------ ------------
Operating loss........................................ (53) (19) (2)
Other income (expense)
Loss from equity method investments.............. (5,576) (6,853) --
Interest income.................................. 4,341 6,233 2,688
Interest expense................................. (322) -- --
Investment impairment and other.................. 1 (15,000) --
------------ ------------ ------------
Income (loss) before income tax provision............. (1,609) (15,639) 2,686
Income tax provision.................................. (1,355) (2,119) (914)
------------ ------------ ------------
Net income (loss)..................................... $ (2,964) $(17,758) $1,772
========== ========== ==========
</TABLE>
See notes to financial statements.
F-66
<PAGE>
<TABLE>
<CAPTION>
NEXTEL INVESTMENT COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY For the Years Ended
December 31, 1996, 1995 and 1994
(in thousands)
Common Stock Accumulated Unrealized
----------------- Paid in Earnings Gain (Loss)
Shares Amount Capital (Losses) on Investments
------ ------ -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994............... 100 $ -- $ -- $ -- $ --
Net income............................. -- -- -- 1,772 --
------ ------ -------- ----------- --------------
Balance, December 31, 1994............. 100 -- -- 1,772 --
Net loss............................... -- -- -- (17,758) --
Unrealized Gain on Investment in
Clearnet, net of income taxes of
$4,320............................... -- -- -- -- 8,024
------ ------ -------- ----------- --------------
Balance, December 31, 1995............. 100 -- -- (15,986) 8,024
Net loss............................... -- -- -- (2,964) --
Unrealized loss on investments in
Clearnet, net of income taxes of
$2,758............................... -- -- -- -- (5,123)
------ ------ -------- ----------- --------------
Balance, December 31, 1996............. 100 $ -- $ -- $ (18,950) $ 2,901
===== ====== ====== ========= ===========
</TABLE>
See notes to financial statements.
F-67
<PAGE>
<TABLE>
<CAPTION>
NEXTEL INVESTMENT COMPANY
STATEMENTS OF CASH FLOWS
For the Years Ended December
31, 1996, 1995 and 1994
(in thousands)
Year Ended December 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss)........................................ $ (2,964) $(17,758) $ 1,772
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Investment impairment............................... -- 15,000 --
Loss on equity method investments................... 5,576 6,853 --
Amortization........................................ 18 19 2
Changes in current assets and liabilities:
Income tax payable............................. 1,355 2,119 914
-------- -------- --------
Net cash provided by operating
activities.............................. 3,985 6,233 2,688
-------- -------- --------
Cash flows from investing activities
Advances to parent and officer........................... (28,031) -- --
Investments in and advances to unconsolidated
affiliates............................................. (5,487) (324) (32,842)
Payments for investment activities....................... (4,801) (15,415) (13,154)
-------- -------- --------
Net cash used in investing activities..... (38,319) (15,739) (45,996)
-------- -------- --------
Cash flows from financing activities
Borrowings from (repayments to) Nextel, net.............. 1,892 (30,736) 168,850
-------- -------- --------
Net increase (decrease) in cash and cash equivalents.......... (32,442) (40,242) 125,542
Cash and cash equivalents, beginning of period................ 85,300 125,542 --
-------- -------- --------
Cash and cash equivalents, end of period...................... $ 52,858 $ 85,300 $125,542
======== ======== ========
</TABLE>
See notes to financial statements.
F-68
<PAGE>
NEXTEL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS For the Years Ended
December 31, 1996, 1995 and 1994
1. Summary of Operations and Significant Accounting Policies
Nature of Operations -- Nextel Investment Company ("the Company"), a
wholly-owned subsidiary of Unrestricted Subsidiary Funding Company ("USFC" or
"Parent") which is a wholly-owned subsidiary of Nextel Communications, Inc.
("Nextel"), operates as an investment and asset holding company. The Company was
incorporated in the state of Delaware in September 1994. The primary purpose of
the Company is to utilize non-operating cash flows to initiate and maintain
investments in foreign companies providing wireless communication services. The
Company holds investments in wireless operations in Canada and Mexico.
On March 3, 1997, the Company was merged into the McCaw International
(CANMEX), Ltd. ("CANMEX"), a subsidiary of McCaw International, Ltd. ("MIL").
MIL is a wholly-owned subsidiary of USFC (see Note 4).
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 the assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents -- The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
Investments -- All of the Company's marketable investments are classified
as available-for-sale as of the balance sheet date and are 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
and included in other assets. 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. Realized gains or losses and declines in value, if any, judged to be
other than temporary are reported in other income or expense.
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 to be held and used are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount 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.
Income Taxes -- Deferred tax assets and liabilities are determined based on
the temporary difference between the financial reporting and tax bases of assets
and liabilities applying enacted statutory tax rates in effect for the year in
which the differences are expected to reverse. Future tax benefits are
recognized to the extent that realization of the benefits are more likely than
not. The Company is included in the consolidated tax return of Nextel. However,
the income tax accounts of the Company are stated as if a separate return was
filed. Investment holding companies are exempt from state income tax in the
state of Delaware.
Intangible Assets -- Intangible assets are recorded at cost and are
amortized using the straight-line method based on estimated useful lives of 20
years for the excess of purchase price over fair value of net assets acquired
and up to 5 years for acquisition costs.
F-69
<PAGE>
NEXTEL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
2. Investments
Clearnet -- In October 1994, the Company acquired approximately 1.0 million
shares or 2.0% of outstanding Class D non-voting common stock and approximately
0.6 million shares or 1.7% of outstanding Class A voting common stock of
Clearnet Communications ("Clearnet") for a total cost of approximately $13.2
million. Clearnet provides analog Specialized Mobile Radio ("SMR") and Enhanced
Specialized Mobile Radio ("ESMR") services in Canada and holds licenses to
provide Personal Communications Services ("PCS") in Canada. The Company's 3.7%
ownership interest is accounted for at its fair market value. The per-share
market value of the common stock as of December 31, 1996 and 1995 was $11.00 and
$15.94, respectively.
Mobilcom -- In March 1995, the Company acquired approximately 16.5%
interest in Corporacion Mobilcom S.A. de C.V. ("Mobilcom") for $10.0 million and
the conversion of $42.5 million in principal amounts of notes representing funds
advanced to Mobilcom in 1994 and related accrued interest. In August 1995, the
Company acquired an additional 1.5% interest in Mobilcom for approximately $4.7
million. 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 during 1995.
In August 1996, the Company entered into certain agreements to purchase an
additional equity interest of approximately 19.8% of Mobilcom from certain
selling stockholders and Grupo Comunicaciones San Luis, S.A. De C.V. ("Grupo"),
an investor in Mobilcom. The purchase took place in two tranches. Approximately
11.6% equity interest in Mobilcom was acquired on October 24, 1996 in exchange
for approximately 1.3 million shares of Nextel Class A Common Stock valued at
approximately $23.1 million (the "First Tranche"). Upon closing of the First
Tranche, the ownership interest increased from 18.5% to 30.1% requiring a change
in accounting method used to account for the investment from the cost method to
the equity method. The change in accounting method is presented retroactively in
the financial statements and generated approximately $83.9 million of excess
purchase price over fair value of net assets acquired.
In January 1997, the Company acquired an additional 8.2% equity interest in
Mobilcom from certain selling stockholders in exchange for 1.3 million shares of
Nextel Class A Common Stock valued at approximately $16.5 million (the "Second
Tranche") bringing the Company's aggregate interest in Mobilcom to approximately
38.0%.
In connection with the First Tranche investment, the Company has the right
to appoint a majority of Mobilcom's board members. In order to retain the
contractual right to designate a majority of the board of directors of Mobilcom,
the Company must invest approximately $76.8 million in Mobilcom through certain
qualified capital transactions by March 1998. Including the capital call
transaction described below, the Company had invested approximately $63.7
million in such qualified capital transactions as of April 16, 1997.
On February 6, 1997, Mobilcom notified each of its shareholders of a $27.0
million capital call to be funded by March 11, 1997. The Company funded a total
of $20.1 million of the capital call, thereby increasing its ownership interest
to 46.3%.
The Company 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 33.0% 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 upon occurrence of certain events. The
Mobilcom Put is automatically exercisable on October 24, 1999.
The Company has agreed under certain circumstances to attempt to provide
Grupo with liquidity with respect to its 21.0% equity interest in Mobilcom. At
any time after January 1, 1999, the Company, if requested
F-70
<PAGE>
NEXTEL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
2. Investments -- (Continued)
by Grupo, will cause Mobilcom to undertake a U.S. registered public offering or
sale for cash to a third party of Grupo shares at their appraised fair market
value within one year of such request. If Mobilcom fails to provide Grupo with
liquidity through either of these methods, Grupo has the right to cause Mobilcom
to file a registration statement in the United States covering Grupo Mobilcom
shares.
3. Notes Receivable
As of December 31, 1996 notes receivable consisted of the following (in
thousands):
Due from affiliated companies.......................... $5,335
Due from officer of Nextel............................. 50
Interest receivable.................................... 68
------
$5,453
======
On August 23, 1996, the Company advanced Grupo $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.
Throughout 1996, the Company advanced USFC cash totaling approximately
$29.0 million which was utilized to acquire interests in foreign wireless
communication companies. The balance of the note, $27.8 million at December 31,
1996, is non-interest bearing and has been classified as non-current.
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 receivable balances are deemed to be fully collectible; therefore no
allowance for doubtful accounts is necessary.
4. Due to and Note Payable to Nextel/Transfer of Assets
The intercompany advance due to Nextel represents costs paid by Nextel on
behalf of the Company since the Company's inception, primarily to fund operating
activities. The advance is non-interest bearing and has no determinable due
date.
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. The note bears interest at a rate of 7% compounded
semi-annually and is payable in full on October 2006.
In February 1997, the Company transferred all of its assets with the
exception of its Clearnet and Mobilcom investments, to Nextel as repayment for
the note payable and intercompany advances received from Nextel. The assets
transferred totaled approximately $74.6 million. The remaining outstanding
liability due to Nextel was converted to an additional equity contribution to
the Company in connection with the merger of the Company into CANMEX.
F-71
<PAGE>
NEXTEL INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
5. Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosures About 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 estimate 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 (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Equity Securities (Clearnet).................. $ 17,607 $ 17,607 $ 25,505 $ 25,505
Note receivable from officer.................. 250 234 -- --
</TABLE>
Current Assets and Current Liabilities -- The carrying amounts approximate
fair value due to the short-term maturity of these instruments.
Equity Securities -- The fair value of these securities are estimated based
on quoted market prices.
Note Receivable from Officer -- The fair value of this non-current
receivable is 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.
Other Assets -- Other assets consist primarily of 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.
Note Payable to Nextel -- The fair value of the note is based on current
rates at which the Company could borrow funds with a similar maturity.
6. Income Taxes
The reconciliation of taxes computed at the statutory rate to the federal
income tax provision is as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------
1996 1995 1994
------ ------- ----
<S> <C> <C> <C>
Income tax provision (benefit) at statutory rate............ $ (547) $(5,317) $913
Basis difference in investments............................. 1,902 7,436 1
------ ------- ----
Current federal tax provision.......................... $1,355 $ 2,119 $914
====== ======= ====
</TABLE>
The Company has not recognized any deferred tax assets as the realizability
of these assets is uncertain. As of December 31, 1996 and 1995, the deferred
income tax liability relates primarily to income taxes associated with the
unrealized gains on investments which have not been recognized for income tax
purposes.
F-72
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
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
Page
----
Available Information........................... 3
Summary......................................... 4
Risk Factors.................................... 16
The Company..................................... 28
No Cash Proceeds to the Company................. 30
Capitalization.................................. 31
The Exchange Offer.............................. 31
Selected Consolidated Historical Financial
Information................................... 38
Pro Forma Consolidated Financial Information.... 39
Pro Forma Proportionate Financial Information... 44
Management's Discussion and Analysis of
Financial Condition and Results of Operation.. 45
Industry Overview............................... 54
Business........................................ 58
Management...................................... 82
Certain Relationships and Related Transactions.. 88
Description of the Notes........................ 89
Certain U.S. Federal Income Tax Considerations.. 112
Plan of Distribution............................ 114
Legal Matters................................... 114
Experts......................................... 114
Index to Financial Statements................... F-1
================================================================================
- --------------------------------------------------------------------------------
McCAW INTERNATIONAL,
LTD.
-------------------
OFFER TO EXCHANGE
-------------------
13% Senior Discount Notes due
April 15, 2007 for all outstanding
13% Senior Notes due April 15, 2007
, 1997
- --------------------------------------------------------------------------------
================================================================================
<PAGE>
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>
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>
SIGNATURES
Pursuant to the requirements of the Securities Act, the
undersigned Registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Seattle,
Washington on May 7, 1997.
McCAW INTERNATIONAL, LTD.
By: /s/ Keith D. Grinstein
-------------------------
Name: Keith D. Grinstein
Title: President and Chief
Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Keith D. Grinstein, David E.
Rostov and Heng-Pin Kiang, and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any and all amendments (including post-effective amendments)
to this registration statement and all amendments and supplements to any
prospectus relating thereto and any other documents and instruments incidental
thereto, and any registration statement filed pursuant to Rule 462 under the
Securities Act of 1933, as amended, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as full to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming that each of said attorneys-in-fact and agents and/or either of them,
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
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 May 7, 1997.
Signature Title Date
- --------- ----- -----------
/s/ Daniel F. Akerson Chairman of the Board of Directors May 7, 1997
- ------------------------
Daniel F. Akerson
/s/ Keith D. Grinstein President, Chief Executive Officer
- ------------------------ and Director May 7, 1997
Keith D. Grinstein (Principal Executive Officer)
/s/ David E. Rostov Senior Vice President and Chief
- ------------------------ Financial Officer May 7, 1997
David E. Rostov (Principal Financial and Accounting
Officer)
/s/ C. James Judson Director May 7, 1997
- ------------------------
C. James Judson
Director May 7, 1997
- ------------------------
Craig O. McCaw
/s/ Dennis M. Weibling Director May 7, 1997
- ------------------------
Dennis M. Weibling
II-3
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number
------
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.
*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 (included in Exhibit 5.2).
*10.1 Motorola Financing Agreement.
*21.1 Subsidiaries of the Company.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Deloitte & Touche LLP for Nextel Investment Company.
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 Exhibit 5.1).
*23.7 Consent of Perkins Coie (included in Exhibit 5.2).
24.1 Power of Attorney (included on signature page).
*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.
II-4
<PAGE>
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Exchange Agent Agreement.
- ---------------------
* To be filed by Amendment.
** Submitted only with the electronic filing of this document with the
Commission pursuant to Regulation S-T under the Securities Act.
II-5
McCAW INTERNATIONAL, LTD.
PLACEMENT AGREEMENT
March 3, 1997
Morgan Stanley & Co. Incorporated,
for itself and the other several Placement
Agents named below
1585 Broadway
New York, New York 10036-8293
Dear Sirs:
McCAW INTERNATIONAL, LTD., a Washington corporation (the "Company"),
proposes to issue and sell to you (the "Manager") and the other several
purchasers named in Schedule I hereto (collectively with the Manager, the
"Placement Agents") 951,463 Units (the "Units"). Each Unit will consist of (i)
one 13% Senior Discount Note due 2007 of the Company (the "Notes") to be issued
pursuant to the provisions of an Indenture (the "Indenture") dated as of the
Closing Date (as defined below) between the Company and The Bank of New York, as
trustee (in such capacity, the "Trustee") and (ii) one Warrant (collectively,
the "Warrants"), entitling the holder thereof to purchase 0.10616 shares of
common stock, without par value, of the Company (collectively, the "Warrant
Shares") from the Company at an exercise price of $36.45 per share, subject to
adjustment as provided in the Warrant Agreement (as defined below). The Warrants
will be issued pursuant to the provisions of a warrant agreement (the "Warrant
Agreement") dated as of the Closing Date (as defined below) between the Company
and The Bank of New York, as warrant agent (in such capacity, the "Warrant
Agent"), substantially in the form attached hereto as Exhibit A.
The Units will be offered without being registered under the Securities
Act of 1933, as amended (the "Securities Act"), to qualified institutional
buyers in compliance with the exemption from registration provided by Rule 144A
under the Securities Act, in offshore transactions in reliance on Regulation S
under the Securities Act ("Regulation S") and to institutional accredited
investors (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities
Act) that deliver a letter in the form annexed to the Final Memorandum (as
defined below).
The Placement Agents and their direct and indirect transferees will be
entitled to the benefits of a Registration Rights Agreement, dated the date
hereof and to be substantially in the form attached hereto as Exhibit B (the
"Registration Rights Agreement") and a Warrant Registration Rights Agreement,
dated the date hereof and to be substantially in the form attached hereto as
Exhibit C (the "Warrant Registration Rights Agreement").
In connection with the sale of the Units, the Company has prepared a
preliminary private placement memorandum (the "Preliminary Memorandum") and will
prepare a final private placement memorandum (the "Final Memorandum" and, with
the Preliminary Memorandum, each a "Memorandum") setting forth or including a
description of the terms of the Units, the Notes, the Warrants and the Warrant
Shares, the terms of the offering and a description of the Company and its
business.
1. Representations and Warranties. The Company represents and
warrants to, and agrees with, you that as of the date hereof:
(a) The Preliminary Memorandum does not contain and the Final
Memorandum, in the form used by the Placement Agents to confirm sales and on the
Closing Date (as defined below), will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties set forth in this
Section 1(a) do not apply to statements or omissions in either Memorandum based
upon information relating to any Placement Agent furnished to the Company in
writing by such Placement Agent through you expressly for use therein.
(b) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property and to
conduct its business as described in each Memorandum and is duly qualified to
transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and its
subsidiaries listed on Schedule II hereto (each a "Subsidiary" and collectively,
the "Subsidiaries"), taken as a whole.
(c) Each Subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation (to the extent that such jurisdiction
recognizes the legal concept of good standing) and has the corporate power and
authority to own its property and to conduct its business as described in each
Memorandum and is duly qualified to transact business and is in good standing in
each jurisdiction (to the extent that such jurisiction recognizes the legal
concept of good standing) in which the conduct of its business or its ownership
or leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a material
adverse effect on the Company and the Subsidiaries, taken as a whole.
(d) This Agreement has been duly authorized, executed and delivered by
the Company.
(e) The Notes have been duly authorized by the Company and, when
executed, authenticated and delivered to and paid for by the Placement Agents in
accordance with the terms of this Agreement, will (x) be valid and binding
obligations of the Company enforceable in accordance with their terms, except as
(A) the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws relating to or affecting creditors' rights generally and (B) rights
of acceleration, if applicable, and the availability of equitable remedies may
be limited by equitable principles and (y) be entitled to the benefits of the
Indenture and the Registration Rights Agreement.
(f) The Indenture has been duly authorized by the Company and, when
executed and delivered by the Company, will be a valid and binding agreement of
the Company, enforceable in accordance with its terms except as (x) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
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.
(g) The Registration Rights Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms except as (x) the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws 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.
(h) The Warrants have been duly authorized by the Company and, when
executed, and countersigned by the Warrant Agent as provided in the Warrant
Agreement, and delivered to and paid for by the Placement Agents in accordance
with the terms of this Agreement, will (x) be valid and binding obligations of
the Company enforceable in accordance with their terms, except as (A) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
relating to or affecting creditors' rights generally and (B) rights of
acceleration, if applicable, and the availability of equitable remedies may be
limited by equitable principles and (y) be entitled to the benefits of the
Warrant Agreement and the Warrant Registration Rights Agreement.
(i) The Warrant Agreement has been duly authorized by the Company and,
when executed and delivered by the Company, will be a valid and binding
agreement of the Company, enforceable in accordance with its terms except as
(x) the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws 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.
(j) The Warrant Registration Rights Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms except as (x) the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws 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.
(k) The Warrant Shares issuable upon exercise of the Warrants have been
duly authorized and reserved by the Company and, when issued and delivered upon
exercise of the Warrants in accordance with the terms of the Warrants and the
Warrant Agreement, will be validly issued, fully paid and non-assessable and
will not be subject to any preemptive or similar rights.
(l) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement, the Indenture, the
Registration Rights Agreement, the Warrant Agreement, the Warrant Registration
Rights Agreement, the Notes and the Warrants (collectively, the "Transaction
Documents") and the issuance, sale and delivery of the Notes and the Warrants
and the issuance of the Warrant Shares upon exercise of the Warrants in
accordance with the terms of the Warrants and the Warrant Agreement by the
Company will not contravene (i) any provision of applicable law, (ii) the
certificate of incorporation or by-laws or partnership agreement, as the case
may be, of the Company or (iii) any agreement or other instrument binding upon
the Company or any of the Subsidiaries or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company or any
Subsidiary, except, with respect to clause (i) and (iii), to the extent that any
contravention would not have a material adverse effect on the Company and the
Subsidiaries, taken as a whole, and no permit, license, consent, approval,
authorization or order of, or filing, declaration or qualification with, any
governmental body or agency is required for the performance by the Company of
its obligations under the Transaction Documents, except such as may be required
by the securities or Blue Sky laws of the various states in connection with the
offer and sale of the Units, Notes or Warrants and except as to which the
failure to obtain would not have a material adverse effect on the ability of the
Company to perform its obligations under the Transaction Documents.
(m) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the condition,
financial or otherwise, or in the earnings, business or operations of the
Company and the Subsidiaries, taken as a whole, from that set forth in the
Preliminary Memorandum. Furthermore, (1) the Company and the Subsidiaries have
not incurred any material liability or obligation, direct or contingent, nor
entered into any material transaction not in the ordinary course of business;
(2) the Company has not purchased any of its outstanding capital stock, nor
declared, paid or otherwise made any dividend or distribution of any kind on its
capital stock other than ordinary and customary dividends; and (3) there has not
been any material change in the capital stock, short-term debt or long-term debt
of the Company and the Subsidiaries taken as a whole, except in each case as
described in the Final Memorandum.
(n) There are no legal or governmental proceedings pending or, to the
knowledge of the Company, threatened to which the Company or any of the
Subsidiaries is a party or to which any of the properties of the Company or any
of the Subsidiaries is subject other than proceedings accurately described in
all material respects in each Memorandum and proceedings that are not reasonably
likely to have a material adverse effect on the Company and the Subsidiaries,
taken as a whole, or on the power or ability of the Company to perform its
obligations under the Transaction Documents or to consummate the transactions
contemplated by the Final Memorandum.
(o) Neither the Company nor any affiliate (as defined in Rule 501(b) of
Regulation D under the Securities Act, an "Affiliate") of the Company has
directly, or through any agent, (i) sold, offered for sale, solicited offers to
buy or otherwise negotiated in respect of, any security (as defined in the
Securities Act) which is or will be integrated with the sale of the Units, the
Notes or the Warrants in a manner that would require the registration under the
Securities Act of the Units, the Notes or the Warrants or (ii) engaged in any
form of general solicitation or general advertising in connection with the
offering of the Units, the Notes or the Warrants (as those terms are used in
Regulation D under the Securities Act) or in any manner involving a public
offering within the meaning of Section 4(2) of the Securities Act.
(p) The Company is not, and after giving effect to the offering and
sale of the Units, the Notes and the Warrants and the application of the
proceeds thereof as described in the Final Memorandum, will not be an
"investment company," as such term is defined in the Investment Company Act of
1940, as amended. The Company is not a "public utility holding company," as such
term is defined in the Public Utility Holding Company Act of 1935, as amended.
(q) It is not necessary in connection with the offer, sale and delivery
of the Units, the Notes and the Warrants to the Placement Agents in the manner
contemplated by this Agreement to register the Units, the Notes or the Warrants
under the Securities Act or to qualify the Indenture under the Trust Indenture
Act of 1939, as amended.
(r) Except as described in each Memorandum, each of the Company and the
Subsidiaries (i) has all necessary licenses, consents, authorizations,
approvals, orders, certificates and permits of and from, and has made all
declarations and filings with, all federal, state and local and foreign
governmental, administrative or regulatory authorities, all self-regulatory
organizations and all courts and other tribunals, to own, lease, license and use
its properties and assets and to conduct its business in the manner described in
or contemplated by each Memorandum, including providing digital enhanced
specialized mobile radio services, except to the extent that the failure to
obtain such licenses, consents, authorizations, approvals, orders, certificates
and permits or make such declarations and filings would not have a material
adverse effect on the Company and the Subsidiaries, taken as a whole and (ii)
has not received any notice of proceedings relating to the violation, revocation
or modification of any such license, consent, authorization, approval, order,
certificate or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would reasonably be expected to result
in a material adverse change in the condition, financial or otherwise, or in the
earnings, business or operations of the Company and the Subsidiaries, taken as a
whole.
(s) The Company and the Subsidiaries (i) are in compliance with any and
all applicable foreign, federal, state and local and foreign laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants, including all such laws and regulations concerning electromagnetic
radio frequency emissions ("Environmental Laws"); (ii) have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses; and (iii) are in
compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or failure to comply with
the terms and conditions of such permits, licenses or approvals, singly or in
the aggregate, would not be reasonably likely to have a material adverse effect
on the Company and the Subsidiaries, taken as a whole.
(t) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with Environmental
Laws or any permit, license or approval, any related constraints on operating
activities and any potential liabilities to third parties) which would, singly
or in the aggregate, be reasonably likely to have a material adverse effect on
the Company and the Subsidiaries, taken as a whole.
(u) None of the Company, its Affiliates or any person acting on its or
their behalf (other than the Placement Agents) has engaged in any directed
selling efforts (as that term is defined in Regulation S with respect to the
Units, the Notes or the Warrants and the Company and its Affiliates and any
person acting on its or their behalf (other than the Placement Agents) have
complied with the offering restrictions requirement of Regulation S.
(v) The Company and each of the Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with U.S. GAAP and to maintain
asset accountability; (iii) access to assets is permitted only in accordance
with management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(w) The Company and the Subsidiaries have good and marketable title in
fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and the
Subsidiaries, taken as a whole, in each case free and clear of all liens,
encumbrances and defects, except such as are described in each Memorandum or
such as do not materially affect the value of such property and do not interfere
with the use made and proposed to be made of such property by the Company and
the Subsidiaries; and any real property and buildings held under lease by the
Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
materially interfere with the use made and proposed to be made of such property
and buildings by the Company and the Subsidiaries, in each case except as
described in or contemplated by each Memorandum.
(x) The Company and the Subsidiaries own or possess, or can acquire on
reasonable terms, all material patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names currently employed by them in
connection with the business now operated by them, and neither the Company nor
any of the Subsidiaries has received any notice of infringement of or conflict
with asserted rights of others with respect to any of the foregoing which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would be reasonably likely to result in a material adverse change in
the condition, financial or otherwise, or in the earnings, business or
operations of the Company and the Subsidiaries, taken as a whole.
(y) No material labor dispute with the employees of the Company or any
of the Subsidiaries exists, except as described in or contemplated by each
Memorandum, or, to the knowledge of the Company, is imminent; and the Company is
not aware of any existing, threatened or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers or contractors that
would be reasonably likely to result in a material adverse change in the
condition, financial or otherwise, or in the earnings, business or operations of
the Company and the Subsidiaries, taken as a whole.
(z) The Company and each of the Subsidiaries are insured against such
losses and risks and in such amounts as are customary in the businesses in which
they are engaged; the Company has no reason to believe that either it or any
Subsidiary will not be able to renew its existing insurance coverage as and when
such coverage expires or obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the earnings,
business or operations of the Company and the Subsidiaries, taken as a whole,
except as described in or contemplated by each Memorandum.
(aa) The pro forma financial statements included in each Memorandum
present fairly the information shown therein and, in the opinion of the Company,
the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the transactions or
circumstances referred to therein.
(bb) None of the Company or any of the Subsidiaries has committed any
act in violation of the Foreign Corrupt Practices Act, as amended.
2. Offering. You have advised the Company that the Placement Agents
will make an offering of the Units purchased by the Placement Agents hereunder
on the terms set forth in the Final Memorandum as soon as practicable after this
Agreement is entered into as in your judgment is advisable.
3. Purchase and Delivery. The Company hereby agrees to sell to
the several Placement Agents, and the Placement Agents, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agree, severally and not jointly, to purchase from the
Company the number of Units set forth in Schedule I hereto opposite their names
at a purchase price of $508.43 per Unit plus accrued amortization of original
issue discount on the Notes, if any, from March 6, 1997 to the date of payment
and delivery.
Payment for the Units shall be made against delivery of the Units at a
closing (the "Closing") to be held at the office of Shearman & Sterling, 599
Lexington Avenue, New York, New York, at 9:00 A.M., local time, on March 6,
1997, or at such other time on the same or such other date, not later than March
20, 1997, as shall be designated in writing by you. The time and date of such
payment are herein referred to as the Closing Date. Payment for the Units shall
be made to the Company in federal funds or other funds immediately available in
New York City.
Certificates for the Units, the Notes and the Warrants shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not less than one full business day prior to the
Closing Date. The certificates evidencing the Units, the Notes and the Warrants
shall be delivered to you on the Closing Date for the respective accounts of the
several Placement Agents, with any transfer taxes payable in connection with the
transfer of the Units, the Notes or the Warrants to the Placement Agents duly
paid, against payment of the purchase price therefor.
4. Conditions to Closing. The several obligations of the
Placement Agents under this Agreement to purchase the Units will be subject to
the following conditions:
(a) Subsequent to the date of this Agreement and prior to the Closing
Date,
(i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of any review
for a possible change that does not indicate the direction of the possible
change, in the rating accorded any of the Company's securities by any
"nationally recognized statistical rating organization," as such term is defined
for purposes of Rule 436(g)(2) under the Securities Act; and
(ii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or otherwise, or in
the earnings, business or operations, of the Company and the Subsidiaries, taken
as a whole, from that set forth in the Preliminary Memorandum that, in your
judgment, is material and adverse and that makes it, in your judgment,
impracticable to market the Units on the terms and in the manner contemplated in
the Final Memorandum.
(b) You shall have received on the Closing Date a certificate, dated
the Closing Date and signed by the Chief Financial Officer and the General
Counsel of the Company, to the effect set forth in clause (a)(i) above and to
the effect that the representations and warranties contained in this Agreement
are true and correct as of the Closing Date and that the Company has complied
with all of the agreements contained herein and satisfied all of the conditions
contained herein to be performed or satisfied on or before the Closing Date.
The officer signing and delivering such certificate may rely upon his
knowledge as to proceedings threatened.
(c) You shall have received on the Closing Date an opinion of Perkins
Coie, Washington counsel to the Company, dated the Closing Date, to the effect
set forth in Exhibit D.
(d) You shall have received on the Closing Date an opinion of
Chadbourne & Parke LLP, special counsel to the Company, dated the Closing Date,
to the effect set forth in Exhibit E.
(e) You shall have received on the Closing Date opinions of foreign
counsel to the Company in Brazil, Argentina, Mexico and Philippines, dated the
Closing Date, each to the effect set forth in Exhibit F.
(f) You shall have received on the Closing Date opinions of foreign
counsel to the Company in the Cayman Islands, dated the Closing Date, to the
effect set forth in Exhibit G.
(g) You shall have received on the Closing Date opinions of foreign
counsel to the Company in China, dated the Closing Date, to the effect set forth
in Exhibit H.
(h) You shall have received on the Closing Date an opinion of Venture
Law Group, special counsel to the Company, dated the Closing Date, to the effect
set forth in Exhibit I.
The opinions of Perkins Coie, Chadbourne Parke, Baker & McKenzie,
Bufete Casas y Galindo, S.C., Bryan, Gonzalez Vargas y Gonzales Baz, S.C.,
Pudong Law Office, Castillo Laman Tan Pantaleon & San Jose, M. & M. Bomchil,
Pinheiro Neto, Maples & Calder and Venture Law Group shall be rendered to you at
the request of the Company and shall so state therein.
(i) You shall have received on the Closing Date an opinion of
Shearman & Sterling, counsel for the Placement Agents, dated the Closing Date,
in form and substance satisfactory to you.
(j) You shall have received on each of the date hereof and the
Closing Date a letter, dated the date hereof or the Closing Date, as the case
may be, in form and substance satisfactory to you, from Deloitte & Touche LLP,
the Company's independent public accountants, containing statements and
information of the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain financial
information contained in the Final Memorandum.
(k) You shall have received on each of the date hereof and the
Closing Date a letter, dated the date hereof, in form and substance satisfactory
to you, from each of KPMG Cardenas Dosal, S.C. Peat Marwick and KPMG Peat
Marwick LLP, the Company's independent public accountants, containing statements
and information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and certain
financial information contained in the Final Memorandum.
(l) You shall have received evidence of the contribution by Nextel
Investment Company to the Company of its approximately 38% equity interest in
Corporacion MobilCom S.A. de C.V. and approximately 3.7% equity interest in
Clearnet Communications, Inc., as described in the Final Memorandum.
(m) You shall have received executed copies of the Tax Sharing
Agreement, the Overhead Services Agreement and the Right of First Opportunity
Agreement, each between the Company and Nextel Communications, Inc., and the
side letter between Motorola, Inc. and the Company; and each such agreement
shall be in full force and effect on the Closing Date.
(n) You shall have received such other certificates and documents as
you or your counsel may reasonably request.
5. Covenants of the Company. In further consideration of the
agreements of the Placement Agents contained in this Agreement, the Company
covenants as follows:
(a) To furnish to you, without charge, during the period
mentioned in paragraph (c) of this Section 5, as many copies of the Final
Memorandum and any supplements and amendments thereto as you may reasonably
request and to use its reasonable best efforts to deliver such copies to you by
10:00 a.m. (New York time) on the business day next following the execution of
this Agreement.
(b) Before amending or supplementing either Memorandum, to furnish to
you a copy of each such proposed amendment or supplement and not to use any such
proposed amendment or supplement to which you reasonably object.
(c) If, during such period after the date hereof and prior to the date
on which all of the Units shall have been sold by the Placement Agents, any
event shall occur or condition exist as a result of which it is necessary in
your judgment to amend or supplement the Final Memorandum in order to make the
statements therein, in the light of the circumstances when such Memorandum is
delivered to a purchaser, not misleading, or if, in the opinion of counsel to
the Placement Agents, it is necessary to amend or supplement such Memorandum to
comply with applicable law, forthwith to prepare and furnish, at its own
expense, to the Placement Agents, either amendments or supplements to such
Memorandum so that the statements in such Memorandum as so amended or
supplemented will not, in the light of the circumstances when such Memorandum is
delivered to a purchaser, be misleading or so that such Memorandum, as so
amended or supplemented, will comply in all material respects with applicable
law.
(d) To endeavor to qualify the Units, the Notes and the Warrants for
offer and sale under the securities or Blue Sky laws of such jurisdictions as
you shall reasonably request; provided that in no event shall the Company be
obligated to qualify to do business in any jurisdiction where it is not now so
qualified or to take any action which would subject it to service or process in
suits, other than those arising out of the offering or sale of the Units, Notes
and Warrants, in any jurisdiction where it is not now so subject.
(e) Whether or not any sale of such Units is consummated, to pay all
expenses incident to the performance of its obligations under this Agreement,
including: (i) the preparation of each Memorandum and all amendments and
supplements thereto, (ii) the preparation, issuance and delivery of the Units,
(iii) the fees and disbursements of the Company's counsel and accountants and
the Trustee and the Warrant Agent and their respective counsel, (iv) the
qualification of such Units, Notes and Warrants under securities or Blue Sky
laws in accordance with the provisions of Section 5(d), including filing fees
and the fees and disbursements of counsel for the Placement Agents in connection
therewith and in connection with the preparation of any Blue Sky or legal
investment memoranda, (v) the printing and delivery to the Placement Agents in
quantities as hereinabove stated of copies of the Memorandum and any amendments
or supplements thereto, (vi) any fees charged by rating agencies for the rating
of such Notes, (vii) all document production charges and expenses of counsel to
the Placement Agents (but not including their fees for professional services) in
connection with the preparation of this Agreement, (viii) the fees and expenses,
if any, incurred in connection with the admission of such Units, Notes or
Warrants for trading in PORTAL or any other appropriate market system, (ix) the
costs and expenses of the Company relating to investor presentations on any
"road show" undertaken in connection with the marketing of the Units, including,
without limitation, expenses associated with the production of road show slides
and graphics, fees and expenses of any consultants engaged in connection with
the road show presentations with the prior approval of the Company, travel and
lodging expense of the representatives and officers of the Company and any such
consultants, and the cost of any aircraft chartered in connection with the road
show, and (x) all other costs and expenses incident to the performance of the
obligations of the Company hereunder for which provision is not otherwise made
in this Section.
(f) Neither the Company nor any Affiliate will sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security (as
defined in the Securities Act) which could be integrated with the sale of the
Units, the Notes or the Warrants in a manner which would require the
registration under the Securities Act of such Units, Notes or Warrants.
(g) Not to solicit any offer to buy or offer or sell the Units, the
Notes or the Warrants by means of any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Securities Act)
or in any manner involving a public offering within the meaning of Section 4(2)
of the Securities Act except as contemplated by the Registration Rights
Agreement or Warrant Registration Rights Agreement.
(h) While any of the Units, the Notes or the Warrants remain
outstanding, to make available, upon request, to any seller of such Units, Notes
or Warrants the information specified in Rule 144A(d)(4) under the Securities
Act, unless the Company is then subject to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act").
(i) Except as contemplated by the Registration Rights Agreement
or Warrant Registration Rights Agreement, none of the Company, its Affiliates or
any person acting on its or their behalf (other than the Placement Agents) will
engage in any directed selling efforts (as that term is defined in Regulation S)
with respect to the Units, the Notes or the Warrants and the Company and its
Affiliates and each person acting on its or their behalf (other than the
Placement Agents) will comply with the offering restrictions of Regulation S.
(j) The Company will, and will cause the Warrant Agent with
respect to the Warrants and the registrar for the Warrant Shares to, refuse to
register any transfer of Warrants or Warrant Shares sold pursuant to Regulation
S if such transfer is not made in accordance with the provisions of Regulation
S.
(k) The Company will, and will cause the Trustee to, refuse to
register any transfer of the Notes sold pursuant to Regulation S if such
transfer is not made in accordance with the provisions of Regulation S and the
Indenture.
(l) To use its best efforts to permit the Units, the Notes and the
Warrants to be designated PORTAL securities in accordance with the rules and
regulations adopted by the National Association of Securities Dealers, Inc.
relating to trading in the PORTAL Market.
(m) To use the net proceeds received by it from the sale of the Units
pursuant to this Agreement substantially in the manner specified and to the
extent set forth in the Final Memorandum under the caption "Use of Proceeds."
6. Offering of Securities; Restrictions on Transfer. (a) Each
Placement Agent, severally and not jointly, represents and warrants that such
Placement Agent is a qualified institutional buyer as defined in Rule 144A under
the Securities Act (a "QIB"). Each Placement Agent, severally and not jointly,
agrees with the Company that (i) it will not solicit offers for, or offer or
sell, such Units, Notes or Warrants by any form of general solicitation or
general advertising (as those terms are used in Regulation D under the
Securities Act) or in any manner involving a public offering within the meaning
of Section 4(2) of the Securities Act and (ii) it will solicit offers for such
Units, Notes or Warrants only from, and will offer such Units, Notes or Warrants
only to, persons that it reasonably believes to be (A) in the case of offers
inside the United States, (x) QIBs or (y) other institutional accredited
investors (as defined in Rule 501(a) (1), (2), (3) or (7) under the Securities
Act) ("institutional accredited investors") that, prior to their purchase of the
Units, deliver to such Placement Agent a letter containing the representations
and agreements set forth in Annex A to the Memorandum and (B) in the case of
offers outside the United States, to persons other than U.S. persons ("foreign
purchasers," which term shall include dealers or other professional fiduciaries
in the United States acting on a discretionary basis for foreign beneficial
owners (other than an estate or trust)) that, in each case, in purchasing such
Units are deemed to have represented and agreed as provided in the Final
Memorandum under the caption "Transfer Restrictions."
(b) Each Placement Agent, severally and not jointly, represents,
warrants, and agrees with respect to offers and sales outside the United States
that:
(i) it understands that no action has been or will be taken in any
jurisdiction by the Company that would permit a public offering of the Units,
the Notes or the Warrants, or possession or distribution of either Memorandum or
any other offering or publicity material relating to the Units, the Notes or the
Warrants, in any country or jurisdiction where action for that purpose is
required;
(ii) such Placement Agent will comply with all applicable laws and
regulations in each jurisdiction in which it acquires, offers, sells or delivers
Units, Notes or Warrants or has in its possession or distributes either
Memorandum or any such other material, in all cases at its own expense;
(iii) the Units, the Notes and the Warrants have not been and
will not be registered under the Securities Act and may not be offered or sold
within the United States or to, or for the account or benefit of, U.S. persons
except in accordance with Regulation S under the Securities Act or pursuant to
an exemption from the registration requirements of the Securities Act;
(iv) such Placement Agent has offered the Units, the Notes or the
Warrants and will offer and sell the Units, the Notes or the Warrants (A) as
part of its distribution at any time and (B) otherwise until 40 days after the
Closing Date with respect to the Notes, and one year after the Closing Date with
respect to the Units and the Warrants, only in accordance with Rule 903 of
Regulation S or another exemption from the registration requirements of the
Securities Act. Accordingly, neither such Placement Agent, its Affiliates nor
any persons acting on its or their behalf have engaged or will engage in any
directed selling efforts (within the meaning of Regulation S) with respect to
the Units, the Notes or the Warrants, and any such Placement Agent, its
Affiliates and any such persons have complied and will comply with the offering
restrictions requirements of Regulation S;
(v) such Placement Agent has (A) not offered or sold and, during the
period of six months from the date hereof, will not offer or sell any Units,
Notes or Warrants to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995 (the "Regulations"); (B) complied and,
during the period of six months from the date hereof, will comply with all
applicable provisions of the Financial Services Act 1986 and the Regulations
with respect to anything done by it in relation to the Units, the Notes or the
Warrants in, from or otherwise involving the United Kingdom; and (C) only issued
or passed on and, during the period of six months from the date hereof, will
only issue or pass on to any person in the United Kingdom any document received
by it in connection with the issue of the Units, the Notes or the Warrants if
that person is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to
whom such document may otherwise lawfully be issued or passed on;
(vi) such Placement Agent understands that the Units, the Notes and the
Warrants have not been and will not be registered under the Securities and
Exchange Law of Japan, and represents that it has not offered or sold, and
agrees that it will not offer or sell, any Units, Notes or Warrants, directly or
indirectly in Japan or to any resident of Japan except (A) pursuant to an
exemption from the registration requirements of the Securities and Exchange Law
of Japan and (B) in compliance with any other applicable requirements of
Japanese law; and
(vii) such Placement Agent agrees that, at or prior to confirmation of
sales of the Units, it will have sent to each distributor, dealer or person
receiving a selling concession, fee or other remuneration that purchases Units,
Notes or Warrants from it during the restricted period a confirmation or notice
to substantially the following effect:
"The Units, Notes or Warrants covered hereby have not
been registered under the U.S. Securities Act of 1933 (the
"Securities Act") and may not be offered and sold within the
United States or to, or for the account or benefit of, U.S.
persons (i) as part of their distribution at any time or (ii)
otherwise until 40 days after the closing date with respect to
the Notes and 1 year after the closing date with respect to the
Units and the Warrants, except in either case in accordance
with Regulation S (or Rule 144A, if available) under the
Securities Act. Terms used above have the meaning given to them
by Regulation S."
Terms used in this Section 6 have the meanings given to them
by Regulation S.
7. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Placement Agent, and each person, if any, who
controls such Placement Agent within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, or is under common control
with, or is controlled by, such Placement Agent, from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred by any Placement Agent or any such
controlling of affiliated person in connection with defending or investigating
any such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in either Memorandum (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact necessary to make the statements therein in light of the
circumstances under which they were made not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon information
relating to any Placement Agent furnished to the Company in writing by such
Placement Agent through you expressly for use therein.
(b) Each Placement Agent agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors and officers and each
person, if any, who controls the Company within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act to the same extent as
the foregoing indemnity from the Company to such Placement Agent, but only with
reference to information relating to such Placement Agent furnished to the
Company in writing by such Placement Agent through you expressly for use in
either Memorandum or any amendments or supplements thereto.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to either paragraph (a) or (b) of this Section 7, such person
(the "indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the reasonable fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be at
the expense of such indemnified party unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such counsel or
(ii) the named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm (in addition to any local counsel) for
all such indemnified parties and that all such fees and expenses shall be
reimbursed as they are incurred. Such firm shall be designated in writing by
Morgan Stanley & Co. Incorporated in the case of parties indemnified pursuant to
paragraph (a) of this Section 7 and by the Company in the case of parties
indemnified pursuant to paragraph (b) of this Section 7. The indemnifying party
shall not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by the second
and third sentences of this paragraph, the indemnifying party agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
(d) To the extent the indemnification provided for in paragraph (a)
or (b) of this Section 7 is unavailable to an indemnified party or insufficient
in respect of any losses, claims, damages or liabilities, then each indemnifying
party under such paragraph, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, on the one hand, and the Placement Agents, on the other hand, from the
offering of such Units or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and the Placement Agents on the
other hand in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Placement Agents on the other hand in connection with the offering of
such Units shall be deemed to be in the same respective proportions as the net
proceeds from the offering of such Units (before deducting expenses) received by
the Company and the total discounts and commissions received by the Placement
Agents in respect thereof bear to the aggregate offering price of such Units.
The relative fault of the Company on the one hand and of the Placement Agents on
the other hand shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or by the Placement Agents and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Placement Agents' respective obligations to contribute pursuant to
this Section 7 are several in proportion to the respective number of Units they
have purchased hereunder, and not joint.
(e) The Company and the Placement Agents agree that it would not
be just or equitable if contribution pursuant to this Section 7 were determined
by pro rata allocation (even if the Placement Agents were treated as one entity
for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in paragraph (d) above. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in paragraph (d) above shall be
deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7, no Placement Agent shall be required to contribute
any amount in excess of the amount by which the total price at which the Units
resold by it in the initial placement of such Units were offered to investors
exceeds the amount of any damages that such Placement Agent has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The indemnity and contribution provisions contained in this
Section 7 and the representations and warranties of the Company contained in
this Agreement shall remain operative and in full force and effect regardless of
(i) any termination of this Agreement, (ii) any investigation made by or on
behalf of the Placement Agents or any person controlling the Placement Agents or
by or on behalf of the Company, its officers or directors or any person
controlling the Company and (iii) acceptance of and payment for any of the
Units. The remedies provided for in this Section 7 are not exclusive and shall
not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
8. Termination. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses (a)(i) through (iv), such event singly or
together with any other such event makes it, in your judgment, impracticable to
market the Units on the terms and in the manner contemplated in the Final
Memorandum.
9. Miscellaneous. If, on the Closing Date, any one or more of the
Placement Agents shall fail or refuse to purchase Units that it or they have
agreed to purchase hereunder on such date, and the number of Units which such
defaulting Placement Agent or Placement Agents agreed but failed or refused to
purchase is not more than one-tenth of the aggregate number of Units to be
purchased on such date, the other Placement Agents shall be obligated severally
in the proportions that the number of Units set forth opposite their respective
names in Schedule I bears to the aggregate number of Units set forth opposite
the names of all such non-defaulting Placement Agents, or in such other
proportions as you may specify, to purchase the Units which such defaulting
Placement Agent or Placement Agents agreed but failed or refused to purchase on
such date; provided that in no event shall the number of Units that any
Placement Agent has agreed to purchase pursuant to Section 3 be increased
pursuant to this Section 9 by a number in excess of one-ninth of such number of
Units without the written consent of such Placement Agent. If, on the Closing
Date any Placement Agent or Placement Agents shall fail or refuse to purchase
Units which it or they have agreed to purchase hereunder on such date and the
aggregate number of Units with respect to which such default occurs is more than
one-tenth of the aggregate number of Units to be purchased on such date and
arrangements satisfactory to you and the Company for the purchase of such Units
are not made within 36 hours after such default, this Agreement shall terminate
without liability on the part of any non-defaulting Placement Agent or of the
Company. In any such case either you or the Company shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Final Memorandum or in any other
documents or arrangements may be effected. Any action taken under this paragraph
shall not relieve any defaulting Placement Agent from liability in respect of
any default of such Placement Agent under this Agreement.
This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
If this Agreement shall be terminated by the Placement Agents, or any
of them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Placement Agents or such Placement
Agents as have so terminated this Agreement with respect to themselves,
severally, for all out-of-pocket expenses (including the reasonable fees and
disbursements of their counsel) reasonably incurred by such Placement Agents in
connection with this Agreement or the offering contemplated hereunder.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF NEW YORK.
The headings of the sections of this Agreement have been inserted for
convenience of reference only and shall not be deemed a part of this Agreement.
<PAGE>
Please confirm your agreement to the foregoing by signing in the space
provided below for that purpose and returning to us a copy hereof, whereupon
this Agreement shall constitute a binding agreement between us.
Very truly yours,
McCAW INTERNATIONAL, LTD.
By: /s/ Keith D. Grinstein
-----------------------
Name:
Title: President & CEO
Agreed, as of the date first above written
Morgan Stanley & Co.
Incorporated
Acting severally on behalf
of itself and the several
Placement Agents named herein.
By Morgan Stanley & Co. Incorporated
By: /s/ Jonathan G. Morphett
--------------------------
Name:
Title: Principal
<PAGE>
SCHEDULE I
Number of Units
Placement Agent To Be Purchased
--------------- ---------------
Morgan Stanley & Co. Incorporated 594,664
Chase Securities Inc. 166,506
Lehman Brothers Inc. 166,506
NatWest Capital Markets Limited 23,787
-------
Total........................................ 951,463
=======
<PAGE>
SCHEDULE II
List of Subsidiaries
McCaw International (Services), Ltd. (Delaware) 100%
McCaw International (Can Mex) (Delaware) 100%
Shanghai McCaw Telecommunications System Co., Ltd. (PRC) 60%
Wireless Ventures of Brazil, Inc. (Virginia) 81%
McCaw International (Holdings) Ltd. (Cayman Islands) 100%
McCaw International (Philippines) LLC (Cayman Islands) 99%
TOP Mega Enterprises Ltd. (Hong Kong) 100%
Infocom Communications Network, Inc. (Philippines) 30%
McCaw International (Argentina) LLC (Cayman Islands) 99%
McCaw Argentina S.A. (Argentina) 99%
Corporacion Mobilcom S.A. de C.V. (Mexico) 38%
<PAGE>
EXHIBIT A
---------
Form of Warrant Agreement
<PAGE>
EXHIBIT B
---------
Form of Registration
Rights Agreement
<PAGE>
EXHIBIT C
---------
Form of Warrant
Registration Rights Agreement
<PAGE>
EXHIBIT D
---------
Opinion of Counsel for the Company
The opinion of Perkins Coie, counsel for the Company, to be delivered
pursuant to Section 4(c) of the Placement Agreement shall be to the effect that:
(A) the Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the power and authority to own its property and to conduct
its business as described in the Final Memorandum (references herein to the
Final Memorandum being taken to mean the same, as amended or supplemented), and
is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the failure to
be so qualified or be in good standing would not have a material adverse effect
on the Company and the Subsidiaries taken as a whole;
(B) each United States Subsidiary of the Company has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation (or in the case of each Subsidiary
that is a partnership, is duly formed and validly existing as a partnership in
good standing under the laws of the jurisdiction of its organization), has the
corporate power and authority to own its property and to conduct its business as
described in the Final Memorandum and is duly qualified to transact business and
is in good standing in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company and the Subsidiaries, taken as a whole;
(C) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, the Placement Agreement,
the Indenture, the Registration Rights Agreement, the Warrant Agreement, the
Warrant Registration Rights Agreement and the execution, issuance, sale and
delivery of the Notes and the Warrants and the issuance of the Warrant Shares
upon exercise of the Warrants in accordance with the Warrants and the Warrant
Agreement by the Company will not contravene (i) any provision of applicable
law, (ii) the certificate of incorporation or by-laws of the Company, (iii) to
such counsel's knowledge, any agreement or other instrument binding upon the
Company or any of the Subsidiaries that is material to the Company and the
Subsidiaries, taken as a whole, or (iv) to such counsel's knowledge, any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Company or any Subsidiary, and no permit, license,
consent, approval, authorization or order of, or filing, declaration or
qualification with, any governmental body or agency is required for the
performance by the Company or the Subsidiaries of their obligations under the
Placement Agreement, the Indenture, the Registration Rights Agreement, the
Warrant Agreement, the Warrant Registration Rights Agreement, the Notes, the
Warrants or the Warrant Shares, except such as may be required by the securities
or Blue Sky laws of the various states in connection with the offer and sale of
the Units, the Notes and the Warrants;
(D) after due inquiry, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company or any of
the Subsidiaries is a party or to which any of the properties of the Company or
any of the Subsidiaries is subject other than proceedings fairly summarized in
all material respects in the Final Memorandum and proceedings which such counsel
believes are not likely to have a material adverse effect on the Company and the
Subsidiaries, taken as a whole, or on the power or ability of the Company to
perform its obligations under the Placement Agreement, the Indenture, the
Registration Rights Agreement, the Warrant Agreement, the Warrant Registration
Rights Agreement, the Notes, the Warrants or the Warrant Shares or to consummate
the transactions contemplated by the Final Memorandum;
(E) the Company is not, and after giving effect to the offering and
sale of the Units, Notes and Warrants and the application of the proceeds
thereof as described in the Final Memorandum, will not be an "investment
company," as such term is defined in the Investment Company Act of 1940, as
amended;
(F) the Company is not a "public utility holding company" as
such term is defined in the Public Utility Holding Company Act of 1935, as
amended;
(G) the statements in the Final Memorandum under the caption
"Certain United States Federal Income Tax Considerations" are accurate in all
material respects and fairly summarize the matters referred to therein;
(H) the Warrant Shares have been duly authorized and reserved by
the Company and, when issued and delivered upon exercise of the Warrants in
accordance with the terms of the Warrants, will be validly issued, fully paid
and non-assessable and will not be subject to any preemptive or similar rights;
and
(I) each of the Placement Agreement, the Notes, the Indenture, the
Registration Rights Agreement, the Warrants, the Warrant Agreement and the
Warrant Registration Rights Agreement has been duly authorized, executed and
delivered by the Company.
<PAGE>
EXHIBIT E
---------
Opinion of Special Counsel for the Company
The opinion of Chadbourne Parke, special counsel for the Company, to be
delivered pursuant to Section 4(d) of the Placement Agreement shall be to the
effect that:
(A) the Placement Agreement has been duly authorized, executed and
delivered by the Company;
(B) the Notes have been duly authorized and executed by the Company
and, when authenticated and delivered to and paid for in accordance with the
terms of the Placement Agreement, will (x) be valid and binding obligations of
the Company enforceable in accordance with their terms, except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
now or hereafter in effect relating to or affecting creditors' rights generally
and (ii) rights of acceleration, if applicable, and the availability of
equitable remedies may be limited by equitable principles and (y) be entitled to
the benefits of the Indenture and the Registration Rights Agreement;
(C) 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, except as (x) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws now 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;
(D) the Registration Rights Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms, except as (x) the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws now 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;
(E) the Warrants have been duly authorized and executed by the
Company, and when countersigned by the Warrant Agent as provided in the Warrant
Agreement, and delivered to and paid for by the Placement Agents in accordance
with the terms of the Placement Agreement, will (x) be valid and binding
obligations of the Company enforceable in accordance with their terms, except as
(A) the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws now or hereafter in effect relating to or affecting creditors'
rights generally and (B) rights of acceleration, if applicable, and the
availability of equitable remedies may be limited by equitable principles and
(y) be entitled to the benefits of the Warrant Agreement and the Warrant
Registration Rights Agreement;
(F) the Warrant Agreement has been duly authorized, executed and
delivered by, and is a valid and binding agreement of, the Company, enforceable
in accordance with its terms except as (x) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws now 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;
(G) the Warrant Registration Rights Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement of,
the Company, enforceable in accordance with its terms, except as (x) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
now 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;
(H) the Warrant Shares have been duly authorized and reserved by the
Company and, when issued and delivered upon exercise of the Warrants in
accordance with the terms of the Warrants, will be validly issued, fully paid
and non-assessable and will not be subject to any preemptive rights;
(I) the statements in the Final Memorandum under the captions
"Description of the Units," "Description of the Notes," "Description of the
Warrants," "Description of Capital Stock," "Private Placement" and "Transfer
Restrictions," insofar as such statements constitute a summary of the legal
matters or documents referred to therein, fairly summarize in all material
respects the matters referred to therein;
(J) such counsel believes that (except for financial statements as to
which such counsel need not express any belief) the Final Memorandum when issued
did not, and as of the date such opinion is delivered does not, contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; and
(K) based upon the representations, warranties, and agreements of the
Company in Sections 1(o), 1(u), 5(f), 5(g), 5(i), 5(j) and 5(k) of the Placement
Agreement and of the Placement Agents in Section 6 of the Placement Agreement,
it is not necessary in connection with the offer, sale and delivery of the
Units, Notes and Warrants to the Placement Agents under the Placement Agreement
or in connection with the initial resale of such Units, Notes or Warrants by the
Placement Agents in accordance with Section 6 of the Placement Agreement to
register the Units, the Notes or the Warrants under the Securities Act of 1933,
it being understood that no opinion is expressed as to any subsequent resale of
any of the Units, the Notes or the Warrants.
With respect to paragraph (J) above, counsel may state that their
opinion and belief are based upon their participation in the preparation of the
Final Memorandum (and any amendments or supplements thereto) and review and
discussion of the contents thereof, but are without independent check or
verification except with respect to paragraph (I) above.
<PAGE>
EXHIBIT F
---------
Opinion of Foreign Counsel for the Company
The opinion of [_____________], foreign counsel for the Company, to be
delivered pursuant to Section 4(f) of the Placement Agreement shall be to the
effect that:
(A) [Name of Operating Company] has been duly incorporated, is validly
existing as a corporation in good standing under the laws of [the jurisdiction
of its organization], has the corporate power and authority to own its property
and to conduct its business as described in the Final Memorandum and is duly
qualified to transact business and is in good standing in each jurisdiction in
which the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse effect on the
Company and its subsidiaries taken as a whole;
(B) each Subsidiary of [Name of Operating Company] has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of the jurisdiction of its organization, has the corporate power and
authority to own its property and to conduct its business as described in the
Final Memorandum and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company and its subsidiaries taken as a whole;
(C) each of [Name of Operating Company] and its subsidiaries (i) has
all necessary licenses, consents, authorizations, approvals, orders,
certificates and permits of and from, and has made all declarations and filings
with, all [name of country] governmental, administrative or regulatory
authorities, all self-regulatory organizations and all courts and other
tribunals, to own, lease, license and use its properties and assets and to
conduct its business in the manner described in or contemplated by each
Memorandum, including providing digital enhanced specialized mobile radio
services, except to the extent that the failure to obtain such consents,
authorizations, approvals, orders, certificates and permits or make such
declarations and filings would not have a material adverse effect on [Name of
Operating Company] and its subsidiaries, taken as a whole and (ii) has not
received any notice of proceedings relating to the violation, revocation or
modification of any such license, consent, authorization, approval, order,
certificate or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would reasonably be expected to result
in a material adverse change in the condition, financial or otherwise, or in the
earnings, business or operations of [Name of Operating Company] and its
subsidiaries, taken as a whole, except as described in each Memorandum;
(D) the statements in the Final Memorandum under the captions ["Risk
Factors - Government Regulation", "Business - [Name of Country] - Regulatory and
Legal Overview" and other Sections to be designated], in each case insofar as
such statements constitute summaries of the [name of country] legal matters,
documents or proceedings referred to therein, are accurate in all material
respects and fairly summarize all matters referred to therein, and there are no
material omissions under such captions with respect to the description of
statutes, rules or regulations that would make the statements therein
misleading; and
(E) there are no restrictions (legal, contractual or otherwise) on the
ability of [Name of Operating Company] to declare and pay any dividends or make
any payment or transfer of property or assets to its stockholders other than
those described in the Final Memorandum and such restrictions as would not have
a material adverse effect on the prospects, condition, financial or otherwise,
or in the earnings, business or operations of the Company and its subsidiaries,
taken as a whole; and such descriptions, if any, fairly summarize such
restrictions.
<PAGE>
EXHIBIT G
---------
Opinion of Cayman Islands Counsel for the Company
The opinion of Cayman Islands counsel for the Company, to be delivered
pursuant to Section 4(g) of the Placement Agreement shall be to the effect that:
(A) [Name of Operating Company] has been duly incorporated, is validly
existing as a corporation in good standing under the laws of [the jurisdiction
of its organization], has the corporate power and authority to own its property
and to conduct its business as described in the Final Memorandum and is duly
qualified to transact business and is in good standing in each jurisdiction in
which the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse effect on the
Company and its subsidiaries taken as a whole;
(B) each subsidiary of [Name of Operating Company] has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of the jurisdiction of its organization, has the corporate power and
authority to own its property and to conduct its business as described in the
Final Memorandum and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company and its subsidiaries taken as a whole;
(C) each of [Name of Operating Company] and its subsidiaries has all
necessary certificates, orders, permits, licenses, authorizations, consents and
approvals of and from, and has made all declarations and filings with, all [name
of country] governmental authorities, all self-regulatory organizations and all
courts and tribunals, to own, lease, license and use its properties and assets
and to conduct its business in the manner described in the Final Memorandum, and
neither [Name of Operating Company] nor any of its subsidiaries has received any
notice of proceedings relating to revocation or modification of any such
certificates, orders, permits, licenses, authorizations, consents or approvals,
nor is [Name of Operating Company] or any of its subsidiaries in violation of,
or in default under, any national or regional law, regulation, rule, decree,
order or judgment applicable to [Name of Operating Company] or any of its
subsidiaries the effect of which, singly or in the aggregate, would have a
material adverse effect on the prospects, condition, financial or otherwise, or
in the earnings, business or operations of the Company and its subsidiaries,
taken as a whole, except as described in the Final Memorandum; and
(D) there are no restrictions (legal, contractual or otherwise) on the
ability of [Name of Operating Company] to declare and pay any dividends or make
any payment or transfer of property or assets to its stockholders other than
those described in the Final Memorandum and such restrictions as would not have
a material adverse effect on the prospects, condition, financial or otherwise,
or in the earnings, business or operations of the Company and its subsidiaries,
taken as a whole; and such descriptions, if any, fairly summarize such
restrictions.
<PAGE>
EXHIBIT H
---------
Opinion of China Counsel for the Company
The opinion of China counsel for the Company, to be delivered pursuant
to Section 4(h) of the Placement Agreement shall be to the effect that:
(A) Shanghai McCaw Telecommunications Co. Ltd. has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of the Peoples Republic of China, has the corporate power and authority to
own its property and to conduct its business as described in the Final
Memorandum and is duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that the
failure to be so qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries taken as a whole;
(B) the statements in the Final Memorandum under the captions ["Risk
Factors - Government Regulation", "Business - China - Regulatory and Legal
Overview", "Corporate Governance - China" and other Sections to be designated],
in each case insofar as such statements constitute summaries of the [name of
country] legal matters, documents or proceedings referred to therein, are
accurate in all material respects and fairly summarize all matters referred to
therein, and there are no material omissions under such captions with respect to
the description of contracts, statutes, rules or regulations that would make the
statements therein misleading; and
(C) there are no restrictions (legal, contractual or otherwise) on the
ability of [Name of Operating Company] to declare and pay any dividends or make
any payment or transfer of property or assets to its stockholders other than
those described in the Final Memorandum and such restrictions as would not have
a material adverse effect on the prospects, condition, financial or otherwise,
or in the earnings, business or operations of the Company and its subsidiaries,
taken as a whole; and such descriptions, if any, fairly summarize such
restrictions.
(D) The Joint Venture Contract dated August __, 1995 and the
Investment Delegation Contract dated ____, 1995 (collectively, the "Chinese
Joint Venture Contracts") have been duly authorized and executed by McCaw
Shanghai Telecommunications Systems, Limited ("McCaw Shanghai") and are valid
and binding obligations of McCaw Shanghai enforceable against McCaw Shanghai in
accordance with their terms and the Chinese Joint Venture Contracts together
with the Shanghai Mobile Telecommunications GSM Project Cooperation Contract
(including the Rules for Financial Affairs) dated February 25, 1995, entitle
McCaw Shanghai to receive 42% of the net revenues of the Shanghai GSM Project as
described in the Final Memorandum.
<PAGE>
EXHIBIT I
---------
The opinion of Venture Law Group to be delivered pursuant to Section
4(i) of the Placement Agreement shall be to the effect that:
RESTATED ARTICLES OF INCORPORATION
OF
McCAW INTERNATIONAL, LTD.
Pursuant to RCW 23B.10.070, the following constitutes Restated
Articles of Incorporation of the undersigned, a Washington corporation. These
Restated Articles of Incorporation correctly set forth without change the
corresponding provisions of the Articles of Incorporation as heretofore amended
and supersede the original Articles of Incorporation and all amendments thereto.
ARTICLE I. NAME
The name of this corporation is McCaw International, Ltd.
ARTICLE II. PURPOSES
This corporation is organized to engage in any business,
trade or activity which may be conducted lawfully by a
corporation organized under the Washington Business Corporation
Act.
ARTICLE III. SHARES
This corporation is authorized to issue 20,000,000 shares
of common stock.
ARTICLE IV. NO PREEMPTIVE RIGHTS
Except as may otherwise be provided by the Board of
Directors, no preemptive rights shall exist with respect to
shares of stock or securities convertible into shares of stock of
this corporation.
ARTICLE V. NO CUMULATIVE VOTING
At each election for directors, every shareholder entitled
to vote at such election has the right to vote in person or by
proxy the number of shares held by such shareholder for as many
persons as there are directors to be elected. No cumulative
voting for directors shall be permitted.
ARTICLE VI. BYLAWS
The Board of Directors shall have the power to adopt,
amend or repeal the Bylaws or adopt new Bylaws. Nothing herein
shall deny the concurrent power of the shareholders to adopt,
alter, amend or repeal the Bylaws.
ARTICLE VII. REGISTERED AGENT AND OFFICE
The name of the registered agent of this corporation and
the address of its registered office are Lawco of Washington,
Inc., 1201 Third Avenue, 40th Floor, Seattle, Washington
98101-3099.
ARTICLE VIII. DIRECTORS
The number of directors of this corporation shall be
determined in the manner specified by the Bylaws and may be
increased or decreased from time to time in the manner provided
therein. At the time of the restatement of these Articles of
Incorporation, the following persons are serving as the current
directors of this corporation are as follows:
Name Address
---- -------
Daniel F. Akerson 1505 Farm Credit Drive
McLean, VA 22102
Keith D. Grinstein 1191 Second Avenue, Suite 1600
Seattle, WA 98101
C. James Judson 2320 Carillon Point
Kirkland, WA 98033
Dennis M. Weibling 2320 Carillon Point
Kirkland, WA 98033
ARTICLE IX. INCORPORATOR
The name and address of the incorporator is as follows:
Name Address
---- -------
C. James Judson 2600 Century Square
1501 4th Avenue
Seattle, WA 98101-1688
ARTICLE X. LIMITATION OF DIRECTORS' LIABILITY
A director shall have no liability to the corporation or
its shareholders for monetary damages for conduct as a director,
except for acts or omissions that involve intentional misconduct
or for conduct violating RCW 23B.08.302, or for any transaction
from which the director will personally receive a benefit in
money, property or services to which the director is not legally
entitled. If the Washington Business Corporation Act is hereafter
amended to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability
of a director shall be eliminated or limited to the full extent
permitted by the Washington Business Corporation Act, as so
amended. Any repeal or modification of this Article shall not
adversely affect any right or protection of a director of the
corporation existing at the time of such repeal or modification
occurring prior to such repeal or modification.
These Restated Articles of Incorporation do not contain an
amendment to the Articles of Incorporation.
These Restated Articles of Incorporation do not contain
any amendment to the Articles of Incorporation requiring
shareholder approval. The date of adoption of the Restated
Articles of Incorporation by the Board of Directors is January
30, 1997.
These Restated Articles of Incorporation are executed by
said corporation by its duly authorized officer.
DATED February 26, 1997.
McCAW INTERNATIONAL, LTD.
By /s/ Heng-Pin Kiang
----------------------
Heng-Pin Kiang
Senior Vice President
BYLAWS
OF
McCAW INTERNATIONAL, LTD.
<PAGE>
AMENDMENTS
Section Effect of Amendment Date of Amendment
- ------- ------------------- -----------------
<PAGE>
CONTENTS
SECTION 1. OFFICES.................................................... 1
SECTION 2. SHAREHOLDERS............................................... 1
2.1 Annual Meeting....................................... 1
2.2 Special Meetings..................................... 1
2.3 Meetings by Communication Equipment.................. 1
2.4 Date, Time and Place of Meeting...................... 1
2.5 Notice of Meeting.................................... 2
2.6 Waiver of Notice..................................... 2
2.7 Fixing of Record Date for Determining Shareholders... 2
2.8 Voting Record........................................ 3
2.9 Quorum............................................... 3
2.10 Manner of Acting..................................... 4
2.11 Proxies.............................................. 4
2.12 Voting of Shares..................................... 4
2.13 Voting for Directors................................. 4
2.14 Action by Shareholders Without a Meeting............. 4
SECTION 3. BOARD OF DIRECTORS......................................... 5
3.1 General Powers....................................... 5
3.2 Number and Tenure.................................... 5
3.3 Annual and Regular Meetings.......................... 5
3.4 Special Meetings..................................... 5
3.5 Meetings by Communications Equipment................. 6
3.6 Notice of Special Meetings........................... 6
3.6.1 Personal Delivery........................... 6
3.6.2 Delivery by Mail............................ 6
3.6.3 Delivery by Private Carrier................. 6
3.6.4 Facsimile Notice............................ 6
3.6.5 Delivery by Telegraph....................... 7
3.6.6 Oral Notice................................. 7
3.7 Waiver of Notice..................................... 7
3.7.1 In Writing.................................. 7
3.7.2 By Attendance............................... 7
3.8 Quorum............................................... 7
3.9 Manner of Acting..................................... 8
3.10 Presumption of Assent................................ 8
3.11 Action by Board or Committees Without a Meeting...... 8
3.12 Resignation.......................................... 8
3.13 Removal.............................................. 8
3.14 Vacancies............................................ 9
3.15 Executive and Other Committees....................... 9
3.15.1 Creation of Committees...................... 9
3.15.2 Authority of Committees..................... 9
3.15.3 Quorum and Manner of Acting................. 10
3.15.4 Minutes of Meetings......................... 10
3.15.5 Resignation................................. 10
3.15.6 Removal..................................... 10
3.16 Compensation......................................... 10
SECTION 4. OFFICERS................................................... 11
4.1 Appointment and Term................................. 11
4.2 Resignation.......................................... 11
4.3 Removal.............................................. 11
4.4 Contract Rights of Officers.......................... 11
4.5 Chairman of the Board................................ 11
4.6 President............................................ 12
4.7 Vice President....................................... 12
4.8 Secretary............................................ 12
4.9 Treasurer............................................ 12
4.10 Salaries............................................. 13
SECTION 5. CERTIFICATES FOR SHARES AND THEIR TRANSFER................. 13
5.1 Issuance of Shares................................... 13
5.2 Certificates for Shares.............................. 13
5.3 Stock Records........................................ 13
5.4 Restriction on Transfer.............................. 13
5.5 Transfer of Shares................................... 14
5.6 Lost or Destroyed Certificates....................... 14
SECTION 6. BOOKS AND RECORDS.......................................... 14
SECTION 7. SEAL....................................................... 15
SECTION 8. INDEMNIFICATION............................................ 16
8.1 Right to Indemnification............................. 16
8.2 Restrictions on Indemnification...................... 16
8.3 Advancement of Expenses.............................. 17
8.4 Right of Indemnitee to Bring Suit.................... 17
8.5 Procedures Exclusive................................. 17
8.6 Nonexclusivity of Rights............................. 17
8.7 Insurance, Contracts and Funding..................... 18
8.8 Indemnification of Employees and Agents of the
Corporation.......................................... 18
8.9 Persons Serving Other Entities....................... 18
SECTION 9. AMENDMENTS................................................. 18
<PAGE>
BYLAWS
SECTION 1. OFFICES
The principal office of the corporation shall be located at
the principal place of business or such other place as the Board of Directors
("Board") may designate. The corporation may have such other offices, either
within or without the State of Washington, as the Board may designate or as the
business of the corporation may require from time to time.
SECTION 2. SHAREHOLDERS
2.1 Annual Meeting
The annual meeting of the shareholders shall be held during the month
of January in each year at on a date chosen by the President or the Board for
the purpose of electing Directors and transacting such other business as may
properly come before the meeting. If the day fixed for the annual meeting is a
legal holiday at the place of the meeting, the meeting shall be held on the next
succeeding business day.
2.2 Special Meetings
The Chairman of the Board, the President or the Board may call special
meetings of the shareholders for any purpose. Further, a special meeting of the
shareholders shall be held if the holders of not less than 10% of all the votes
entitled to be cast on any issue proposed to be considered at such special
meeting have dated, signed and delivered to the Secretary one or more written
demands for such meeting, describing the purpose or purposes for which it is to
be held.
2.3 Meetings by Communication Equipment
Shareholders may participate in any meeting of the shareholders by any
means of communication by which all persons participating in the meeting can
hear each other during the meeting. Participation by such means shall constitute
presence in person at a meeting.
2.4 Date, Time and Place of Meeting
Except as otherwise provided herein, all meetings of shareholders,
including those held pursuant to demand by shareholders as provided herein,
shall be held on such date and at such time and place, within or without the
State of Washington, designated by or at the direction of the Board.
2.5 Notice of Meeting
Written notice stating the place, day and hour of the meeting and, in
the case of a special meeting, the purpose or purposes for which the meeting is
called shall be given by or at the direction of the Board, the Chairman of the
Board, the President or the Secretary to each shareholder entitled to notice of
or to vote at the meeting not less than 10 nor more than 60 days before the
meeting, except that notice of a meeting to act on an amendment to the Articles
of Incorporation, a plan of merger or share exchange, the sale, lease, exchange
or other disposition of all or substantially all of the corporation's assets
other than in the regular course of business or the dissolution of the
corporation shall be given not less than 20 nor more than 60 days before such
meeting. Such notice may be transmitted by mail, private carrier, personal
delivery, telegraph, teletype or communications equipment which transmits a
facsimile of the notice to like equipment which receives and reproduces such
notice. If these forms of written notice are impractical in the view of the
Board, the Chairman of the Board, the President or the Secretary, written notice
may be transmitted by an advertisement in a newspaper of general circulation in
the area of the corporation's principal office. If such notice is mailed, it
shall be deemed effective when deposited in the official government mail,
first-class postage prepaid, properly addressed to the shareholder at such
shareholder's address as it appears in the corporation's current record of
shareholders. Notice given in any other manner shall be deemed effective when
dispatched to the shareholder's address, telephone number or other number
appearing on the records of the corporation. Any notice given by publication as
herein provided shall be deemed effective five days after first publication.
2.6 Waiver of Notice
Whenever any notice is required to be given to any shareholder under
the provisions of these Bylaws, the Articles of Incorporation or the Washington
Business Corporation Act, a waiver thereof in writing, signed by the person or
persons entitled to such notice and delivered to the corporation, whether before
or after the date and time of the meeting, shall be deemed equivalent to the
giving of such notice. Further, notice of the time, place and purpose of any
meeting will be deemed to be waived by any shareholder by attendance thereat in
person or by proxy, unless such shareholder at the beginning of the meeting
objects to holding the meeting or transacting business at the meeting.
2.7 Fixing of Record Date for Determining Shareholders
For the purpose of determining shareholders entitled (a) to notice of
or to vote at any meeting of shareholders or any adjournment thereof, (b) to
demand a special meeting, or (c) to receive payment of any dividend, or in order
to make a determination of shareholders for any other purpose, the Board may fix
a future date as the record date for any such determination. Such record date
shall be not more than 70 days, and in case of a meeting of shareholders not
less than 10 days prior to the date on which the particular action requiring
such determination is to be taken. If no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting, the
record date shall be the day immediately preceding the date on which notice of
the meeting is first given to shareholders. Such a determination shall apply to
any adjournment of the meeting unless the Board fixes a new record date, which
it shall do if the meeting is adjourned to a date more than 120 days after the
date fixed for the original meeting. If no record date is set for the
determination of shareholders entitled to receive payment of any stock dividend
or distribution (other than one involving a purchase, redemption, or other
acquisition of the corporation's shares) the record date shall be the date the
Board authorizes the stock dividend or distribution.
2.8 Voting Record
At least 10 days before each meeting of shareholders, an alphabetical
list of the shareholders entitled to notice of such meeting shall be made,
arranged by voting group and by each class or series of shares therein, with the
address of and number of shares held by each shareholder. This record shall be
kept at the principal office of the corporation for 10 days prior to such
meeting, and shall be kept open at such meeting, for the inspection of any
shareholder or any shareholder's agent.
2.9 Quorum
A majority of the votes entitled to be cast on a matter by the holders
of shares that, pursuant to the Articles of Incorporation or the Washington
Business Corporation Act, is entitled to vote and be counted collectively upon
such matter, represented in person or by proxy, shall constitute a quorum of
such shares at a meeting of shareholders. If less than a majority of such votes
is represented at a meeting, a majority of the votes so represented may adjourn
the meeting from time to time without further notice if the new date, time or
place is announced at the meeting before adjournment. Any business may be
transacted at a reconvened meeting that might have been transacted at the
meeting as originally called, provided a quorum is present or represented
thereat. Once a share is represented for any purpose at a meeting other than
solely to object to holding the meeting or transacting business thereat, it is
deemed present for quorum purposes for the remainder of the meeting and any
adjournment thereof (unless a new record date is or must be set for the
adjourned meeting) notwithstanding the withdrawal of enough shareholders to
leave less than a quorum.
2.10 Manner of Acting
If a quorum is present, action on a matter other than the election of
Directors shall be approved if the votes cast in favor of the action by the
shares entitled to vote and be counted collectively upon such matter exceed the
votes cast against such action by the shares entitled to vote and be counted
collectively thereon, unless the Articles of Incorporation or the Washington
Business Corporation Act require a greater number of affirmative votes.
2.11 Proxies
A shareholder may vote by proxy executed in writing by the shareholder
or by his or her attorney-in-fact or agent. Such proxy shall be effective when
received by the Secretary or other officer or agent authorized to tabulate
votes. A proxy shall become invalid 11 months after the date of its execution,
unless otherwise provided in the proxy. A proxy with respect to a specified
meeting shall entitle the holder thereof to vote at any reconvened meeting
following adjournment of such meeting but shall not be valid after the final
adjournment thereof.
2.12 Voting of Shares
Except as provided in the Articles of Incorporation or in Section 2.13
hereof, each outstanding share entitled to vote with respect to a matter
submitted to a meeting of shareholders shall be entitled to one vote upon such
matter.
2.13 Voting for Directors
Each shareholder entitled to vote at an election of Directors may vote,
in person or by proxy, the number of shares owned by such shareholder for as
many persons as there are Directors to be elected and for whose election such
shareholder has a right to vote. Unless otherwise provided in the Articles of
Incorporation, the candidates elected shall be those receiving the largest
number of votes cast, up to the number of Directors to be elected.
2.14 Action by Shareholders Without a Meeting
Any action which could be taken at a meeting of the shareholders may be
taken without a meeting if one or more written consents setting forth the action
so taken are signed by all shareholders entitled to vote on the action and are
delivered to the corporation. If not otherwise fixed by the Board, the record
date for determining shareholders entitled to take action without a meeting is
the date the first shareholder signs the consent. A shareholder may withdraw a
consent only by delivering a written notice of withdrawal to the corporation
prior to the time that all consents are in the possession of the corporation.
Action taken by written consent of shareholders without a meeting is effective
when all consents are in the possession of the corporation, unless the consent
specifies a later effective date. Any such consent shall be inserted in the
minute book as if it were the minutes of a meeting of the shareholders.
SECTION 3. BOARD OF DIRECTORS
3.1 General Powers
All corporate powers shall be exercised by or under the authority of,
and the business and affairs of the corporation shall be managed under the
direction of, the Board, except as may be otherwise provided in these Bylaws,
the Articles of Incorporation or the Washington Business Corporation Act.
3.2 Number and Tenure
The Board shall be composed of not less than one nor more than ten
Directors, the specific number to be set by resolution of the Board or the
shareholders. The number of Directors may be changed from time to time by
amendment to these Bylaws, but no decrease in the number of Directors shall have
the effect of shortening the term of any incumbent Director. Unless a Director
dies, resigns, or is removed, his or her term of office shall expire at the next
annual meeting of shareholders; provided, however, that a Director shall
continue to serve until his or her successor is elected or until there is a
decrease in the authorized number of Directors. Directors need not be
shareholders of the corporation or residents of the State of Washington, and
need not meet any other qualifications.
3.3 Annual and Regular Meetings
An annual Board meeting shall be held without notice immediately after
and at the same place as the annual meeting of shareholders. By resolution the
Board, or any committee thereof, may specify the time and place either within or
without the State of Washington for holding regular meetings thereof without
notice other than such resolution.
3.4 Special Meetings
Special meetings of the Board or any committee designated by the Board
may be called by or at the request of the Chairman of the Board, the President,
the Secretary or, in the case of special Board meetings, any one Director and,
in the case of any special meeting of any committee designated by the Board, by
the Chairman thereof. The person or persons authorized to call special meetings
may fix any place either within or without the State of Washington as the place
for holding any special Board or committee meeting called by them.
3.5 Meetings by Communications Equipment
Members of the Board or any committee designated by the Board may
participate in a meeting of such Board or committee by, or conduct the meeting
through the use of, any means of communication by which all Directors
participating in the meeting can hear each other during the meeting.
Participation by such means shall constitute presence in person at a meeting.
3.6 Notice of Special Meetings
Notice of a special Board or committee meeting stating the place, day
and hour of the meeting shall be given to a Director in writing or orally.
Neither the business to be transacted at, nor the purpose of, any special
meeting need be specified in the notice of such meeting.
3.6.1 Personal Delivery
If notice is given by personal delivery, the notice shall be effective
if delivered to a Director at least two days before the meeting.
3.6.2 Delivery by Mail
If notice is delivered by mail, the notice shall be deemed effective if
deposited in the official government mail at least five days before the meeting,
properly addressed to a Director at his or her address shown on the records of
the corporation, with postage thereon prepaid.
3.6.3 Delivery by Private Carrier
If notice is given by private carrier, the notice shall be deemed
effective when dispatched to a Director at his or her address shown on the
records of the corporation at least three days before the meeting.
3.6.4 Facsimile Notice
If notice is delivered by wire or wireless equipment which transmits a
facsimile of the notice, the notice shall be deemed effective when dispatched at
least two days before the meeting to a Director at his or her telephone number
or other number appearing on the records of the corporation.
3.6.5 Delivery by Telegraph
If notice is delivered by telegraph, the notice shall be deemed
effective if the content thereof is delivered to the telegraph company for
delivery to a Director at his or her address shown on the records of the
corporation at least three days before the meeting.
3.6.6 Oral Notice
If notice is delivered orally, by telephone or in person, the notice
shall be deemed effective if personally given to the Director at least two days
before the meeting.
3.7 Waiver of Notice
3.7.1 In Writing
Whenever any notice is required to be given to any Director under the
provisions of these Bylaws, the Articles of Incorporation or the Washington
Business Corporation Act, a waiver thereof in writing, signed by the person or
persons entitled to such notice and delivered to the corporation, whether before
or after the date and time of the meeting, shall be deemed equivalent to the
giving of such notice. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Board or any committee designated by
the Board need be specified in the waiver of notice of such meeting.
3.7.2 By Attendance
A Director's attendance at or participation in a Board or committee
meeting shall constitute a waiver of notice of such meeting, unless the Director
at the beginning of the meeting, or promptly upon his or her arrival, objects to
holding the meeting or transacting business thereat and does not thereafter vote
for or assent to action taken at the meeting.
3.8 Quorum
A majority of the number of Directors fixed by or in the
manner provided in these Bylaws shall constitute a quorum for the transaction of
business at any Board meeting but, if less than a majority is present at a
meeting, a majority of the Directors present may adjourn the meeting from time
to time without further notice.
3.9 Manner of Acting
If a quorum is present when the vote is taken, the act of the majority
of the Directors present at a Board meeting shall be the act of the Board,
unless the vote of a greater number is required by these Bylaws, the Articles of
Incorporation or the Washington Business Corporation Act.
3.10 Presumption of Assent
A Director of the corporation who is present at a Board or committee
meeting at which any action is taken shall be deemed to have assented to the
action taken unless (a) the Director objects at the beginning of the meeting, or
promptly upon the Director's arrival, to holding the meeting or transacting any
business thereat, (b) the Director's dissent or abstention from the action taken
is entered in the minutes of the meeting, or (c) the Director delivers written
notice of the Director's dissent or abstention to the presiding officer of the
meeting before its adjournment or to the corporation within a reasonable time
after adjournment of the meeting. The right of dissent or abstention is not
available to a Director who votes in favor of the action taken.
3.11 Action by Board or Committees Without a Meeting
Any action which could be taken at a meeting of the Board or of any
committee created by the Board may be taken without a meeting if one or more
written consents setting forth the action so taken are signed by each of the
Directors or by each committee member either before or after the action is taken
and delivered to the corporation. Action taken by written consent of Directors
without a meeting is effective when the last Director signs the consent, unless
the consent specifies a later effective date. Any such written consent shall be
inserted in the minute book as if it were the minutes of a Board or a committee
meeting.
3.12 Resignation
Any Director may resign at any time by delivering written notice to the
Chairman of the Board, the President, the Secretary or the Board. Any such
resignation is effective upon delivery thereof unless the notice of resignation
specifies a later effective date and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
3.13 Removal
At a meeting of shareholders called expressly for that purpose, one or
more members of the Board, including the entire Board, may be removed with or
without cause (unless the Articles of Incorporation permit removal for cause
only) by the holders of the shares entitled to elect the Director or Directors
whose removal is sought if the number of votes cast to remove the Director
exceeds the number of votes cast not to remove the Director.
3.14 Vacancies
Unless the Articles of Incorporation provide otherwise, any vacancy
occurring on the Board may be filled by the shareholders, the Board or, if the
Directors in office constitute fewer than a quorum, by the affirmative vote of a
majority of the remaining Directors. Any vacant office held by a Director
elected by the holders of one or more classes or series of shares entitled to
vote and be counted collectively thereon shall be filled only by the vote of the
holders of such class or series of shares. A Director elected to fill a vacancy
shall serve only until the next election of Directors by the shareholders.
3.15 Executive and Other Committees
3.15.1 Creation of Committees
The Board, by resolution adopted by the greater of a majority of the
Directors then in office and the number of Directors required to take action in
accordance with these Bylaws, may create standing or temporary committees,
including an Executive Committee, and appoint members thereto from its own
number and invest such committees with such powers as it may see fit, subject to
such conditions as may be prescribed by the Board, these Bylaws and applicable
law. Each committee must have two or more members, who shall serve at the
pleasure of the Board.
3.15.2 Authority of Committees
Each committee shall have and may exercise all of the authority of the
Board to the extent provided in the resolution of the Board creating the
committee and any subsequent resolutions pertaining thereto and adopted in like
manner, except that no such committee shall have the authority to: (1) authorize
or approve a distribution except according to a general formula or method
prescribed by the Board, (2) approve or propose to shareholders actions or
proposals required by the Washington Business Corporation Act to be approved by
shareholders, (3) fill vacancies on the Board or any committee thereof, (4)
adopt, amend or repeal Bylaws, (5) amend the Articles of Incorporation pursuant
to RCW 23B.10.020, (6) approve a plan of merger not requiring shareholder
approval, or (7) authorize or approve the issuance or sale or contract for sale
of shares, or determine the designation and relative rights, preferences and
limitations of a class or series of shares except that the Board may authorize a
committee or a senior executive officer of the corporation to do so within
limits specifically prescribed by the Board.
3.15.3 Quorum and Manner of Acting
A majority of the number of Directors composing any committee of the
Board, as established and fixed by resolution of the Board, shall constitute a
quorum for the transaction of business at any meeting of such committee but, if
less than a majority is present at a meeting, a majority of such Directors
present may adjourn the meeting from time to time without further notice. Except
as may be otherwise provided in the Washington Business Corporation Act, if a
quorum is present when the vote is taken the act of a majority of the members
present shall be the act of the committee.
3.15.4 Minutes of Meetings
All committees shall keep regular minutes of their meetings and shall
cause them to be recorded in books kept for that purpose.
3.15.5 Resignation
Any member of any committee may resign at any time by delivering
written notice thereof to the Chairman of the Board, the President, the
Secretary or the Board. Any such resignation is effective upon delivery thereof,
unless the notice of resignation specifies a later effective date, and the
acceptance of such resignation shall not be necessary to make it effective.
3.15.6 Removal
The Board may remove any member of any committee elected or appointed
by it but only by the affirmative vote of the greater of a majority of the
Directors then in office and the number of Directors required to take action in
accordance with these Bylaws.
3.16 Compensation
By Board resolution, Directors and committee members may be paid their
expenses, if any, of attendance at each Board or committee meeting, or a fixed
sum for attendance at each Board or committee meeting, or a stated salary as
Director or a committee member, or a combination of the foregoing. No such
payment shall preclude any Director or committee member from serving the
corporation in any other capacity and receiving compensation therefor.
SECTION 4. OFFICERS
4.1 Appointment and Term
The officers of the corporation shall be those officers appointed from
time to time by the Board or by any other officer empowered to do so. The Board
shall have sole power and authority to appoint executive officers. As used
herein, the term "executive officer" shall mean the President, any Vice
President in charge of a principal business unit, division or function or any
other officer who performs a policy-making function. The Board or the President
may appoint such other officers and assistant officers to hold office for such
period, have such authority and perform such duties as may be prescribed. The
Board may delegate to any other officer the power to appoint any subordinate
officers and to prescribe their respective terms of office, authority and
duties. Any two or more offices may be held by the same person. Unless an
officer dies, resigns or is removed from office, he or she shall hold office
until his or her successor is appointed.
4.2 Resignation
Any officer may resign at any time by delivering written notice thereof
to the corporation. Any such resignation is effective upon delivery thereof,
unless the notice of resignation specifies a later effective date, and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
4.3 Removal
Any officer may be removed by the Board at any time, with or without
cause. An officer or assistant officer, if appointed by another officer, may be
removed by any officer authorized to appoint officers or assistant officers.
4.4 Contract Rights of Officers
The appointment of an officer does not itself create contract rights.
4.5 Chairman of the Board
If appointed, the Chairman of the Board shall perform such duties as
shall be assigned to him or her by the Board from time to time and shall preside
over meetings of the Board and shareholders unless another officer is appointed
or designated by the Board as chairman of such meetings. In the absence of the
Chairman of the Board, the Vice Chairman (or the President if no Vice Chairman
has been appointed) shall perform the duties of the Chairman of the Board.
4.6 President
If appointed, the President shall be the chief executive officer of the
corporation unless some other officer is so designated by the Board, shall
preside over meetings of the Board and shareholders in the absence of the
Chairman of the Board and Vice Chairman, and, subject to the Board's control,
shall supervise and control all of the assets, business and affairs of the
corporation. In general, the President shall perform all duties incident to the
office of President and such other duties as are prescribed by the Board from
time to time. If no Secretary has been appointed, the President shall have
responsibility for the preparation of minutes of meetings of the Board and
shareholders and for authentication of the records of the corporation.
4.7 Vice President
In the event of the death of the President or his or her inability to
act, the Vice President who is designated by the Board as the successor to the
President, or if no Vice President is so designated, the Vice President first
elected to office, shall perform the duties of the President, except as may be
limited by resolution of the Board, with all the powers of and subject to all
the restrictions upon the President. Vice Presidents shall perform such other
duties as from time to time may be assigned to them by the President or by or at
the direction of the Board.
4.8 Secretary
If appointed, the Secretary shall be responsible for preparation of
minutes of the meetings of the Board and shareholders, maintenance of the
corporation records and stock registers, and authentication of the corporation's
records and shall in general perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him or
her by the President or by or at the direction of the Board. In the absence of
the Secretary, an Assistant Secretary may perform the duties of the Secretary.
4.9 Treasurer
If appointed, the Treasurer shall have charge and custody of and be
responsible for all funds and securities of the corporation, receive and give
receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in banks,
trust companies or other depositories selected in accordance with the provisions
of these Bylaws, and in general perform all of the duties incident to the office
of Treasurer and such other duties as from time to time may be assigned to him
or her by the President or by or at the direction of the Board. In the absence
of the Treasurer, an Assistant Treasurer may perform the duties of the
Treasurer. If required by the Board, the Treasurer or any Assistant Treasurer
shall give a bond for the faithful discharge of his or her duties in such amount
and with such surety or sureties as the Board shall determine.
4.10 Salaries
The salaries of the officers shall be fixed from time to time by the
Board or by any person or persons to whom the Board has delegated such
authority. No officer shall be prevented from receiving such salary by reason of
the fact that he or she is also a Director of the corporation.
SECTION 5. CERTIFICATES FOR SHARES AND THEIR TRANSFER
5.1 Issuance of Shares
No shares of the corporation shall be issued unless authorized by the
Board, or by a committee designated by the Board to the extent such committee is
empowered to do so.
5.2 Certificates for Shares
Certificates representing shares of the corporation shall be signed,
either manually or in facsimile, by any two officers of the corporation and
shall include on their face written notice of any restrictions which may be
imposed on the transferability of such shares. All certificates shall be
consecutively numbered or otherwise identified.
5.3 Stock Records
The stock transfer books shall be kept at the principal office of the
corporation or at the office of the corporation's transfer agent or registrar.
The name and address of each person to whom certificates for shares are issued,
together with the class and number of shares represented by each such
certificate and the date of issue thereof, shall be entered on the stock
transfer books of the corporation. The person in whose name shares stand on the
books of the corporation shall be deemed by the corporation to be the owner
thereof for all purposes.
5.4 Restriction on Transfer
Except to the extent that the corporation has obtained an opinion of
counsel acceptable to the corporation that transfer restrictions are not
required under applicable securities laws, or has otherwise satisfied itself
that such transfer restrictions are not required, all certificates representing
shares of the corporation shall bear a legend on the face of the certificate, or
on the reverse of the certificate if a reference to the legend is contained on
the face, which reads substantially as follows:
"The securities evidenced by this certificate have not been
registered under the Securities Act of 1933, as amended, or
any applicable state law, and no interest therein may be
sold, distributed, assigned, offered, pledged or otherwise
transferred unless (a) there is an effective registration
statement under such Act and applicable state securities laws
covering any such transaction involving said securities or
(b) this corporation receives an opinion of legal counsel for
the holder of these securities (concurred in by legal counsel
for this corporation) stating that such transaction is exempt
from registration or this corporation otherwise satisfies
itself that such transaction is exempt from registration. "
5.5 Transfer of Shares
The transfer of shares of the corporation shall be made only on the
stock transfer books of the corporation pursuant to authorization or document of
transfer made by the holder of record thereof or by his or her legal
representative, who shall furnish proper evidence of authority to transfer, or
by his or her attorney-in-fact authorized by power of attorney duly executed and
filed with the Secretary of the corporation. All certificates surrendered to the
corporation for transfer shall be cancelled and no new certificate shall be
issued until the former certificates for a like number of shares shall have been
surrendered and cancelled.
5.6 Lost or Destroyed Certificates
In the case of a lost, destroyed or mutilated certificate, a
new certificate may be issued therefor upon such terms and indemnity to the
corporation as the Board may prescribe.
SECTION 6. BOOKS AND RECORDS
The corporation shall:
(a) Keep as permanent records minutes of all meetings of its
shareholders and the Board, a record of all actions taken by the shareholders or
the Board without a meeting, and a record of all actions taken by a committee of
the Board exercising the authority of the Board on behalf of the corporation.
(b) Maintain appropriate accounting records.
(c) Maintain a record of its shareholders, in a form that permits
preparation of a list of the names and addresses of all shareholders, in
alphabetical order by class of shares showing the number and class of shares
held by each; provided, however, such record may be maintained by an agent of
the corporation.
(d) Maintain its records in written form or in another form capable of
conversion into written form within a reasonable time.
(e) Keep a copy of the following records at its principal office:
1. the Articles of Incorporation and all amendments thereto
as currently in effect;
2. the Bylaws and all amendments thereto as currently in
effect;
3. the minutes of all meetings of shareholders and records of
all action taken by shareholders without a meeting, for
the past three years;
4. the financial statements described in Section
23B.16.200(1) of the Washington Business Corporation Act,
for the past three years;
5. all written communications to shareholders generally
within the past three years;
6. a list of the names and business addresses of the current
Directors and officers; and
7. the most recent annual report delivered to the Washington
Secretary of State.
SECTION 7. SEAL
The Board may provide for a corporate seal which shall consist of the
name of the corporation, the state of its incorporation and the year of its
incorporation.
SECTION 8. INDEMNIFICATION
8.1 Right to Indemnification
Each person who was, is or is threatened to be made a named party to or
is otherwise involved (including, without limitation, as a witness) in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative and whether formal or informal
(hereinafter a "proceeding"), by reason of the fact that he or she is or was a
Director or officer of the corporation or, that being or having been such a
Director or officer or an employee of the corporation, he or she is or was
serving at the request of the corporation as a Director, officer, partner,
trustee, employee or agent of another corporation or of a partnership, joint
venture, trust, employee benefit plan or other enterprise (hereinafter an
"indemnitee"), whether the basis of a proceeding is alleged action in an
official capacity as such a Director, officer, partner, trustee, employee or
agent or in any other capacity while serving as such a Director, officer,
partner, trustee, employee or agent, shall be indemnified and held harmless by
the corporation against all expense, liability and loss (including counsel fees,
judgments, fines, ERISA excise taxes or penalties and amounts to be paid in
settlement) actually and reasonably incurred or suffered by such indemnitee in
connection therewith, and such indemnification shall continue as to an
indemnitee who has ceased to be a Director, officer, partner, trustee, employee
or agent and shall inure to the benefit of the indemnitee's heirs, executors and
administrators. Except as provided in subsection 8.2 of this Section with
respect to proceedings seeking to enforce rights to indemnification, the
corporation shall indemnify any such indemnitee in connection with a proceeding
(or part thereof) initiated by such indemnitee only if a proceeding (or part
thereof) was authorized or ratified by the Board. The right to indemnification
conferred in this Section shall be a contract right.
8.2 Restrictions on Indemnification
No indemnification shall be provided to any such indemnitee for acts or
omissions of the indemnitee finally adjudged to be intentional misconduct or a
knowing violation of law, for conduct of the indemnitee finally adjudged to be
in violation of Section 23B.08.310 of the Washington Business Corporation Act,
for any transaction with respect to which it was finally adjudged that such
indemnitee personally received a benefit in money, property or services to which
the indemnitee was not legally entitled or if the corporation is otherwise
prohibited by applicable law from paying such indemnification, except that if
Section 23B.08.560 or any successor provision of the Washington Business
Corporation Act is hereafter amended, the restrictions on indemnification set
forth in this subsection 8.2 shall be as set forth in such amended statutory
provision.
8.3 Advancement of Expenses
The right to indemnification conferred in this Section shall include
the right to be paid by the corporation the expenses incurred in defending any
proceeding in advance of its final disposition (hereinafter an "advancement of
expenses"). An advancement of expenses shall be made upon delivery to the
corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of
such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal that such indemnitee is not entitled to be indemnified for such expenses
under this subsection 8.3.
8.4 Right of Indemnitee to Bring Suit
If a claim under subsection 8.1 or 8.3 of this Section is not paid in
full by the corporation within sixty days after a written claim has been
received by the corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim. If successful in whole or in part, in
any such suit or in a suit brought by the corporation to recover an advancement
of expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expense of prosecuting or defending such suit. The
indemnitee shall be presumed to be entitled to indemnification under this
Section upon submission of a written claim (and, in an action brought to enforce
a claim for an advancement of expenses, where the required undertaking has been
tendered to the corporation) and thereafter the corporation shall have the
burden of proof to overcome the presumption that the indemnitee is so entitled.
8.5 Procedures Exclusive
Pursuant to Section 23B.08.560(2) or any successor provision of the
Washington Business Corporation Act, the procedures for indemnification and
advancement of expenses set forth in this Section are in lieu of the procedures
required by Section 23B.08.550 or any successor provision of the Washington
Business Corporation Act.
8.6 Nonexclusivity of Rights
The right to indemnification and the advancement of expenses conferred
in this Section shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, provision of the Articles of
Incorporation or Bylaws of the corporation or the parent company of this
corporation (if any), general or specific action of the Board, contract or
otherwise.
8.7 Insurance, Contracts and Funding
The corporation may maintain insurance, at its expense, to protect
itself and any Director, officer, partner, trustee, employee or agent of the
corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such expense,
liability or loss under the Washington Business Corporation Act. The corporation
may enter into contracts with any Director, officer, partner, trustee, employee
or agent of the corporation in furtherance of the provisions of this Section and
may create a trust fund, grant a security interest or use other means
(including, without limitation, a letter of credit) to ensure the payment of
such amounts as may be necessary to effect indemnification as provided in this
Section.
8.8 Indemnification of Employees and Agents of the Corporation
The corporation may, by action of the Board, grant rights to
indemnification and advancement of expenses to employees and agents or any class
or group of employees and agents of the corporation (i) with the same scope and
effect as the provisions of this Section with respect to the indemnification and
advancement of expenses of Directors and officers of the corporation; (ii)
pursuant to rights granted pursuant to, or provided by, the Washington Business
Corporation Act; or (iii) otherwise consistent with law.
8.9 Persons Serving Other Entities
Any person who, while a Director, officer or employee of the
corporation, is or was serving (a) as a Director or officer of another foreign
or domestic corporation of which a majority of the shares entitled to vote in
the election of its Directors is held by the corporation or (b) as a partner,
trustee or otherwise in an executive or management capacity in a partnership,
joint venture, trust or other enterprise of which the corporation or a wholly
owned subsidiary of the corporation is a general partner or has a majority
ownership shall be deemed to be so serving at the request of the corporation and
entitled to indemnification and advancement of expenses under subsections 8.1
and 8.3 of this Section.
SECTION 9. AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted by the Board, except that the Board may not repeal or amend any Bylaw
that the shareholders have expressly provided, in amending or repealing such
Bylaw, may not be amended or repealed by the Board. The shareholders may also
alter, amend and repeal these Bylaws or adopt new Bylaws. All Bylaws made by the
Board may be amended, repealed, altered or modified by the shareholders.
The foregoing Bylaws were adopted by the Board of Directors on May 7,
1996.
/s/ Heng-Pin Kiang
-------------------------
Heng-Pin Kiang, Secretary
================================================================================
MCCAW INTERNATIONAL, LTD.,
as Issuer
and
THE BANK OF NEW YORK
----------------------
Indenture
Dated as of March 6, 1997
----------------------
13% Senior Discount Notes due 2007
================================================================================
<PAGE>
CROSS-REFERENCE TABLE
---------------------
TIA Sections Indenture Sections
------------ ------------------
Section 310(a)(1)...... ........................... 7.10
(a)(2).................................. 7.10
(b)..................................... 7.08
Section 313(c)..................................... 7.06; 10.02
Section 314(a)..................................... 4.17; 10.02
(a)(4)..................................... 4.16; 10.02
(c)(1).................................. 10.03
(c)(2).................................. 10.03
(e)..................................... 10.04
Section 315(b)..................................... 7.05; 10.02
Section 316(a)(1)(A)............................... 6.05
(a)(1)(B)............................... 6.04
(b)..................................... 6.07
Section 317(a)(1).................................. 6.08
(a)(2).................................. 6.09
Section 318(a)..................................... 10.01
(c)..................................... 10.01
Note: The Cross-Reference Table shall not for any purpose be deemed to be
a part of the Indenture.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
RECITALS OF THE COMPANY................................................1
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.............................................2
SECTION 1.02. Incorporation by Reference of Trust Indenture Act......25
SECTION 1.03. Rules of Construction..................................25
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating........................................26
SECTION 2.02. Restrictive Legends....................................27
SECTION 2.03. Execution, Authentication and Denominations............30
SECTION 2.04. Registrar and Paying Agent.............................30
SECTION 2.05. Paying Agent to Hold Money in Trust....................31
SECTION 2.06. Transfer and Exchange..................................32
SECTION 2.07. Book-Entry Provisions for Global Notes.................33
SECTION 2.08. Special Transfer Provisions............................34
SECTION 2.09. Replacement Notes......................................38
SECTION 2.10. Outstanding Notes......................................38
SECTION 2.11. Temporary Notes........................................39
SECTION 2.12. Cancellation...........................................39
SECTION 2.13. CUSIP Numbers..........................................40
SECTION 2.14. Defaulted Interest.....................................40
SECTION 2.15. Issuance of Additional Notes...........................40
ARTICLE THREE
REDEMPTION
SECTION 3.01. Right of Redemption....................................40
SECTION 3.02. Notices to Trustee.....................................41
SECTION 3.03. Selection of Notes to Be Redeemed......................41
SECTION 3.04. Notice of Redemption...................................42
SECTION 3.05. Effect of Notice of Redemption.........................43
SECTION 3.06. Deposit of Redemption Price............................43
SECTION 3.07. Payment of Notes Called for Redemption.................43
- --------
Note: The Table of Contents shall not for any purposes be deemed to be a part
of the Indenture.
<PAGE>
ii
SECTION 3.08. Notes Redeemed in Part.................................43
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes.......................................44
SECTION 4.02. Maintenance of Office or Agency........................44
SECTION 4.03. Limitation on Indebtedness.............................45
SECTION 4.04. Limitation on Restricted Payments......................47
SECTION 4.05. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted................................50
SECTION 4.06. Limitation on the Issuance and Sale of Capital Stock
of Restricted.......................................52
SECTION 4.07. Limitation on Issuances of Guarantees by Restricted
Group Members.......................................52
SECTION 4.08. Limitation on Transactions with Shareholders and
Affiliates..........................................53
SECTION 4.09. Limitation on Liens....................................54
SECTION 4.10. Limitation on Asset Sales..............................55
SECTION 4.11. Repurchase of Notes upon a Change of Control...........56
SECTION 4.12. Existence..............................................57
SECTION 4.13. Payment of Taxes and Other Claims......................57
SECTION 4.14. Maintenance of Properties and Insurance................57
SECTION 4.15. Notice of Defaults.....................................58
SECTION 4.16. Compliance Certificates................................58
SECTION 4.17. Commission Reports and Reports to Holders..............59
SECTION 4.18. Waiver of Stay, Extension or Usury Laws................59
SECTION 4.19. Limitation on Sale-Leaseback Transactions..............59
SECTION 4.20. Calculation of Original Issue Discount.................60
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge, Etc............................60
SECTION 5.02. Successor Substituted..................................61
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default......................................62
SECTION 6.02. Acceleration...........................................64
SECTION 6.03. Other Remedies.........................................64
SECTION 6.04. Waiver of Past Defaults................................64
SECTION 6.05. Control by Majority....................................65
<PAGE>
iii
SECTION 6.06. Limitation on Suits....................................65
SECTION 6.07. Rights of Holders to Receive Payment...................66
SECTION 6.08. Collection Suit by Trustee.............................66
SECTION 6.09. Trustee May File Proofs of Claim.......................66
SECTION 6.10. Priorities.............................................67
SECTION 6.11. Undertaking for Costs..................................67
SECTION 6.12. Restoration of Rights and Remedies.....................67
SECTION 6.13. Rights and Remedies Cumulative.........................68
SECTION 6.14. Delay or Omission Not Waiver...........................68
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. General................................................68
SECTION 7.02. Certain Rights of Trustee..............................68
SECTION 7.03. Individual Rights of Trustee...........................69
SECTION 7.04. Trustee's Disclaimer...................................70
SECTION 7.05. Notice of Default......................................70
SECTION 7.06. Reports by Trustee to Holders..........................70
SECTION 7.07. Compensation and Indemnity.............................70
SECTION 7.08. Replacement of Trustee.................................71
SECTION 7.09. Successor Trustee by Merger, Etc.......................72
SECTION 7.10. Eligibility............................................72
SECTION 7.11. Money Held in Trust....................................72
SECTION 7.12. Withholding Taxes......................................72
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. Termination of Company's Obligations...................73
SECTION 8.02. Defeasance and Discharge of Indenture..................74
SECTION 8.03. Defeasance of Certain Obligations......................76
SECTION 8.04. Application of Trust Money.............................78
SECTION 8.05. Repayment to Company...................................78
SECTION 8.06. Reinstatement..........................................78
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders.............................79
SECTION 9.02. With Consent of Holders................................79
SECTION 9.03. Revocation and Effect of Consent.......................81
<PAGE>
iv
SECTION 9.04. Notation on or Exchange of Notes.......................81
SECTION 9.05. Trustee to Sign Amendments, Etc........................82
SECTION 9.06. Conformity with Trust Indenture Act....................82
ARTICLE TEN
MISCELLANEOUS
SECTION 10.01. Trust Indenture Act of 1939...........................82
SECTION 10.02. Notices...............................................82
SECTION 10.03. Certificate and Opinion as to Conditions Precedent....83
SECTION 10.04. Statements Required in Certificate or Opinion.........83
SECTION 10.05. Rules by Trustee, Paying Agent or Registrar...........84
SECTION 10.06. Payment Date Other Than a Business Day................84
SECTION 10.07. Governing Law.........................................84
SECTION 10.08. No Adverse Interpretation of Other Agreements.........84
SECTION 10.09. No Recourse Against Others............................85
SECTION 10.10. Successors............................................85
SECTION 10.11. Duplicate Originals...................................85
SECTION 10.12. Separability..........................................85
SECTION 10.13. Table of Contents, Headings, Etc......................85
SECTION 10.14. Right of First Opportunity Agreement..................85
EXHIBIT A Form of Note.........................................A-1
EXHIBIT B Form of Certificate..................................B-1
EXHIBIT C Form of Certificate to be Delivered in Connection
with Transfers to Non-QIB Accredited Investors....C-1
EXHIBIT D Form of Certificate to be Delivered in Connection
with Transfers Pursuant to Regulation S...........D-1
<PAGE>
INDENTURE, dated as of March 6, 1997, between MCCAW INTERNATIONAL, LTD., a
Washington corporation, (the "Company"), and THE BANK OF NEW YORK, a New York
banking corporation, (the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance initially of up to $951,463,000 aggregate
principal amount at maturity of the Company's 13% Senior Discount Notes due 2007
(the "Notes") issuable as provided in this Indenture. Pursuant to the terms of a
Placement Agreement dated March 3, 1997 between the Company and Morgan Stanley &
Co. Incorporated, as manager, for itself and the other placement agents named
therein (the "Placement Agreement"), the Company has agreed to issue and sell
951,463 units (the "Units"), each Unit consisting of one Note and one warrant
("Warrant") to purchase 0.10616 shares of common stock, without par value, of
the Company (the "McCaw Common Stock"). The Notes and the Warrants included in
each Unit will become separately transferable at the close of business upon the
earlier to occur of (i) the date that is six months after the Closing Date,
(ii) the commencement of an exchange offer with respect to the Notes undertaken
pursuant to the Registration Rights Agreement, (iii) the effectiveness of a
shelf registration statement with respect to resales of the Notes and (iv) the
commencement of an Offer to Purchase (the "Separation Date"). All things
necessary to make this Indenture a valid agreement of the Company, in accordance
with its terms, have been done, and the Company has done all things necessary to
make the Notes, when executed by the Company and authenticated and delivered by
the Trustee hereunder and duly issued by the Company, the valid obligations of
the Company as hereinafter provided.
This Indenture is subject to, and shall be governed by, the provisions of
the Trust Indenture Act of 1939, as amended, that are required to be a part of
and to govern indentures qualified under the Trust Indenture Act of 1939, as
amended.
AND THIS INDENTURE FURTHER WITNESSETH
For and in consideration of the premises and the purchase of the Notes by
the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders, as follows.
<PAGE>
2
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"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 Notes:
(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:
Semi-Annual Accreted
Accrual Date Value
------------------------ --------------
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
(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
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 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,
<PAGE>
3
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 Section 4.04 (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 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 Section 4.04, any amount paid
or accrued as dividends on Preferred Stock of the Company
<PAGE>
4
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 Section 4.17; 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.
"Agent" means any Registrar, Paying Agent, authenticating agent or
co-Registrar.
"Agent Members" has the meaning provided in Section 2.07(a).
"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
<PAGE>
5
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 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 Article Five; 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 Section 4.10, (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.
"Board of Directors" means the Board of Directors of the Company or any
committee of such Board of Directors duly authorized to act under this
Indenture.
"Board Resolution" means a copy of a resolution, certified by the Secretary
of the Company to have been duly adopted by the Board of Directors and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in The City of New York, or in the city of the Corporate
Trust Office of the Trustee, are authorized by law to close.
<PAGE>
6
"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 the date on which the Notes are originally issued
under this Indenture.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the TIA, then the body performing such duties at
such time.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's common stock, whether now outstanding or
issued after the date of this Indenture, including, without limitation, all
series and classes of such common stock.
<PAGE>
7
"Company" means the party named as such in the first paragraph of this
Indenture until a successor replaces it pursuant to Article Five of this
Indenture and thereafter means the successor.
"Company Order" means a written request or order signed in the name of the
Company (i) by its Chairman, a Vice Chairman, its President or a Vice President
and (ii) by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant
Secretary and delivered to the Trustee; provided, however, that such written
request or order may be signed by any two of the officers or directors listed in
clause (i) above in lieu of being signed by one of such officers or directors
listed in such clause (i) and one of the officers listed in clause (ii) above.
"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
non-recurring 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 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
<PAGE>
8
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 Section 4.17 (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.
"Corporate Trust Office" means the office of the Trustee at which the
corporate trust business of the Trustee shall, at any particular time, be
principally administered, which office
<PAGE>
9
is, at the date of this Indenture, located at 101 Barclay Street, 21 West, New
York, New York 10286, Attention: Corporate Trust Administration.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Depositary" shall mean The Depository Trust Company, its nominees, and
their respective successors.
"Event of Default" has the meaning provided in Section 6.01.
"Excess Proceeds" has the meaning provided in Section 4.10.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" means any securities of the Company containing terms
identical to the Notes (except that such Exchange Notes shall be registered
under the Securities Act) that are issued and exchanged for the Notes pursuant
to the Registration Rights Agreement and this Indenture.
"Existing Stockholders" means Craig O. McCaw and Nextel.
"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 Section 4.03, (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
<PAGE>
10
significant segment of the accounting profession. Except as specifically
provided, all ratios and computations contained or referred to in this 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 this Indenture shall be made without
giving effect to the amortization of any expenses incurred in connection with
the offering of the Notes.
"Global Notes" has the meaning provided in Section 2.01.
"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.
"Guaranteed Indebtedness" has the meaning provided in Section 4.07.
"Holder" or "Noteholder" means the registered holder of any Note.
"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
<PAGE>
11
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 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.
"Indenture" means this Indenture as originally executed or as it may be
amended or supplemented from time to time by one or more indentures supplemental
to this Indenture entered into pursuant to the applicable provisions of this
Indenture.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"Interest Payment Date" means each semiannual interest payment date on
April 15 and October 15, of each year, commencing October 15, 2002.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement or other similar agreement or arrangement.
<PAGE>
12
"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 Section 4.06 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 Section 4.04, (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
<PAGE>
13
Group Member not owned on the date of determination, directly or indirectly, by
the Company.
"McCaw Common Stock" has the meaning specified in the recitals to this
Indenture.
"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
<PAGE>
14
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.
"Nextel" means Nextel Communications, Inc.
"Non-U.S. Person" means a person who is not a U.S. person, as defined in
Regulation S.
"Note Register" has the meaning provided in Section 2.04.
"Notes" means any of the securities, as defined in the first paragraph of
the recitals hereof, that are authenticated and delivered under this Indenture.
For all purposes of this Indenture, the term "Notes" shall include the Notes
initially issued on the Closing Date, any Exchange Notes to be issued and
exchanged for any Notes pursuant to the Registration Rights Agreement and this
Indenture and any other Notes issued after the Closing Date under this
Indenture. For purposes of this Indenture, all Notes shall vote together as one
series of Notes under this Indenture.
"Offer to Purchase" means an offer to purchase 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
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 of Notes delivered for purchase and a statement
that such Holder is withdrawing his election to have such Notes purchased; and
(vii)
<PAGE>
15
that Holders whose Notes are being purchased only in part will be issued new
Notes equal in principal amount to the unpurchased portion of the 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
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
Notes or portions thereof so accepted; and (iii) deliver, or cause to be
delivered, to the Trustee all Notes or portions thereof so accepted together
with an Officers' Certificate specifying the Notes or portions thereof accepted
for payment by the Company. The Paying Agent shall promptly mail to the Holders
of 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 Notes pursuant to an Offer to Purchase.
"Officer" means, with respect to the Company, (i) the Chairman of the
Board, the President, any Vice President, the Chief Financial Officer, and (ii)
the Treasurer or any Assistant Treasurer, or the Secretary or any Assistant
Secretary.
"Officers' Certificate" means a certificate signed by one Officer listed in
clause (i) of the definition thereof and one Officer listed in clause (ii) of
the definition thereof. Each Officers' Certificate (other than certificates
provided pursuant to TIA Section 314(a)(4)) shall include the statements
provided for in TIA Section 314(e).
"Offshore Global Note" has the meaning provided in Section 2.01.
"Offshore Physical Notes" has the meaning provided in Section 2.01.
"Offshore Notes Exchange Date" has the meaning provided in Section 2.01.
"Opinion of Counsel" means a written opinion signed by legal counsel who
may be an employee of or counsel to the Company. Each such Opinion of Counsel
shall include the statements provided for in TIA Section 314(e).
"Overhead Services Agreement" means the Overhead Services Agreement, to be
dated as of the Closing Date, between the Company and Nextel.
<PAGE>
16
"Paying Agent" has the meaning provided in Section 2.04, except that, for
the purposes of Article Eight, the Paying Agent shall not be the Company or a
Subsidiary of the Company or an Affiliate of any of them. The term "Paying
Agent" includes any additional Paying Agent.
"Permanent Offshore Global Note" has the meaning provided in Section 2.01.
"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.
<PAGE>
17
"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 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 Section
4.03, (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
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18
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.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Physical Notes" has the meaning provided in Section 2.01.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's preferred or preference stock, whether
now outstanding or issued after the date of this Indenture, including, without
limitation, all series and classes of such preferred or preference stock.
"principal" of a debt security, including the Notes, means the principal
amount due on the Stated Maturity as shown on such debt security.
"Private Placement Legend" means the legend initially set forth on the
Notes in the form set forth in Section 2.02.
"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
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19
Company has been distributed by means of an effective registration statement
under the Securities Act or sales pursuant to Rule 144 under the Securities Act.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"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 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 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 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 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 Section 4.10 and Section 4.11 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 Notes as are required to be repurchased pursuant to Section
4.10 and Section 4.11.
"Redemption Date", when used with respect to any Note to be redeemed, means
the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Note to be redeemed,
means the price at which such Note is to be redeemed pursuant to this Indenture.
"Registrar" has the meaning provided in Section 2.04.
"Registration" has the meaning provided in Section 4.17.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated March 3, 1997, among the Company and Morgan Stanley & Co. Incorporated,
Chase Securities Inc., Lehman Brothers Inc. and NatWest Capital Markets Limited
and certain permitted assigns specified therein.
"Registration Statement" means the Registration Statement as defined and
described in the Registration Rights Agreement.
"Regular Record Date" for the interest payable on any Interest Payment Date
means the April 1 or October 1 (whether or not a Business Day), as the case may
be, next preceding such Interest Payment Date.
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20
"Regulation S" means Regulation S under the Securities Act.
"Responsible Officer", when used with respect to the Trustee, means the
chairman or any vice chairman of the board of directors, the chairman or any
vice chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, any assistant vice
president, the secretary, any assistant secretary, the treasurer, any assistant
treasurer, the cashier, any assistant cashier, any trust officer or assistant
trust officer, the controller or any assistant controller or any other officer
of the Trustee customarily performing functions similar to those performed by
any of the above designated officers and also means, with respect to a
particular corporate trust matter, any other officer to whom such matter is
referred because of his or her knowledge of and familiarity with the particular
subject.
"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 this 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 this 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 Payments" has the meaning provided in Section 4.04.
"Restricted Subsidiary" means any Subsidiary other than an Unrestricted
Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
"Separation Date" has the meaning specified in the recitals to this
Indenture.
"Shelf Registration Statement" means the Shelf Registration Statement as
defined in the Registration Rights Agreement.
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21
"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.
"Specified Date" means any Redemption Date, any Change of Control Payment
Date, Excess Proceeds Payment Date or any date on which the Notes first become
due and payable after an Event of Default.
"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 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
<PAGE>
22
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.
"Temporary Offshore Global Note" has the meaning provided in Section 2.01.
"TIA" or "Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended (15 U.S. Code Section 77aaa-77bbb), as in effect on the date this
Indenture was executed, except as provided in Section 9.06.
"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.
"Trustee" means the party named as such in the first paragraph of this
Indenture until a successor replaces it in accordance with the provisions of
Article Seven of this Indenture and thereafter means such successor.
"United States Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as
amended and as codified in Title 11 of the United States Code, as amended from
time to time hereafter, or any successor federal bankruptcy law.
"U.S. Global Note" has the meaning provided in Section 2.01.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof at any time prior
to the Stated Maturity of the Notes, and shall also include a depository receipt
issued by a bank or trust company as custodian with respect to any such U.S.
Government Obligation or a specific payment of interest on or principal of any
such U.S. Government Obligation held by such custodian for the account of the
holder of a depository receipt; provided that (except as
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23
required by law) such custodian is not authorized to make any deduction from the
amount payable to the holder of such depository receipt from any amount received
by the custodian in respect of the U.S. Government Obligation or the specific
payment of interest on or principal of the U.S. Government Obligation evidenced
by such depository receipt.
"U.S. Physical Notes" has the meaning provided in Section 2.01.
"Units" has the meaning provided in the recitals to this Indenture.
"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 Section 4.04 and (C) if applicable,
the Incurrence of Indebtedness and the Investment referred to in clause (A) of
this proviso would be permitted under Section 4.03 and Section 4.04. 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 Section 4.04 and (C) if
applicable, the Incurrence of Indebtedness and the Investment referred to in
clause (A) of this proviso would be permitted under Section 4.03 and Section
4.04. 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
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24
Unrestricted Subsidiary outstanding immediately after such designation would, if
Incurred at such time, have been permitted to be Incurred for all purposes of
this Indenture and (y) no Default or Event of 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.
"Warrant Agreement" means the Warrant Agreement dated as of March 6, 1997
between the Company and The Bank of New York, as warrant agent.
"Warrants" means the warrants issued under the Warrant Agreement, each of
which initially entitles the holder thereof to purchase 0.10616 shares of McCaw
Common Stock at $36.45 per share, subject to adjustment.
"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.
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"indenture notes" means the Notes;
"indenture note holder" means a Holder or a Noteholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the indenture securities means the Company or any other
obligor on the Notes.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by a rule of the
Commission and not otherwise defined herein have the meanings assigned to them
therein.
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25
SECTION 1.03. Rules of Construction. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(iii) "or" is not exclusive;
(iv) words in the singular include the plural, and words in the plural
include the singular;
(v) provisions apply to successive events and transactions;
(vi) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or
other subdivision;
(vii) all ratios and computations based on GAAP contained in this
Indenture shall be computed in accordance with the definition of GAAP set
forth in Section 1.01; and
(viii) all references to Sections or Articles refer to Sections or
Articles of this Indenture unless otherwise indicated.
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating. The Notes and the Trustee's certificate
of authentication shall be substantially in the form annexed hereto as Exhibit A
with such appropriate insertions, omissions, substitutions and other variations
as are required or permitted by this Indenture. The Notes may have notations,
legends or endorsements required by law, stock exchange agreements to which the
Company is subject or usage. The Company shall approve the form of the Notes and
any notation, legend or endorsement on the Notes. Each Note shall be dated the
date of its authentication.
The terms and provisions contained in the form of the Notes annexed
hereto as Exhibit A shall constitute, and are hereby expressly made, a part of
this Indenture. To the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
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26
Notes offered and sold in reliance on Rule 144A shall be issued
initially in the form of one or more permanent global Notes in registered form,
substantially in the form set forth in Exhibit A (collectively, the "U.S. Global
Notes"), deposited with the Trustee, as custodian for the Depositary, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the U.S. Global Notes may from time
to time be increased or decreased by adjustments made on the records of the
Trustee, as custodian for the Depositary or its nominee, as hereinafter
provided.
Notes offered and sold in offshore transactions in reliance on
Regulation S shall be issued initially in the form of one or more temporary
global Notes in registered form substantially in the form set forth in Exhibit A
(the "Temporary Offshore Global Notes") deposited with the Trustee, as custodian
for the Depositary, duly executed by the Company and authenticated by the
Trustee as hereinafter provided. At any time following the later of the
Separation Date and April 15, 1997 (the "Offshore Notes Exchange Date"), upon
receipt by the Trustee and the Company of a certificate substantially in the
form of Exhibit B hereto, one or more permanent global Notes in registered form
substantially in the form set forth in Exhibit A (the "Permanent Offshore Global
Notes"; and together with the Temporary Offshore Global Notes, the "Offshore
Global Notes") duly executed by the Company and authenticated by the Trustee as
hereinafter provided shall be deposited with the Trustee, as custodian for the
Depositary, and the Registrar shall reflect on its books and records the date
and a decrease in the principal amount of the Temporary Offshore Global Notes in
an amount equal to the principal amount of the beneficial interest in the
Temporary Offshore Global Notes transferred.
Notes offered and sold in reliance on Regulation D under the
Securities Act shall be issued in the form of permanent certificated Notes in
registered form in substantially the form set forth in Exhibit A (the "U.S.
Physical Notes"). Notes issued pursuant to Section 2.07 in exchange for
interests in the Offshore Global Note shall be in the form of permanent
certificated Notes in registered form substantially in the form set forth in
Exhibit A (the "Offshore Physical Notes").
The Offshore Physical Notes and U.S. Physical Notes are sometimes
collectively herein referred to as the "Physical Notes". The U.S. Global Notes
and the Offshore Global Notes are sometimes referred to herein as the "Global
Notes".
The definitive Notes shall be typed, printed, lithographed or engraved
or produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any securities exchange on which the Notes may
be listed, all as determined by the Officers executing such Notes, as evidenced
by their execution of such Notes.
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27
SECTION 2.02. Restrictive Legends. Unless and until a Note is
exchanged for an Exchange Note or sold in connection with an effective
Registration pursuant to the Registration Rights Agreement, the U.S. Global
Notes, Temporary Offshore Global Notes and each U.S. Physical Note shall bear
the following legend on the face thereof:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), OR (B) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3)
OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL
ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD
REFERRED TO IN RULE 144(k) UNDER THE SECURITIES ACT, RESELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO MCCAW INTERNATIONAL, LTD. (THE "COMPANY")
OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN
COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED
STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH
TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF
THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND
IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE ACCRETED VALUE OF NOTES AT
THE TIME OF TRANSFER OF LESS THAN $100,000, AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
(IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN THE TIME PERIOD
REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON
THE REVERSE HEREOF RELATING TO
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28
THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF
THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER
MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO
AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO
THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A
PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS
NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS.
Each Global Note, whether or not an Exchange Note, shall also bear the
following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN
THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY
(AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS
AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.08 OF THE INDENTURE.
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29
Prior to the Separation Date, each Note shall bear the following
legend on the face thereof:
THIS NOTE IS INITIALLY ISSUED AS PART OF AN ISSUANCE OF UNITS, EACH OF
WHICH CONSISTS OF ONE NOTE AND ONE WARRANT INITIALLY ENTITLING THE HOLDER
THEREOF TO PURCHASE 0.10616 COMMON SHARES, WITHOUT PAR VALUE, OF MCCAW
INTERNATIONAL, LTD (A "WARRANT"). PRIOR TO THE CLOSE OF BUSINESS UPON THE
EARLIEST TO OCCUR OF (i) SEPTEMBER 6, 1997, (ii) THE COMMENCEMENT OF AN
EXCHANGE OFFER WITH RESPECT TO THE NOTES, (iii) THE EFFECTIVENESS OF A
SHELF REGISTRATION STATEMENT WITH RESPECT TO RESALES OF THE NOTES AND
(iv) THE COMMENCEMENT OF AN OFFER TO PURCHASE THE NOTES, THE NOTES
EVIDENCED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED OR EXCHANGED
SEPARATELY FROM, BUT MAY BE TRANSFERRED OR EXCHANGED ONLY TOGETHER WITH,
THE WARRANTS.
SECTION 2.03. Execution, Authentication and Denominations. The Notes
shall be executed by two Officers of the Company. The signature of any of these
Officers on the Notes may be by facsimile or manual signature in the name and on
behalf of the Company.
If an Officer whose signature is on a Note no longer holds that office
at the time the Trustee or authenticating agent authenticates the Note, the Note
shall be valid nevertheless.
A Note shall not be valid until the Trustee or authenticating agent
manually signs the certificate of authentication on the Note. The signature
shall be conclusive evidence that the Note has been authenticated under this
Indenture.
At any time and from time to time after the execution of this
Indenture, the Trustee or an authenticating agent shall upon receipt of a
Company Order authenticate for original issue Notes in the aggregate principal
amount specified in such Company Order; provided that the Trustee shall be
entitled to receive an Officers' Certificate and an Opinion of Counsel of the
Company in connection with such authentication of Notes. Such Company Order
shall specify the amount of Notes to be authenticated and the date on which the
original issue of Notes is to be authenticated and in case of an issuance of
Notes pursuant to Section 2.15, shall certify that such issuance is in
compliance with Article Four.
The Trustee may appoint an authenticating agent to authenticate Notes.
An authenticating agent may authenticate Notes whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such
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30
authenticating agent. An authenticating agent has the same rights as an Agent to
deal with the Company or an Affiliate of the Company.
The Notes shall be issuable only in registered form without coupons
and only in denominations of $1,000 in principal amount at maturity and any
integral multiple of $1,000 in excess thereof.
SECTION 2.04. Registrar and Paying Agent. The Company shall maintain
an office or agency where Notes may be presented for registration of transfer or
for exchange (the "Registrar"), an office or agency where Notes may be presented
for payment (the "Paying Agent") and an office or agency where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served, which shall be in the Borough of Manhattan, The City of New York. The
Company shall cause the Registrar to keep a register of the Notes and of their
transfer and exchange (the "Note Register"). The Company may have one or more
co-Registrars and one or more additional Paying Agents.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall give
prompt written notice to the Trustee of the name and address of any such Agent
and any change in the address of such Agent. If the Company fails to maintain a
Registrar, Paying Agent and/or agent for service of notices and demands, the
Trustee shall act as such Registrar, Paying Agent and/or agent for service of
notices and demands. The Company may remove any Agent upon written notice to
such Agent and the Trustee; provided that no such removal shall become effective
until (i) the acceptance of an appointment by a successor Agent to such Agent as
evidenced by an appropriate agency agreement entered into by the Company and
such successor Agent and delivered to the Trustee or (ii) notification to the
Trustee that the Trustee shall serve as such Agent until the appointment of a
successor Agent in accordance with clause (i) of this proviso. The Company, any
Subsidiary of the Company, or any Affiliate of any of them may act as Paying
Agent, Registrar or co-Registrar, and/or agent for service of notice and
demands.
The Company initially appoints the Trustee as Registrar, Paying Agent,
authenticating agent and agent for service of notice and demands. If, at any
time, the Trustee is not the Registrar, the Registrar shall make available to
the Trustee on or before each Interest Payment Date and at such other times as
the Trustee may reasonably request, the names and addresses of the Holders as
they appear in the Note Register.
SECTION 2.05. Paying Agent to Hold Money in Trust. Not later than each
due date of the principal, premium, if any, and interest on any Notes, the
Company shall deposit with the Paying Agent money in immediately available funds
sufficient to pay such principal, premium, if any, and interest so becoming due.
The Company shall require each
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Paying Agent other than the Trustee to agree in writing that such Paying Agent
shall hold in trust for the benefit of the Holders or the Trustee all money held
by the Paying Agent for the payment of principal of, premium, if any, and
interest on the Notes (whether such money has been paid to it by the Company or
any other obligor on the Notes), and such Paying Agent shall promptly notify the
Trustee of any default by the Company (or any other obligor on the Notes) in
making any such payment. The Company at any time may require a Paying Agent to
pay all money held by it to the Trustee and account for any funds disbursed, and
the Trustee may at any time during the continuance of any payment default, upon
written request to a Paying Agent, require such Paying Agent to pay all money
held by it to the Trustee and to account for any funds disbursed. Upon doing so,
the Paying Agent shall have no further liability for the money so paid over to
the Trustee. If the Company or any Subsidiary of the Company or any Affiliate of
any of them acts as Paying Agent, it will, on or before each due date of any
principal of, premium, if any, or interest on the Notes, segregate and hold in a
separate trust fund for the benefit of the Holders a sum of money sufficient to
pay such principal, premium, if any, or interest so becoming due until such sum
of money shall be paid to such Holders or otherwise disposed of as provided in
this Indenture, and will promptly notify the Trustee of its action or failure to
act.
SECTION 2.06. Transfer and Exchange. The Notes are issuable only in
registered form. The Notes shall initially be issued as part of an issuance of
Units, each of which consists of one Note and one Warrant. Prior to the
Separation Date, the Notes may not be transferred or exchanged separately from,
but may be transferred or exchanged only together with the Warrants issued in
connection with such Notes. A Holder may transfer a Note only by written
application to the Registrar stating the name of the proposed transferee and
otherwise complying with the terms of this Indenture. No such transfer shall be
effected until, and such transferee shall succeed to the rights of a Holder only
upon, final acceptance and registration of the transfer by the Registrar in the
Note Register. Prior to the registration of any transfer by a Holder as provided
herein, the Company, the Trustee, and any agent of the Company shall treat the
person in whose name the Note is registered as the owner thereof for all
purposes whether or not the Note shall be overdue, and neither the Company, the
Trustee, nor any such agent shall be affected by notice to the contrary.
Furthermore, any Holder of a Global Note shall, by acceptance of such Global
Note, agree that transfers of beneficial interests in such Global Note may be
effected only through a book entry system maintained by the Holder of such
Global Note (or its agent) and that ownership of a beneficial interest in the
Note shall be required to be reflected in a book entry. When Notes are presented
to the Registrar or a co-Registrar with a request to register the transfer or to
exchange them for an equal principal amount of Notes of other authorized
denominations (including an exchange of Notes for Exchange Notes), the Registrar
shall register the transfer or make the exchange as requested if its
requirements for such transactions are met; provided that no exchanges of Notes
for Exchange Notes shall occur until a Registration Statement shall have been
declared effective by the Commission and that any Notes that are exchanged for
Exchange Notes shall be cancelled by the Trustee. To permit registrations of
transfers and
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32
exchanges, the Company shall execute and the Trustee shall authenticate Notes at
the Registrar's request. No service charge shall be made for any registration of
transfer or exchange or redemption of the Notes, but the Company may require
payment of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such transfer taxes or
other similar governmental charge payable upon exchanges pursuant to Section
2.11, 3.08 or 9.04).
The Registrar shall not be required (i) to issue, register the
transfer of or exchange any Note during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of
Notes selected for redemption under Section 3.03 and ending at the close of
business on the day of such mailing, or (ii) to register the transfer of or
exchange any Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part.
SECTION 2.07. Book-Entry Provisions for Global Notes. (a) The U.S.
Global Note and Offshore Global Note initially shall (i) be registered in the
name of the Depositary for such Global Notes or the nominee of such Depositary,
(ii) be delivered to the Trustee as custodian for such Depositary and (iii) bear
legends as set forth in Section 2.02.
Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any Global Note held on
their behalf by the Depositary, or the Trustee as its custodian, or under the
Global Note, and the Depositary may be treated by the Company, the Trustee and
any agent of the Company or the Trustee as the absolute owner of such Global
Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Trustee or any agent of the Company or the
Trustee, from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or impair, as between the Depositary
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a holder of any Note.
(b) Transfers of a Global Note shall be limited to transfers of such
Global Note in whole, but not in part, to the Depositary, its successors or
their respective nominees. Interests of beneficial owners in a Global Note may
be transferred in accordance with the rules and procedures of the Depositary and
the provisions of Section 2.08. In addition, U.S. Physical Notes and Offshore
Physical Notes shall be transferred to all beneficial owners in exchange for
their beneficial interests in the U.S. Global Note or the Offshore Global Note,
respectively, if (i) the Depositary notifies the Company that it is unwilling or
unable to continue as Depositary for the U.S. Global Note or the Offshore Global
Note, as the case may be, and a successor depositary is not appointed by the
Company within 90 days of such notice, (ii) an Event of Default has occurred and
is continuing and the Registrar has received a request therefor from the
Depositary or (iii) in accordance with the rules and procedures of the
Depositary and the provisions of Section 2.08.
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33
(c) Any beneficial interest in one of the Global Notes that is
transferred to a person who takes delivery in the form of an interest in the
other Global Note will, upon transfer, cease to be an interest in such Global
Note and become an interest in the other Global Note and, accordingly, will
thereafter be subject to all transfer restrictions, if any, and other procedures
applicable to beneficial interests in such other Global Note for as long as it
remains such an interest.
(d) In connection with any transfer of a portion of the beneficial
interests in the U.S. Global Note or Permanent Offshore Global Note to
beneficial owners pursuant to paragraph (b) of this Section, the Registrar shall
reflect on its books and records the date and a decrease in the principal amount
of the U.S. Global Note or Permanent Offshore Global Note in an amount equal to
the principal amount of the beneficial interest in the U.S. Global Note or
Permanent Offshore Global Note to be transferred, and the Company shall execute,
and the Trustee shall authenticate and deliver, one or more U.S. Physical Notes
or Offshore Physical Notes, as the case may be, of like tenor and amount.
(e) In connection with the transfer of the entire U.S. Global Note or
Offshore Global Note to beneficial owners pursuant to paragraph (b) of this
Section, the U.S. Global Note or Offshore Global Note, as the case may be, shall
be deemed to be surrendered to the Trustee for cancellation, and the Company
shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depositary in exchange for its beneficial
interest in the U.S. Global Note or Offshore Global Note, as the case may be, an
equal aggregate principal amount of U.S. Physical Notes or Offshore Physical
Notes, as the case may be, of authorized denominations.
(f) Any U.S. Physical Note delivered in exchange for an interest in
the U.S. Global Note pursuant to paragraph (b), (d) or (e) of this Section
shall, except as otherwise provided by paragraph (f) of Section 2.08, bear the
legend regarding transfer restrictions applicable to the U.S. Physical Note set
forth in Section 2.02.
(g) Any Offshore Physical Note delivered in exchange for an interest
in the Temporary Offshore Global Note pursuant to paragraph (b), (d) or (e) of
this Section shall, except as otherwise provided by paragraph (f) of Section
2.08, bear the legend regarding transfer restrictions applicable to the Offshore
Physical Note set forth in Section 2.02.
(h) The registered holder of a Global Note may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
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34
SECTION 2.08. Special Transfer Provisions. Unless and until a Note is
exchanged for an Exchange Note or sold in connection with an effective
Registration Statement pursuant to the Registration Rights Agreement, the
following provisions shall apply:
(a) Transfers to Non-QIB Institutional Accredited Investors. The
following provisions shall apply with respect to the registration of any
proposed transfer of a Note to any Institutional Accredited Investor which is
not a QIB (excluding Non-U.S. Persons):
(i) The Registrar shall register the transfer of any Note, whether or
not such Note bears the Private Placement Legend, if (x) the requested
transfer is after the time period referred to in Rule 144(k) under the
Securities Act or (y) the proposed transferee has delivered to the
Registrar (A) a certificate substantially in the form of Exhibit C hereto
and (B) if the aggregate Accreted Value of the Notes at the time of
transfer is less than $100,000, an opinion of counsel acceptable to the
Company that such transfer is in compliance with the Securities Act.
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Note, upon receipt by the Registrar
of (x) the documents, if any, required by paragraph (i) and (y)
instructions given in accordance with the Depositary's and the Registrar's
procedures, the Registrar shall reflect on its books and records the date
and a decrease in the principal amount at maturity of the U.S. Global Note
in an amount equal to the principal amount at maturity of the beneficial
interest in the U.S. Global Note to be transferred, and the Company shall
execute, and the Trustee shall authenticate and deliver, one or more U.S.
Physical Certificates of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of a U.S. Physical Note or
an interest in the U.S. Global Note to a QIB (excluding Non-U.S. Persons):
(i) If the Note to be transferred consists of (x) U.S. Physical Notes,
the Registrar shall register the transfer if such transfer is being made by
a proposed transferor who has checked the box provided for on the form of
Note stating, or has otherwise advised the Company and the Registrar in
writing, that the sale has been made in compliance with the provisions of
Rule 144A to a transferee who has signed the certification provided for on
the form of Note stating, or has otherwise advised the Company and the
Registrar in writing, that it is purchasing the Note for its own account or
an account with respect to which it exercises sole investment discretion
and that it and any such account is a QIB within the meaning of Rule 144A,
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as
it has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the
<PAGE>
35
transferor is relying upon its foregoing representations in order to claim
the exemption from registration provided by Rule 144A or (y) an interest in
the U.S. Global Note, the transfer of such interest may be effected only
through the book entry system maintained by the Depositary.
(ii) If the proposed transferee is an Agent Member, and the Note to be
transferred consists of U.S. Physical Notes, upon receipt by the Registrar
of the documents referred to in clause (i) and instructions given in
accordance with the Depositary's and the Registrar's procedures, the
Registrar shall reflect on its books and records the date and an increase
in the principal amount at maturity of the U.S. Global Note in an amount
equal to the principal amount at maturity of the U.S. Physical Notes, to be
transferred, and the Trustee shall cancel the U.S. Physical Note so
transferred.
(c) Transfers of Interests in the Temporary Offshore Global Note. The
following provisions shall apply with respect to registration of any proposed
transfer of interests in the Temporary Offshore Global Note:
(i) The Registrar shall register the transfer of any Note (x) if the
proposed transferee is a Non-U.S. Person and the proposed transferor has
delivered to the Registrar a certificate substantially in the form of
Exhibit D hereto or (y) if the proposed transferee is a QIB and the
proposed transferor has checked the box provided for on the form of Note
stating, or has otherwise advised the Company and the Registrar in writing,
that the sale has been made in compliance with the provisions of Rule 144A
to a transferee who has signed the certification provided for on the form
of Note stating, or has otherwise advised the Company and the Registrar in
writing, that it is purchasing the Note for its own account or an account
with respect to which it exercises sole investment discretion and that it
and any such account is a QIB within the meaning of Rule 144A, and is aware
that the sale to it is being made in reliance on Rule 144A and acknowledges
that it has received such information regarding the Company as it has
requested pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying upon its
foregoing representations in order to claim the exemption from registration
provided by Rule 144A.
(ii) If the proposed transferee is an Agent Member, upon receipt by
the Registrar of the documents referred to in clause (i)(y) above and
instructions given in accordance with the Depositary's and the Registrar's
procedures, the Registrar shall reflect on its books and records the date
and an increase in the principal amount at maturity of the U.S. Global
Note, in an amount equal to the principal amount at maturity of the
Temporary Offshore Global Note to be transferred, and the Trustee shall
decrease the amount of the Temporary Offshore Global Note in such an
amount.
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36
(d) Transfers of Interests in the Permanent Offshore Global Note or
Unlegended Offshore Physical Notes. The following provisions shall apply with
respect to any transfer of interests in the Permanent Offshore Global Note or
unlegended Offshore Physical Notes. The Registrar shall register the transfer of
any such Note without requiring any additional certification.
(e) Transfers to Non-U.S. Persons at Any Time. The following
provisions shall apply with respect to any transfer of a Note to a Non-U.S.
Person:
(i) Prior to April 15, 1997, the Registrar shall register any proposed
transfer of a Note to a Non-U.S. Person upon receipt of a certificate
substantially in the form of Exhibit D hereto from the proposed transferor.
(ii) On and after April 15, 1997, the Registrar shall register any
proposed transfer to any Non-U.S. Person if the Note to be transferred is a
U.S. Physical Note or an interest in the U.S. Global Note, upon receipt of
a certificate substantially in the form of Exhibit D from the proposed
transferor.
(iii) (a) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Note, upon receipt by the Registrar
of (x) the documents, if any, required by paragraph (ii) and (y)
instructions in accordance with the Depositary's and the Registrar's
procedures, the Registrar shall reflect on its books and records the date
and a decrease in the principal amount at maturity of the U.S. Global Note
in an amount equal to the principal amount at maturity of the beneficial
interest in the U.S. Global Note to be transferred, and (b) if the proposed
transferee is an Agent Member, upon receipt by the Registrar of
instructions given in accordance with the Depositary's and the Registrar's
procedures, the Registrar shall reflect on its books and records the date
and an increase in the principal amount at maturity of the Offshore Global
Note in an amount equal to the principal amount at maturity of the U.S.
Physical Notes or the U.S. Global Note, as the case may be, to be
transferred, and the Trustee shall cancel the Physical Note, if any, so
transferred or decrease the amount of the U.S. Global Note.
(f) Private Placement Legend. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the Registrar
shall deliver Notes that do not bear the Private Placement Legend. Upon the
transfer, exchange or replacement of Notes bearing the Private Placement Legend,
the Registrar shall deliver only Notes that bear the Private Placement Legend
unless either (i) the circumstances contemplated by the second sentence of the
fourth paragraph of Section 2.01 or paragraphs (a)(i)(x) or (e)(ii) of this
Section 2.08 exist or (ii) there is delivered to the Registrar an Opinion of
Counsel reasonably satisfactory to the Company and the Trustee to the effect
that neither such legend nor the
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37
related restrictions on transfer are required in order to maintain compliance
with the provisions of the Securities Act.
(g) General. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture. The Registrar shall not register a transfer of any Note unless such
transfer complies with the restrictions on transfer of such Note set forth in
this Indenture. In connection with any transfer of Notes, each Holder agrees by
its acceptance of the Notes to furnish the Registrar or the Company such
certifications, legal opinions or other information as either of them may
reasonably require to confirm that such transfer is being made pursuant to an
exemption from, or a transaction not subject to, the registration requirements
of the Securities Act; provided that the Registrar shall not be required to
determine (but may rely on a determination made by the Company with respect to)
the sufficiency of any such certifications, legal opinions or other information.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.07 or this Section 2.08.
The Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Registrar.
SECTION 2.09. Replacement Notes. If a mutilated Note is surrendered to
the Trustee or if the Holder claims that the Note has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate a
replacement Note of like tenor and amount and bearing a number not
contemporaneously outstanding; provided that the requirements of this Section
2.09 are met. If required by the Trustee or the Company, an indemnity bond must
be furnished that is sufficient in the judgment of both the Trustee and the
Company to protect the Company, the Trustee or any Agent from any loss that any
of them may suffer if a Note is replaced. The Company may charge such Holder for
its expenses and the expenses of the Trustee in replacing a Note. In case any
such mutilated, lost, destroyed or wrongfully taken Note has become or is about
to become due and payable, the Company in its discretion may pay such Note
instead of issuing a new Note in replacement thereof.
Every replacement Note is an additional obligation of the Company and
shall be entitled to the benefits of this Indenture.
SECTION 2.10. Outstanding Notes. Notes outstanding at any time are all
Notes that have been authenticated by the Trustee except for those cancelled by
it, those delivered to it for cancellation and those described in this Section
2.10 as not outstanding.
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If a Note is replaced pursuant to Section 2.09, it ceases to be
outstanding unless and until the Trustee and the Company receive proof
satisfactory to them that the replaced Note is held by a bona fide purchaser.
If the Paying Agent (other than the Company or an Affiliate of the
Company) holds on the maturity date money sufficient to pay Notes payable on
that date, then on and after that date such Notes cease to be outstanding and
interest on them shall cease to accrue.
A Note does not cease to be outstanding because the Company or one of
its Affiliates holds such Note, provided, however, that, in determining whether
the Holders of the requisite principal amount of the outstanding Notes have
given any request, demand, authorization, direction, notice, consent or waiver
hereunder, Notes owned by the Company or any other obligor upon the Notes or any
Affiliate of the Company or of such other obligor shall be disregarded and
deemed not to be outstanding, except that, in determining whether the Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes which the Trustee knows to be
so owned shall be so disregarded. Notes so owned which have been pledged in good
faith may be regarded as outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to such
Notes and that the pledgee is not the Company or any other obligor upon the
Notes or any Affiliate of the Company or of such other obligor.
SECTION 2.11. Temporary Notes. Until definitive Notes are ready for
delivery, the Company may prepare and the Trustee shall authenticate temporary
Notes. Temporary Notes shall be substantially in the form of definitive Notes
but may have insertions, substitutions, omissions and other variations
determined to be appropriate by the Officers executing the temporary Notes, as
evidenced by their execution of such temporary Notes. If temporary Notes are
issued, the Company will cause definitive Notes to be prepared without
unreasonable delay. After the preparation of definitive Notes, the temporary
Notes shall be exchangeable for definitive Notes upon surrender of the temporary
Notes at the office or agency of the Company designated for such purpose
pursuant to Section 4.02, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Notes the Company shall execute and
the Trustee shall authenticate and deliver in exchange therefor a like principal
amount of definitive Notes of authorized denominations. Until so exchanged, the
temporary Notes shall be entitled to the same benefits under this Indenture as
definitive Notes.
SECTION 2.12. Cancellation. The Company at any time may deliver to the
Trustee for cancellation any Notes previously authenticated and delivered
hereunder which the Company may have acquired in any manner whatsoever, and may
deliver to the Trustee for cancellation any Notes previously authenticated
hereunder which the Company has not issued and sold. The Registrar and the
Paying Agent shall forward to the Trustee any Notes surrendered to them for
transfer, exchange or payment. The Trustee shall cancel all Notes
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39
surrendered for transfer, exchange, payment or cancellation in accordance with
its normal procedure.
SECTION 2.13. CUSIP Numbers. The Company in issuing the Notes may use
"CUSIP," "CINS" or "ISIN" numbers (if then generally in use), and the Trustee
shall use CUSIP, CINS or ISIN numbers, as the case may be, in notices of
redemption or exchange as a convenience to Holders; provided that any such
notice shall state that no representation is made as to the correctness of such
numbers either as printed on the Notes or as contained in any notice of
redemption or exchange and that reliance may be placed only on the other
identification numbers printed on the Notes.
SECTION 2.14. Defaulted Interest. If the Company defaults in a payment
of interest on the Notes, it shall pay, or shall deposit with the Paying Agent
money in immediately available funds sufficient to pay the defaulted interest,
plus (to the extent lawful) any interest payable on the defaulted interest, to
the Persons who are Holders on a subsequent special record date. A special
record date, as used in this Section 2.14 with respect to the payment of any
defaulted interest, shall mean the 15th day next preceding the date fixed by the
Company for the payment of defaulted interest, whether or not such day is a
Business Day. At least 15 days before the subsequent special record date, the
Company shall mail to each Holder and to the Trustee a notice that states the
subsequent special record date, the payment date and the amount of defaulted
interest to be paid.
SECTION 2.15. Issuance of Additional Notes. The Company may, subject
to Article Four of this Indenture, issue additional Notes under this Indenture.
The Notes issued on the Closing Date and any additional Notes subsequently
issued shall be treated as a single class for all purposes under this Indenture.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Right of Redemption. (a) The Notes may be redeemed, 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 Note 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
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40
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:
Redemption
Year Price
---- ----------
2002 106.500%
2003 103.250%
2004 and thereafter 100.000%
(b) 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 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 Payment Date); provided that at least $618.5 million
aggregate principal amount at maturity of Notes remains outstanding after each
such redemption.
SECTION 3.02. Notices to Trustee. If the Company elects to redeem
Notes pursuant to Section 3.01(a) or 3.01(b), it shall notify the Trustee in
writing of the Redemption Date and the principal amount of Notes to be redeemed.
The Company shall give each notice provided for in this Section 3.02
in an Officers' Certificate at least 45 days before the Redemption Date (unless
a shorter period shall be satisfactory to the Trustee).
SECTION 3.03. Selection of Notes to Be Redeemed. If less than all of
the Notes are to be redeemed at any time, the Trustee shall select the Notes to
be redeemed in compliance with the requirements, as certified to it by the
Company, of the principal national securities exchange, if any, on which the
Notes are listed or, if the 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 fair and appropriate; provided that no Notes of $1,000 in principal
amount at maturity or less shall be redeemed in part.
The Trustee shall make the selection from the Notes outstanding and
not previously called for redemption. Notes in denominations of $1,000 in
principal amount at maturity may only be redeemed in whole. The Trustee may
select for redemption portions (equal to $1,000 in principal amount at maturity
or any integral multiple thereof) of Notes that have denominations larger than
$1,000 in principal amount at maturity. Provisions of this Indenture that apply
to Notes called for redemption also apply to portions of Notes called for
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redemption. The Trustee shall notify the Company and the Registrar promptly in
writing of the Notes or portions of Notes to be called for redemption.
SECTION 3.04. Notice of Redemption. With respect to any redemption of
Notes pursuant to Section 3.01(a) or 3.01(b), at least 30 days but not more than
60 days before a Redemption Date, the Company shall mail a notice of redemption
by first class mail to each Holder whose Notes are to be redeemed.
The notice shall identify the Notes to be redeemed and shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the name and address of the Paying Agent;
(iv) that Notes called for redemption must be surrendered to the
Paying Agent in order to collect the Redemption Price;
(v) that, unless the Company defaults in making the redemption
payment, interest on Notes called for redemption ceases to accrue on and
after the Redemption Date and the only remaining right of the Holders is to
receive payment of the Redemption Price plus accrued interest to the
Redemption Date upon surrender of the Notes to the Paying Agent;
(vi) that, if any Note is being redeemed in part, the portion of the
principal amount (equal to $1,000 in principal amount at maturity or any
integral multiple thereof) of such Note to be redeemed and that, on and
after the Redemption Date, upon surrender of such Note, a new Note or Notes
in principal amount at maturity equal to the unredeemed portion thereof
will be reissued; and
(vii) that, if any Note contains a CUSIP, CINS or ISIN number as
provided in Section 2.13, no representation is being made as to the
correctness of the CUSIP, CINS or ISIN number either as printed on the
Notes or as contained in the notice of redemption and that reliance may be
placed only on the other identification numbers printed on the Notes.
At the Company's request (which request may be revoked by the Company
at any time prior to the time at which the Trustee shall have given such
notice to the Holders), made in writing to the Trustee at least 30 days (or
such shorter period as shall be satisfactory to the Trustee) before a
Redemption Date, the Trustee shall give the notice of redemption in the
name and at the expense of the Company. If, however, the Company gives such
notice to
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the Holders, the Company shall concurrently deliver to the Trustee an
Officers' Certificate stating that such notice has been given.
SECTION 3.05. Effect of Notice of Redemption. Once notice of
redemption is mailed, Notes called for redemption become due and payable on the
Redemption Date and at the Redemption Price. Upon surrender of any Notes to the
Paying Agent, such Notes shall be paid at the Redemption Price, plus accrued
interest, if any, to the Redemption Date.
Notice of redemption shall be deemed to be given when mailed, whether
or not the Holder receives the notice. In any event, failure to give such
notice, or any defect therein, shall not affect the validity of the proceedings
for the redemption of Notes held by Holders to whom such notice was properly
given.
SECTION 3.06. Deposit of Redemption Price. On or prior to any
Redemption Date, the Company shall deposit with the Paying Agent (or, if the
Company is acting as its own Paying Agent, shall segregate and hold in trust as
provided in Section 2.05) money sufficient to pay the Redemption Price of and
accrued interest on all Notes to be redeemed on that date other than Notes or
portions thereof called for redemption on that date that have been delivered by
the Company to the Trustee for cancellation.
SECTION 3.07. Payment of Notes Called for Redemption. If notice of
redemption has been given in the manner provided above, the Notes or portion of
Notes specified in such notice to be redeemed shall become due and payable on
the Redemption Date at the Redemption Price stated therein, together with
accrued interest to such Redemption Date, and on and after such date (unless the
Company shall default in the payment of such Notes at the Redemption Price and
accrued interest to the Redemption Date, in which case the principal, until
paid, shall bear interest from the Redemption Date at the rate prescribed in the
Notes), such Notes shall cease to accrue interest. Upon surrender of any Note
for redemption in accordance with a notice of redemption, such Note shall be
paid and redeemed by the Company at the Redemption Price, together with accrued
interest, if any, to the Redemption Date; provided that installments of interest
whose Stated Maturity is on or prior to the Redemption Date shall be payable to
the Holders registered as such at the close of business on the relevant Regular
Record Date.
SECTION 3.08. Notes Redeemed in Part. Upon surrender of any Note that
is redeemed in part, the Company shall execute and the Trustee shall
authenticate and deliver to the Holder a new Note equal in principal amount to
the unredeemed portion of such surrendered Note.
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43
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes. The Company shall pay the principal
of, premium, if any, and interest on the Notes on the dates and in the manner
provided in the Notes and this Indenture. An installment of principal, premium,
if any, or interest shall be considered paid on the date due if the Trustee or
Paying Agent (other than the Company, a Subsidiary of the Company, or any
Affiliate of any of them) holds on that date money designated for and sufficient
to pay the installment. If the Company or any Subsidiary of the Company or any
Affiliate of any of them, acts as Paying Agent, an installment of principal,
premium, if any, or interest shall be considered paid on the due date if the
entity acting as Paying Agent complies with the last sentence of Section 2.05.
As provided in Section 6.09, upon any bankruptcy or reorganization procedure
relative to the Company, the Trustee shall serve as the Paying Agent and
conversion agent, if any, for the Notes.
The Company shall pay interest on overdue principal, premium, if any,
and interest on overdue installments of interest, to the extent lawful, at the
rate per annum specified in the Notes.
SECTION 4.02. Maintenance of Office or Agency. The Company will
maintain in the Borough of Manhattan, The City of New York an office or agency
where Notes may be surrendered for registration of transfer or exchange or for
presentation for payment and where notices and demands to or upon the Company in
respect of the Notes and this Indenture may be served. The Company will give
prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee set forth in Section 10.02.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough of Manhattan,
The City of New York for such purposes. The Company will give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
The Company hereby initially designates the Corporate Trust Office of
the Trustee, located in the Borough of Manhattan, The City of New York, as such
office of the Company in accordance with Section 2.04.
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SECTION 4.03. Limitation on Indebtedness. (a) The Company will not,
and will not permit any Restricted Group Member to, Incur any Indebtedness
(other than the 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 Section 4.10;
(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 Notes or Indebtedness that is pari passu with, or
subordinated in right of payment to, the Notes shall only be permitted
under this clause (iii) if (A) in case the Notes are refinanced in part or
the Indebtedness to be refinanced is pari passu with the 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
Notes, (B) in case the Indebtedness to be refinanced is subordinated in
right of payment to the 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 Notes at least to the extent that
the Indebtedness to be refinanced is subordinated to the 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
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45
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 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 Notes tendered in an Offer to
Purchase made as a result of a Change in Control or (B) deposited to
defease the Notes as set forth in Article VIII;
(vi) Guarantees of the 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 Section 4.07;
(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 Section 4.04 to
make
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46
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 Section 4.03, the
maximum amount of Indebtedness that the Company or a Restricted Group Member may
Incur pursuant to this Section 4.03 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 Section 4.03, (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 Section 4.03, (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 Section 4.09 shall not be treated as
Indebtedness. For purposes of determining compliance with this Section 4.03, 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.
SECTION 4.04. 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 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
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47
of the Company that is subordinated in right of payment to the 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
Section 4.03 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 Section 4.17 plus
(2) the aggregate Net Cash Proceeds received by the Company after the Closing
Date from the issuance and sale permitted by this 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 Section 4.03) 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 Notes) plus (3) an amount equal to the net reduction
in Investments (other than reductions in Permitted Investments or 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:
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48
(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 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 Section 4.03;
(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 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 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 this 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);
(viii) 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;
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49
(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 Section 4.04 have been met with respect to any subsequent
Restricted Payments.
SECTION 4.05. 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 this 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
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50
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 Section
4.05, (A) that restrict in a customary manner the subletting, assignment or
transfer of any property or asset that is a 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 this 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 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 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 Notes than the encumbrances and restrictions contained
in comparable agreements entered into in the past by the Company or a
Restricted Group Member; or
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51
(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 Notes than the encumbrances and
restrictions contained in the Motorola Credit Agreement.
Nothing contained in this Section 4.05 shall prevent the Company or any
Restricted Group Member from (1) creating, incurring, assuming or suffering to
exist any Liens otherwise permitted in Section 4.09 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.
SECTION 4.06. 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 Section 4.04, 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 Section 4.10.
SECTION 4.07. 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 Notes ("Guaranteed
Indebtedness"), unless (i) such Restricted Group Member simultaneously executes
and delivers a supplemental indenture to this Indenture providing for a
Guarantee (a "Subsidiary Guarantee") of payment of the 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
Section 4.03 or (II)
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pursuant to clause (vii) of the second paragraph of Section 4.03. If the
Guaranteed Indebtedness is (A) pari passu with the Notes, then the Guarantee of
such Guaranteed Indebtedness shall be pari passu with, or subordinated to, the
Subsidiary Guarantee or (B) subordinated to the 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
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 this 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.
SECTION 4.08. 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;
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(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 Section 4.04;
(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 Section 4.08 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.
SECTION 4.09. 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 Notes and all other amounts due under this
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 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
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 Section 4.03; provided that such Liens do not
extend to or cover any
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54
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 Section 4.03; or
(vi) Permitted Liens.
SECTION 4.10. 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 Section
4.07 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 Section 4.10. The amount of such excess Net Cash
Proceeds required to be applied (or to be committed to be applied) 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
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55
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
paragraph, 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
Section 4.10 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
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 Notes on the
relevant Payment Date, plus, in each case, accrued interest (if any) to the
Payment Date.
SECTION 4.11. Repurchase of 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 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.
SECTION 4.12. Existence. Subject to Articles Four and Five of this
Indenture, the Company will do or cause to be done all things necessary to
preserve and keep in full force and effect its existence and the existence of
each Restricted Group Member in accordance with the respective organizational
documents of the Company and each Restricted Group Member and the rights
(whether pursuant to charter, partnership certificate, agreement, statute or
otherwise), material licenses and franchises of the Company and each Restricted
Group Member; provided that the Company shall not be required to preserve any
such right, license or franchise, or the existence of any Restricted Group
Member, if the maintenance or preservation thereof is no longer desirable in the
conduct of the business of the Company and its Restricted Group Members taken as
a whole.
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SECTION 4.13. Payment of Taxes and Other Claims. The Company will pay
or discharge and shall cause each of its Restricted Group Members to pay or
discharge, or cause to be paid or discharged, before the same shall become
delinquent (i) all material taxes, assessments and governmental charges levied
or imposed upon (a) the Company or any such Restricted Group Member, (b) the
income or profits of any such Restricted Group Member which is a corporation or
(c) the property of the Company or any such Restricted Group Members and
(ii) all material lawful claims for labor, materials and supplies that, if
unpaid, might by law become a lien upon the property of the Company or any such
Restricted Group Member; provided that the Company shall not be required to pay
or discharge, or cause to be paid or discharged, any such tax, assessment,
charge or claim the amount, applicability or validity of which is being
contested in good faith by appropriate proceedings and for which adequate
reserves have been established.
SECTION 4.14. Maintenance of Properties and Insurance. The Company
will cause all properties used or useful in the conduct of its business or the
business of any of its Restricted Group Members, to be maintained and kept in
good condition, repair and working order and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly conducted at all times; provided that nothing in this
Section 4.14 shall prevent the Company or any such Restricted Group Member from
discontinuing the use, operation or maintenance of any of such properties or
disposing of any of them, if such discontinuance or disposal is, in the judgment
of the Company, desirable in the conduct of the business of the Company or such
Restricted Group Member.
The Company will provide or cause to be provided, for itself and its
Restricted Group Members, insurance (including appropriate self-insurance)
against loss or damage of the kinds customarily insured against by corporations
similarly situated and owning like properties, with reputable insurers or with
the government of the United States of America, or an agency or instrumentality
thereof, in such amounts, with such deductibles and by such methods as shall be
customary for corporations similarly situated in the industry in which the
Company or such Restricted Group Member, as the case may be, is then conducting
business.
SECTION 4.15. Notice of Defaults. In the event that the Company
becomes aware of any Default or Event of Default the Company, promptly after it
becomes aware thereof, will give written notice thereof to the Trustee.
SECTION 4.16. Compliance Certificates. (a) The Company shall deliver
to the Trustee, within 45 days after the end of each fiscal quarter (90 days
after the end of the last fiscal quarter of each year), an Officers' Certificate
stating whether or not the signers know of any Default or Event of Default that
occurred during such fiscal quarter. In the case of the Officers' Certificate
delivered within 90 days of the end of the Company's fiscal year,
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57
such certificate shall contain a certification from the principal executive
officer, principal financial officer or principal accounting officer 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 this Indenture and that, to the knowledge of such Officers, the Company
has complied with all conditions and covenants under this Indenture. For
purposes of this Section 4.16, such compliance shall be determined without
regard to any period of grace or requirement of notice provided under this
Indenture. If they do know of such a Default or Event of Default, the
certificate shall describe any such Default or Event of Default and its status.
The first certificate to be delivered pursuant to this Section 4.16(a) shall be
for the first fiscal quarter beginning after the execution of this Indenture.
(b) So long as (and to the extent) not prohibited by the then current
recommendations of the American Institute of Certified Public Accountants, the
Company shall deliver to the Trustee, within 90 days after the end of the
Company's fiscal year, a certificate signed by the Company's independent
certified public accountants stating (i) that their audit examination has
included a review of the terms of this Indenture and the Notes as they relate to
accounting matters, (ii) that they have read the most recent Officers'
Certificate delivered to the Trustee pursuant to paragraph (a) of this Section
4.16 and (iii) whether, in connection with their audit examination, anything
came to their attention that caused them to believe that the Company was not in
compliance with any of the terms, covenants, provisions or conditions of Article
Four and Section 5.01 of this Indenture as they pertain to accounting matters
and, if any Default or Event of Default has come to their attention, specifying
the nature and period of existence thereof; provided that such independent
certified public accountants shall not be liable in respect of such statement by
reason of any failure to obtain knowledge of any such Default or Event of
Default that would not be disclosed in the course of an audit examination
conducted in accordance with generally accepted auditing standards in effect at
the date of such examination.
(c) Within 90 days of the end of each of the Company's fiscal years,
the Company shall deliver to the Trustee a list of all Significant Group
Members. The Trustee shall have no duty with respect to any such list except to
keep it on file and available for inspection by the Holders.
SECTION 4.17. Commission Reports and Reports to Holders. At all times
from and after the earlier of (i) the date of the commencement of a registered
exchange offer for the Notes by the Company or the effectiveness of the Shelf
Registration Statement pursuant to and in accordance with the terms of the
Registration Rights Agreement (the "Registration") and (ii) September 6, 1997,
in either case, whether or not the Company is then required to file reports with
the Commission, 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 Securities Exchange Act of 1934 if it were
subject thereto. The Company shall supply the Trustee and each Holder or shall
supply to the Trustee for
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forwarding to each such Holder, without cost to such Holder, copies of such
reports and other information. Delivery of such reports, information and
documents to the Trustee is for informational purposes only and the Trustee's
receipt of such shall not constitute constructive notice of any information
contained therein or determinable from information contained therein, including
the Company's compliance with any of its covenants hereunder (as to which the
Trustee is entitled to rely exclusively on Officers' Certificates). In addition,
at all times prior to the earlier of the date of the Registration and September
6, 1997, the Company shall, at its cost, deliver to each Holder of the Notes
quarterly and annual reports substantially equivalent to those which would be
required by the Exchange Act. In addition, at all times prior to the
Registration, upon the request of any Holder or any prospective purchaser of the
Notes designated by a Holder, the Company shall supply to such Holder or such
prospective purchaser the information required under Rule 144A under the
Securities Act. The Company also shall comply with the other provisions of TIA
Section 314(a).
SECTION 4.18. Waiver of Stay, Extension or Usury Laws. The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury law or other law
that would prohibit or forgive the Company from paying all or any portion of the
principal of, premium, if any, or interest on the Notes as contemplated herein,
wherever enacted, now or at any time hereafter in force, or that may affect the
covenants or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Company hereby expressly waives all benefit or advantage of
any such law and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
SECTION 4.19. 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;
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(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 Section 4.10.
SECTION 4.20. Calculation of Original Issue Discount. The Company
shall file with the Trustee promptly at the end of each calendar year (i) a
written notice specifying the amount of original issue discount (including daily
rates and accrual periods) accrued on outstanding Notes as of the end of such
year and (ii) such other specific information relating to such original issue
discount as may then be relevant under the Internal Revenue Code of 1986, as
amended from time to time and requested by the Trustee.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge, Etc. The Company shall 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 Notes and under this 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 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 Notes, as the case
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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 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 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.
SECTION 5.02. Successor Substituted. Upon any consolidation or merger,
or any sale, conveyance, transfer, lease or other disposition of all or
substantially all of the property and assets of the Company in accordance with
Section 5.01 of this Indenture, the successor Person formed by such
consolidation or into which the Company is merged or to which such sale,
conveyance, transfer, lease or other disposition is made shall succeed to, and
be substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor Person had been named
as the Company herein and thereafter the predecessor corporation shall be
relieved of all obligations and covenants under this Indenture and the Notes;
provided that the Company shall not be released from its obligation to pay the
principal of, premium, if any, or interest on the Notes in the case of a lease
of all or substantially all of its property and assets.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default. An "Event of Default" shall occur
with respect to the Notes if:
(a) the Company defaults 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;
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(b) the Company defaults 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) the Company defaults in the performance or breach of the
provisions of Article Five or the failure to make or consummate an Offer to
Purchase in accordance with Section 4.10 or Section 4.11; provided that a
default or breach of Section 4.10 arising from 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 this Indenture or under the 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 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
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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.
SECTION 6.02. Acceleration. 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 this Indenture, the Trustee or
the Holders of at least 25% in aggregate principal amount at maturity of the
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 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 Accreted Value of, premium, if any, and
accrued interest on the Notes then outstanding shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder.
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At any time after such a declaration of acceleration, but before a
judgment or decree for the payment of the money due has been obtained by the
Trustee, the Holders of at least a majority in principal amount of the
outstanding Notes by written notice to the Company and to the Trustee, may waive
all past Defaults and rescind and annul such declaration of acceleration and its
consequences if (i) all existing Events of Default, other than the non-payment
of the principal of, premium, if any, and accrued interest on the 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.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy by proceeding at law or
in equity to collect the payment of principal of, premium, if any, or interest
on the Notes or to enforce the performance of any provision of the Notes or this
Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding.
SECTION 6.04. Waiver of Past Defaults. Subject to Sections 6.02, 6.07
and 9.02, the Holders of at least a majority in principal amount of the
outstanding Notes, by notice to the Trustee, may waive an existing Default or
Event of Default and its consequences, except a Default in the payment of
principal of, premium, if any, or interest on any Note as specified in clause
(a) or (b) of Section 6.01 or in respect of a covenant or provision of this
Indenture which cannot be modified or amended without the consent of the holder
of each outstanding Note affected. Upon any such waiver, such Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured, for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or Event of Default or impair any
right consequent thereto.
SECTION 6.05. Control by Majority. The Holders of at least a majority
in aggregate principal amount at maturity of the outstanding 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 this 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 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 Notes.
SECTION 6.06. Limitation on Suits. A Holder may not institute any
proceeding, judicial or otherwise, with respect to this Indenture or the Notes,
or for the appointment of a receiver or trustee, or for any other remedy
hereunder unless:
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(i) such Holder has previously given 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 Notes shall have made a written request to the
Trustee institute proceedings in respect of such Event of Default in its
own name as Trustee hereunder;
(iii) such Holder or Holders have offered the Trustee indemnity
reasonably satisfactory to the Trustee against any costs, liabilities or
expenses to be incurred in compliance with such request;
(iv) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity and has failed to
institute any such proceeding; and
(v) during such 60-day period, the Holders of a majority in aggregate
principal amount at maturity of the outstanding Notes do not give the
Trustee a direction that is inconsistent with such written request.
For purposes of Section 6.05 of this Indenture and this Section 6.06,
the Trustee shall comply with TIA Section 316(a) in making any determination of
whether the Holders of the required aggregate principal amount of outstanding
Notes have concurred in any request or direction of the Trustee to pursue any
remedy available to the Trustee or the Holders with respect to this Indenture or
the Notes or otherwise under the law.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over such other Holder.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding
any other provision of this Indenture, 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 Notes, shall not be impaired or affected without the
consent of such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default in
payment of principal, premium or interest specified in clause (a), (b) or (c) of
Section 6.01 occurs and is continuing, the Trustee may recover judgment in its
own name and as trustee of an express trust against the Company or any other
obligor of the Notes for the whole amount of principal, premium, if any, and
accrued interest remaining unpaid, together with interest on overdue principal,
premium, if any, and, to the extent that payment of such interest is lawful,
interest on overdue installments of interest, in each case at the rate specified
in the Notes, and such further amount as shall be sufficient to cover the costs
and expenses of collection,
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including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07) and the Holders allowed in any judicial proceedings relative to
the Company (or any other obligor of the Notes), its creditors or its property
and shall be entitled and empowered to collect and receive any monies,
securities or other property payable or deliverable upon conversion or exchange
of the Notes or upon any such claims and to distribute the same, and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agent and counsel, and any other
amounts due the Trustee under Section 7.07. Nothing herein contained shall be
deemed to empower the Trustee to authorize or consent to, or accept or adopt on
behalf of any Holder, any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.10. Priorities. If the Trustee collects any money pursuant
to this Article Six, it shall pay out the money in the following order:
First: to the Trustee for all amounts due under Section 7.07;
Second: to Holders for amounts then due and unpaid for principal of,
premium, if any, and interest on the Notes in respect of which or for the
benefit of which such money has been collected, ratably, without preference
or priority of any kind, according to the amounts due and payable on such
Notes for principal, premium, if any, and interest, respectively; and
Third: to the Company or any other obligors of the Notes, as their
interests may appear, or as a court of competent jurisdiction may direct.
The Trustee, upon prior written notice to the Company, may fix a
record date and payment date for any payment to Holders pursuant to this
Section 6.10.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or
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omitted by it as Trustee, a court may require any party litigant in such suit to
file an undertaking to pay the costs of the suit, and the court may assess
reasonable costs, including reasonable attorneys' fees, against any party
litigant in the suit having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section 6.11 does not apply
to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 of this
Indenture, or a suit by Holders of more than 10% in principal amount of the
outstanding Notes.
SECTION 6.12. Restoration of Rights and Remedies. If the Trustee or
any Holder has instituted any proceeding to enforce any right or remedy under
this Indenture and such proceeding has been discontinued or abandoned for any
reason, or has been determined adversely to the Trustee or to such Holder, then,
and in every such case, subject to any determination in such proceeding, the
Company, the Trustee and the Holders shall be restored severally and
respectively to their former positions hereunder and thereafter all rights and
remedies of the Company, Trustee and the Holders shall continue as though no
such proceeding had been instituted.
SECTION 6.13. Rights and Remedies Cumulative. Except as otherwise
provided with respect to the replacement or payment of mutilated, destroyed,
lost or wrongfully taken Notes in Section 2.09, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 6.14. Delay or Omission Not Waiver. No delay or omission of
the Trustee or of any Holder to exercise any right or remedy accruing upon any
Event of Default shall impair any such right or remedy or constitute a waiver of
any such Event of Default or an acquiescence therein. Every right and remedy
given by this Article Six or by law to the Trustee or to the Holders may be
exercised from time to time, and as often as may be deemed expedient, by the
Trustee or by the Holders, as the case may be.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. General. The duties and responsibilities of the Trustee
shall be as provided by the TIA and as set forth herein. Notwithstanding the
foregoing, no provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder, or in
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the exercise of any of its rights or powers, if it shall have reasonable grounds
for believing that repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured to it. Whether or not therein
expressly so provided, every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Article Seven.
SECTION 7.02. Certain Rights of Trustee. Subject to TIA Sections
315(a) through (d):
(i) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper person. The Trustee need not investigate any fact or matter
stated in the document;
(ii) before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel, which shall conform to
Section 10.04. The Trustee shall not be liable for any action it takes or
omits to take in good faith in reliance on such certificate or opinion;
(iii) the Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed
with due care;
(iv) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders, unless such Holders shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities that might be incurred by it in compliance with such request or
direction;
(v) the Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within its
rights or powers or for any action it takes or omits to take in accordance
with the direction of the Holders of a majority in principal amount at
maturity of the outstanding Notes relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Indenture; provided that the Trustee's conduct does not constitute gross
negligence or bad faith;
(vi) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a making be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically
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prescribed) may, in the absence of bad faith on its part, rely upon an
Officer's Certificate; and
(vii) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the Company
personally or by agent or attorney.
SECTION 7.03. Individual Rights of Trustee. The Trustee, in its
individual or any other capacity, may become the owner or pledgee of Notes and
may otherwise deal with the Company or its Affiliates with the same rights it
would have if it were not the Trustee. Any Agent may do the same with like
rights. However, the Trustee is subject to TIA Sections 310(b) and 311.
SECTION 7.04. Trustee's Disclaimer. The Trustee (i) makes no
representation as to the validity or adequacy of this Indenture or the Notes,
(ii) shall not be accountable for the Company's use or application of the
proceeds from the Notes and (iii) shall not be responsible for any statement in
the Notes other than its certificate of authentication.
SECTION 7.05. Notice of Default. If any Default or any Event of
Default occurs and is continuing and if such Default or Event of Default is
known to the Trustee, the Trustee shall mail to each Holder in the manner and to
the extent provided in TIA Section 313(c) notice of the Default or Event of
Default within 45 days after it occurs, unless such Default or Event of Default
has been cured; provided, however, that, except in the case of a default in the
payment of the principal of, premium, if any, or interest on any Note, the
Trustee shall be protected in withholding such notice if and so long as the
board of directors, the executive committee or a trust committee of directors
and/or Responsible Officers of the Trustee in good faith determine that the
withholding of such notice is in the interest of the Holders.
SECTION 7.06. Reports by Trustee to Holders. Within 60 days after each
May 15, beginning with May 15, 1997, the Trustee shall mail to each Holder as
provided in TIA Section 313(c) a brief report dated as of such May 15, if
required by TIA Section 313(a).
SECTION 7.07. Compensation and Indemnity. The Company shall pay to the
Trustee such compensation as shall be agreed upon in writing for its services.
The
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compensation of the Trustee shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee upon
request for all reasonable out-of-pocket expenses and advances incurred or made
by the Trustee. Such expenses shall include the reasonable compensation and
expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee for, and hold it harmless
against, any loss or liability or expense, including taxes (other than taxes
based upon, measured by or determined by the income of the Trustee) incurred by
it without negligence or bad faith on its part in connection with the acceptance
or administration of this Indenture and its duties under this Indenture and the
Notes, including the costs and expenses of defending itself against any claim or
liability and of complying with any process served upon it or any of its
officers in connection with the exercise or performance of any of its powers or
duties under this Indenture and the Notes.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a lien prior to the Notes on all money or property held or
collected by the Trustee, in its capacity as Trustee, except money or property
held in trust to pay principal of, premium, if any, and interest on particular
Notes.
If the Trustee incurs expenses or renders services after the
occurrence of an Event of Default specified in clause (g) or (h) of Section
6.01, the expenses and the compensation for the services will be intended to
constitute expenses of administration under Title 11 of the United States
Bankruptcy Code or any applicable federal or state law for the relief of
debtors.
The provisions of this Section shall survive the termination of this
Indenture.
SECTION 7.08. Replacement of Trustee. A resignation or removal of the
Trustee and appointment of a successor Trustee shall become effective only upon
the successor Trustee's acceptance of appointment as provided in this Section
7.08.
The Trustee may resign at any time by so notifying the Company in
writing at least 30 days prior to the date of the proposed resignation. The
Holders of a majority in principal amount of the outstanding Notes may remove
the Trustee by so notifying the Trustee in writing and may appoint a successor
Trustee with the consent of the Company. The Company may at any time remove the
Trustee, by Company Order given at least 30 days prior to the date of the
proposed removal.
If the Trustee resigns or is removed, or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the outstanding Notes may appoint a
successor Trustee to replace the successor Trustee
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appointed by the Company. If the successor Trustee does not deliver its written
acceptance required by the next succeeding paragraph of this Section 7.08 within
30 days after the retiring Trustee resigns or is removed, the retiring Trustee,
the Company or the Holders of a majority in principal amount of the outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after the
delivery of such written acceptance, subject to the lien provided in Section
7.07, (i) the retiring Trustee shall transfer all property held by it as Trustee
to the successor Trustee, (ii) the resignation or removal of the retiring
Trustee shall become effective and (iii) the successor Trustee shall have all
the rights, powers and duties of the Trustee under this Indenture. A successor
Trustee shall mail notice of its succession to each Holder.
If the Trustee is no longer eligible under Section 7.10, any Holder
who satisfies the requirements of TIA Section 310(b) may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
The Company shall give notice of any resignation and any removal of
the Trustee and each appointment of a successor Trustee to all Holders. Each
notice shall include the name of the successor Trustee and the address of its
Corporate Trust Office.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligation under Section 7.07 shall continue for the benefit
of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, Etc. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust business to, another corporation or national banking
association, the resulting, surviving or transferee corporation or national
banking association without any further act shall be the successor Trustee with
the same effect as if the successor Trustee had been named as the Trustee
herein.
SECTION 7.10. Eligibility. This Indenture shall always have a Trustee
who satisfies the requirements of TIA Section 310(a)(1). The Trustee shall have
a combined capital and surplus of at least $25,000,000 as set forth in its most
recent published annual report of condition.
SECTION 7.11. Money Held in Trust. The Trustee shall not be liable for
interest on any money received by it except as the Trustee may agree with the
Company. Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law and except for money held in trust
under Article Eight of this Indenture.
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SECTION 7.12. Withholding Taxes. The Trustee, as agent for the
Company, shall exclude and withhold from each payment of principal and interest
and other amounts due hereunder or under the Notes any and all withholding taxes
applicable thereto as required by law. The Trustee agrees to act as such
withholding agent and, in connection therewith, whenever any present or future
taxes or similar charges are required to be withheld with respect to any amounts
payable in respect of the Notes, to withhold such amounts and timely pay the
same to the appropriate authority in the name of and on behalf of the holders of
the Notes, that it will file any necessary withholding tax returns or statements
when due. The Company or the Trustee shall, as promptly as possible after the
payment of the taxes described above, deliver to each holder of a Note
appropriate documentation showing the payment thereof, together with such
additional documentary evidence as such holders may reasonably request from time
to time.
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. Termination of Company's Obligations. Except as
otherwise provided in this Section 8.01, the Company may terminate its
obligations under the Notes and this Indenture if:
(i) all Notes previously authenticated and delivered (other than
destroyed, lost or stolen Notes that have been replaced or Notes that are
paid pursuant to Section 4.01 or Notes for whose payment money or
securities have theretofore been held in trust and thereafter repaid to the
Company, as provided in Section 8.05) have been delivered to the Trustee
for cancellation and the Company has paid all sums payable by it hereunder;
or
(ii) (A) the Notes mature within one year or all of them are to be
called for redemption within one year under arrangements satisfactory to
the Trustee for giving the notice of redemption, (B) the Company
irrevocably deposits in trust with the Trustee during such one-year period,
under the terms of an irrevocable trust agreement in form and substance
satisfactory to the Trustee, as trust funds solely for the benefit of the
Holders for that purpose, money or U.S. Government Obligations sufficient
(in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee), without consideration of any reinvestment of any interest
thereon, to pay principal, premium, if, any, and interest on the Notes to
maturity or redemption, as the case may be, and to pay all other sums
payable by it hereunder, (C) no Default or Event of Default with respect to
the Notes shall have occurred and be continuing on the date of such
deposit, (D) such deposit will not result in a breach or violation of, or
constitute a default under, this Indenture or any other agreement or
instrument to which the Company is a
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party or by which it is bound and (E) the Company has delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, in each case
stating that all conditions precedent provided for herein relating to the
satisfaction and discharge of this Indenture have been complied with.
With respect to the foregoing clause (i), the Company's obligations
under Section 7.07 shall survive. With respect to the foregoing clause (ii), the
Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08,
2.09, 2.14, 4.01, 4.02, 7.07, 7.08, 8.04, 8.05 and 8.06 shall survive until the
Notes are no longer outstanding. Thereafter, only the Company's obligations in
Sections 7.07, 8.05 and 8.06 shall survive. After any such irrevocable deposit,
the Trustee upon request shall acknowledge in writing the discharge of the
Company's obligations under the Notes and this Indenture except for those
surviving obligations specified above.
SECTION 8.02. Defeasance and Discharge of Indenture. The Company will
be deemed to have paid and will be discharged from any and all obligations in
respect of the Notes on the 123rd day after the date of the deposit referred to
in clause (A) of this Section 8.02, and the provisions of this Indenture will no
longer be in effect with respect to the Notes, and the Trustee, at the expense
of the Company, shall execute proper instruments acknowledging the same, except
as to (i) rights of registration of transfer and exchange, (ii) substitution of
apparently mutilated, defaced, destroyed, lost or stolen Notes, (iii) rights of
Holders to receive payments of principal thereof and interest thereon, (iv) the
Company's obligations under Section 4.02, (v) the rights, obligations and
immunities of the Trustee hereunder and (vi) the rights of the Holders as
beneficiaries of this Indenture with respect to the property so deposited with
the Trustee payable to all or any of them; provided that the following
conditions shall have been satisfied:
(A) with reference to this Section 8.02, the Company has irrevocably
deposited or caused to be irrevocably deposited with the Trustee (or
another trustee satisfying the requirements of Section 7.10 of this
Indenture) and conveyed all right, title and interest for the benefit of
the Holders, under the terms of an irrevocable trust agreement in form and
substance satisfactory to the Trustee as trust funds in trust, specifically
pledged to the Trustee for the benefit of the Holders as security for
payment of the principal of, premium, if any, and interest, if any, on the
Notes, and dedicated solely to, the benefit of the Holders, in and to
(1) money in an amount, (2) U.S. Government Obligations that, through the
payment of interest, premium, if any, and principal in respect thereof in
accordance with their terms, will provide, not later than one day before
the due date of any payment referred to in this clause (A), money in an
amount or (3) a combination thereof in an amount sufficient, in the opinion
of a nationally recognized firm of independent public accountants expressed
in a written certification thereof delivered to the Trustee, to pay and
discharge, without consideration of the reinvestment of such interest and
after payment of all federal, state
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and local taxes or other charges and assessments in respect thereof payable
by the Trustee, the principal of, premium, if any, and accrued interest on
the outstanding Notes at the Stated Maturity of such principal or interest;
provided that the Trustee shall have been irrevocably instructed to apply
such money or the proceeds of such U.S. Government Obligations to the
payment of such principal, premium, if any, and interest with respect to
the Notes;
(B) such deposit will not result in a breach or violation of, or
constitute a default under, this Indenture or any other agreement or
instrument to which the Company is a party or by which it is bound;
(C) immediately after giving effect to such deposit on a pro forma
basis, no Default or 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 such date of deposit;
(D) the Company shall have delivered to the Trustee (1) either (x) a
ruling directed to the Trustee received from the Internal Revenue Service
to the effect that the 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 Section 8.02 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 option had not been exercised or (y) an Opinion of
Counsel to the same effect as the ruling described in clause (x) above
accompanied by a ruling to that effect published by the Internal Revenue
Service, unless there has been a change in the applicable federal income
tax law since the date of this Indenture such that a ruling from the
Internal Revenue Service is no longer required and (2) an Opinion of
Counsel to the effect that (x) the creation of the defeasance trust does
not violate the Investment Company Act of 1940 and (y) after the passage of
123 days following the deposit (except, with respect to any trust funds for
the account of any Holder who may be deemed to be an "insider" for purposes
of the United States Bankruptcy Code, after one year following the
deposit), the trust funds 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 in a case commenced by or against the Company under either
such statute, and either (I) the trust funds will no longer remain the
property of the Company (and therefore will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally) or (II) if a court were to rule
under any such law in any case or proceeding that the trust funds remained
property of the Company, (a)Eassuming such trust funds remained in the
possession of the Trustee prior to such court ruling to the extent not paid
to the Holders, the Trustee will hold, for the benefit of the Holders, a
valid and perfected security interest in such trust funds that is not
avoidable in bankruptcy or otherwise except for the effect of Section
552(b) of the United States Bankruptcy Code on interest on the trust funds
accruing after the
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commencement of a case under such statute and (b) the Holders will be
entitled to receive adequate protection of their interests in such trust
funds if such trust funds are used in such case or proceeding;
(E) if the Notes are then listed on a national securities exchange,
the Company shall have delivered to the Trustee an Opinion of Counsel to
the effect that such deposit defeasance and discharge will not cause the
Notes to be delisted; and
(F) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, in each case stating that all conditions
precedent provided for herein relating to the defeasance contemplated by
this Section 8.02 have been complied with.
Notwithstanding the foregoing, prior to the end of the 123-day (or one
year) period referred to in clause (D)(2)(y) of this Section 8.02, none of the
Company's obligations under this Indenture shall be discharged. Subsequent to
the end of such 123-day (or one year) period with respect to this Section 8.02,
the Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08,
2.09, 2.14, 4.01, 4.02, 7.07, 7.08, 8.05 and 8.06 shall survive until the Notes
are no longer outstanding. Thereafter, only the Company's obligations in
Sections 7.07, 8.05 and 8.06 shall survive. If and when a ruling from the
Internal Revenue Service or an Opinion of Counsel referred to in clause (D)(1)
of this Section 8.02 is able to be provided specifically without regard to, and
not in reliance upon, the continuance of the Company's obligations under Section
4.01, then the Company's obligations under such Section 4.01 shall cease upon
delivery to the Trustee of such ruling or Opinion of Counsel and compliance with
the other conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.02.
After any such irrevocable deposit, the Trustee upon request shall
acknowledge in writing the discharge of the Company's obligations under the
Notes and this Indenture except for those surviving obligations in the
immediately preceding paragraph.
SECTION 8.03. Defeasance of Certain Obligations. The Company may omit
to comply with any term, provision or condition set forth in clauses (iii) and
(iv) under Section 5.01 and Sections 4.03 through 4.17 and Section 4.19, clauses
(c) and (d) under Section 6.01 with respect to such clauses (iii) and (iv) under
Section 5.01 and Sections 4.03 through 4.17 and Section 4.19, and clauses (e)
and (f) under Section 6.01 shall be deemed not to be Events of Default, in each
case with respect to the outstanding Notes if:
(i) with reference to this Section 8.03, the Company has irrevocably
deposited or caused to be irrevocably deposited with the Trustee (or
another trustee satisfying the requirements of Section 7.10) and conveyed
all right, title and interest to the Trustee for the benefit of the
Holders, under the terms of an irrevocable trust
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agreement in form and substance satisfactory to the Trustee as trust funds
in trust, specifically pledged to the Trustee for the benefit of the
Holders as security for payment of the principal of, premium, if any, and
interest, if any, on the Notes, and dedicated solely to, the benefit of the
Holders, in and to (A) money in an amount, (B) U.S. Government Obligations
that, through the payment of interest and principal in respect thereof in
accordance with their terms, will provide, not later than one day before
the due date of any payment referred to in this clause (i), money in an
amount or (C) a combination thereof in an amount sufficient, in the opinion
of a nationally recognized firm of independent public accountants expressed
in a written certification thereof delivered to the Trustee, to pay and
discharge, without consideration of the reinvestment of such interest and
after payment of all federal, state and local taxes or other charges and
assessments in respect thereof payable by the Trustee, the principal of,
premium, if any, and interest on the outstanding Notes on the Stated
Maturity of such principal or interest; provided that the Trustee shall
have been irrevocably instructed to apply such money or the proceeds of
such U.S. Government Obligations to the payment of such principal, premium,
if any, and interest with respect to the Notes;
(ii) such deposit will not result in a breach or violation of, or
constitute a default under, this Indenture or any other agreement or
instrument to which the Company is a party or by which it is bound;
(iii) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit;
(iv) the Company has delivered to the Trustee an Opinion of Counsel to
the effect that (A) the creation of the defeasance trust does not violate
the Investment Company Act of 1940, (B) the Holders have a valid
first-priority security interest in the trust funds, (C) the Holders will
not recognize income, gain or loss for federal income tax purposes as a
result of such deposit and defeasance of certain obligations 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 and (D) after the passage of 123 days following
the deposit (except, with respect to any trust funds for the account of any
Holder who may be deemed to be an "insider" for purposes of the United
States Bankruptcy Code, after one year following the deposit), the trust
funds 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 in a
case commenced by or against the Company under either such statute, and
either (1) the trust funds will no longer remain the property of the
Company (and therefore will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally) or (2) if a court were to rule under any such law in any
case or proceeding that the trust funds
<PAGE>
76
remained property of the Company, (x) assuming such trust funds remained in
the possession of the Trustee prior to such court ruling to the extent not
paid to the Holders, the Trustee will hold, for the benefit of the Holders,
a valid and perfected security interest in such trust funds that is not
avoidable in bankruptcy or otherwise (except for the effect of Section
552(b) of the United States Bankruptcy Code on interest on the trust funds
accruing after the commencement of a case under such statute), (y) the
Holders will be entitled to receive adequate protection of their interests
in such trust funds if such trust funds are used in such case or proceeding
and (z) no property, rights in property or other interests granted to the
Trustee or the Holders in exchange for, or with respect to, such trust
funds will be subject to any prior rights of holders of other Indebtedness
of the Company or any of its Subsidiaries;
(v) if the Notes are then listed on a national securities exchange,
the Company shall have delivered to the Trustee an Opinion of Counsel to
the effect that such deposit defeasance and discharge will not cause the
Notes to be delisted; and
(vi) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, in each case stating that all conditions
precedent provided for herein relating to the defeasance contemplated by
this Section 8.03 have been complied with.
SECTION 8.04. Application of Trust Money. Subject to Section 8.06, the
Trustee or Paying Agent shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to Section 8.01, 8.02 or 8.03, as the case may be,
and shall apply the deposited money and the money from U.S. Government
Obligations in accordance with the Notes and this Indenture to the payment of
principal of, premium, if any, and interest on the Notes; but such money need
not be segregated from other funds except to the extent required by law.
SECTION 8.05. Repayment to Company. Subject to Sections 7.07, 8.01,
8.02 and 8.03, the Trustee and the Paying Agent shall promptly pay to the
Company upon request set forth in an Officers' Certificate any excess money held
by them at any time and thereupon shall be relieved from all liability with
respect to such money. The Trustee and the Paying Agent shall pay to the Company
upon request any money held by them for the payment of principal, premium, if
any, or interest that remains unclaimed for two years; provided that the Trustee
or such Paying Agent before being required to make any payment may cause to be
published at the expense of the Company once in a newspaper of general
circulation in the City of New York or mail to each Holder entitled to such
money at such Holder's address (as set forth in the Note Register) notice that
such money remains unclaimed and that after a date specified therein (which
shall be at least 30 days from the date of such publication or mailing) any
unclaimed balance of such money then remaining will be repaid to the Company.
After payment to the Company, Holders entitled to such money must look to the
Company for
<PAGE>
77
payment as general creditors unless an applicable law designates another Person,
and all liability of the Trustee and such Paying Agent with respect to such
money shall cease.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable
to apply any money or U.S. Government Obligations in accordance with Section
8.01, 8.02 or 8.03, as the case may be, by reason of any legal proceeding or by
reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, the Company's
obligations under this Indenture and the Notes shall be revived and reinstated
as though no deposit had occurred pursuant to Section 8.01, 8.02 or 8.03, as the
case may be, until such time as the Trustee or Paying Agent is permitted to
apply all such money or U.S. Government Obligations in accordance with
Section 8.01, 8.02 or 8.03, as the case may be; provided that, if the Company
has made any payment of principal of, premium, if any, or interest on any Notes
because of the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Notes to receive such payment from the
money or U.S. Government Obligations held by the Trustee or Paying Agent.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders. The Company, when authorized
by a resolution of its Board of Directors, and the Trustee may amend or
supplement this Indenture or the Notes without notice to or the consent of any
Holder:
(1) to cure any ambiguity, defect or inconsistency in this Indenture;
provided that such amendments or supplements shall not adversely affect the
interests of the Holders in any material respect;
(2) to comply with Article Five;
(3) to comply with any requirements of the Commission in connection
with the qualification of this Indenture under the TIA;
(4) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee; or
(5) to make any change that, in the good faith opinion of the Board of
Directors as evidenced by a Board Resolution, does not materially and
adversely affect the rights of any Holder.
<PAGE>
78
SECTION 9.02. With Consent of Holders. Subject to Sections 6.04 and
6.07 and without prior notice to the Holders, the Company, when authorized by
its Board of Directors (as evidenced by a Board Resolution), and the Trustee may
amend this Indenture and the Notes with the written consent of the Holders of a
majority in aggregate principal amount at maturity of the Notes then
outstanding, and the Holders of a majority in aggregate principal amount at
maturity of the Notes then outstanding by written notice to the Trustee may
waive future compliance by the Company with any provision of this Indenture or
the Notes.
Notwithstanding the provisions of this Section 9.02, without the
consent of each Holder affected, an amendment or waiver, including a waiver
pursuant to Section 6.04, may not:
(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 or adversely affect any right of
repayment at the option of any Holder of 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 Notes the
consent of whose Holders is necessary to modify or amend this Indenture,
(vi) waive a Default in the payment of principal of, premium, if any,
or interest on the Notes,
(vii) modify any of the provisions of this Section 9.02, except to
increase any such percentage or to provide that certain other provisions of
this Indenture cannot be modified or waived without the consent of the
Holder of each outstanding Note affected thereby or
(viii) reduce the percentage or aggregate principal amount at maturity
of outstanding Notes the consent of whose Holders is necessary for waiver
of compliance with certain provisions of this Indenture or for waiver of
certain defaults.
<PAGE>
79
It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. The Company will
mail supplemental indentures to Holders upon request. Any failure of the Company
to mail such notice, or any defect therein, shall not, however, in any way
impair or affect the validity of any such supplemental indenture or waiver.
SECTION 9.03. Revocation and Effect of Consent. Until an amendment or
waiver becomes effective, a consent to it by a Holder is a continuing consent by
the Holder and every subsequent Holder of a Note or portion of a Note that
evidences the same debt as the Note of the consenting Holder, even if notation
of the consent is not made on any Note. However, any such Holder or subsequent
Holder may revoke the consent as to its Note or portion of its Note. Such
revocation shall be effective only if the Trustee receives the notice of
revocation before the date the amendment, supplement or waiver becomes
effective. An amendment, supplement or waiver shall become effective on receipt
by the Trustee of written consents from the Holders of the requisite percentage
in principal amount of the outstanding Notes.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then, notwithstanding the last
two sentences of the immediately preceding paragraph, those persons who were
Holders at such record date (or their duly designated proxies) and only those
persons shall be entitled to consent to such amendment, supplement or waiver or
to revoke any consent previously given, whether or not such persons continue to
be Holders after such record date. No such consent shall be valid or effective
for more than 90 days after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder unless it is of the type described in any of clauses (i)
through (viii) of Section 9.02. In case of an amendment or waiver of the type
described in clauses (i) through (viii) of Section 9.02, the amendment or waiver
shall bind each Holder who has consented to it and every subsequent Holder of a
Note that evidences the same indebtedness as the Note of the consenting Holder.
SECTION 9.04. Notation on or Exchange of Notes. If an amendment,
supplement or waiver changes the terms of a Note, the Trustee may require the
Holder to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Note about the changed terms and return it to the Holder and the
Trustee may place an appropriate
<PAGE>
80
notation on any Note thereafter authenticated. Alternatively, if the Company or
the Trustee so determines, the Company in exchange for the Note shall issue and
the Trustee shall authenticate a new Note that reflects the changed terms.
SECTION 9.05. Trustee to Sign Amendments, Etc. The Trustee shall be
entitled to receive, and shall be fully protected in relying upon, an Opinion of
Counsel stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article Nine is authorized or permitted by this
Indenture. Subject to the preceding sentence, the Trustee shall sign such
amendment, supplement or waiver if the same does not adversely affect the rights
of the Trustee. The Trustee may, but shall not be obligated to, execute any such
amendment, supplement or waiver that affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
SECTION 9.06. Conformity with Trust Indenture Act. Every supplemental
indenture executed pursuant to this Article Nine shall conform to the
requirements of the TIA as then in effect.
ARTICLE TEN
MISCELLANEOUS
SECTION 10.01. Trust Indenture Act of 1939. Prior to the effectiveness
of the Registration Statement, this Indenture shall incorporate and be governed
by the provisions of the TIA that are required to be part of and to govern
indentures qualified under the TIA. After the effectiveness of the Registration
Statement, this Indenture shall be subject to the provisions of the TIA that are
required to be a part of this Indenture and shall, to the extent applicable, be
governed by such provisions.
SECTION 10.02. Notices. Any notice or communication shall be
sufficiently given if in writing and delivered in person or mailed by first
class mail addressed as follows:
if to the Company:
-----------------
McCaw International, Ltd.
1191 Second Avenue, Suite 1600
Seattle, Washington 98101
Attention: President
<PAGE>
81
if to the Trustee:
-----------------
The Bank of New York
101 Barclay Street
21 West
New York, New York 10286
Attention: Corporate Trust Administration
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Holder shall be mailed to him
at his address as it appears on the Note Register by first class mail and shall
be sufficiently given to him if so mailed within the time prescribed. Copies of
any such communication or notice to a Holder shall also be mailed to the Trustee
and each Agent at the same time.
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. Except for a
notice to the Trustee, which is deemed given only when received, and except as
otherwise provided in this Indenture, if a notice or communication is mailed in
the manner provided in this Section 10.02, it is duly given, whether or not the
addressee receives it.
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
SECTION 10.03. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any action
under this Indenture, the Company shall furnish to the Trustee:
(i) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
<PAGE>
82
(ii) an Opinion of Counsel stating that, in the opinion of such
Counsel, all such conditions precedent have been complied with.
SECTION 10.04. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture shall include:
(i) a statement that each person signing such certificate or opinion
has read such covenant or condition and the definitions herein relating
thereto;
(ii) a brief statement as to the nature and scope of the examination
or investigation upon which the statement or opinion contained in such
certificate or opinion is based;
(iii) a statement that, in the opinion of each such person, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(iv) a statement as to whether or not, in the opinion of each such
person, such condition or covenant has been complied with; provided,
however, that, with respect to matters of fact, an Opinion of Counsel may
rely on an Officers' Certificate or certificates of public officials.
SECTION 10.05. Rules by Trustee, Paying Agent or Registrar. The
Trustee may make reasonable rules for action by or at a meeting of Holders. The
Paying Agent or Registrar may make reasonable rules for its functions.
SECTION 10.06. Payment Date Other Than a Business Day. If an Interest
Payment Date, Redemption Date, Payment Date, Stated Maturity or date of maturity
of any Note shall not be a Business Day, then payment of principal of, premium,
if any, or interest on such Note, as the case may be, need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the Interest Payment Date, Payment Date, or Redemption
Date, or at the Stated Maturity or date of maturity of such Note; provided that
no interest shall accrue for the period from and after such Interest Payment
Date, Payment Date, Redemption Date, Stated Maturity or date of maturity, as the
case may be.
SECTION 10.07. Governing Law. The laws of the State of New York shall
govern this Indenture and the Notes. The Trustee, the Company and the Holders
agree to submit to the jurisdiction of the courts of the State of New York in
any action or proceeding arising out of or relating to this Indenture or the
Notes.
<PAGE>
83
SECTION 10.08. No Adverse Interpretation of Other Agreements. This
Indenture may not be used to interpret another indenture, loan or debt agreement
of the Company or any Subsidiary of the Company. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.
SECTION 10.09. No Recourse Against Others. No recourse for the payment
of the principal of, premium, if any, or interest on any of the 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 contained in this
Indenture, or in any of the Notes, or because of the creation of any
Indebtedness represented thereby, shall be had against any incorporator or
against any past, present or future partner, shareholder, other equityholder,
officer, director, employee or controlling person, as such, of the Company or of
any successor Person, either directly or through the Company or any successor
Person, whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Indenture and
the issue of the Notes.
SECTION 10.10. Successors. All agreements of the Company in this
Indenture and the Notes shall bind its successors. All agreements of the Trustee
in this Indenture shall bind its successor.
SECTION 10.11. Duplicate Originals. The parties may sign any number of
copies of this Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
SECTION 10.12. Separability. In case any provision in this Indenture
or in the Notes 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.
SECTION 10.13. Table of Contents, Headings, Etc. The Table of
Contents, Cross-Reference Table and headings of the Articles and Sections of
this Indenture have been inserted for convenience of reference only, are not to
be considered a part hereof and shall in no way modify or restrict any of the
terms and provisions hereof.
<PAGE>
84
SECTION 10.14. Right of First Opportunity Agreement. The Company
agrees not to amend the Right of First Opportunity Agreement in any respect
material and adverse to the Holders of the Notes. If the Company proposes to
amend the Right of First Opportunity Agreement, it shall notify the Trustee in
writing 30 days prior to the effectiveness of such amendment of such proposal to
amend and such notice shall include a written copy of the contents of such
proposed amendment (the "Right of First Opportunity Notice").
Within five days of receipt of a Right of First Opportunity Notice,
the Trustee shall give written notice to the Holders of the Right of First
Opportunity Notice. Such notice by the Trustee shall include a copy of the Right
of First Opportunity Notice.
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, all as of the date first written above.
MCCAW INTERNATIONAL, LTD.
By: /s/ Keith Grinstein
------------------------
Name:
Title:
THE BANK OF NEW YORK
By: /s/ Mary Jane Morrissey
------------------------
Name:
Title:
<PAGE>
EXHIBIT A
---------
[FACE OF NOTE]
MCCAW INTERNATIONAL, LTD.
13% Senior Discount Note Due 2007
[CUSIP] [CINS] __________
No. $_________
The following information is supplied for purposes of Sections 1273
and 1275 of the Internal Revenue Code:
Issue Date: March 6, 1997
Yield to maturity for period from Original issue discount under
Issue Date to April 15, 2007: Section 1273 of the Internal
13.35524%, compounded semi-annually Revenue Code (for each $1,000
on April 15 and October 15, principal amount): $1,140.09
commencing April 15, 1997 (computed
without giving effect to the
additional payments of interest in Issue Price (for each $1,000
the event the issuer fails to principal amount): $509.91
commence the exchange offer or cause
the registration statement to be
declared effective, each as described
on the reverse hereof)
MCCAW INTERNATIONAL, LTD., a Washington corporation (the "Company",
which term includes any successor under the Indenture hereinafter referred to),
for value received, promises to pay to __________, or its registered assigns,
the principal sum of ___________ ($_____) on April 15, 2007.
Interest Payment Dates: April 15 and October 15, commencing October
15, 2002.
Regular Record Dates: April 1 and October 1.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
<PAGE>
A-2
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
MCCAW INTERNATIONAL, LTD.
By:______________________
Name:
Title:
By:______________________
Name:
Title:
(Trustee's Certificate of Authentication)
This is one of the 13% Senior Discount Notes due 2007 described in the
within-mentioned Indenture.
Date: THE BANK OF NEW YORK,
as Trustee
By:__________________
Authorized Signatory
<PAGE>
A-3
[REVERSE SIDE OF NOTE]
MCCAW INTERNATIONAL, LTD.
13% Senior Discount Note due 2007
1. Principal and Interest.
The Company will pay the principal of this Note on April 15, 2007.
The Company promises to pay interest on the principal amount of this
Note on each Interest Payment Date, as set forth below, at the rate per annum
shown above.
Interest will be payable semiannually (to the holders of record of the
Notes at the close of business on the April 1 or October 1 immediately preceding
the Interest Payment Date) on each Interest Payment Date, commencing October 15,
2002; provided that no interest shall accrue on the principal amount of this
Note prior to April 15, 2002 and no interest shall be paid on this Note prior to
October 15, 2002, except as provided in the next paragraph.
If an exchange offer registered under the Securities Act is not
consummated and a shelf registration statement under the Securities Act with
respect to resales of the Notes is not declared effective by the Commission, on
or before September 6, 1997 in accordance with the terms of the Registration
Rights Agreement dated March 3, 1997 among the Company and Morgan Stanley & Co.
Incorporated, Chase Securities Inc., Lehman Brothers Inc. and NatWest Capital
Markets Limited, interest (in addition to the accrual of original issue discount
during the period ending April 15, 2002 and in addition to the interest
otherwise due on the Notes after such date) will accrue, at an annual rate of
0.5% of Accreted Value on the preceding Semiannual Accrual Date on the Notes
from September 6, 1997, payable in cash semiannually, in arrears, on each April
15 and October 15, commencing October 15, 1997, until the exchange offer is
consummated or the shelf registration statement is declared effective. The
Holder of this Note is entitled to the benefits of such Registration Rights
Agreement.
From and after April 15, 2002, interest on the Notes will accrue from
the most recent date to which interest has been paid or, if no interest has been
paid, from April 15, 2002; provided that, if there is no existing default in the
payment of interest and this Note is authenticated between a Regular Record Date
referred to on the face hereof and the next succeeding Interest Payment Date,
interest shall accrue from such Interest Payment Date. Interest will be computed
on the basis of a 360-day year of twelve 30-day months.
<PAGE>
A-4
The Company shall pay interest on overdue principal and premium, if
any, and interest on overdue installments of interest, to the extent lawful, at
a rate per annum that is 2% in excess of the rate otherwise payable.
2. Method of Payment.
The Company will pay interest (except defaulted interest) on the
principal amount of the Notes as provided above on each April 15 and October 15
to the persons who are Holders (as reflected in the Note Register at the close
of business on such April 1 and October 1 immediately preceding the Interest
Payment Date), in each case, even if the Note is cancelled on registration of
transfer or registration of exchange after such record date; provided that, with
respect to the payment of principal, the Company will make payment to the Holder
that surrenders this Note to a Paying Agent on or after April 15, 2007.
The Company will pay principal, premium, if any, and as provided
above, interest in money of the United States that at the time of payment is
legal tender for payment of public and private debts. However, the Company may
pay principal, premium, if any, and interest by its check payable in such money.
It may mail an interest check to a Holder's registered address (as reflected in
the Note Register). If a payment date is a date other than a Business Day at a
place of payment, payment may be made at that place on the next succeeding day
that is a Business Day and no interest shall accrue for the intervening period.
3. Paying Agent and Registrar.
Initially, the Trustee will act as authenticating agent, Paying Agent
and Registrar. The Company may change any authenticating agent, Paying Agent or
Registrar without notice. The Company, any Subsidiary or any Affiliate of any of
them may act as Paying Agent, Registrar or co-Registrar.
4. Indenture; Limitations.
The Company issued the Notes under an Indenture dated as of March 6,
1997 (the "Indenture"), between the Company and The Bank of New York (the
"Trustee"). Capitalized terms herein are used as defined in the Indenture unless
otherwise indicated. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act. The Notes are subject to all such terms, and Holders are referred
to the Indenture and the Trust Indenture Act for a statement of all such terms.
To the extent permitted by applicable law, in the event of any inconsistency
between the terms of this Note and the terms of the Indenture, the terms of the
Indenture shall control.
The Notes are general unsecured obligations of the Company.
<PAGE>
A-5
5. Redemption.
The Notes will be redeemable, at the Company's option, in whole or in
part, at any 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 Note Register, at the following
Redemption Prices (expressed in percentages of their 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
to receive interest due on an Interest Payment Date that is on or prior to the
Redemption Date) if redeemed during the 12-month period commencing on April 15
of the applicable year set forth below:
Redemption
Year Price
---- -----------
2002 106.500%
2003 103.250%
2004 and thereafter 100.000%
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 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
to receive interest due on an Interest Payment Date); provided that at least
$618.5 million aggregate principal amount at maturity of Notes remains
outstanding after each such redemption.
Notice of any optional redemption will be mailed at least 30 days but
not more than 60 days before the Redemption Date to each Holder of Notes to be
redeemed at his last address as it appears in the Note Register. Notes in
original denominations larger than $1,000 may be redeemed in part. On and after
the Redemption Date, interest ceases to accrue and the original issue discount
ceases to accrete on Notes or portions of Notes called for redemption, unless
the Company defaults in the payment of the Redemption Price.
6. Repurchase upon Change in Control.
Upon the occurrence of any Change of Control, each Holder shall have
the right to require the repurchase of its Notes by the Company in cash pursuant
to the offer described in the Indenture at a purchase price equal to 101% of the
Accreted Value thereof plus accrued and unpaid interest, if any, to the date of
purchase (the "Change of Control Payment").
<PAGE>
A-6
A notice of such Change of Control will be mailed within 30 days after
any Change of Control occurs to each Holder at his last address as it appears in
the Note Register. Notes in original denominations larger than $1,000 may be
sold to the Company in part. On and after the Change of Control Payment Date,
interest ceases to accrue and the original issue discount ceases to accrete on
Notes or portions of Notes surrendered for purchase by the Company, unless the
Company defaults in the payment of the Change of Control Payment.
7. Denominations; Transfer; Exchange.
The Notes are in registered form without coupons in denominations of
$1,000 of principal amount at maturity and multiples of $1,000 in excess
thereof. A Holder may register the transfer or exchange of Notes in accordance
with the Indenture. The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay any taxes and
fees required by law or permitted by the Indenture. The Registrar need not
register the transfer or exchange of any Notes selected for redemption. Also, it
need not register the transfer or exchange of any Notes for a period of 15 days
before a selection of Notes to be redeemed is made.
8. Persons Deemed Owners.
A Holder shall be treated as the owner of a Note for all purposes.
9. Unclaimed Money.
If money for the payment of principal, premium, if any, or interest
remains unclaimed for two years, the Trustee and the Paying Agent will pay the
money back to the Company at its request. After that, Holders entitled to the
money must look to the Company for payment, unless an abandoned property law
designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
10. Discharge Prior to Redemption or Maturity.
If the Company deposits with the Trustee money or U.S. Government
Obligations sufficient to pay the then outstanding principal of, premium, if
any, and accrued interest on the Notes (a) to redemption or maturity, the
Company will be discharged from the Indenture and the Notes, except in certain
circumstances for certain sections thereof, and (b) to the Stated Maturity, the
Company will be discharged from certain covenants set forth in the Indenture.
<PAGE>
A-7
11. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Notes then outstanding, and any existing default or
compliance with any provision may be waived with the consent of the Holders of
at least a majority in principal amount of the Notes then outstanding. Without
notice to or the consent of any Holder, the parties thereto may amend or
supplement the Indenture or the Notes to, among other things, cure any
ambiguity, defect or inconsistency and make any change that does not materially
and adversely affect the rights of any Holder.
12. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the
Company and its Restricted Group Members, among other things, to Incur
additional Indebtedness, make Restricted Payments, use the proceeds from Asset
Sales, engage in transactions with Affiliates or merge, consolidate or transfer
substantially all of its assets. Within 45 days after the end of each fiscal
quarter (90 days after the end of the last fiscal quarter of each year), the
Company must report to the Trustee on compliance with such limitations.
13. Successor Persons.
When a successor person or other entity assumes all the obligations of
its predecessor under the Notes and the Indenture, the predecessor person will
be released from those obligations.
14. Defaults and Remedies.
The following events constitute "Events of Default" under 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 Article Five
or the failure to make or consummate an Offer to Purchase in accordance with
Section 4.10 or Section 4.11; provided that a default or breach of Section 4.10
arising from 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
this Indenture or under the 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 Notes, provided that a
default or breach of a covenant or agreement arising from a Restricted Affiliate
ceasing to observe any
<PAGE>
A-8
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, as defined in the Indenture, occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the Notes may declare all the Notes to be due and payable. If a bankruptcy or
insolvency default with respect to the Company occurs and is continuing, the
Notes automatically become due and payable. Holders
<PAGE>
A-9
may not enforce the Indenture or the Notes except as provided in the Indenture.
The Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Notes. Subject to certain limitations, Holders of at least a
majority in principal amount of the Notes then outstanding may direct the
Trustee in its exercise of any trust or power.
15. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from and perform services for the
Company or its Affiliates and may otherwise deal with the Company or its
Affiliates as if it were not the Trustee.
16. No Recourse Against Others.
No incorporator or any past, present or future partner, shareholder,
other equity holder, officer, director, employee or controlling person as such,
of the Company or of any successor Person shall have any liability for any
obligations of the Company under the Notes or the Indenture or for any claim
based on, in respect of or by reason of, such obligations or their creation.
Each Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the Notes.
17. Authentication.
This Note shall not be valid until the Trustee or authenticating agent
signs the certificate of authentication on the other side of this Note.
18. Abbreviations.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to McCaw
International, Ltd., 1191 Second Avenue, Suite 1600, Seattle, Washington 98101,
Attention: President.
<PAGE>
A-10
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- ---------------------------------
- --------------------------------------------------------------------------------
Please print or typewrite name and address including zip code of assignee
- --------------------------------------------------------------------------------
the within Note and all rights thereunder, hereby irrevocably constituting
- --------------------------------------------------------------------------------
and appointing___________________attorney to transfer said Note on the books of
the Company with full power of substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL NOTES OTHER THAN EXCHANGE NOTES,
PERMANENT OFFSHORE GLOBAL NOTES AND
OFFSHORE PHYSICAL NOTES]
In connection with any transfer of this Note occurring prior to the date
which is the earlier of (i) the date the shelf registration statement with
respect to resales of the Notes is declared effective or (ii) the end of the
period referred to in Rule 144(k) under the Securities Act, the undersigned
confirms that without utilizing any general solicitation or general advertising
that:
[Check One]
[ ] (a) this Note is being transferred in compliance with the exemption
from registration under the Securities Act of 1933, as amended,
provided by Rule 144A thereunder.
or
[ ] (b) this Note is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the
conditions of transfer set forth in this Note and the Indenture.
<PAGE>
A-11
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Note in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.08 of the Indenture shall have
been satisfied.
Date:___________________ _____________________________________________
NOTICE: The signature to this assignment must
correspond with the name as written upon the
face of the within-mentioned instrument in
every particular, without alteration or any
change whatsoever.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Note for
its own account or an account with respect to which it exercises sole investment
discretion and that it and any such account is a "qualified institutional buyer"
within the meaning of Rule 144A under the Securities Act of 1933, as amended,
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:__________________ _______________________________________________
NOTICE: To be executed by an executive officer
<PAGE>
A-12
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 4.10 or Section 4.11 of the Indenture, check the Box: [_]
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 4.10 or Section 4.11 of the Indenture, state the amount (in
principal amount at maturity): $___________________.
Date:_____________
Your Signature:_________________________________________________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee: ______________________________
<PAGE>
EXHIBIT B
---------
Form of Certificate
-------------------
___________, __
The Bank of New York
101 Barclay Street
21 West
New York, New York 10286
Attention: Corporate Trust Administration
McCaw International, Ltd.
1191 Second Avenue, Suite 1600
Seattle, Washington 98101
Attention: President
Re: McCaw International, Ltd. (the "Company")
13% Senior Discount Notes
due 2007 (the "Notes")
-----------------------------------------
Dear Sirs:
This letter relates to U.S. $______ principal amount at maturity
of Notes represented by a Note (the "Legended Note") which bears a
legend outlining restrictions upon transfer of such Legended Note.
Pursuant to Section 2.01 of the Indenture (the "Indenture") dated as
of March 6, 1997 relating to the Notes, we hereby certify that we are
(or we will hold such securities on behalf of) a person outside the
United States to whom the Notes could be transferred in accordance
with Rule 904 of Regulation S promulgated under the U.S. Securities
Act of 1933, as amended. Accordingly, you are hereby requested to
exchange the legended certificate for an unlegended certificate
representing an identical principal amount at maturity of Notes, all
in the manner provided for in the Indenture.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or
official inquiry with respect to the matters covered hereby. Terms
used in this certificate have the meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
<PAGE>
B-2
By:____________________
Authorized Signature
<PAGE>
EXHIBIT C
---------
Form of Certificate to Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
-----------------------------------------
_____________, __
The Bank of New York
101 Barclay Street
21 West
New York, NY 10286
Attention: Corporate Trust Administration
McCaw International, Ltd.
1191 Second Avenue, Suite 1600
Seattle, Washington 98101
Re: McCaw International, Ltd. (the "Company")
13% Senior Discount Notes due 2007 (the "Notes")
------------------------------------------------
Dear Sirs:
In connection with our proposed purchase of
$____________aggregate principal amount at maturity of the Notes, we
confirm that:
1. We understand that any subsequent transfer of the Notes is
subject to certain restrictions and conditions set forth in the
Indenture dated as of March 6, 1997, relating to the Notes (the
"Indenture") and the undersigned agrees to be bound by, and not to
resell, pledge or otherwise transfer the Notes except in compliance
with, such restrictions and conditions and the Securities Act of 1933,
as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have not
been registered under the Securities Act, and that the Notes may not
be offered or sold except as permitted in the following sentence. We
agree, on our own behalf and on behalf of any accounts for which we
are acting as hereinafter stated, that if we should sell any Notes, we
will do so only (A) to the Company or any subsidiary thereof, (B) in
accordance with Rule 144A under the Securities Act to a "qualified
institutional buyer" (as defined therein), (C) to an institutional
<PAGE>
C-2
"accredited investor" (as defined below) that, prior to such transfer,
furnishes (or has furnished on its behalf by a U.S. broker-dealer) to
you and to the Company a signed letter substantially in the form of
this letter, (D) outside the United States in accordance with Rule 904
of Regulation S under the Securities Act, (E) pursuant to the
exemption from registration provided by Rule 144 under the Securities
Act, or (F) pursuant to an effective registration statement under the
Securities Act, and we further agree to provide to any person
purchasing any of the Notes from us a notice advising such purchaser
that resales of the Notes are restricted as stated herein.
3. We understand that, on any proposed resale of any Notes, we
will be required to furnish to you and the Company such
certifications, legal opinions and other information as you and the
Company may reasonably require to confirm that the proposed sale
complies with the foregoing restrictions. We further understand that
the Notes purchased by us will bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities
Act) and have such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of our
investment in the Notes, and we and any accounts for which we are
acting are each able to bear the economic risk of our or its
investment.
5. We are acquiring the Notes purchased by us for our own account
or for one or more accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole investment
discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or
official inquiry with respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:____________________
Authorized Signature
<PAGE>
EXHIBIT D
---------
Form of Certificate to Be Delivered
in Connection with Transfers
Pursuant to Regulation S
-----------------------------------
___________, __
The Bank of New York
101 Barclay Street
21 West
New York, New York 10286
Attention: Corporate Trust Administration
McCaw International, Ltd.
1191 Second Avenue, Suite 1600
Seattle, Washington 98101
Re: McCaw International, Ltd. (the "Company")
13% Senior Discount Notes due 2007 (the "Notes")
------------------------------------------------
Dear Sirs:
In connection with our proposed sale of U.S.$________ aggregate
principal amount at maturity of the Notes, we confirm that such sale
has been effected pursuant to and in accordance with Regulation S
under the Securities Act of 1933, as amended, and, accordingly, we
represent that:
(1) the offer of the Notes was not made to a person in the United
States;
(2) at the time the buy order was originated, the transferee was
outside the United States or we and any person acting on our behalf
reasonably believed that the transferee was outside the United States;
(3) no directed selling efforts have been made by us in the
United States in contravention of the requirements of Rule 903(b) or
Rule 904(b) of Regulation S, as applicable; and
<PAGE>
D-2
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the U.S. Securities Act of 1933.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or
official inquiry with respect to the matters covered hereby. Terms
used in this certificate have the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:____________________
Authorized Signature
REGISTRATION RIGHTS AGREEMENT
Dated March 3, 1997
between
McCAW INTERNATIONAL, LTD.
and
MORGAN STANLEY & CO. INCORPORATED
CHASE SECURITIES INC.
LEHMAN BROTHERS INC.
NATWEST CAPITAL MARKETS LIMITED
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into March 3, 1997, between McCAW INTERNATIONAL, LTD., a Washington
corporation (the "Company"), and MORGAN STANLEY & CO. INCORPORATED, CHASE
SECURITIES INC., LEHMAN BROTHERS INC. AND NATWEST CAPITAL MARKETS LIMITED (the
"Placement Agents").
This Agreement is made pursuant to the Placement Agreement dated the
date hereof, between the Company and the Placement Agents (the "Placement
Agreement"), which provides for the sale by the Company to the Placement Agents
of 951,463 Units. Each Unit consists of (i) one 13% Senior Discount Note due
2007 of the Company (the "Securities") to be issued pursuant to the Indenture
(as defined below) and (ii) one Warrant (collective, the "Warrants"), entitling
the holder thereof to purchase from the Company 0.10616 shares of common stock,
without par value, of the Company, at an exercise price of $36.45 per share,
subject to adjustment. In order to induce the Placement Agents to enter into the
Placement Agreement, the Company has agreed to provide to the Placement Agents
and their direct and indirect transferees the registration rights with respect
to the Securities set forth in this Agreement. The execution of this Agreement
is a condition to the closing under the Placement Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. DEFINITIONS.
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended from
time to time.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Closing Date" shall mean the Closing Date as defined in the
Placement Agreement.
"Company" shall have the meaning set forth in the preamble to this
Agreement and shall also include the Company's successors.
"Exchange Offer" shall mean the exchange offer by the Company of
Exchange Securities for Registrable Securities pursuant to Section 2(a)
hereof.
"Exchange Offer Registration" shall mean a registration under the
1933 Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another
appropriate form) and all amendments and supplements to such registration
statement, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"Exchange Securities" shall mean securities issued by the Company
under the Indenture containing terms identical to the Securities (except
that (i) interest thereon shall accrue from the last date on which
interest was paid on the Securities or, if no such interest has been paid,
from April 15, 2002 and (ii) the Exchange Securities will not contain
restrictions on transfer) and to be offered to Holders of Securities in
exchange for Securities pursuant to the Exchange Offer.
"Holder" shall mean the Placement Agents, for so long as they own
any Registrable Securities, and each of their successors, assigns and
direct and indirect transferees who become registered owners of
Registrable Securities under the Indenture; provided that for purposes of
Sections 4 and 5 of this Agreement, the term "Holder" shall include
Participating Broker-Dealers (as defined in Section 4(a)).
"Indenture" shall mean the Indenture relating to the Securities to
be dated as of March 6, 1997 between the Company and The Bank of New York,
as trustee, and as the same may be amended from time to time in accordance
with the terms thereof.
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Registrable Securities; provided
that whenever the consent or approval of Holders of a specified percentage
of Registrable Securities is required hereunder, Registrable Securities
held by the Company or any of its affiliates (as such term is defined in
Rule 405 under the 1933 Act) (other than the Placement Agents or
subsequent holders of Registrable Securities if such subsequent holders
are deemed to be such affiliates solely by reason of their holding of such
Registrable Securities) shall not be counted in determining whether such
consent or approval was given by the Holders of such required percentage
or amount.
"Person" shall mean an individual, partnership, corporation, trust
or unincorporated organization, or a government or agency or political
subdivision thereof.
"Placement Agents" shall have the meaning set forth in the preamble
to this Agreement.
"Placement Agreement" shall have the meaning set forth in the
preamble to this Agreement.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus
as amended or supplemented by any prospectus supplement, including a
prospectus supplement with respect to the terms of the offering of any
portion of the Registrable Securities covered by a Shelf Registration
Statement, and by all other amendments and supplements to such prospectus,
and in each case including all material incorporated by reference therein.
"Registrable Securities" shall mean the Securities other than the
Exchange Securities; provided, however, that the Securities shall cease to
be Registrable Securities (i) when a Registration Statement with respect
to such Securities shall have been declared effective under the 1933 Act
and such Securities shall have been disposed of pursuant to such
Registration Statement, (ii) when such Securities have been sold to the
public pursuant to Rule 144(k) (or any similar provision then in force,
but not Rule 144A) under the 1933 Act or (iii) when such Securities shall
have ceased to be outstanding.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. registration and filing fees, (ii) all fees and
expenses incurred in connection with compliance with state securities or
blue sky laws (including reasonable fees and disbursements of counsel for
any underwriters or Holders in connection with blue sky qualification of
any of the Exchange Securities or Registrable Securities), (iii) all
expenses of any Persons in preparing or assisting in preparing, word
processing, printing and distributing any Registration Statement, any
Prospectus, any amendments or supplements thereto, any underwriting
agreements, securities sales agreements and other documents relating to
the performance of and compliance with this Agreement, (iv) all rating
agency fees, (v) all fees and disbursements relating to the qualification
of the Indenture under applicable securities laws, (vi) the fees and
disbursements of the Trustee and its counsel, (vii) the fees and
disbursements of counsel for the Company and, in the case of a Shelf
Registration Statement, the reasonable fees and disbursements of one
counsel for the Holders (which counsel shall be selected by the Majority
Holders and which counsel may also be counsel for the Placement Agents)
and (viii) the fees and disbursements of the independent public
accountants of the Company, including the expenses of any special audits
or "cold comfort" letters required by or incident to such performance and
compliance, but excluding fees and expenses of counsel to the underwriters
(other than reasonable fees and expenses set forth in clause (ii) above)
or the Holders and underwriting discounts and commissions and transfer
taxes, if any, relating to the sale or disposition of Registrable
Securities by a Holder.
"Registration Statement" shall mean any registration statement of
the Company that covers any of the Exchange Securities or Registrable
Securities pursuant to the provisions of this Agreement and all amendments
and supplements to any such Registration Statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"SEC" shall mean the Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected pursuant to
Section 2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2(b) of
this Agreement which covers all of the Registrable Securities (but no
other securities unless approved by the Holders whose Registrable
Securities are covered by such Shelf Registration Statement) on an
appropriate form under Rule 415 under the 1933 Act, or any similar rule
that may be adopted by the SEC, and all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Trustee" shall mean the trustee with respect to the Securities
under the Indenture.
"Underwritten Registration" or "Underwritten Offering" shall mean a
registration in which Registrable Securities are sold to an Underwriter
(as hereinafter defined) for reoffering to the public.
2. REGISTRATION UNDER THE 1933 ACT.
(a) To the extent not prohibited by any applicable law or applicable
interpretation of the Staff of the SEC, the Company shall use its best efforts
to cause to be filed, no later than 60 days after the Closing Date an Exchange
Offer Registration Statement covering the offer by the Company to the Holders to
exchange all of the Registrable Securities for Exchange Securities and to have
such Registration Statement remain effective until the closing of the Exchange
Offer. The Company shall commence the Exchange Offer promptly after the Exchange
Offer Registration Statement has been declared effective by the SEC and use its
best efforts to have the Exchange Offer consummated not later than 60 days after
such effective date. The Company shall commence the Exchange Offer by mailing
the related exchange offer Prospectus and accompanying documents to each Holder
stating, in addition to such other disclosures as are required by applicable
law:
(i) that the Exchange Offer is being made pursuant to this
Registration Rights Agreement and that all Registrable Securities validly
tendered will be accepted for exchange;
(ii) the dates of acceptance for exchange (which shall be a period
of at least 20 business days from the date such notice is mailed) (the
"Exchange Dates");
(iii) that any Registrable Security not tendered will remain
outstanding and continue to accrete in value until April 15, 2002 and
thereafter will accrue interest in accordance with the terms of the
Securities, but will not retain any rights under this Registration Rights
Agreement;
(iv) that Holders electing to have a Registrable Security exchanged
pursuant to the Exchange Offer will be required to surrender such
Registrable Security, together with the enclosed letters of transmittal,
to the institution and at the address specified in the notice prior to the
close of business on the last Exchange Date; and
(v) that Holders will be entitled to withdraw their election, not
later than the close of business on the last Exchange Date, by sending to
the institution and at the address specified in the notice a telegram,
telex, facsimile transmission or letter setting forth the name of such
Holder, the principal amount of Registrable Securities delivered for
exchange and a statement that such Holder is withdrawing his election to
have such Securities exchanged.
As soon as practicable after the last Exchange Date, the Company
shall:
(i) accept for exchange Registrable Securities or portions thereof
tendered and not validly withdrawn pursuant to the Exchange Offer; and
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Securities or portions thereof so accepted
for exchange by the Company and issue, and cause the Trustee to promptly
authenticate and mail to each Holder, an Exchange Security equal in
principal amount to the principal amount of the Registrable Securities
surrendered by such Holder.
The Company shall use its best efforts to complete the Exchange Offer as
provided above and shall comply with the applicable requirements of the 1933
Act, the 1934 Act and other applicable laws and regulations in connection with
the Exchange Offer. The Exchange Offer shall not be subject to any conditions,
other than that the Exchange Offer does not violate applicable law or any
applicable interpretation of the Staff of the SEC. The Company shall inform the
Placement Agents, if requested by the Placement Agents, of the names and
addresses of the Holders to whom the Exchange Offer is made, and the Placement
Agents shall have the right, subject to applicable law, to contact such Holders
and otherwise facilitate the tender of Registrable Securities in the Exchange
Offer.
(b) In the event that (i) the Company determines that the Exchange
Offer Registration provided for in Section 2(a) above is not available or may
not be consummated as soon as practicable after the last Exchange Date because
it would violate applicable law or the applicable interpretations of the Staff
of the SEC, (ii) the Exchange Offer is not for any other reason consummated by
September 6, 1997 or (iii) the Exchange Offer has been completed and in the
opinion of counsel for the Placement Agents a Registration Statement must be
filed and a Prospectus must be delivered by a Placement Agent in connection with
any offering or sale by such Placement Agent of Registrable Securities that were
a part of such Placement Agent's original unsold allotment, the Company shall
use its best efforts to cause to be filed as soon as practicable after such
determination, date or notice of such opinion of counsel is given to the
Company, as the case may be, a Shelf Registration Statement providing for the
sale by the Holders of all of the Registrable Securities and to have such Shelf
Registration Statement declared effective by the SEC. In the event the Company
is required to file a Shelf Registration Statement solely as a result of the
matters referred to in clause (iii) of the preceding sentence, in addition to
its obligations under the foregoing Section 2(a), the Company shall use its best
effort to file as soon as practicable after delivery of such opinion of counsel
and use its best efforts to have declared effective by the SEC a Shelf
Registration Statement (which may be a combined Registration Statement with the
Exchange Offer Registration Statement) with respect to offers and sales of
Registrable Securities held by such Placement Agent as part of its original
unsold allotment after completion of the Exchange Offer. The Company agrees to
use its best efforts to keep the Shelf Registration Statement continuously
effective until the expiration of the period referred to in Rule 144(k) with
respect to all Registrable Securities covered by the Shelf Registration
Statement or such shorter period that will terminate when all of the Registrable
Securities covered by the Shelf Registration Statement have been sold pursuant
to the Shelf Registration Statement. The Company further agrees to supplement or
amend the Shelf Registration Statement if required by the rules, regulations or
instructions applicable to the registration form used by the Company for such
Shelf Registration Statement or by the 1933 Act or by any other rules and
regulations thereunder for shelf registration or if reasonably requested by a
Holder with respect to information relating to such Holder, and to use its best
efforts to cause any such amendment to become effective and such Shelf
Registration Statement to become usable as soon as thereafter practicable. The
Company agrees to furnish to the Holders of Registrable Securities copies of any
such supplement or amendment promptly after its being used or filed with the
SEC.
(c) The Company shall pay all Registration Expenses in connection
with the registration pursuant to Section 2(a) or Section 2(b). Each Holder
shall pay all underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of such Holder's Registrable Securities
pursuant to the Shelf Registration Statement.
(d) An Exchange Offer Registration Statement pursuant to Section
2(a) hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof
will not be deemed to have become effective unless it has been declared
effective by the SEC; provided, however, that, if, after it has been declared
effective, the offering of Registrable Securities pursuant to a Shelf
Registration Statement is interfered with by any stop order, injunction or other
order or requirement of the SEC or any other governmental agency or court, such
Registration Statement will be deemed not to have become effective during the
period of such interference until the offering of Registrable Securities
pursuant to such Registration Statement may legally resume. As provided for in
the Indenture, in the event that the Exchange Offer is not consummated, and if a
Shelf Registration Statement is required hereby, the Shelf Registration
Statement is not declared effective on or prior to September 6, 1997, the
interest rate on the Securities (and the Exchange Securities) will increase by
0.5% per annum until the Exchange Offer is consummated or a Shelf Registration
Statement is declared effective.
(e) Without limiting the remedies available to the Placement
Agents and the Holders, the Company acknowledges that any failure by the Company
to comply with its obligations under Section 2(a) and Section 2(b) hereof may
result in material irreparable injury to the Placement Agents or the Holders for
which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of any such
failure, the Placement Agents or any Holder may obtain such relief as may be
required to specifically enforce the Company's obligations under Section 2(a)
and Section 2(b) hereof.
3. REGISTRATION PROCEDURES.
In connection with the obligations of the Company with respect to
the Registration Statements pursuant to Section 2(a) and Section 2(b) hereof,
the Company shall as expeditiously as possible:
(a) prepare and file with the SEC a Registration Statement on the
appropriate form under the 1933 Act, which form (x) shall be selected by
the Company and (y) shall, in the case of a Shelf Registration, be
available for the sale of the Registrable Securities by the selling
Holders thereof and (z) shall comply as to form in all material respects
with the requirements of the applicable form and include all financial
statements required by the SEC to be filed therewith, and use its best
efforts to cause such Registration Statement to become effective and
remain effective in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and post-
effective amendments to each Registration Statement as may be necessary to
keep such Registration Statement effective for the applicable period and
cause each Prospectus to be supplemented by any required prospectus
supplement and, as so supplemented, to be filed pursuant to Rule 424 under
the 1933 Act; to keep each Prospectus current during the period described
under Section 4(3) and Rule 174 under the 1933 Act that is applicable to
transactions by brokers or dealers with respect to the Registrable
Securities or Exchange Securities;
(c) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, to counsel for the Placement Agents, to counsel
for the Holders and to each Underwriter of an Underwritten Offering of
Registrable Securities, if any, without charge, as many copies of each
Prospectus, including each preliminary Prospectus, and any amendment or
supplement thereto and such other documents as such Holder or Underwriter
may reasonably request, in order to facilitate the public sale or other
disposition of the Registrable Securities; and the Company consents to the
use of such Prospectus and any amendment or supplement thereto in
accordance with applicable law by each of the selling Holders of
Registrable Securities and any such Underwriters in connection with the
offering and sale of the Registrable Securities covered by and in the
manner described in such Prospectus or any amendment or supplement thereto
in accordance with applicable law;
(d) use its reasonable best efforts to register or qualify the
Registrable Securities under all applicable state securities or "blue sky"
laws of such jurisdictions as any Holder of Registrable Securities covered
by a Registration Statement shall reasonably request in writing by the
time the applicable Registration Statement is declared effective by the
SEC, to cooperate with such Holders in connection with any filings
required to be made with the National Association of Securities Dealers,
Inc. and do any and all other acts and things which may be reasonably
necessary or advisable to enable such Holder to consummate the disposition
in each such jurisdiction of such Registrable Securities owned by such
Holder; provided, however, that the Company shall not be required to
(i) qualify as a foreign corporation or as a broker or dealer in
securities in any jurisdiction where it would not otherwise be required to
qualify but for this Section 3(d), (ii) file any general consent to
service of process or (iii) subject itself to taxation in any such
jurisdiction if it is not so subject;
(e) in the case of a Shelf Registration, notify each Holder of
Registrable Securities, counsel for the Holders and counsel for the
Placement Agents promptly and, if requested by any such Holder or counsel,
confirm such advice in writing (i) when such Registration Statement has
become effective and when any post-effective amendment thereto has been
filed and becomes effective, (ii) of any request by the SEC or any state
securities authority for amendments and supplements to such Registration
Statement and Prospectus or for additional information after such
Registration Statement has become effective, (iii) of the issuance by the
SEC or any state securities authority of any stop order suspending the
effectiveness of such Registration Statement or the initiation of any
proceedings for that purpose, (iv) if, between the effective date of such
Registration Statement and the closing of any sale of Registrable
Securities covered thereby, the representations and warranties of the
Company contained in any underwriting agreement, securities sales
agreement or other similar agreement, if any, relating to the offering
cease to be true and correct in all material respects or if the Company
receives any notification with respect to the suspension of the
qualification of the Registrable Securities for sale in any jurisdiction
or the initiation of any proceeding for such purpose, (v) of the happening
of any event during the period a Shelf Registration Statement is effective
such that such Registration Statement or the related Prospectus contains
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make statements therein not
misleading and (vi) of any determination by the Company that a
post-effective amendment to such Registration Statement would be
appropriate;
(f) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement at the
earliest possible moment and provide immediate notice to each Holder of
the withdrawal of any such order;
(g) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, without charge, at least one conformed copy of
each Registration Statement and any post-effective amendment thereto
(without documents incorporated therein by reference or exhibits thereto,
unless requested);
(h) in the case of a Shelf Registration, cooperate with the
selling Holders of Registrable Securities to facilitate the timely
preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any restrictive legends and enable
such Registrable Securities to be in such denominations (consistent with
the provisions of the Indenture) and registered in such names as the
selling Holders may reasonably request at least one business day prior to
the closing of any sale of Registrable Securities;
(i) in the case of a Shelf Registration, upon the occurrence of
any event contemplated by Section 3(e)(v) or (vi) hereof, use its best
efforts to prepare and file with the SEC a supplement or post-effective
amendment to a Registration Statement or the related Prospectus or any
document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of the
Registrable Securities, such Prospectus will not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading. The Company agrees to notify the Holders
to suspend use of the Prospectus as promptly as practicable after the
occurrence of such an event, and the Holders hereby agree to suspend use
of the Prospectus upon receipt of such notice until the Company has
amended or supplemented the Prospectus to correct such misstatement or
omission;
(j) a reasonable time prior to the filing of any Registration
Statement, any Prospectus, any amendment to a Registration Statement or
amendment or supplement to a Prospectus or any document which is to be
incorporated by reference into a Registration Statement or a Prospectus
after initial filing of a Registration Statement, provide copies of such
document to the Placement Agents and their counsel (and, in the case of a
Shelf Registration Statement, the Holders and their counsel) and make such
of the representatives of the Company as shall be reasonably requested by
the Placement Agents or their counsel (and, in the case of a Shelf
Registration Statement, the Holders or their counsel) available for
discussion of such document, and shall not at any time file or make any
amendment to the Registration Statement, any Prospectus or any amendment
of or supplement to a Registration Statement or a Prospectus or any
document which is to be incorporated by reference into a Registration
Statement or a Prospectus, of which the Placement Agents and their counsel
(and, in the case of a Shelf Registration Statement, the Holders and their
counsel) shall not have previously been advised and furnished a copy or to
which the Placement Agents or their counsel (and, in the case of a Shelf
Registration Statement, the Holders or their counsel) shall reasonably
object;
(k) obtain a CUSIP number for all Exchange Securities or Registrable
Securities, as the case may be, not later than the effective date of a
Registration Statement;
(l) cause the Indenture to be qualified under the Trust Indenture
Act of 1939, as amended (the "TIA"), in connection with the registration
of the Exchange Securities or Registrable Securities, as the case may be,
cooperate with the Trustee and the Holders to effect such changes to the
Indenture as may be required for the Indenture to be so qualified in
accordance with the terms of the TIA and execute, and use its reasonable
best efforts to cause the Trustee to execute, all documents as may be
required to effect such changes and all other forms and documents required
to be filed with the SEC to enable the Indenture to be so qualified in a
timely manner;
(m) in the case of a Shelf Registration, make available for
inspection by a representative of the Holders of the Registrable
Securities, any Underwriter participating in any disposition pursuant to
such Shelf Registration Statement, and attorneys and accountants
designated by the Holders, at reasonable times and in a reasonable manner,
all financial and other records, pertinent documents and properties of the
Company, and cause the respective officers, directors and employees of the
Company to supply all information reasonably requested by any such
representative, Underwriter, attorney or accountant in connection with a
Shelf Registration Statement; provided, however, that such persons shall
first agree in writing with the Company that any information that is
reasonably and in good faith designated by the Company in writing as
confidential at the time of delivery of such information shall be kept
confidential by such persons, unless and to the extent that disclosure of
such information is required by law or such information becomes generally
available to the public other than as a result of a disclosure of failure
to safeguard such information by such person.
(n) if reasonably requested by any Holder of Registrable
Securities covered by a Registration Statement in order to accurately
reflect information regarding such Holder or such Holder's plan of
distribution as required by such Registration Statement, (i) promptly
incorporate in a Prospectus supplement or post-effective amendment such
required information with respect to such Holder as such Holder reasonably
requests to be included therein and (ii) make all required filings of such
Prospectus supplement or such post-effective amendment as soon as the
Company has received notification of the matters to be incorporated in
such filing; and
(o) in the case of a Shelf Registration, use its reasonable best
efforts to enter into such customary agreements and take all such other
actions in connection therewith (including those requested by the Holders
of a majority of the Registrable Securities being sold) in order to
expedite or facilitate the disposition of such Registrable Securities
including, but not limited to, an Underwritten Offering and in such
connection, (i) to the extent possible, make such representations and
warranties to the Holders and any Underwriters of such Registrable
Securities with respect to the business of the Company and its
subsidiaries, the Registration Statement, Prospectus and documents
incorporated by reference or deemed incorporated by reference, if any, in
each case, in form, substance and scope as are customarily made by issuers
to underwriters in Underwritten Offerings (but in no event more onerous to
the Company than those contained in the Placement Agreement), and confirm
the same if and when requested, (ii) obtain opinions of counsel to the
Company (which counsel and opinions, in form, scope and substance, shall
be reasonably satisfactory to the Holders and such Underwriters and their
respective counsel) addressed to each selling Holder and Underwriter of
Registrable Securities, covering the matters customarily covered in
opinions requested in Underwritten Offerings (but in no event more onerous
to the Company than those opinions required in the Placement Agreement),
(iii) obtain "cold comfort" letters from the independent certified public
accountants of the Company (and, if necessary, any other certified public
accountant of any subsidiary of the Company, or of any business acquired
by the Company for which financial statements and financial data are or
are required to be included in the Registration Statement) addressed to
each selling Holder and Underwriter of Registrable Securities, such
letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with
Underwritten Offerings, and (iv) deliver such documents and certificates
as may be reasonably requested by the Holders of a majority in principal
amount of the Registrable Securities being sold or the Underwriters, and
which are customarily delivered in Underwritten Offerings, to evidence the
continued validity of the representations and warranties of the Company
made pursuant to clause (i) above and to evidence compliance with any
customary conditions contained in an underwriting agreement.
In the case of a Shelf Registration Statement, the Company may
require each Holder of Registrable Securities to furnish to the Company such
information regarding the Holder and the proposed distribution by such Holder of
such Registrable Securities as the Company may from time to time reasonably
request in writing.
In the case of a Shelf Registration Statement, each Holder agrees
that, upon receipt of any notice from the Company of the happening of any event
of the kind described in Section 3(e)(v) or (vi) hereof, such Holder will
forthwith discontinue disposition of Registrable Securities pursuant to a
Registration Statement until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3(i) hereof, and, if
so directed by the Company, such Holder will deliver to the Company (at its
expense) all copies in its possession, other than permanent file copies then in
such Holder's possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice. The Company may suspend the
availability of any Shelf Registration Statement for not more than two times
during any 365 day period and any such suspensions may not exceed 30 days for
each suspension.
The Holders of Registrable Securities covered by a Shelf
Registration Statement who desire to do so may sell such Registrable Securities
in an Underwritten Offering; provided that the Company shall be required to use
its best efforts to make an Underwritten Offering only upon the request of
Holders of at least 25% of the Registrable Securities outstanding at the time
such request is delivered to the Company. In the case of any Underwritten
Offering, the Company shall (x) provide written notice to the Holders of all
Registrable Securities of such Underwritten Offering at least 30 days prior to
the filing of a prospectus for such Underwritten Offering, (y) specify a date,
which shall be no earlier than 10 days following the date of such notice, by
which each such Holder must inform the Company of its intent to participate in
such Underwritten Offering and (z) include reasonable procedures that are
customary to underwritten offerings of the type contemplated herein that such
Holder must follow in order to participate in such Underwritten Offering. In any
such Underwritten Offering, the investment banker or investment bankers and
manager or managers (the "Underwriters") that will administer the offering will
be selected by the Majority Holders of the Registrable Securities included in
such offering and shall be approved by the Company, which approval shall not be
unreasonably withheld.
4. PARTICIPATION OF THE BROKER-DEALERS IN EXCHANGE OFFER.
(a) The Staff of the SEC has taken the position that any
broker-dealer that receives Exchange Securities for its own account in the
Exchange Offer in exchange for Securities that were acquired by such
broker-dealer as a result of market-making or other trading activities (a
"Participating Broker-Dealer"), may be deemed to be an "underwriter" within the
meaning of the 1933 Act and must deliver a prospectus meeting the requirements
of the 1933 Act in connection with any resale of such Exchange Securities.
The Company understands that it is the Staff's position that if the
Prospectus contained in the Exchange Offer Registration Statement includes a
plan of distribution containing a statement to the above effect and the means by
which Participating Broker-Dealers may resell the Exchange Securities, without
naming the Participating Broker-Dealers or specifying the amount of Exchange
Securities owned by them, such Prospectus may be delivered by Participating
Broker-Dealers to satisfy their prospectus delivery obligation under the 1933
Act in connection with resales of Exchange Securities for their own accounts, so
long as the Prospectus otherwise meets the requirements of the 1933 Act.
(b) In light of the above, notwithstanding the other provisions of
this Agreement, the Company agrees that the provisions of this Agreement as they
relate to a Shelf Registration shall also apply to an Exchange Offer
Registration to the extent, and with such reasonable modifications thereto as
may be, reasonably requested by the Placement Agents or by one or more
Participating Broker-Dealers, in each case as provided in clause (ii) below, in
order to expedite or facilitate the disposition of any Exchange Securities by
Participating Broker-Dealers consistent with the positions of the Staff recited
in Section 4(a) above; provided that:
(i) the Company shall not be required to amend or supplement the
Prospectus contained in the Exchange Offer Registration Statement, as
would otherwise be contemplated by Section 3(i), for a period exceeding
180 days after the last Exchange Date (as such period may be extended
pursuant to the penultimate paragraph of Section 3 of this Agreement) and
Participating Broker-Dealers shall not be authorized by the Company to
deliver and shall not deliver such Prospectus after such period in
connection with the resales contemplated by this Section 4; and
(ii) the application of the Shelf Registration procedures set forth
in Section 3 of this Agreement to an Exchange Offer Registration, to the
extent not required by the positions of the Staff of the SEC or the 1933
Act and the rules and regulations thereunder, will be in conformity with
the reasonable request to the Company by the Placement Agents or with the
reasonable request in writing to the Company by one or more broker-dealers
who certify to the Placement Agents and the Company in writing that they
anticipate that they will be Participating Broker-Dealers; and provided
further that, in connection with such application of the Shelf
Registration procedures set forth in Section 3 to an Exchange Offer
Registration, the Company shall be obligated (x) to deal only with one
entity representing the Participating Broker-Dealers, which shall be
Morgan Stanley & Co. Incorporated unless it elects not to act as such
representative, (y) to pay the fees and expenses of only one counsel
representing the Participating Broker-Dealers, which shall be counsel to
the Placement Agents unless such counsel elects not to so act and (z) to
cause to be delivered only one, if any, "cold comfort" letter with respect
to the Prospectus in the form existing on the last Exchange Date and with
respect to each subsequent amendment or supplement, if any, effected
during the period specified in clause (i) above.
(c) The Placement Agents shall have no liability to the Company or
any Holder with respect to any request that it may make pursuant to Section 4(b)
above.
5. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless the
Placement Agents, each Holder and each person, if any, who controls any
Placement Agent or any Holder within the meaning of either Section 15 of the
1933 Act or Section 20 of the 1934 Act, or is under common control with, or is
controlled by, any Placement Agent or any Holder, from and against all losses,
claims, damages and liabilities (including, without limitation, any legal or
other expenses reasonably incurred by the Placement Agent, any Holder or any
such controlling or affiliated person in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement (or any amendment thereto) pursuant to which Exchange Securities or
Registrable Securities were registered under the 1933 Act, including all
documents incorporated therein by reference, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or caused by any
untrue statement or alleged untrue statement of a material fact contained in any
Prospectus (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact necessary to make the statements
therein in light of the circumstances under which they were made not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission or alleged untrue statement or omission based
upon information relating to the Placement Agents or any Holder furnished to the
Company in writing by the Placement Agents or any selling Holder expressly for
use therein, provided that the foregoing indemnity agreement shall not inure to
the benefit of any Holder or any person controlling such Holder, with respect to
any sale or disposition of the Registrable Securities by such Holder in
violation of the penultimate paragraph of Section 3 of this Agreement. In
connection with any Underwritten Offering permitted by Section 3, the Company
will also indemnify the Underwriters, if any, their officers and directors and
each Person who controls such Persons (within the meaning of the Securities Act
and the Exchange Act) to the same extent as provided above with respect to the
indemnification of the Holders, if requested in connection with any Registration
Statement.
(b) Each Holder agrees, severally and not jointly, to indemnify
and hold harmless the Company, the Placement Agents and the other selling
Holders, and each of their respective directors, officers who sign the
Registration Statement and each person, if any, who controls the Company, any
Placement Agent and any other selling Holder within the meaning of either
Section 15 of the 1933 Act or Section 20 of the 1934 Act to the same extent as
the foregoing indemnity from the Company to the Placement Agents and the
Holders, but only with reference to information relating to such Holder
furnished to the Company in writing by such Holder expressly for use in any
Registration Statement (or any amendment thereto) or any Prospectus (or any
amendment or supplement thereto).
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to either paragraph (a) or paragraph (b) above,
such person (the "indemnified party") shall promptly notify the person against
whom such indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the reasonable fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be at
the expense of such indemnified party unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such counsel or
(ii) the named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for (a) the reasonable fees and
expenses of more than one separate firm (in addition to any local counsel) for
the Placement Agents and all persons, if any, who control any Placement Agent
within the meaning of either Section 15 of the 1933 Act or Section 20 of the
1934 Act, (b) the reasonable fees and expenses of more than one separate firm
(in addition to any local counsel) for the Company, its directors and officers
who sign the Registration Statement and each person, if any, who controls the
Company within the meaning of either such Section and (c) the fees and expenses
of more than one separate firm (in addition to any local counsel) for all
Holders and all persons, if any, who control any Holders within the meaning of
either such Section, and that all such fees and expenses shall be reimbursed as
they are incurred. In such case involving the Placement Agents and persons who
control the Placement Agent, such firm shall be designated in writing by Morgan
Stanley & Co. Incorporated. In such case involving the Holders and such persons
who control Holders, such firm shall be designated in writing by the Majority
Holders. In all other cases, such firm shall be designated by the Company. The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but, if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. Notwithstanding the foregoing sentence, if at
any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for reasonable fees and expenses of counsel as
contemplated by the second and third sentences of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have reimbursed the
indemnified party for such fees and expenses of counsel in accordance with such
request prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which such
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
(d) If the indemnification provided for in paragraph (a) or
paragraph (b) of this Section 4 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative fault
of the indemnifying party or parties on the one hand and of the indemnified
party or parties on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative fault of the
Company and the Holders shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Holders and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Holders' respective obligations to contribute
pursuant to this Section 5(d) are several in proportion to the respective number
of Registrable Securities of such Holder that were registered pursuant to a
Registration Statement.
(e) The Company and each Holder agree that it would not be just or
equitable if contribution pursuant to this Section 5 were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in paragraph (d) above. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages
and liabilities referred to in paragraph (d) above shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 5, no Holder shall be required to indemnify or contribute any amount in
excess of the amount by which the total price at which Registrable Securities
were sold by such Holder exceeds the amount of any damages that such Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 5 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.
The indemnity and contribution provisions contained in this Section
5 shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
the Placement Agents, any Holder or any person controlling any Placement Agent
or any Holder, or by or on behalf of the Company, its officers or directors or
any person controlling the Company, (iii) acceptance of any of the Exchange
Securities and (iv) any sale of Registrable Securities pursuant to a Shelf
Registration Statement.
6. MISCELLANEOUS.
(a) No Inconsistent Agreements. The Company has not entered into,
and on or after the date of this Agreement will not enter into, any agreement
which is inconsistent with the rights granted to the Holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
The rights granted to the Holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the Company's
other issued and outstanding securities under any such agreements.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in aggregate principal amount of the outstanding
Registrable Securities affected by such amendment, modification, supplement,
waiver or consent; provided, however, that no amendment, modification,
supplement, waiver or consents to any departure from the provisions of Section 5
hereof shall be effective as against any Holder of Registrable Securities unless
consented to in writing by such Holder.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (i) if to a Holder, at the most current address given by such Holder to
the Company by means of a notice given in accordance with the provisions of this
Section 6(c), which address initially is, with respect to the Placement Agents,
the address set forth in the Placement Agreement; and (ii) if to the Company,
initially at the Company's address set forth in the Placement Agreement and
thereafter at such other address, notice of which is given in accordance with
the provisions of this Section 6(c).
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied; and
on the next business day if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands, or other communications shall
be concurrently delivered by the person giving the same to the Trustee, at the
address specified in the Indenture.
(d) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders; provided that nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Registrable
Securities in violation of the terms of the Placement Agreement. If any
transferee of any Holder shall acquire Registrable Securities, in any manner,
whether by operation of law or otherwise, such Registrable Securities shall be
held subject to all of the terms of this Agreement, and by taking and holding
such Registrable Securities such person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement and such person shall be entitled to receive the benefits hereof. The
Placement Agents (in their capacity as Placement Agents) shall have no liability
or obligation to the Company with respect to any failure by a Holder to comply
with, or any breach by any Holder of, any of the obligations of such Holder
under this Agreement.
(e) Purchases and Sales of Notes. The Company shall not, and shall
use its best efforts to cause its affiliates (as defined in Rule 405 under the
1933 Act) not to, purchase and then resell or otherwise transfer any Notes other
than Notes acquired and cancelled.
(f) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Placement Agents, on the other hand, and shall have the right to
enforce such agreements directly to the extent it deems such enforcement
necessary or advisable to protect its rights or the rights of Holders hereunder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
McCAW INTERNATIONAL, LTD.
By: /s/ Keith Grinstein
------------------------
Name:
Title: President & CEO
Confirmed and accepted as of
the date first above written:
MORGAN STANLEY & CO. INCORPORATED
CHASE SECURITIES INC.
LEHMAN BROTHERS INC.
NATWEST CAPITAL MARKETS LIMITED
By: MORGAN STANLEY & CO. INCORPORATED
By: /s/ Jonathan G. Morphett
--------------------------
Name:
Title: Principal
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 April 4, 1997, appearing in this
Registration Statement.
We also consent to the reference to us under the headings "Summary Consolidated
Financial Data" and "Experts" in such Registration Statement.
Deloitte & Touche LLP
Seattle, Washington
May 7, 1997
Exhibit 23.2
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 Nextel Investment
Company for the years ended December 31, 1996, 1995, and 1994, dated April 17,
1997, appearing in this Registration Statement.
Deloitte & Touche LLP
Seattle, Washington
May 7, 1997
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 this Registration
Statement.
Deloitte & Touche LLP
Seattle, Washington
May 7, 1997
Exhibit 23.4
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 Wireless Ventures
of Brazil for the year ended December 31, 1996, dated March 27, 1997, appearing
in this Registration Statement.
Deloitte & Touche LLP
Seattle, Washington
May 7, 1997
Exhibit 23.5
The Board of Directors
McCaw International, Ltd.
We consent to the use of our report dated May 31, 1996 (except for footnote 15
which is as of June 14, 1996) included herein, 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, and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Washington, DC
May 7, 1997
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